Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992Rate Regulation

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MM Docket No. 92-266; FCC 96-316]

Implementation of Sections of the Cable Television Consumer

Protection and Competition Act of 1992--Rate Regulation

AGENCY: Federal Communications Commission.

ACTION: Final Rule.

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SUMMARY: In this Memorandum Opinion and Order (``Order''), the

Commission revisits the decision in the Third Report and Order to

require cable operators to use the same method of initial rate

regulation, either benchmark or cost-of-service, for both the BST and

the CPSTs. This requirement applies for one year from the date that the

operator first becomes subject to regulation on any tier. The Third

Report and Order sought to remove incentives to engage in retiering

strategies during the initial rate setting process that would result in

operators receiving more than compensatory rates. The Commission

indicated that it would review the requirement after 18 months. Upon

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review of the record the Commission elects to modify the requirement

set forth in the Third Report and Order so that consistent rate

methodologies must be used for the entire period in which an operator

is subject to rate regulation on both the BST and CPST(s). This Order

is adopted concurrently with a Notice of Proposed Rulemaking which is

summarized elsewhere in this issue of the Federal Register. The

intended effect of this Order is that consistent rate methodologies be

used for the entire period in which an operator is subject to rate

regulation on both the BST and CPST(s).

EFFECTIVE DATE: September 30, 1996.

FOR FURTHER INFORMATION CONTACT: Cable Services Bureau, (202) 418-7200.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's

Memorandum Opinion and Order, MM Docket No. 92-266 FCC 96-316 adopted

July 25, 1996, and released August 15, 1996. The full text of this

decision is available for inspection and copying during normal business

hours in the FCC Reference Center (room 239), 1919 M Street, NW,

Washington, D.C. 20554, and may be purchased from the Commission's copy

contractor, International Transcription Service, (202) 857-3800, 1919 M

Street, NW, Washington, D.C. 20554.

Synopsis of the Memorandum Opinion and Order

1. In the Third Report and Order in MM Docket No. 92-266, 58 FR

63087 (``Third Report and Order'') the Commission determined that

operators must use the same rate-setting method for all tiers. This

requirement applies for one year from the date an operator first

becomes subject to rate regulation on either the BST or a CPST. The

Commission established this requirement because, in some circumstances,

using the benchmark approach for one tier and the cost-of-service

approach for another tier could result in a double recovery of costs by

the cable operator.

2. The regulatory review process for BST rates is separate from the

review process for CPST rates. Regulation of rates for BSTs is the

responsibility of certified local franchising authorities (``LFAs''),

pursuant to standards and procedures established by the Commission. An

operator may appeal an LFA's rate decision to the Commission. CPST

rates are regulated directly by the Commission upon receipt by the

Commission of a valid complaint from an LFA.

3. In the Third Report and Order, the Commission held, that without

the tier consistency requirement:

an operator could retier its services and place its most

expensive programming on the tier regulated by a cost-of-service

determination. The operator would then be allowed to charge a per

channel rate for the low cost tier based on the benchmark (which is

an averaged rate) that actually exceeds its cost for that tier (and,

thus, the rate it would be able to charge under a cost-of-service

showing). At the same time, the operator may be able to charge a

higher-than-benchmark rate for the other tier through a cost-of-

service showing, based on its higher costs for that tier. The end

result would be rates that exceed the reasonableness standard set

forth in the 1992 Cable Act.

4. The Commission upholds the requirement of the Third Report and

Order that the same methodology for determining rates on all regulated

tiers shall be used in the initial rate setting process. The Commission

sees no reason to conclude that the concerns referred to in the

preceding paragraph have dissipated. In addition, because these

concerns do not dissipate one year after an operator initially becomes

subject to regulation, on its own motion, the Commission removes the

provision that limits the required use of consistent methodologies to

the one year period beginning on the date an operator initially becomes

subject to rate regulation, and thereby extend the requirement so that

consistent methodologies must be used whenever an operator has more

than one tier subject to rate regulation. This requirement will remain

effective until such time as the Commission finds that the use of the

same rate regulatory method on all rate regulated tiers is not

necessary to prevent operators from charging rates above that which the

rate regulations contemplate. This provision effectuates the

Commission's statutory mandate to protect consumers from unreasonable

rates.

