[Federal Register Volume 59, Number 73 (Friday, April 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9050]


[[Page Unknown]]

[Federal Register: April 15, 1994]


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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76

[MM Docket Nos. 92-266, 92-262; FCC 94-40]

 

Cable Act of 1992

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In furtherance of the Commission's implementation of the rate 
regulation provision of the Cable Consumer Protection and Competition 
Act of 1992 (``1992 Cable Act,'' ``Cable Act,'' or ``Act''), the 
Commission adopted a Third Order on Reconsideration clarifying several 
of the cable rate regulations. The action disposes principally of 
issues unrelated to the calculation of rates that were raised on 
reconsideration of the Report and Order in MM Docket No. 92-266 (``Rate 
Order''), 58 FR 29736 (May 21, 1993), or that were encountered in the 
Commission's initial implementation of rate regulation. Specifically, 
the Commission further clarifies the definition of ``effective 
competition'' in section 623(l) of the Act; affirms the rules regarding 
tier buy-through prohibitions; addresses procedural and jurisdictional 
issues pertaining to the regulatory process, including certification, 
basic rate decisions, and refund issues; clarifies the rules governing 
negative option billing practices, evasions, grandfathering of rate 
agreements, subscriber bill itemization and advertising of rates; 
considers remaining issues regarding equipment and installation; and 
clarifies several points with regard to FCC Form 393 (the benchmark 
calculation form) and FCC Forms 1200 and 1205 (the new calculation 
forms).

EFFECTIVE DATE: May 15, 1994.

FOR FURTHER INFORMATION CONTACT:
Amy Zoslov, (202) 416-0808, or Julie Buchanan, (202) 416-1170, Cable 
Services Bureau.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Third Order on 
Reconsideration, adopted February 22, 1994, released March 30, 1994. 
The complete text of this Order 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 Service, at 
(202) 857-3800, 2100 M Street NW., suite 140, Washington, DC 20037.

Synopsis of the Third Order on Reconsideration

I. Introduction

    1. In furtherance of the Commission's implementation of the rate 
regulation provision of the Cable Consumer Protection and Competition 
Act of 1992 (``1992 Cable Act,'' ``Cable Act,'' or ``Act''), the 
Commission adopted a Third Order on Reconsideration clarifying several 
of the cable rate regulations. The action disposes principally of 
issues unrelated to the calculation of rates that were raised on 
reconsideration of the Report and Order in MM Docket No. 92-266 (``Rate 
Order''), 8 FCC Rcd 5631 (1993); 58 FR 29736 (May 21, 1993), or that 
were encountered in the Commission's initial implementation of rate 
regulation. Specifically, we further clarify the definition of 
``effective competition'' in section 623(l) of the Act, 47 U.S.C. 
543(1); affirm our rules regarding tier buy-through prohibitions; 
address procedural and jurisdictional issues pertaining to the 
regulatory process, including certification, basic rate decisions, and 
refund issues; clarify our rules governing negative option billing 
practices, evasions, grandfathering of rate agreements, subscriber bill 
itemization and advertising of rates; consider remaining issues 
regarding equipment and installation; and clarify several points with 
regard to FCC Form 393 (the benchmark calculation form) and FCC Forms 
1200 and 1205 (the new calculation forms).\1\
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    \1\FCC Form 1200: ``Setting Maximum Initial Permitted Rates for 
Regulated Cable Services Pursuant to Rules Adopted February 22, 
1994--First-Time Filers Form''; FCC Form 1205: ``Determining Current 
Equipment and Installation Rates--Equipment Form.''
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II. Competition Issues

A. Definitions and Findings of Effective Competition
    2. Under the 1992 Cable Act, rate regulation applies only to cable 
systems that are not subject to ``effective competition'' as defined in 
that Act. 47 U.S.C. 543(a)(2). Section 623(l)(1) of the Act further 
provides that ``effective competition'' exists if one of three tests is 
met. Under the second test, effective competition exists if the 
franchise area is (i) served by at least two unaffiliated multichannel 
video programming distributors each of which offers comparable video 
programming to at least 50% of the households in the franchise area; 
and (ii) the number of households subscribing to programming services 
offered by multichannel video programming distributors other than the 
largest multichannel video programming distributor exceeds 15% of the 
households in the franchise area.

