Cable Television Act of 1992Rate Regulation

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MM Docket 92-266; FCC 95-43]

Cable Television Act of 1992--Rate Regulation

agency: Federal Communications Commission.

action: Final rule.

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summary: On its own motion, the Federal Communication Commission (the

``Commission'') has adopted a Ninth Order on Reconsideration in order

to allow small cable operators and low-price systems that have been

provided with transition relief to adjust their transition rates to

reflect increases in inflation. Between April 1, 1995 and August 31,

1995, cable operators that have been afforded transition relief may

adjust their rates to reflect the net of a 5.21% inflation adjustment,

minus any inflation adjustments they have already received. In the

future, all transition relief systems may join other operators by

making inflation adjustments on an annual basis, no earlier than

October 1, of each year and no later than August 31 of the following

year to reflect the final GNP-PI through June 30 of the applicable

year.

effective date: April 1, 1995.

for further information contact: Paul D'Ari, Cable Services Bureau

(202) 416-0800.

supplementary information: This is a synopsis of the Ninth Order on

Reconsideration in MM Docket No. 92-266, FCC 95-43, adopted February 3,

1995 and released February 6, 1995.

The complete text of this Ninth Order on Reconsideration is

available for inspection and copying during normal business hours in

the FCC Reference Center (room 239), 1919 M Street NW., Washington, DC,

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

International Transcription Services, Inc. (``ITS, Inc.'') at (202)

857-3800, 2100 M Street NW., Suite 140, Washington, DC 20037.

Synopsis of the Ninth Order on Reconsideration

A. Background

In the Report and Order and Further Notice of Proposed Rulemaking

in MM Docket No. 92-266 (``Rate Order''), 58 FR 29736 (May 21, 1993),

the Commission developed a benchmark formula for the purpose of

establishing initial rates for regulated services. Under the benchmark

approach, regulated cable systems were required to calculate an

applicable benchmark, an estimate of the rate that a cable system with

similar characteristics, but subject to effective competition, would be

permitted to charge. Cable systems whose rates exceeded the applicable

benchmark were generally required to reduce their rates either to the

benchmark or by 10%, whichever reduction was less. This 10%

``competitive differential'' represented the average difference that

the Commission determined existed between the rates of competitive and

noncompetitive systems.

In the Second Order on Reconsideration, Fourth Report and Order,

and Fifth Notice of Proposed Rulemaking (``Second Reconsideration

Order''), 59 FR 17943 (April 15, 1994), the Commission refined the

econometric model, recalculated the competitive differential, and

concluded that a competitive differential of 17% more accurately

estimates the difference between effectively competitive and

noncompetitive cable rates. Accordingly, the Commission required most

systems with rates above the benchmark to either reduce their regulated

rates to a level that represented their September 30, 1992 regulated

revenues, reduced by 17% (mitigated by annual inflation increases,

changes in external costs and changes in the number of programming

channels) or to submit a cost-of-service showing supporting higher

rates.

The Commission granted two classes of cable operators transition

relief, by not requiring them to implement the full 17% reduction rate.

The first category of systems that were provided with transition relief

is systems owned by ``small operators,'' defined as operators serving

15,000 or fewer subscribers and not affiliated with a larger operator.

Systems owned by small operators were not required to reduce rates by

17%. Rather these operators were allowed to use the permitted rate

charged on March 31, 1994 to establish initial restructured rates, and

adjust accordingly to reflect [[Page 10513]] external costs until the

Commission completed its study of prices and costs experienced by small

operators.

The second category of systems that were provided with transition

relief is systems that charge relatively low prices for regulated

services. Low-price systems are defined as systems (1) whose March 31,

1994 rates were below the benchmark rate, or (2) whose March 31, 1994

rates were above their March 31, 1994 benchmark rates, but whose March

31, 1994 full reduction rates are below their March 31, 1994 benchmark

rates as determined under FCC Form 1200. During the transition period,

systems whose March 31, 1994 rates were below the benchmark rate had

their rates capped at March 31, 1994 levels. Systems whose March 31,

1994 rates were above the benchmark, but whose full reduction rates

were below the benchmark were only required to reduce their rates to,

but not below, the benchmark.

The Commission stated that it would not require small cable

operators and low-price systems that were provided with transition

relief to make full competitive rate reductions until the Commission

collected and analyzed data about such operators' prices and costs, and

determined whether the competitive rate reduction was appropriate.

