Cable Television Act of 1992

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MM Docket No. 92-266, FCC 94-254]

Cable Television Act of 1992

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission has adopted a Fourth Order on Reconsideration

to revise and adopt further Commission cable rate regulations. The

Fourth Order on Reconsideration addresses issues regarding external

cost treatment of Commission cable television system regulatory fees

and franchise fees. It is intended to provide for external cost

treatment of Commission cable television system regulatory fees and

permit cable operators to adjust rates for regulated cable services to

reflect Commission regulatory fees and changes in franchise fees upon

30 days' notice without receiving prior franchising authority or

Commission approval, but subject to refund.

EFFECTIVE DATE: November 21, 1994.

FOR FURTHER INFORMATION CONTACT:

Leora Hochstein, (202) 416-0800.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Fourth Order on

Reconsideration in MM Docket No. 92-266, FCC 94-254, adopted September

30, 1994 and released October 5, 1994.

The complete text of this Fourth Order on Reconsideration is

available for inspection and copying during normal business hours in

the FCC Reference Center (room 239), 1919 M Street, N.W., Washington,

D.C., and also may be purchased from the Commission's copy contractor,

International Transcription service at (202) 857-3800, 2100 M Street,

N.W., Suite 140, Washington, D.C. 20037.

Synopsis of the Fourth Order on Reconsideration

I. Franchise Fees

1. Cable systems are franchised by state or local governments or by

a combination thereof or, in certain circumstances, by other

governmental entities such as federal military installations. The

payment of fees under the terms of any franchise is authorized by

Section 622(a) of the Communications Act, is limited as to amount by

Section 622(b), and such fees are to be accounted for in the

establishment of rates under Section 623(b)(2)(c)(V).

2. Under the Commission's price cap rules, a cable operator is

permitted to adjust its maximum monthly charge for regulated service

tiers to reflect changes in certain categories of external costs,

including franchise fees. If an operator's basic service tier is being

regulated in a particular franchise area by the franchising authority

or by the Commission, the operator generally is not allowed under our

rules to increase its rates for the basic service tier or related

equipment and installations without first submitting the proposed

increase to the franchising authority or the Commission, as the case

may be, for review. Under our rules, a franchising authority reviewing

a proposed increase in basic rates has an initial 30 day period to make

its decision. The franchising authority may extend this period for an

additional 90 days in a non-cost-of-service case or 150 days in a cost-

of-service case. During this period, the operator's proposed increase

is not in effect. When the Commission is regulating basic rates,

filings regarding rate increases must be made 30 days prior to the

proposed effective date and such rate increases are effective on the

date proposed unless the Commission issues an order deferring the

effective date or denying the rate proposal. With respect to cable

programming service (CPS) rates, an operator must file rate increases

for prior review by the Commission if the Commission has ordered the

operator to reduce its CPS rates within the prior 12 months or some

other period specified by the Commission in a particular case. In

addition, when a CPS complaint against the operator is pending before

the Commission, an operator must give the Commission 30 days' notice of

changes in any rates, including increases in rates attributable to

increases in franchise fees.

3. On reconsideration, on our own motion, we determine that we

should permit adjustments to capped rates to reflect increases in

franchise fees without prior regulatory approval. Since it is the

franchising authority which has set the franchise fee, prior regulatory

review appears less necessary from a consumer protection standpoint

than it is for other categories of external costs. This decision

supersedes Answer No. 5 in the Questions and Answers released by the

Cable Services Bureau on May 18, 1994 which interpreted the

Commission's price cap rules as requiring prior approval before

franchise fee increases could be passed through.

4. Accordingly, as of the effective date of this Order, where the

franchising authority is regulating basic rates, increases in basic

rates attributable to increases in franchise fees will not be subject

to the prior approval requirements for proposed rates increases set

forth in Sec. 76.933(a)-(c) of our rules. However, operators will

continue to be required to abide by the notice provisions of our rules.

When the operator provides the notice to the franchising authority, it

must also provide documentation that demonstrates that the rate

increase has been properly calculated. We find it unnecessary to

prescribe the precise form of this documentation. The operator need not

use FCC Form 1210 since Form 1210 was not specifically designated for

use in calculating rate adjustments that reflect changes in franchise

fees.

5. As under existing rules, where the Commission is regulating

basic service tier rates, operators must give the Commission 30 days'

advance notice of any such increase attributable to franchise fee

increases. Operators must also give subscribers and franchising

authorities 30 days' advance notice of changes in basic rates

attributable to increases in franchise fees as required by our rules.