47 U.S.C. 543(l)(1)(B).

    3. Measurement of subscribership. We previously adopted various 
rules to implement this second test for effective competition. One of 
these rules provides that in calculating whether 15% or more of the 
households in a franchise area subscribe to all but the largest 
multichannel video programming distributor, we shall consider the 
subscribership of competing multichannel distributors on a cumulative 
basis. By this Order, we affirm our previous interpretation that only 
the subscribers of those multichannel distributors that offer 
programming to at least 50% of the households in the franchise area 
shall be included in this cumulative measurement.
    4. Presumption of availability--satellite-delivered services. The 
second test for effective competition requires that at least two 
unaffiliated multichannel distributors each offer comparable 
programming to at least 50% of the households in a franchise area. We 
previously concluded that multichannel programming is ``offered'' if it 
is both technically available (i.e., it can be delivered to a household 
with only minimal additional investment by the multichannel 
distributor) and actually available (i.e., potential subscribers must 
be aware of its availability from marketing efforts). 47 CFR 76.905(e). 
The Rate Order stated that multichannel video programming distribution 
service received from satellites via satellite master antenna 
television service (``SMATV'') or television receive-only earth station 
(``TVRO'') reception is technically available nationwide in all 
franchise areas that do not, by regulation, restrict the use of home 
satellite dishes. Rate Order, 8 FCC Rcd at 5659, 60.
    5. Because subscription to satellite service is accomplished 
alternatively through either SMATV or TVRO facilities, we permitted 
each to be included toward meeting the 15% subscription test, even 
through SMATV service, taken alone, might not be available to 50% of 
the households in a franchise area. This Order affirms our belief that 
satellite service is generally available from one or the other of these 
complementary sources, and it is reasonable to measure actual 
acceptance of satellite services in any area by collectively counting 
both SMATV and TVRO subscribership toward the 15% test.
    6. Program comparability. The Rate Order also adopted a rule 
defining when a competing multichannel distributor is offering 
``comparable programming'' under the second test for effective 
competition. Rate Order, 8 FCC Rcd at 5666, 67. The rule provides that 
``[i]n order to offer comparable programming * * * a competing 
multichannel video programming distributor must offer at least 12 
channels of video programming, including at least one channel of 
nonbroadcast service programming.'' 47 CFR 76.905(g). Since we do not 
believe that actual channel parity is necessary to provide a 
competitive alternative, we reject the argument that multichannel 
distributors must offer roughly the same number of channels in order to 
meet the test for offering ``comparable programming.'' We also affirm 
our belief that it is sufficient to use the minimum basic tier as the 
basis for comparison. Accordingly, we will not change the definition of 
``comparable programming'' adopted in the Rate Order.
    7. Seasonal households and subscribers. The Rate Order stated that 
``[e]ach separately billed or billable customer will count as a 
household subscribing to or being offered video programming services * 
* *.'' 47 CFR 76.905(c). In addition, individual units in multiple 
dwellings buildings are counted as separate households even though they 
may not be separately billed. Id.
    8. The term ``household'' was defined for purposes of the 1990 
Census as ``all the persons who occupy a housing unit'',\2\ while 
``housing units'' was defined to include both occupied and vacant 
units. Thus, ``housing units'' reflect the total dwelling units in a 
community, while a count of ``households'' reflects only occupied 
units. As used in the Cable Act, we presume that Congress did not 
intend ``households'' to have a different meaning than in the 1990 
Census. In any event, we believe that the best and most constant 
indicator of local viewers' choices is represented by the full-time 
residents of an area. Moreover, it is the full-time residents who are 
most affected by the determination whether their cable rates are 
subject to regulation. Consequently, the operator should measure its 
penetration rate of full-time subscribers as a percentage of full-time 
households, i.e., by excluding housing units used for seasonal, 
occasional, or recreational use.\3\
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    \2\Bureau of the Census, U.S. Dept. of Commerce, 1990 Census of 
Population, CP-1-1B, Appendix B at B-8.
    \3\We will use the U.S. Census Bureau definition for seasonal, 
recreational, and occasional use:
    These are vacant units used or intended for use only in certain 
seasons or for weekend or other occasional use throughout the year. 
Seasonal units include those used for summer or winter sports or 
recreation, such as beach cottages and hunting cabins. Seasonal 
units may also include quarters for such workers as herders and 
loggers. Interval ownership units, sometimes called shared ownership 
or time-sharing condominiums, are also included here.
    1990 Census of Housing, General Housing Characteristics, 
Maryland, at B-12.
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B. Geographically Uniform Rate Structure
    9. The 1992 Cable Act requires cable operators to ``have a rate 
structure, for the provision of cable service, that is uniform 
throughout the geographic area in which cable service is provided over 
its cable system''\4\ In the Rate Order, the Commission concluded that 
this provision was applicable only to regulated services in regulated 
markets. Rate Order, 8 FCC Rcd at 5896. The Commission then determined 
that the provision would be enforced on a franchise area by franchise 
area basis. Id. Finally, the Commission found that this provision did 
not prohibit all differences in rates between customers. Cable 
operators are not necessarily barred from distinguishing between 
seasonal and full-time subscribers and from offering promotional rates 
universally but for a limited time. Also, discounts for senior citizens 
or economically disadvantaged groups may be set. Additionally, 
nonpredatory bulk discounts to multiple dwelling units (``MDUs'') are 
permissible if offered on a uniform basis. Id. at 5897, 98.
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    \4\Communications Act of 1934, as amended, (``Communications 
Act'') section 623(d), 47 U.S.C. 543(d).
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    10. The Cable Act is unequivocal in requiring uniformity of rates 
within a franchise area. The provision is not limited to any particular 
class or classes of subscribers. In accordance with the statutory 
mandate, the Rate Order also specifically noted the Commission's 
concern that bulk discounts not be abused to displace other 
multichannel video providers from MDUs, which have become important 
footholds for the establishment of competition to incumbent cable 
systems. Rate Order, 8 FCC Rcd at 5898. Cable operators are not 
prevented from meeting competition--as long as the same rate structure 
is offered to all MDUs in the franchise area. Moreover, cable operators 
may offer different rates to MDUs of different sizes and may set rates 
based on the duration of the contract, provided that the operator can 
demonstrate that its cost savings vary with the size of the building 
and the duration of the contract, and as long as the same rate is 
offered to buildings of the same size and contracts of similar 
duration. Thus, bulk arrangements on a variable basis between MDUs of 
the same size and contractual duration, though currently allowed by 
some franchising authorities, are specifically prohibited by the Act.
    11. However, we will allow cable operators' existing contracts with 
MDUs to be grandfathered. We believe that the elimination of existing 
contracts would be unnecessarily disruptive to those subscribers 
receiving discounts, as well as to those cable companies offering the 
discounts. Thus, contracts between cable operators and MDUs entered 
into on or before April 1, 1993, in which the contract rate is lower 
than the permitted regulated rate, may remain in effect until their 
previously agreed-upon expiration date. To the extent the Rate Order 
may have been interpreted by private parties to supersede existing 
contracts, which were accordingly rewritten, the terms of such 
contracts may be reinstituted without violating Commission rules.
    12. In addition, we conclude on reconsideration that the uniform 
rate structure requirements of section 623(d), 47 U.S.C. 543(d), should 
apply in all franchise areas, irrespective of the presence of 
``effective competition'' as defined in the Act. The specific harms 
that the rate uniformity provision is intended to prevent--charging 
different subscribers different rates with no economic justification 
and unfairly undercutting competitors' prices--could occur in areas 
with head-to-head competition or low penetration sufficient to meet the 
Act's definition of ``effective competition.'' This would not only 
permit the charging of noncompetitive rates to consumers that are 
unprotected by either rate regulation or competitive pressure on rates, 
but also stifle the expansion of existing, especially nascent, 
competition. As the Senate Report states: ``This provision is intended 
to prevent cable operators from having different rate structures in 
different parts of one cable franchise * * * (and) from dropping the 
rates in one portion of a franchise area to undercut a competitor 
temporarily.''\5\ The statutory language does not provide, and the 
Senate Report does not suggest, that the rate uniformity provision 
should be limited to franchise areas where ``effective competition'' is 
absent.
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    \5\Senate Committee on Commerce, Science and Transportation, S. 
Rep. No. 92, 102d Cong., 1st Sess. at 76 (1991). This language also 
indicates that the term ``geographic area'' was intended to refer to 
``franchise area'' and not a broader geographic area. See Rate 
Order, 8 FCC Rcd at 5896, where the Commission considered, and 
rejected, arguments to define ``geographic area'' more broadly than 
a franchise area.
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III. Tier Buy-Through Prohibition

    13. The tier buy-through prohibition of the 1992 Cable Act 
prohibits cable operators from requiring subscribers to purchase a 
particular service tier, other than the basic service tier, in order to 
obtain access to video programming offered on a per-channel or per-
program basis. 47 U.S.C. 543(b)(8). An exception is made for cable 
operators that are not technically capable of complying with this 
requirement during the next ten years. Id. In a previous decision, we 
adopted an implementing rule that (1) prohibits discrimination between 
subscribers of the basic service tier and other subscribers with regard 
to rates charged for video programming offered on a per-channel or per-
program basis; (2) forbids any retiering of channels or services 
intended to frustrate the purpose of the tier buy-through provision; 
and (3) defines when cable systems are not technically capable of 
complying with this requirement. Report and Order in MM Docket No. 92-
262 (``Tier Buy-Through Order''), 8 FCC Rcd 2274 (1993); 58 FR 19627 
(Apr. 15, 1993); 47 CFR 76.921.\6\ At that time, we also determined 
that all cable systems are subject to the tier buy-through prohibition 
and our implementing rules.\7\ Id. at note 32.
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    \6\This rule was originally adopted as Section 76.900, but was 
renumbered and modified in the Rate Order.
    \7\After the release of the Tier Buy-Through Order, the 
Commission clarified in the Rate Order that the tier buy-through 
provision of the 1992 Cable Act ``only precludes operators from 
conditioning access to programming offered on a per-channel or per-
program basis on purchasing intermediate tiers.'' Rate Order, 8 FCC 
Rcd at 5903, n. 435. Therefore, the provision does not prohibit 
operators from requiring the purchase of an intermediate tier of 
cable programming services in order to obtain access to another tier 
of cable programming services. Id. See also 47 CFR 76.921(a). No 
petitions for reconsideration were filed in the rate proceeding 
regarding this clarification.
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    14. We continue to believe that the tier buy-through provision 
applies to all cable systems, regardless of whether they are subject to 
rate regulation. The language of the provision clearly states, without 
limitation or qualification, that ``a cable operator may not require 
the subscription to any tier other than the basic service tier * * * as 
a condition of access to video programming offered on a per channel or 
per program basis.'' 47 U.S.C. 543(b)(8). Congress could have easily 
limited this provision to regulated systems by expressly doing so. 
Accordingly, to provide all cable subscribers with the maximum possible 
flexibility in paying for those programs they desire, it is necessary 
to apply the tier buy-through provision to all cable systems.