Systems entitled to transition relief have been permitted to

increase their rates to reflect increases in external costs and a per

channel adjustment when increasing the number of channels. The

Commission decided not to allow such systems, however, to increase

their transition rates to reflect increases in inflation until the

transition rate equals their full reduction rate. The Commission

determined that because the full reduction rate rises with inflation,

as well as with changes in external costs and channel changes, a

transition rate system's hypothetical full reduction rate may

eventually exceed the transition rate. The Commission decided,

therefore, that if a system's transition rate and the full reduction

rate became equal, that system would be entitled to take advantage of

inflation adjustments.

The Commission also stated that after it has determined whether it

should require transition relief operators to reduce their rates in

accordance with an appropriate competitive differential, those systems

will be entitled to an aggregate inflation adjustment equal to the GNP-

PI inflation adjustments for the period beginning October 1, 1992

through the most recent June 30. For those systems that have already

received some inflation adjustment, because their hypothetical full

reduction rate exceeded their transition rate, the Commission stated

that the system will receive the net of the aggregate inflation

adjustment minus any inflation adjustment already received. The

Commission found that such systems will be eligible for additional

inflation adjustments on an annual basis, but no earlier than September

30 of each year to reflect the final GNP-PI through June 30 of the

applicable year.

B. Discussion

On its own motion, the Commission found that low-price systems and

small operators that have been provided with transition relief should

no longer be prevented from adjusting their rates to reflect changes in

inflation. In the Second Order on Reconsideration, 59 FR 17943 (April

15, 1994), the Commission decided to defer implementing the inflation

adjustment for transition relief systems because it was not yet

requiring them to reduce their rates by the competitive differential.

The Commission decided that it would provide transition relief systems

with the opportunity to make inflation adjustments after it developed a

better picture of the price/cost profiles of these systems and

determined the appropriate competitive differential for such systems.

In making the decision, the Commission stated that it expected to

complete the collection of cost/price data within nine months.

Because the Commission has not yet completed the collection of this

data and nearly ten months have passed since the Commission released

the Second Order on Reconsideration, the Commission finds that it would

be unfair to further delay implementation of inflation adjustments for

transition relief systems. The Commission is concerned that a further

delay in permitting transition relief systems to make inflation

adjustments could be particularly burdensome on small operators because

many small operators may not have the financial resources to withstand

the impact of not being able to make inflation adjustments.

The Commission also finds that low-price systems should not be

required to experience any further delays in implementing inflation

adjustments. In the Second Order on Reconsideration, the Commission

found that because their prices are significantly lower than those

charged by most noncompetitive systems, low price systems may face

unusual demand, costs or other influences that were not captured in the

Commission's analysis. A further delay in allowing low-price systems to

make inflation adjustments may, therefore, impose a substantial burden

upon those operators.

Accordingly, between April 1, 1995 and August 31, 1995, cable

operators that have been afforded transition relief may adjust their

rates to reflect the net of a 5.21% inflation adjustment, minus any

inflation adjustments they have already received. This adjustment

accounts for the 3% inflation that regulated cable operators were

permitted to recover for the September 30, 1992 to September 30, 1993

period, and the 2.15% inflation factor that operators were permitted to

recover between October 1, 1994 and August 31, 1995 for the October 1,

1993 to June 30, 1994 period.

With one exception, however, transition relief systems will not

receive the full 5.21% inflation adjustment because, under the old

rules, they received an inflation adjustment from September 30, 1992 to

the date they were subject to regulation for the purpose of

establishing their initial rates prior to May 15, 1994. The exception

is for most low price systems that had their March 31, 1994 rates above

the benchmark, but their full reduction rate below the benchmark. When

these systems set their rates for the period after May 15, 1994, they

lost the inflation adjustment they received prior to May 15, 1994,

because they were required to reduce their rates to the benchmark.

Therefore, they will be permitted to adjust their rates to reflect the

full 5.21% inflation factor. If, however, their actual post-May 15,

1994 rate reduction was less than their earlier inflation adjustment,

they will be permitted to receive the 5.21% inflation adjustment minus

the difference between their inflation adjustment and their actual

post-May 15, 1994 rate reduction.

The Commission determined in the Second Order on Reconsideration

that, because the full reduction rate rises with inflation, a

transition rate system's hypothetical full reduction rate may

eventually exceed the transition rate. The Commission decided that a

transition rate system will be entitled to take an inflation adjustment

once the hypothetical full reduction rate and transition rate become

equal. Therefore, those transition relief systems that have already

received this inflation adjustment, because their hypothetical full

reduction rate exceeded their transition rate, will only be allowed to

receive the net of the aggregate inflation adjustment minus any

inflation adjustment already received.