5. Use of the same rate regulatory method for all rate regulated

tiers does not hamper an operator's ability to charge fully

compensatory rates. The Commission provides a cost of service option as

an alternative to the benchmark formula for operators that believe the

benchmark would not enable them to recover costs reasonably incurred in

the provision of regulated cable service. As of the effective date of

this Order, operators must use consistent rate regulatory methods on

all rate regulated tiers whenever the operator is required to justify

its rates on any rate regulated tier.

Final Regulatory Flexibility Analysis

6. As required by Section 603 of the Regulatory Flexibility Act, 5

U.S.C. Sec. 603 (RFA), an Initial Regulatory Flexibility Analysis

(IRFA) was incorporated in the Report and Order and Further Notice of

Proposed Rulemaking in MM Docket 92-266, 58 FR 29736 (``Report and

Order''). The Commission sought written public comments on the

proposals in the Report and Order including comments on the IRFA, and

addressed these responses in the Third Report and Order. No IRFA was

attached to the Third Report and Order because the Third Report and

Order only adopted final regulations and did not propose regulations.

This FRFA thus addresses the impact of regulations on small entities

only as adopted or modified in this action and not as adopted or

modified in earlier stages of this rulemaking proceeding. The

Commission's Final Regulatory Flexibility Analysis (FRFA) conforms to

the RFA, as amended by the Contract with America Advancement Act of

1996 (CWAAA), Public Law No. 104-121, 110 Stat. 847. Subtitle II of the

CWAAA is The Small Business Regulatory Enforcement Fairness Act of 1996

(SBREFA), codified at 5 U.S.C. Sec. 610 et seq. (1996).

7. Need and Purpose for Action: This action is being taken in

accordance with the Commission's decision, as set forth in the Third

Report and Order, to revisit the issues discussed herein, and to carry

out the Commission's statutory mandate to insure that cable rates are

reasonable.

8. Summary of Issues Raised by the Public Comments in Response to

the Initial Regulatory Flexibility Analysis: There were no comments

received in response to the Initial Regulatory Flexibility Analysis. A

single commenter petitioned the Commission for reconsideration of the

requirements contained in the Third Report and Order, but this petition

was ultimately withdrawn. The petitioner was not a small entity, and no

reply comments to the petition were received.

9. Certification of No Significant Economic Impact on a Substantial

number of Small Entities: We do not believe that the final rule adopted

in the Order will have a significant impact on small entities as

defined by the Small Business Administration (SBA), by statute, or by

our rules. The Communications Act at 47 U.S.C. 543 (m)(2) defines a

small cable operator as ``a cable operator that, directly or through an

affiliate, serves in the aggregate fewer than 1 percent of all

subscribers in the United States and is

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not affiliated with any entity or entities whose gross annual revenues

in the aggregate exceed $250,000,000.'' Under the Communications Act,

at 47 U.S.C. 543(m)(1), a small cable operator is not subject to the

rate regulation requirements of Sections 543 (a), (b) and (c) on cable

programming service tiers (``CPSTs'') in any franchise area in which it

serves 50,000 or fewer subscribers. The rule adopted in this Order

requires that the same rate regulatory methodology be used across the

basic service tier (``BST'') and CPSTs. Thus, the rule adopted in this

Order only applies to operators that are rate regulated on both the BST

and CPST, and would therefore not apply to a small cable operator in

any franchise area in which it serves 50,000 or fewer subscribers.