IV. Procedural and Jurisdictional Issues

A. Certification Process
    15. Franchising authority's decision not to regulate. In the Rate 
Order, we analyzed carefully whether we should assert the authority to 
regulate basic rates when a franchising authority had not sought 
certification. We emphasized that Congress had vested in local 
franchising authorities the primary authority to regulate basic rates 
and that we therefore did not want to override a locality's decision 
not to regulate rates. We concluded that we would not assume 
jurisdiction in cases where a franchising authority does not apply for 
certification or directly request that the Commission regulate rates. 
Rate Order, 8 FCC Rcd at 5676.
    16. For the time being, we will continue to decline to assert 
jurisdiction over basic cable service where franchising authorities do 
not choose to regulate rates themselves. The Act's regulatory scheme 
vests in franchising authorities the initial decision whether their 
communities' basic cable service rates should be regulated. Rate Order, 
8 FCC Rcd at 5676. In any case where this may work to the detriment of 
subscribers, they can seek relief from their local authorities through 
the political processes available to them. However, in the event that 
basic cable rates remain unregulated in a large number of communities 
despite evidence that cable operators in those communities are charging 
unreasonable rates, we will reexamine this issue.
    17. Franchise fee rebuttal showing. We stated in the Rate Order 
that we would presume that franchising authorities receiving franchise 
fees have the resources to regulate rates. A franchising authority 
seeking to have the Commission exercise jurisdiction over basic rates 
is thus required to rebut this presumption with evidence showing why 
the proceeds of the franchise fees it obtains cannot be used to cover 
the cost of rate regulation. Rate Order, 8 FCC Rcd at 5676. This 
showing must consist of a detailed explanation of the franchising 
authority's regulatory program that shows why funds are insufficient to 
cover basic rate regulation. Id. The Commission will assume 
jurisdiction only if it determines that the franchise fees cannot 
reasonably be expected to cover the present regulatory program and 
basic rate regulation. Id.
    18. We continue to believe that the rebuttal showing requirement is 
consistent with section 622(i) of the Communications Act. While the Act 
provides that the Commission cannot directly control the franchising 
authority's use of the proceeds from the franchise fees, nothing 
prevents the Commission from basing a judgment on whether to assume 
regulation of basic tier rates on whether the franchising authority 
indeed lacks the funds to do so.
    19. As to the specific showing required, the franchising authority 
would simply have to document the funds it raises from franchise fees 
and any general taxes, estimate the cost of rate regulation, and 
provide an explanation as to why the funds are insufficient to cover 
those costs. Some of these factors may include whether the franchise 
fee collected is less than five percent of the cable operator's gross 
revenues,\8\ and whether costs may be shared among several 
municipalities by filing joint certifications. As we gain experience 
reviewing such requests, we will establish standards on a case-by-case 
basis to determine whether the franchising authority has sufficiently 
justified its request that the Commission regulate basic cable rates in 
a particular community.
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    \8\Section 622(b) of the Communications Act allows franchising 
authorities to collect franchise fees in an amount up to five 
percent of a cable operator's gross revenues during any 12-month 
period. 47 U.S.C. 542(b).
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    20. Voluntary withdrawal of certification. Although Congress did 
not specifically provide for the voluntary decertification of 
franchising authorities, we believe Congress envisioned that 
franchising authorities would ultimately decide whether rate regulation 
is appropriate in their communities. Indeed, the fact that franchising 
authorities have a choice as to whether to seek certification is part 
of Congress's scheme to vest primary regulatory responsibility in 
franchising authorities. Accordingly, we will allow certified 
franchising authorities to notify the Commission that they have decided 
not to regulate rates, upon their determination that rate regulation 
would no longer serve the best interests of local cable subscribers.\9\ 
Franchising authorities are specifically prohibited from accepting 
consideration in exchange for their decision to decertify.
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    \9\The Commission retains the right to review such 
determinations and seek an explanation from the franchising 
authority concerning the factual finding underlying its decision to 
decertify. We will not prohibit a franchising authority from again 
seeking certification, even after it has decertified. However, if a 
pattern of repeated certification and decertification develops, we 
reserve the right to examine the situation to determine whether the 
franchising authority can justify its determinations as to the 
propriety of rate regulation in its community.
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    21. Franchising authority's failure to meet certification 
requirements. In the Rate Order, we stated that we would automatically 
assume jurisdiction over basic cable rates when a franchising authority 
seeking initial certification does not have the legal authority to 
regulate rates or does not have rate regulations that are consistent 
with those of the Commission. In accordance with the Act, we retain 
jurisdiction in such cases only until the franchising authority has 
qualified to exercise jurisdiction by submitting a new certification 
and meeting the required statutory standard. See 47 U.S.C. 543(a)(6); 
47 CFR 76.913(a). We indicated, however, that we would allow the 
franchising authority to cure any defects in its procedural regulations 
governing rate proceedings before we would assume jurisdiction. Rate 
Order, 8 FCC Rcd at 5676, 77; 47 CFR 76.910.
    22. We believe that our statutory obligations require us to assert 
jurisdiction over basic rates when a franchising authority's 
certification effort is denied for failure to adopt regulations that 
are consistent with the Commission's rate rules. We do not believe 
Congress intended for a franchising authority to regulate when its 
regulations will substantially or materially conflict with federal 
regulations.\10\ Nor do we believe Congress intended that there be a 
regulatory vacuum when a franchising authority has affirmatively sought 
certification. Once a franchising authority has affirmatively sought 
certification because it believes basic rates to be unreasonable, and 
has indicated a willingness to regulate, we will step in to ensure that 
basic service rates are properly scrutinized until the franchising 
authority can become certified.
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    \10\Indeed, in revocation cases where the Commission determines 
that a franchising authority's laws and regulations are not in 
conformance with Commission regulations, the statute instructs the 
Commission to assume jurisdiction directly. See Communications Act, 
section 623(a)(5), 47 U.S.C. 543(a)(5).
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    23. Revocation or certification. The 1992 Cable Act establishes 
conditions for the denial or revocation of a franchising authority's 
certification. As a threshold matter, a franchising authority that 
seeks to exercise regulatory jurisdiction must meet certain statutory 
requirements; otherwise the Commission can deny its request for initial 
certification.\11\ If, after a franchising authority has been 
certified, the Commission finds that the franchising authority has 
acted inconsistently with the statutory requirements, ``appropriate 
relief'' may be granted. However, if the Commission determines, after 
the franchising authority has had a reasonable opportunity to comment, 
that the state and local laws and regulations are not in conformance 
with the regulations prescribed by the Commission to regulate rates, 
then the Commission must revoke the jurisdiction of the authority. 47 
U.S.C. 543(a)(5).
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    \11\There are three statutory requirements. First, the 
franchising authority must adopt and administer rate regulations 
that are consistent with those of the Commission. Second, the 
franchising authority must have the legal authority and personnel to 
implement the necessary regulations. Third, the franchising 
authority's procedural regulations for rate proceedings must provide 
interested parties with a reasonable opportunity to comment. See 
Communications Act, section 623(a)(3) (A)-(C), 47 U.S.C. 543(a)(3) 
(A)-(C). See also Communications Act, 623(a)(4) (A)-(C), 47 U.S.C. 
543(a)(4) (A)-(C) (setting forth that failure to meet three factors 
is cause for certification disapproval).
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    24. We will modify our position on Commission assumption of 
jurisdiction in revocation cases involving nonconformance with 
Commission regulations. As a general matter, we will allow a 
franchising authority to cure any nonconformance with our rules that 
does not involve a substantial or material regulatory conflict before 
we will revoke its certification and assume jurisdiction. On the other 
hand, we believe that the statute compels us to revoke the 
certification of any franchising authority once we find, after there 
has been an opportunity to comment, that state and local regulations 
conflict with our regulations in a substantial and material manner. 
More specifically, we will revoke the jurisdiction of a franchising 
authority for nonconformance when the state and local laws involve a 
substantial and material conflict with our rate regulations.
B. Franchising Authority's Basic Rate Decision
    25. Cost-of-service showings for basic tier rates. Some local 
franchising authorities may have resources and personnel sufficient to 
conduct a review of a rate-setting justification based on an FCC Form 
393 (and/or FCC Forms 1200/1205), but not to examine and review a cost-
based showing. This concern may have discouraged certification by many 
local franchising authorities. We believe that the Commission, 
consistent with the statutorily shared jurisdictional framework for 
regulation of the basic service tier, should provide assistance to 
certified local franchising authorities that are unable to conduct 
cost-based proceedings. Accordingly, on our own motion, we have decided 
to establish procedures under which the Commission, if requested by the 
local franchising authority in a petition for special relief under 
Sec. 76.7 of the Commission's rules, will issue a ruling that makes 
cost determinations for the basic service tier. The ruling will also 
set an appropriate cost-based rate and will become binding on the local 
franchising authority and the cable operator. Specifically, local 
franchising authorities receiving cost-of-service showings from cable 
operators seeking to justify either initial rates or rate increases for 
the basic service tier will be able to obtain such a Commission ruling 
on their behalf for those submissions pending no more than 30 days 
before May 15, 1994, or those made on or after that date.
    26. Under these procedures, upon receipt of a cost-of-service 
showing, a local franchising authority will have 30 days to decide 
whether to seek Commission assistance.\12\ If the franchising authority 
decides to seek Commission assistance, the franchising authority must 
issue a brief order to that effect, and serve a copy (before the 30-day 
deadline) on the cable operator submitting the cost showing. In its 
request for Commission assistance, the local franchising authority must 
explain its reasons for seeking Commission assistance, such as lack of 
adequately trained personnel, lack of financial resources, or other 