With the inflation adjustment they received prior to May 15, 1994

and the inflation adjustment the Commission is [[Page 10514]] granting

them now, transition relief systems will be able to adjust their rates

to reflect the same inflation adjustment that the Commission has

granted all other operators. Moreover, in the future, all transition

relief systems may join other cable operators in making inflation

adjustments on an annual basis, no earlier than October 1 of each year

and no later than August 31 of the following year to reflect the final

GNP-PI through June 30 of the applicable year.

Administrative Matters

Regulatory Flexibility Act Analysis

Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 601-

612, the Commission's final analysis with respect to the Ninth Order on

Reconsideration is as follows:

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 that cable

services are offered at reasonable rates with minimum regulatory and

administrative burdens on cable entities.

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 Report

and Order and Further Notice of Proposed Rulemaking.

Significant alternatives considered and rejected. In the course of

this proceeding, petitioners representing cable interests and

franchising authorities submitted several alternatives aimed at

minimizing administrative burdens. The Commission has attempted to

accommodate the concerns expressed by these parties. In this order, the

Commission is providing relief to small systems and low-price systems

by permitting them to adjust their transition rates with an inflation

adjustment.

Paperwork Reduction Act

The requirements adopted herein have been analyzed with respect to

the Paperwork Reduction Act of 1980 and are found to impose a new

information collection requirement on the public. Implementation of the

new requirement will be subject to approval by the Office of Management

and Budget.

Ordering Clauses

Accordingly, it is ordered that, pursuant to sections 4(i), 4(j),

303(r), 612, 622(c) and 623 of the Communications Act of 1934, as

amended, 47 U.S.C. 154(i), 154(j), 303(r), 532, 542(c) and 543, the

rules, requirements and policies discussed in this Ninth Order on

Reconsideration, are adopted and part 76 of the Commission's rules, 47

CFR part 76, is amended as set forth below.

It is further ordered that the Secretary shall send a copy of this

Order to the Chief Counsel for Advocacy of the Small Business

Administration in accordance with paragraph 603(a) of the Regulatory

Flexibility Act. Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. 601 et

seq. (1981).

It is further ordered that the requirements and regulations

established in this decision shall become effective on April 1, 1995.

List of Subjects in 47 CFR Part 76

Cable television.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Title 47, Part 76 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, 535, 542,

543, 552 as amended, 106 Stat. 1460.

2. Section 76.922 is amended by revising paragraph (d)(2) to read

as follows:

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

service tiers.

* * * * *

(d) * * *

(2) Inflation Adjustments. The residual component of a system's

permitted charge may be adjusted annually for inflation. The annual

inflation adjustment shall be based on inflation occurring from June 30

of the previous year to June 30 of the year in which the inflation

adjustment is made, except that the first annual inflation adjustment

shall cover inflation from September 30, 1993 until June 30 of the year

in which the inflation adjustment is made. The adjustment may be made

after September 30, but no later than August 31, of the next calendar

year. Adjustments shall be based on changes in the Gross National

Product Price Index as published by the Bureau of Economic Analysis of

the United States Department of Commerce. Cable systems that establish

a transition rate pursuant to paragraph (b)(4) of this section may not

begin adjusting rates on account of inflation before April 1, 1995.

Between April 1, 1995 and August 31, 1995 cable systems that

established a transition rate may adjust their rates to reflect the net

of a 5.21% inflation adjustment minus any inflation adjustments they

have already received. Low price systems that had their March 31, 1994

rates above the benchmark, but their full reduction rate below the

benchmark will be permitted to adjust their rates to reflect the full

5.21% inflation factor unless the rate reduction was less than the

inflation adjustment received on an FCC Form 393 for rates established

prior to May 15, 1994. If the rate reduction established by a low price

system that reduced its rate to the benchmark was less than the

inflation adjustment received on an FCC Form 393, the system will be

permitted to receive the 5.21% inflation adjustment minus the

difference between the rate reduction and the inflation adjustment the

system made on its FCC Form 393. Cable systems that established a

transition rate may make future inflation adjustments on an annual

basis with all other cable operators, no earlier than October 1 of each

year and no later than August 31 of the following year to reflect the

final GNP-PI through June 30 of the applicable year.

* * * * *

[FR Doc. 95-4554 Filed 2-24-95; 8:45 am]

BILLING CODE 6712-01-M