10. Section 623(i) of the Communications Act, 47 U.S.C.

Sec. 543(i), requires that the Commission design rate regulations in

such a way as to reduce the administrative burdens and the cost of

compliance for cable systems with 1,000 or fewer subscribers. The

Commission introduced a form of rate regulation known as the small

system cost-of-service methodology. This approach is more streamlined

than the standard cost-of-service methodology available to cable

operators that are not small cable systems owned by small cable

companies. In addition, the small system rules include substantive

differences from the standard cost-of-service rules to take account of

the proportionately higher costs of providing service faced by small

systems. This rate adjustment methodology is an alternative to the

standard rate adjustment methodologies which are the subject of this

Order. In designing this alternative methodology, the Commission

extended the small system relief required by Section 623(i) of the

Communications Act to cable systems with 15,000 or fewer subscribers

owned by cable companies serving 400,000 or fewer subscribers over all

of their cable systems. Because of the utilization of this alternative

rate adjustment methodology by small cable operators, we do not believe

that this Order, which does not concern this alternative methodology,

will have any significant economic impact on a substantial number of

small cable companies as defined by the Commission's rules.

11. The SBA, at 13 CFR Part 121.201 (as of July 25, 1996), defines

a small cable business concern as a cable business, including its

affiliates, that has $11 million or less in annual receipts. The

Commission, in defining a small system as a cable system with 15,000 or

fewer subscribers owned by a cable company serving 400,000 or fewer

subscribers, stated that $100 million in annual regulated revenues

equates to approximately 400,000 subscribers. We therefore believe that

many cable operators that are within this SBA definition will also be

within the Commission's definition of small cable operator, and will

not experience significant economic impact for the reasons described in

the preceding paragraph. If, however, a cable operator has $11 million

or less in annual receipts, but does not fall within the class of small

cable companies entities to small system rate relief under the

Commissions rules, we believe that such a company would fall under the

Communications Act at 47 U.S.C. 543(m)(1), which states that a small

cable operator is not subject to the rate regulation requirements of

Sections 543 (a), (b) and (c) on CPSTs in any franchise area in which

it serves 50,000 or fewer subscribers. If $100 million in annual

regulated revenues equates to approximately 400,000 subscribers, then

50,000 subscribers, expressed in terms of dollars, should meet or

exceed the $11 million in annual receipts from the SBA definition of a

small cable business concern. Using this same approach, we likewise

believe that the SBA definition of a cable business concern will fall

within the one percent of United States subscribers from the

Communications Act definition of a small cable operator, because the

Commission has determined that there are approximately 61,700,000

subscribers in the United States. We believe that small cable business

concerns as defined by the SBA will fall within the Communication Act's

definition of a small cable operator and the Act's provision of CPST

rate deregulation for small cable operators that serve 50,000 or fewer

subscribers. As explained above, the rule adopted in this Order is

inapplicable to operators that are not subject to CPST rate regulation.

12. The SBA, at 5 U.S.C. Section 601 (Vol. 5), states that small

governmental jurisdictions are ``[g]overnments of cities, counties,

towns, townships, villages, school districts or special districts with

populations of less than 50,000.'' Under the Commissions current rules,

if a local governmental has elected to rate regulate the BST, a cable

operator must submit rate justifications to the local government on FCC

Forms. We do not believe that a substantial number of small

governmental jurisdictions will face a significant economic impact due

to this Order for the following reasons. First, we do not know of any

cable operators that are currently using inconsistent rate setting

methods on their rate regulated tiers, and that would therefore have to

switch to consistent methods as a result of this Order. If such an

operator did exist, the operator would not be required to use

consistent rate regulatory methods until the next time the operator was

required to justify rates on a rate regulated tier. Thus, the

requirement would not generate an increased number of rate reviews by a

local franchising authority. Even in this instance, an operator may

elect to change its CPST ratemaking methodology in order to conform to

the rule as opposed to its BST ratemaking methodology. Such a change

would not affect small governmental jurisdictions because the CPST rate

is regulated by the Commission, and not by small governmental

jurisdictions.