exigent circumstances. Upon receipt of the local authority's notice to 
seek Commission assistance, the cable operator must deliver a copy of 
the cost showing together with all relevant attachments to the 
Commission within 15 days.\13\
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    \12\Under the Commission's current rules, if a franchising 
authority is able to determine that a cable operator's current rates 
for the basic service tier and accompanying equipment are reasonable 
under the Commission's rate regulations, the rates will go into 
effect 30 days after they are submitted. If the franchising 
authority is unable to determine the reasonableness of the rates 
within this period, and the operator has submitted a cost-of-service 
showing, the franchising authority may toll the effective date of 
the rates in question for an additional 150 days to evaluate the 
cost showing. See Rate Order, at para. 119; 47 CFR 76.930.
    \13\We will classify referrals of cost-of-service cases from 
local franchising authorities as restricted proceedings for purposes 
of our ex parte rules. Accordingly, ex parte presentations are 
prohibited. See 47 CFR 1.1208 (1992).
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    27. The Commission's determination of cost-based rates for the 
basic service tier will be governed by Section 76.945 of the 
Commission's rules and will become binding upon the local franchising 
authority. The Commission will notify the local franchising authority 
and the cable operator of its determination and the basic service tier 
rate, as established by the Commission. The rate will take effect upon 
implementation by the local franchising authority and the appropriate 
remedy, if applicable, will be determined by the franchising authority. 
A cable operator or franchising authority may seek reconsideration by 
Commission staff, or review by the full Commission, of the staff ruling 
on the cost-based determination or the rate itself, pursuant to 
Sec. 1.106 of Sec. 1.115 of the Commission's rules.
    28. Delegation of authority and form of decision. The Commission 
clarifies that the authority to make rate decisions and to issue 
written orders may be delegated to specified governmental agents such 
as a local cable commission. We find that the 1992 Cable Act does not 
prohibit franchising authorities, if so authorized by state and/or 
local law, from delegating their rate-making responsibilities to a 
local commission or other subordinate entity, even if that entity is 
not the ``franchising authority'' entitled to certification under the 
Act.\14\ Any such subordinate entity will be acting as the authorized 
agent of and at the will and pleasure of the franchising authority, and 
its actions will be subject to at least the implicit, if not explicit, 
ratification of the full franchising authorities. In addition, provided 
that issuance of rate decisions satisfies the Rate Order's public 
notice requirements,\15\ franchising authorities, or the state or local 
governments, may determine the particular form such rate decisions will 
take.
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    \14\Section 602(10) of the Communications Act defines 
franchising authority as any governmental entity empowered by 
federal, state, or local law to grant a franchise. 47 U.S.C. 
522(10).
    \15\Rate Order, 8 FCC Rcd at 5715, 16.
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    29. Due process concerns. In the Rate Order, we afforded 
franchising authorities considerable flexibility regarding the manner 
in which interested parties may participate in proceedings regarding 
rates for the basic service tier and accompanying equipment, as long as 
they provide a reasonable opportunity for consideration of the views of 
interested parties and act within the prescribed time periods. Rate 
Order, 8 FCC Rcd at 5716. We also gave franchising authorities the 
flexibility to decide whether and when to conduct formal or informal 
hearings, as long as they act on rate cases within the prescribed time 
periods to provide interested parties with notice and a meaningful 
opportunity to participate. Id.
    30. Rather than impose specific procedural requirements on each 
individual franchising authority, we find it more appropriate at this 
juncture to remind franchising authorities to examine their current 
procedural requirements for other local proceedings and determine the 
best forum for providing due process to cable operators. In any event, 
a cable operator is not without redress if it determines that the 
franchising authority has denied the operator its due process rights. 
Pursuant to Section 76.944 of the Commission's Rules, the cable 
operator may raise that argument in its appeal to the local courts of 
the franchising authority's written decision. Rate Order, 8 FCC Rcd at 
5729, n. 388; 47 CFR 76.944.
    31. Appeals. We stated in the Rate Order that cable operators must 
file appeals of local rate decisions with the Commission within 30 days 
of release of the text of the franchising authority's decision. Rate 
Order, 8 FCC Rcd at 5730, 31; 47 CFR 74.944(b). Oppositions may be 
filed within 15 days after the appeal is filed, and must be served on 
the party or parties appealing the rate decision. Replies may be filed 
seven days after the last day for oppositions and must be served on the 
parties to the proceeding. 47 CFR 76.944(b).
    32. We will amend Sec. 76.944(b) to require any party filing an 
appeal of a local rate decision to serve a copy of the appeal on the 
decisionmaking authority. Additionally, where the state is the 
appropriate decisionmaking authority, the state must forward a copy of 
the appeal to the appropriate local official(s).\16\
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    \16\We will classify appeals of local rate decisions as 
restricted proceedings for purposes of our ex parte rules. 
Accordingly, ex parte presentations are prohibited. See 47 CFR 
1.1208 (1992).
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    33. Settlement of rate cases. We stated in the Rate Order that the 
regulatory structure established by section 623 of the Communications 
Act, 47 U.S.C. 543, does not appear to give cable operators the 
latitude to settle rate cases. Rather, a franchising authority must 
follow procedures that are consistent with the Commission's rate 
regulations and make a reasoned decision based on the record. Rate 
Order, 8 FCC Rcd at 5715, n. 337.
    34. For largely the same reasons that we prohibited agreements not 
to regulate basic rates,\17\ we affirm our intention to disallow 
settlement agreements that are based on factors outside the record of a 
rate proceeding. permitting such settlements could potentially allow 
franchising authorities to bargain away subscribers' statutory 
protection against unreasonable rates. Furthermore, the availability of 
settlements could increase the number of cost-of-service showings, 
which would be more suited to negotiated resolutions. Parties in a 
rate-setting procedure may, of course, stipulate to particular facts 
and even the final rate level itself, as long as the basis for each 
such stipulation is clearly articulated, there is some support for each 
stipulation in the record, and it does not circumvent our rate 
regulations.
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    \17\First Order on Reconsideration, Second Report and Order, and 
Third Notice of Proposed Rulemaking in MM Docket No. 92-266, 9 FCC 
Rcd 1164 (1993); 58 Fed. Reg. 46718 (Sept. 2, 1993) at para. 72 
[hereinafter First Rates Reconsideration].
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    35. Effective date of rate increases. In the Rate Order, we noted 
that unless the franchising authority finds that a proposed increase in 
basic tier rates is unreasonable, the increase will go into effect 30 
days after filing with the franchising authority. If the franchising 
authority is unable to determine whether the proposed rate increase is 
reasonable, or if the cable operator has submitted a cost-of-service 
showing seeking to justify a rate above the presumptively reasonable 
level, the franchising authority may delay the effective date of the 
proposed rate for 90 days, or 150 days, respectively. Rate Order, 8 FCC 
Rcd at 5709.\18\
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    \18\To toll the effective date of the proposed rate, the 
franchising authority must issue a brief order, within the initial 
30-day period, explaining that it needs additional time to review 
the proposed rate. Id.
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    36. In this Order, we find that where the franchising authority is 
unable to determine whether a particular portion of a proposed rate 
increase is reasonable and the questionable portion is clearly 
severable, a franchising authority may, at its discretion, permit the 
implementation of portions of a rate increase it finds reasonable while 
it reviews the reasonableness of other portions. This policy will 
permit cable operators to recoup as promptly as possible those costs 
that are deemed acceptable by the franchising authority.
    37. Proprietary information. In the Rate Order, we stated that 
franchising authorities will have the right to collect additional 
information--including proprietary information--to make a rate 
determination in those cases where cable operators have submitted 
initial rates or have proposed increases that exceed the Commission's 
presumptively reasonable level. Rate Order 8 FCC Rcd at 5718-19. We 
also required franchising authorities to adopt procedures analogous to 
those contained in Section 0.459 of the Commission's Rules.\19\ Id., n. 
349. See 47 CFR 76.938.
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    \19\Section 0.459 provides that a party submitting information 
may request confidentiality with respect to specific portions of the 
material submitted. The party must make a showing, by a 
preponderance of the evidence, that non-disclosure is consistent 
with Exemption 4 of the Freedom of Information Act, 5 U.S.C. 552, 
which authorizes the Commission to withhold from public disclosure 
confidential commercial or financial information.
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    38. With respect to the franchising authority's right of access to 
the cable operator's confidential business records, we find that 
franchising authorities and the parties to a rate proceeding must have 
access to the information upon which the rate justification is based. 
Such access is essential to permit the franchising authority to make an 
informed evaluation, based on complete information, of the 
reasonableness of the rate in question. Parties participating in the 
rate proceeding must have access to proprietary information submitted 
to the franchising authority in order to evaluate the arguments 
advanced by the cable operator and to help focus the issues. We clarify 
that franchising authorities are entitled to request information, 
including proprietary information, that is reasonably necessary to make 
a rate determination, whether pursuant to a cost-of-service showing or 
when applying the competitive differential, as clearly stated in the 
text of the final rule adopted. 47 CFR 76.938. Each request should 
clearly state the reason the information is needed, and where related 
to an FCC Form 393 (and/or FCC Form 1200/1205), indicate the question 
or section of the form to which the request specifically relates.
    39. This right of access is limited to that information necessary 
to support the elements of the particular rate justification at issue, 
and extends to the franchising authority and, in appropriate 
circumstances, to the actual parties to a rate proceeding.\20\ Section 
76.938 governs such access and, to the extent that any state or local 
laws provide for more limited access to information than the federal 
rule, they are accordingly preempted.
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    \20\Franchising authorities should, in appropriate 
circumstances, adopt procedures or craft protective agreements to 
ensure that proprietary information is not disclosed publicly by the 
parties.
---------------------------------------------------------------------------