In addition, where the Commission is regulating basic service rates,

the operator should submit with its filing to the Commission the same

documentation which it would need to submit if the franchising

authority were regulating basic service rates as outlined above.

6. The franchising authority or the Commission, as appropriate, may

then review the pass-through of increases in franchise fees and may

order a prospective rate reduction and refunds in accordance with our

rules in the event the operator has increased its basic service rates

by more than the increase in franchise fees properly allocable to the

basic tier. The burden of demonstrating that any such increases are

proper shall remain on the operator as with any other rate adjustments.

The procedures set forth in Sec. 76.933 of our rules will apply to a

franchising authority review of rate increases resulting from franchise

fee pass-throughs, except that the increased rate attributable to the

increased franchise fee will be treated as an ``existing rate'' for the

purposes of Sec. 76.933. Thus, franchising authorities will have an

initial 30-day period, beginning on the date the operator provides

notice and supporting documentation, whichever is later, to review the

rates. The rate increase will go into effect at the end of this 30-day

period. The franchising authority may extend the period for reviewing

rates for an additional 90 days in a non-cost-of-service case or 150

days in a cost-of-service case by issuing a tolling order within the

initial 30-day period. It may further extend its period for review by

issuing an accounting order prior to the expiration of the 90 or 150

day additional period. See 47 CFR 76.933(a)-(c). However, during these

periods the increased rate is in effect. The procedures set forth in

Sec. 76.945 will apply to Commission review of rate increases resulting

from franchise fee pass-throughs.

7. Franchise fees will continue to be allocated in a manner that is

most consistent with the assessment methodology used by franchising

authorities. Under Sec. 76.924(f) of our rules, a portion of franchise

fees may, in some circumstances, be allocated to cable programming

service tiers. Operators that have had cable programming service rates

deemed unreasonable within the prior 12 months, or some other period

specified by the Commission in a particular case, must submit increases

in CPS rates attributable to an increase in franchise fees to the

Commission for its review. Rate justifications relating to franchise

fee-related increases in CPS tier rates will be reviewed by the

Commission according to existing rules for Commission review of basic

service tier rates.

8. These rule revisions do not change our rules governing rate

adjustments attributable to decreases in external costs, including

franchise fees. Decrease in franchise fees allocable to either the

basic service or a CPS tier will continue to be treated as external

cost decreases under our existing rules. Such decreases must be passed

through to subscribers within the periods set forth in our rules for

passing through decreases in external costs. The operator must provide

30 days' notice to subscribers, the local franchising authority and the

Commission, as appropriate. As with franchise fee increases, operators

must provide documentation for the amount of the decrease. Consistent

with the rules adopted in the Report and Order and Further Notice of

proposed Rulemaking, 8 FCC Rcd 5631 (1993) (Rate Order), 58 FR 29736,

May 21, 1993, our action herein with respect to the pass-through of

franchise fees applies only to the extent there are net increases in

the costs imposed on the system operator. Fees may not be passed

through to the extent there are other fee changes that offset the

increase.

II. Cable Television System Regulatory Fees

9. Section 9 of the Communications Act of 1934, as amended,

requires the Commission to collect cable system regulatory fees of $370

per 1,000 subscribers from cable television systems on an annual basis.

47 U.S.C. 159. The statute also permits the Commission to adjust the

amount of the regulatory fees in subsequent years. The purpose of

requiring cable systems to pay regulatory fees to the Commission is to

permit the Commission to recover the annual cost of its various

regulatory activities. In a Report and Order released June 8, 1994, in

MD Docket No. 94-19, the Commission adopted implementing rules

providing for the payment of regulatory fees in fiscal year 1994 and

thereafter. Implementation of Section 9 of the Communications Act:

Assessment and Collection of Regulatory Fees for the 1994 Fiscal Year,

MD Docket No. 94-19, Report and Order, 59 FR 30984 (June 16, 1994). In

that Report and Order, we decided to assess the cable system regulatory

fee on an exact per subscriber basis (i.e., $0.37 per subscriber per

year or approximately $0.03 per subscriber per month). We provided that

regulatory fees be paid on this basis so that cable systems serving

less than 1,000 subscribers would not pay a disproportionately high

regulatory fee. The first cable system regulatory fee payments for

fiscal year 1994 were due on August 12, 1994.

10. Cable operators in MD Docket No. 94-19 urged the Commission to

permit cable systems to pass regulatory fees through to subscribers as

external costs. In our Report and Order in that docket, we concluded

that the pass-through issue was not within the scope of the docket and

should, therefore, be addressed separately.