13. The Commission shall send a copy of this Final Regulatory

Flexibility Analysis, along with this Report and Order, in a report to

Congress pursuant to the Small Business Regulatory Enforcement Fairness

Act of 1996, 5 U.S.C. Sec. 801(a)(1)(A). A copy of this FRFA will also

be published in the Federal Register.

Procedural Provisions

14. Ex parte Rules--Non-Restricted Proceeding. This is a non-

restricted notice and comment rulemaking proceeding. Ex parte

presentations are permitted, except during the Sunshine Agenda period,

provided that they are disclosed as provided in the Commission's rules.

See generally, 47 CFR Sections 1.1202, 1.1203, and 1.1206(a).

15. Pursuant to applicable procedures set forth in Sections 1.415

and 1.419 of the Commission's rules, interested parties may file

comments on or before October 6, 1996, and reply comments on or before

November 8, 1996. To file formally in this proceeding, you must file an

original plus four copies of all comments, reply comments, and

supporting comments. If you would like each Commissioner to receive a

personal copy of your comments and reply comments, you must file an

original plus nine copies. You should send comments and reply comments

to the Office of the Secretary, Federal Communications Commission, 1919

M Street, N.W. Washington, D.C. 20554. Comments and reply comments will

be available for public inspection during regular business hours in the

FCC Reference Center, Room 239, Federal Communications Commission, 1919

M Street N.W., Washington D.C. 20554.

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Ordering Clauses

16. Accordingly, it is ordered that, pursuant to the authority

granted in Sections 4(i), 4(j), 303(r) and 623 of the Communications

Act of 1934, as amended, 47 U.S.C. Sections 154(i), 154(j), 303(r) and

543, the requirements set forth in the Third Report and Order are

amended to provide that the use of the same rate regulatory methodology

will be required for all rate regulated tiers for the entire period in

which an operator is subject to rate regulation on more than one tier.

17. It is further ordered that the requirements established in this

decision shall become effective September 30, 1996.

18. It is further ordered that, the Secretary shall send a copy of

this Memorandum Opinion and Order, including the Final Regulatory

Flexibility Analysis, to the Chief Counsel for Advocacy of the Small

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

Regulatory Flexibility Act. Public Law No. 96-354, 94 Stat. 1164, 5

U.S.C. Secs. 601 et seq. (1981).

Federal Communications Commission.

William F. Caton,

Acting Secretary.

List of Subjects in 47 CFR Part 76

Cable television.

Rule Changes

Part 76 of Title 47 of the Code of Federal Regulations is amended

as follows:

PART 76--CABLE TELEVISION SERVICE

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

Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a,

307, 308, 309, 312, 315, 317, 325, 503, 521, 522, 531, 532, 533,

534, 535, 536, 537, 543, 544, 544a, 545, 548, 552, 554, 556, 558,

560, 561, 571, 572, 573.

Section 76.922(a) is revised to read as follows:

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

services tiers.

(a) Basic and cable programming service tier rates. Basic service

tier and cable programming service rates shall be subject to regulation

by the Commission and by state and local authorities, as is

appropriate, in order to assure that they are in compliance with the

requirements of 47 U.S.C. 543. Rates that are demonstrated, in

accordance with this part, not to exceed the ``Initial Permitted Per

Channel Charge'' or the ``Subsequent Permitted Per Channel Charge'' as

described in this section, or the equipment charges as specified in

Sec. 76.923, will be accepted as in compliance. The maximum monthly

charge per subscriber for a tier of regulated programming services

offered by a cable system shall consist of a permitted per channel

charge multiplied by the number of channels on the tier, plus a charge

for franchise fees. The maximum monthly charges for regulated

programming services shall not include any charges for equipment or

installations. Charges for equipment and installations are to be

calculated separately pursuant to Sec. 76.923. The same rate-making

methodology (either the benchmark methodology found in paragraph (b) of

this section, or a cost-of-service showing) shall be used to set

initial rates on all rate regulated tiers, and shall continue to

provide the basis for subsequent permitted charges.

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[FR Doc. 96-21582 Filed 8-28-96; 8:45 am]

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