    40. With respect to franchising authorities' obligations regarding 
public disclosure of proprietary information submitted by cable 
operators, we find on further reflection that we should not require 
franchising authorities to adopt procedures that mirror Sec. 0.459, 
although they may do so in their discretion. We find it neither 
necessary nor desirable to preempt state and local laws governing 
access to information. Thus, while as a general matter we believe 
franchising authorities should consider the interests of cable 
operators in protecting proprietary information, we now conclude that 
franchising authorities should proceed in accordance with applicable 
local and state law rather than mandating the adoption of procedures 
analogous to our rules. We therefore amend Section 76.938 accordingly.
    41. Forfeitures and fines. To the extent that franchising 
authorities may be concerned with the enforcement of their own orders, 
decisions, and requests for information, we clarify that if a 
franchising authority has the power under state or local law to impose 
forfeitures or fines for violations of its rules, orders, or decisions, 
including filing deadlines and orders to provide information, we see 
nothing in the Cable Act or our rules which would prevent the 
franchising authority from taking such action.\21\ A franchising 
authority would be free to report to us any apparent violation of our 
rules, and we could take appropriate enforcement action.\22\ In 
addition, we are modifying our rules to require cable operators to 
respond to franchising authorities' reasonable requests for 
information, as well as our own such requests.\23\
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    \21\See 47 CFR 76.943. As stated in the regulation, however, a 
franchising authority may not impose a forfeiture or fine simply 
because an operator's rates are unreasonable.
    \22\See Communications Act, 503, 47 U.S.C. 503; 47 CFR 76.943, 
76.963.
    \23\See 47 CFR 76.943 (as modified).
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    42. Franchising authority discretion. We also take this opportunity 
to reiterate our general philosophy regarding rate proceedings before 
franchising authorities. Congress generally allocated to franchising 
authorities responsibility for reviewing basic service rates under the 
Act. While we have set out the general rules for regulation, we have 
not attempted, nor could we address, every detail of the rate 
regulation process. Certain latitude has been left to franchising 
authorities. As we stated in the Rate Order, we will not review 
decisions of franchising authorities de novo, but rather will sustain 
their decisions as long as there is a reasonable basis for those 
decisions. Rate Order, 8 FCC Rcd at 5731. This standard of review will 
apply as well with respect to franchising authority interpretations of 
any ambiguities in evaluating the responses or information provided on 
the FCC Form 393 or in a cost-of-service showing.
C. FCC Form 393 (FCC Forms 1200/1205) Issues/Failure to File
    43. Failure to file rate justification. Under our rules, a cable 
operator has the burden of proving that its rates for regulated cable 
services are in compliance with the law.\24\ An operator justifies its 
rates by submitting its rate schedule and by also filing a completed 
FCC Form 393 (and/or FCC Forms 1200/1205) or a cost-of-service showing. 
Our rules regarding regulated upper service tiers explicitly provide 
that if a cable operator fails to file and serve a rate justification 
as required, we may deem the operator in default and enter an order 
finding the operator's rates unreasonable and mandating appropriate 
relief.\25\ However, the rules do not explicitly provide parallel 
remedies where an operator fails to timely justify its rates for the 
basic service tier.
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    \24\47 CFR 76.937, 76.956(b).
    \25\47 CFR 76.956(e).
---------------------------------------------------------------------------