11. Cable television system regulatory fees are mandated by

Congress, collected by the Commission, and are intended to reimburse

the Commission for administering its regulatory responsibilities under

the Communications Act of 1934. As such, they are exceptional, newly

imposed, governmentally-assessed fees that further the purposes of the

Communications Act. These fees are also beyond the control of the cable

operator. Furthermore, the fees are easily measurable in amount.

Consistent with the Commission's prior decision to determine on a case-

by-case basis whether categories of costs should be accorded external

cost treatment, we determine that Commission cable television system

regulatory fees should be accorded external cost treatment under our

price cap rules governing cable service rates.

12. We further determine that cable system regulatory fees should

be directly assigned to the basic service tier. Direct assignment to

the basic service tier is appropriate because the cable system

regulatory fees are assessed on a per subscriber basis and all

subscribers receive the basic service tier. Assignment to the basic

service tier is also consistent with the fact that regulatory fees are

intended to reimburse the Commission for the costs of regulating cable

service, including Commission oversight of the basic service tier and

other regulatory activities such as rulemaking, the direct regulation

of some systems' basic tier rates and review of local franchising

authorities' decisions.

13. We believe that cable operators should be permitted to adjust

rates on account of the regulatory fees without prior regulatory

approval, subject to our requirements for 30 days' advance notice.

Thus, operators may adjust rates to reflect the newly imposed

regulatory fees, and any subsequent increases in the fees, in the same

manner that rates may be adjusted for increases in franchise fees, as

discussed above. Decreases in Commission regulatory fees will continue

to be treated as external cost decreases under our existing rules and

must be passed through to subscribers in accordance with those rules.

In addition, fees may not be passed through to the extent that there

are other offsetting fee decreases.

14. Operators shall recover the annual regulatory fee according to

the following schedule. Regulatory fees of $0.37 per subscriber that

were due on August 12, 1994 and/or September 9, 1994 for fiscal year

1994 (October 1, 1993-September 30, 1994) shall be recovered from

subscribers over a ten month period beginning in December of 1994 and

ending in September of 1995. For the first three months of this ten

month period (December 1994-February 1995), operators shall recover

$0.03 per month per subscriber. For the remaining seven months (March

1995-September 1995), operators shall recover $0.04 per month per

subscriber. Operators may provide notice of the entire fiscal year's

regulatory fee pass-through in a single notice so long as that notice

states that the fee pass-through will increase from $0.03 in February

1995 to $0.04 in March 1995. Regulatory fees that are assessed for

subsequent fiscal years shall be recovered in twelve monthly

installments during the fiscal year following the fiscal year for which

the payment was imposed. For example, operators may begin recovering

regulatory fees paid for fiscal year 1995 during the 12 month period

from October 1995 through September 1996. Payments shall be collected

in equal monthly installments, except that for so many months as may be

necessary to avoid fractional payments, an additional $0.01 payment per

month may be collected. All such additional payments shall be collected

in the last month or months of the fiscal year, so that once

collections of such payments begin there shall be no month remaining in

the year in which the operator is not entitled to such an additional

payment. Recovery of regulatory fees paid for fiscal year 1995 and

subsequent fiscal years is, of course, subject to the notice

requirements contained in this Order and in our rules. We recognize

that operators will not recover the regulatory fee until after they

have paid it. However, operators may not assess interest on the amount

charged to subscribers for regulatory fees in order to avoid the

substantial administrative burdens on operators and regulators in

determining and reviewing interest calculations.

15. The Report and Order released June 8, 1994, implementing

regulatory fees on cable television systems, also provided that, for

fiscal year 1994, each Cable Television Antenna Relay Service (CARS)

licensee would be assessed a regulatory fee of $220 per license by the

Commission. We decline to provide for the external cost treatment of

CARS regulatory fees. CARS license regulatory fees are assessed on a

flat fee basis of $220 per license and should not represent significant

amounts to most operators. We will consider the need to permit external

cost treatment of CARS regulatory fees for small systems upon

completion of our cost studies.

III. Administrative Matters

Regulatory Flexibility Act Analysis

16. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.

601-612, the Commission's final analysis with respect to the Fourth

Order on Reconsideration is as follows:

17. Need and purpose of this action. The Commission, in compliance

with Section 3 of the Cable Television Consumer Protection and

Competition Act of 1992, 47 U.S.C. 543 (1992) pertaining to rate

regulation, adopts revised rules and procedures intended to ensure

cable subscribers of reasonable rates for cable services with minimum

regulatory and administrative burden on cable entities.

18. Summary of issues raised by the public in response to the

Initial Regulatory Flexibility Analysis. There were no comments

submitted in response to the Initial Regulatory Flexibility Analysis.