    44. On our own motion, we hereby correct the oversight. An operator 
that does not attempt to demonstrate the reasonableness of its rates 
has failed to carry its burden of proof. We are therefore amending our 
rules to make clear that authorities regulating basic service rates 
have authority to deem a non-responsive operator in default and enter 
an order finding the operator's rates unreasonable and mandating 
appropriate relief. This relief could include, for example, ordering a 
prospective rate reduction and a refund. Such a refund would be based 
on the best information available at the time. We note, however, that 
in the Second Order on Reconsideration, we establish certain 
adjustments to the timeframes set out in Secs. 76.930 and 76.933 due to 
the transition from existing rules to the rules we establish today.\26\ 
A franchising authority will be permitted to find in default a cable 
operator that files its rate justification in accordance with the 
scheme set forth in the Second Order on Reconsideration at paras. 144-
149.
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    \26\Second Order on Reconsideration, Fourth Report and Order, 
and Fifth Notice of Proposed Rulemaking in MM Docket 92-266, FCC 94-
38, adopted February 22, 1994 [hereinafter Second Order on 
Reconsideration].
---------------------------------------------------------------------------

    45. Deficient rate justifications; additional information. In the 
event a cable operator files a facially incomplete rate justification, 
viz., fails to complete the FCC Form 393 or fails to include supporting 
information called for by the form, the franchising authority or the 
Commission may order the cable operator to file supplemental 
information. While the francishing authority is waiting to receive this 
information from the cable operator, the deadlines for the franchising 
authority to rule on the reasonableness of the proposed rates are 
tolled.
    46. We distinguish an incomplete filing (for example, a form filed 
without a required explanation) from one which is complete and 
submitted in good faith, but about which the regulating authority has 
certain questions or reasonably feels it requires clarifying or 
substantiating information. However, we will not automatically toll the 
deadlines for franchising authorities to act in these circumstances, as 
we do for incomplete filings. If the information sought, however, is of 
such significance as to delay examination of the rest of the rate 
justification, or if the operator fails to supply the information 
promptly, the franchise authority could be justified in delaying its 
ruling accordingly.
    47. In either case, it is obviously necessary for the franchising 
authority or the Commission to set reasonable deadlines for the 
submission of supplemental information in order to avoid delaying for 
consumers the benefits of rate regulation.\27\ If the cable operator 
fails to provide the requested information within the required time or 
fails to provide complete information in good faith, the franchising 
authority or the Commission may then hold the cable operator in default 
and mandate appropriate sanctions as discussed elsewhere in this 
section, as if the operator failed to submit a response at all. We 
again emphasize that such authority must be exercised in a reasonable 
manner.
---------------------------------------------------------------------------

    \27\Supporting information that is called for in the FCC Form 
393 itself should have been submitted with the form, and could 
reasonably be demanded within a short period of time.
---------------------------------------------------------------------------

    48. Finally, in order to assist the Commission and franchising 
authorities in verifying information contained in rate filings, cable 
operators filing after the effective date of our revised rules must 
include rate cards and channel line-ups along with their benchmark or 
cost-of-service filings. If there is any difference between the numbers 
on these documents and the numbers in the rate filing, the capable 
operator must attach an explanation. Rate cards and channel line-ups 
must be included for September 30, 1992, September 1, 1993, and for the 
rates being reviewed.
    49. Updating rate calculations. We now turn to the issue that 
arises for numerous operators that promptly revised their rates in 
response to our rules, based on rate-setting facts in existence at the 
time of the revisions. These operators have not been required to 
justify those rates until recently, however, and several months after 
the revisions, some of the facts or data on which the rate-setting is 
based may have changed.\28\ For example, tentative inflation 
adjustments have since become definite, equipment costs may have 
varied, or broadcast channels may have been added. We recognize that 
rates adopted in an effort to comply with our rules as quickly as 
possible may become unreasonable solely as a result of using later data 
to refresh the calculations. Operators should not be penalized for 
making good faith attempts to comply with our rules in a timely manner. 
In addition, if the cable operators are required to revise their rates 
immediately based on refreshed data, the changes will result in 
administrative expenses to the operators and confusion for subscribers. 
In most cases, we expect the resulting rate change would be minimal and 
would be in effect only until the cable operator seeks a rate change. 
At the same time, it is important that regulatory authorities are able 
to verify accurately the reasonableness of a current rate, and to avoid 
compounding any inaccuracies as subsequent rate increases are 
introduced, which are a function of the level of initial rates.
---------------------------------------------------------------------------

    \28\The same problem could arise any time rates are established 
at one point in time but subject to justification as of a later 
date.
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    50. Accordingly, we will require the following actions when 
different rates are dictated by data used in initial rate-setting than 
by data current as of the time an FCC Form 393 (and/or FCC Forms 1200/
1205) is actually submitted to the franchising authority or the 
Commission. When current rates are accurately justified by analysis 
using the old data (and that data was accurate at the time), cable 
operators will not be required to change their rates. In these 
circumstances, however, when such operators make any subsequent changes 
in their rates, (such as when seeking their annual inflation increase), 
those changes must be made from rates levels derived from the updated 
information.\29\ When current rates are not justified by analysis using 
the old data (so that a rate adjustment would be necessary in any 
event), cable operators will be required to correct their rates 
pursuant to current data. In these circumstances, the resulting rates 
must be based on current data.\30\
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    \29\We take this action on the assumption that any rate 
differentiation between analysis based on old and current data is 
quite small, so that the harm to consumers is small compared to the 
negative effects discussed above. In a particular case where this is 
not so, the franchising authority can petition for a waiver of our 
rules to impose an immediate rate reduction.
    \30\In any case, the franchising authority retains the 
discretion to permit retention of an established rate that is close 
to, but not exactly, the rate justified by our rate formula, with a 
corresponding reduction taken from the next rate increase, in order 
to reduce rate churn, if it determines that this best serves the 
interests of the cable subscribers within its jurisdiction.
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    51. Computer-generated forms. Many cable operators have filed their 
rate justifications on various substitute versions of FCC Form 393, 
often computer-generated. Indeed, our November 10, 1993 Public Notice 
specifically contemplated such substitutes, provided ``the form is 
identical in overall appearance and format to FCC Form 393'' (emphasis 
added). Unfortunately, our initial review of such filings has revealed 
a wide variety of substitute forms, none of which appears to be 
``identical in overall appearance and format to FCC Form 393.''
    52. Given the variations in these forms as filed and the difficulty 
in verifying their conformance to the official FCC Form 393, we 
conclude that the burden on franchising authorities and on the 
Commission of processing such non-standard forms would be substantial. 
We therefore decide that such substitute forms are unacceptable. All 
rate filings must be made on an actual FCC Form 393 (and/or FCC Forms 
1200/1205), a copy of the actual form, or a copy generated by 
Commission software.
    53. Accordingly, any future rate filing not made on an official FCC 
Form 393 (and/or FCC Forms 1200/1205), a copy of the form, or a copy 
generated by Commission software shall be deemed not to have been 
filed, and appropriate sanctions for failure to file may be imposed. 
For example, under appropriate circumstances, regulatory authorities 
may treat non-complying forms as patently defective, thus not requiring 
an opportunity to cure the defect as would be the case for a filing 
that is merely incomplete. Obviously, this sanction should not be 
imposed where an operator has made a good faith effort to comply with 
our rules. If, however, a cable operator has already made a rate filing 
on a non-FCC form prior to the effective date of these rules, the 
franchising authority may order that the form be refiled within 14 days 
of the effective date of this Order. The cable operator shall then have 
14 days to submit its rate filing on an FCC Form 393 (and/or FCC Forms 
1200/1205), during which time the deadline for the cable authority to 
rule on the reasonableness of the rates shall be tolled. Although we 
considered deeming non-standard forms already filed acceptable, we 
believe the administrative burden of attempting to implement the rules 
based on non-complying forms unacceptable. We hereby order all cable 
operators who have filed benchmark showings with us on a non-FCC form 
to refile within 14 days of the effective date of this Order. 
Furthermore, any benchmark showing that comes to the Commission on 
appeal must be on an official FCC Form 393 (and/or FCC Forms 1200/
1205), a copy of the form, or a copy generated by Commission software.
D. Refund Issues
    54. Commission authority to allow franchising authority to order 
refunds on basic tier rates. We stated in the April 1993 Rate Order 
that refunds are available with respect to basic tier service pursuant 
to our authority under sections 623(b) and 4(i) of the Communications 
Act, 47 U.S.C. 543(b), 154(i). We determined that the Communications 
Act's explicit reference to refund authority with respect to upper tier 
service should not be construed to bar refunds of unreasonable basic 
tier rates. Rate Order, 8 FCC Rcd at 5725. We noted that section 
623(b)(5)(A), 47 U.S.C. 543(b)(5)(A), grants wide discretion to adopt 
procedures so that franchising authorities can enforce reasonable 
rates.
    55. This Order affirms our belief that section 623(b)(5) grants the 
Commission wide discretion to craft procedures governing the 
enforcement of its overall regulatory regime with respect to basic tier 
rates. The mere fact that section 623(c) provides for refunds in the 
upper tier context does not persuade us that the Commission's authority 
under section 4(i), in conjunction with its rulemaking power under 
section 623(b), is not broad enough to permit the Commission to adopt 
rules providing for refunds with respect to basic tier rates.
    56. Refund computations. Another issue which we need to address is 
that of refund computations for bundled charges. Our rules state that a 
franchising authority ``may order a cable operator to refund to 
subscribers that portion of previously paid rates determined to be in 
excess of the permitted tier charge or above the actual cost of 
equipment * * *.''\31\ Whereas maximum permitted rates are always 
determined on an unbundled basis, i.e., separately for tier service and 
equipment, refund liability may stem from bundled rates.
---------------------------------------------------------------------------

    \31\47 CFR 76.942(a).
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    57. We conclude that the refund liability should be calculated 
based on the difference between the old bundled rates and the sum of 
the new unbundled program service charge(s) and the new unbundled 
equipment charge(s). The intent of the refund mechanism is to place 
subscribers in the same position they would be had they been subject to 
``reasonable'' rates. To not allow cable operators to factor in 
equipment charges could result in an operator being required to make a 
rate reduction that is greater than the maximum reduction required 
under application of the benchmark approach. This analysis is 
consistent with our earlier statement that ``the cable operator must 
make prospective billing adjustments to refund overcharges (and offset 
any undercharges) in a reasonable manner.''\32\ This analysis also 
applies to unbundled charges where an operator was charging separately 
for program services and equipment but the rates did not comply with 
our rules (because, for example, the equipment rates were higher than 
actual cost). In this situation, the operator's overall refund 
liability will be calculated by adding the old charges together and 
comparing the total with the sum of the new, unbundled program service 
and equipment charges.
---------------------------------------------------------------------------

    \32\Order in MM Docket No. 92-266, 58 FR 41042, 41044 n.21 (Aug. 
2, 1993) (discussing this issue in the context of cable operators 
not being able to adjust their rates in time when the effective date 
of regulation was moved from October 1, 1993 to September 1, 1993).
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    58. Refunds as affecting franchise fee liability. Section 622(b) of 
the Communications Act provides that ``[f]or any twelve-month period, 
the franchise fees paid by a cable operator with respect to any cable 
system shall not exceed five percent of such cable operator's gross 
revenues derived in such period from the operation of the cable 
system.'' 47 U.S.C. 542(b). We recognize that when a refund is ordered, 
a cable operator's gross revenue has been reduced, and its franchise 
fee may have to be reduced proportionately. We amend Sec. 76.942 to 
provide that, to the extent that a franchise fee is calculated as a 
percentage of the cable operator's gross revenues and those revenues 
are reduced on account of refunds, the franchising authority must 
promptly return to the cable operator the amount that was overpaid as a 
result of the cable operator's newly-diminished gross revenues.\33\
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    \33\With respect to money that constitutes a franchise fee 
overcharge resulting from a refund to subscribers pursuant to a 
rate-setting procedure, and thus owed by a franchising authority to 
a cable operator, the cable operator may deduct the amount from 
future franchise fees, rather than have the franchising authority 
return it in one immediate lump sum payment.
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    59. Calculation of refunds on basic rates. In the Rate Order and in 
subsequent orders addressing the effective date of rate regulation,\34\ 
we indicated that cable systems would be subject to potential refund 
liability for the basic service tier as of the effective date of our 
rules, which we ultimately determined to be September 1, 1993. See 
e.g., Rate Order, 8 FCC Rcd at 5725, 26.\35\ We will maintain September 
1 as the earliest date for refund liability to begin. Any refund 
liability for this period will be based, of course, on the rate-setting 
rules and formulas in effect at that time. The new rate-setting rules 
adopted in the companion Second Order on Reconsideration will be 
applied prospectively only. The new rules will determine future rates 
and refund liability only after the effective date of those rules.
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    \34\As we have explained before, administrative difficulties 
necessitated deferral of the original June 21, 1993, effective date 
for rate regulation to September 1, 1993. See Order in MM Docket No. 
92-266, FCC 93-304, 58 FR 33560 (June 18, 1993); Order in MM Docket 
No. 92-266, FCC 93-372, 58 FR 41042 (August 2, 1993). In all of 
these orders, we made clear that refund liability would begin as of 
the effective date of the rules.
    \35\Our rules provide that an operator's liability for refunds 
for basic tier rates is limited to a one-year period, except in 
cases where an operator fails to comply with a valid rate order 
issued by a franchising authority or the Commission. In such cases, 
the operator can be held liable for refunds commencing from the 
effective date of the order until such time as the operator complies 
with the order. In all other cases, the refund period shall run as 
follows: (1) From the date the operator implements a prospective 
rate reduction back in time to the effective date of the rules, or 
one year, whichever is shorter; or (2) from the date a franchising 
authority issues an accounting order, and ending on the date the 
operator implements a prospective rate reduction ordered by a 
franchising authority, then back in time from the date of the 
accounting order to the effective date of the rules, or one year, 
whichever is sooner. See 47 CFR 76.942 (b) and (c). The effect of 
these provisions is that refund liability cannot extend back before 
the effective date of our rates rules.
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    60. Calculation of refunds on cable programming service complaints. 
Section 623(c)(1)(C) of the Communications Act, 47 U.S.C. 543(c)(1)(C), 
requires the Commission to establish procedures (1) to reduce rates for 
upper tier services that the Commission determines to be unreasonable 
and (2) to refund overcharges paid by subscribers after the filing of a 
complaint that the Commission determines to have merit. In the Rate 
Order, we established that under our refund procedures the cumulative 
refund due subscribers would be calculated from the date a valid 
complaint is filed until the date a cable operator implements the 
reduced rate prospectively in bills to subscribers. Rate Order, 8 FCC 
Rcd at 5865.\36\ We affirm this timeframe for the calculation of 
refunds and refuse to adopt a time limit on refund liability for 
unreasonable cable programming service tier rates.
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    \36\We further provided that refunds would include interest 
computed at applicable rates published by the Internal Revenue 
Service for tax refunds and additional tax payments. Also, interest 
would accrue from the date a valid complaint is filed until the 
refund issues. Rate Order, 8 FCC Rcd at 5867. See also 47 CFR 
76.961(a)-(d).
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E. Cable Programming Service Complaint Process
    61. Effective date of cable programming service regulation. We 
reject suggestions that regulation of upper tier service should 
commence on the date the Commission's regulations take effect, rather 
than on the date a complaint is filed. Congress intended regulation of 
cable programming services to be complaint-driven (see 47 U.S.C. 
543(c)(1)(B) and 543(c)(3)). The Commission cannot act on upper tier 
rates until a complaint is filed. We have decided that complaints that 
are filed before the effective date of the new rate reductions ordered 
today in the companion Second Order on Reconsideration will be 
adjudicated as follows: refunds for the time period in which the old 
rules were in effect will be based on the old rules, while refunds for 
the time period in which the new rules are in effect will be based on 
the new rules.
    62. Section 623(c)(3) of the Act directs that complaints must be 
filed ``within a reasonable period of time following a change in rates 
that is initiated after that effective date, including a change in 
rates that results from a change in that system's service tiers.'' 47 
U.S.C. 543(c)(3). In the Rate Order, we interpreted that provision to 
require complainants to file such complaints within 45 days from the 
time a subscriber receives a bill from the cable operator that reflects 
the rate increase. Rate Order, 8 FCC Rcd at 5840 (emphasis supplied). 
We clarify that a subscriber may file a complaint any time there is a 
rate change, including an increase or decrease in rates, or a change in 
rates that results from a change in a system's service tiers. See 47 
U.S.C. 543(c)(3). Such rate changes may involve implicit rate increases 
(such as deleting channels from a tier without a corresponding lowering 
of the rate for that tier).\37\ As we stated in the Rate Order, the 
triggering mechanism for the filing of the complaint will be a 
reflection of any rate change on a subscriber's monthly bill. Id.\38\
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    \37\See discussion of implicit rate increases in Rate Order, 8 
FCC Rcd at 5917.
    \38\We amend Sec. 76.953(b), accordingly, to reflect this 
clarification.
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IV. Provisions Applicable to Cable Service Generally