The Chief Counsel for Advocacy of the United States Small Business

Administration (SBA) filed comments in the original rulemaking order.

The Commission addressed the concerns raised by the Office of Advocacy

in the Rate Order.

19. Significant alternatives considered and rejected. Petitioners

representing cable interests and franchising authorities submitted

several alternatives aimed at minimizing administrative burdens. The

Commission responded to these comments in previous Orders in this

docket. Although the Commission is issuing this Order on its own

motion, the Commission has attempted to accommodate commenters'

concerns and to reduce administrative burdens by providing an expedited

method to pass through franchise fees and Commission regulatory fees.

IV. Ordering Clauses

20. Accordingly, it is ordered That, pursuant to Sections 4(i),

303(r), and 623 of the Communications Act of 1934, as amended, 47

U.S.C. 154(i), 303(r), and 543, that, Secs. 76.922, 76.924, and 76.933

of the Commission's rules, 47 CFR 76.922, 76.924, and 76.933 are

amended as set forth below.

21. It is further ordered That, this Fourth Order on

Reconsideration is effective November 21, 1994.

List of Subjects in 47 CFR Part 76

Cable television.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Part 76 of Chapter I of Title 47 of the Code of Federal Regulations

is amended as follows:

PART 76--CABLE TELEVISION SERVICE

1. The authority citation for Part 76 continues to read as follows:

Authority: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat., as

amended, 1064, 1065, 1066, 1081, 1082, 1083, 1084, 1085, 1101; 47

U.S.C. Secs. 152, 153, 154, 301, 303, 307, 308, 309, 532, 533, 535,

542, 543, 552, as amended, 106 Stat. 1460.

2. Section 76.922 is amended by adding paragraph (d)(3)(iv)(F) to

read as follows:

Sec. 76.922 Rates for the basic service tier and cable programming

services tiers.

* * * * *

(d) * * *

(3) * * *

(iv) * * *

(F) Commission cable television system regulatory fees imposed

pursuant to 47 U.S.C. 159.

* * * * *

3. Section 76.924 is amended by redesignating paragraphs (f)(5) and

(f)(6) as paragraphs (f)(6) and (f)(7) and adding a new paragraph

(f)(5) to read as follows:

Sec. 76.924 Cost accounting and cost allocation requirements.

* * * * *

(f)(5) Commission cable television system regulatory fees imposed

pursuant to 47 U.S.C. 159 shall be directly assigned to the basic

service tier.

* * * * *

4. Section 76.933 is amended by adding paragraphs (e) and (f) to

read as follows:

Sec. 76.933 Franchising authority review of basic cable rates and

equipment costs.

* * * * *

(e) Notwithstanding paragraphs (a) through (d) of this section,

when the franchising authority is regulating basic service tier rates,

a cable operator may increase its rates for basic service to reflect

the imposition of, or increase in, franchise fees or Commission cable

television system regulatory fees imposed pursuant to 47 U.S.C. 159,

upon 30 days' notice to subscribers and the franchising authority and,

where required by Sec. 76.958, to the Commission. For the purposes of

paragraphs (a) through (c) of this section, the increased rate

attributable to Commission regulatory fees or franchise fees shall be

treated as an ``existing rate,'' subject to subsequent review and

refund if the franchising authority determines that the increase in

basic tier rates exceeds the increase in regulatory fees or in

franchise fees allocable to the basic tier. This determination shall be

appealable to the Commission pursuant to Sec. 76.944. When the

Commission is regulating basic service tier rates pursuant to

Sec. 76.945 or cable programming service rates pursuant to Sec. 76.960,

an increase in those rates resulting from franchise fees or Commission

regulatory fees shall be reviewed by the Commission pursuant to the

mechanisms set forth in Sec. 76.945. A cable operator must adjust its

rates to reflect decreases in franchise fees or Commission regulatory

fees within the periods set forth in Sec. 76.922(d)(3)(i) and (iii).

(f) Cable television system regulatory fees assessed by the

Commission pursuant to 47 U.S.C. 159 shall be recovered in monthly

installments during the fiscal year following the fiscal year for which

the payment was imposed. Payments shall be collected in equal monthly

installments, except that for so many months as may be necessary to

avoid fractional payments, an additional $0.01 payment per month may be

collected. All such additional payments shall be collected in the last

month or months of the fiscal year, so that once collections of such

payments begin there shall be no month remaining in the year in which

the operator is not entitled to such an additional payment. Operators

may not assess interest. Operators may provide notice of the entire

fiscal year's regulatory fee pass-through in a single notice.

[FR Doc. 94-26255 Filed 10-20-94; 8:45 am]

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