A. Negative Option Billing Practices
    63. Section 3(f) of the 1992 Cable Act provides that ``a cable 
operator shall not charge a subscriber for any service or equipment 
that the subscriber has not affirmatively requested by name.''\39\ 
Unlike other subsections of Section 3, this provision does not 
specifically delineate the jurisdictional role, if any, of state and 
local governments in addressing negative option billing practices of 
cable operators.\40\ Language in previous decisions in this proceeding 
has created confusion concerning this issue. Based on our careful 
examination of the 1992 Cable Act and its legislative history, we 
conclude that the Commission as well as state and local governments 
have concurrent jurisdiction to regulate negative option billing.
---------------------------------------------------------------------------

    \39\Communications Act, Section 623(f), 47 U.S.C. 543(f).
    \40\Compare section 3(f) with section 3(a) (2), (3), providing 
that local franchising authorities may obtain jurisdiction to 
regulate basic service tier rates upon certification by the 
Commission. Communications Act, section 623(a) (2), (3), 47 U.S.C. 
543(a) (2), (3).
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    64. On reconsideration, on our own motion, we examine in greater 
detail whether, and under what circumstances, state and local 
governments have authority to regulate negative option billing 
practices of cable operators. We conclude that the 1992 Cable Act 
permits state and local governments to employ state or local consumer 
protection laws to regulate negative option billing. State and local 
government jurisdiction to regulate negative option billing under 
consumer protection laws is concurrent with the Commission's 
jurisdiction to regulate negative option billing under the 
Communications Act. Therefore, based on our close examination of the 
preemption issue in this order, we hereby substitute this analysis for 
two statements made in previous orders which could be read to preempt 
state and local government jurisdiction to regulate negative option 
billing practices under state and local consumer protection laws.\41\
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    \41\One of these statements, in footnote 1095 of the Rate Order, 
provides that ``[w]e do not preclude state and local authorities 
from adopting rules or taking enforcement action relating to basic 
services or associated equipment consistent with the implementing 
rules we adopt and their powers under state law to impose 
penalties.'' Rate Order, 8 FCC Rcd at 5905 n.1095. The other 
statement, in footnote 127 of the First Rates Reconsideration, 
provides that:
    We similarly affirm that franchising authorities may not 
regulate tier restructuring in a manner that is inconsistent with 
the 1992 Cable Act. See Communications Act, Sections 623 (a)(1), 
(f), 47 U.S.C. 543 (a)(1), (f). In particular, local authorities are 
precluded from regulating negative option billing to prevent tier 
restructuring regardless of how the local requirement is 
characterized. The Commission has ruled that cable operators may 
engage in revenue-neutral tier restructuring without violating the 
negative option billing procedure.
    Id. at 46 n.127 (internal citation omitted).
---------------------------------------------------------------------------

    65. The negative option billing provision appears in section 3 of 
the 1992 Cable Act, the section of the statute governing rate 
regulation. Unlike most of the other provisions of Section 3, however, 
the negative option billing provision is not limited in its application 
to those cable services and cable operators subject to rate regulation. 
Rather, than unqualified negative option billing prohibition applies to 
all cable services offered by all cable operators, regardless of 
whether the operators are subject to effective competition.\42\ Thus, 
it appears that the negative option billing provision is more in the 
nature of a consumer protection measure rather than a rate regulation 
provision per se. Section 8(c)(1) of the 1992 Cable Act provides that 
``[n]othing in this title [Title VI] shall be construed to prohibit any 
State or any franchising authority from enacting or enforcing any 
consumer protection law, to the extent not specifically preempted by 
this title.''\43\ Therefore, given that section 3(f) appears to be a 
consumer protection measure, unless ``specifically preempted'' 
elsewhere in title VI, section 8(c)(1) preserves the ability of a state 
or local government to exercise any authority it may have under state 
or local consumer protection laws to regulate negative option billing.
---------------------------------------------------------------------------

    \42\The legislative history confirms this conclusion. House 
Committee on Energy and Commerce, H.R. Conf. Rep. No. 862, 102d 
Cong., 2d Sess. at 65 (1992) (the prohibition covers, inter alia, 
``individually-priced programs or channels'' that are not subject to 
rate regulation under the 1992 Cable Act); 138 Cong. Rec. S567-68 
(daily ed. Jan. 29, 1992) (remarks of Sen. Gorton, sponsor of the 
provision).
    \43\Communications Act, Section 632(c)(1), 47 U.S.C. 552(c)(1).
---------------------------------------------------------------------------

B. Prevention of Evasions
    66. The 1992 Cable Act requires the Commission to establish and 
periodically review regulations to prevent evasion of the rate 
regulations, including evasion resulting from retiering. 47 U.S.C. 
543(h). The Rate Order defined a prohibited evasion as ``any practice 
or action which avoids the rate regulation provision of the Act or 
Commission rules contrary to the intent of the Act or its underlying 
policies.'' Rate Order, 8 FCC Rcd at 5915. The Commission generally 
opted for a case-by-case approach and declined to delineate specific 
actions that might constitute evasion. Id.\44\
---------------------------------------------------------------------------

    \44\In the Rate Order, the Commission did cite three practices 
that, if established by the evidence, would constitute evasions. 
This list, however, was not meant to be an exhaustive delineation of 
rate regulation evasions, but rather was to serve as the foundation 
for developing policies in this area. Rate Order, 8 FCC Rcd at 5917.
---------------------------------------------------------------------------

    67. In the Rate Order, we stated our belief that it would be 
virtually impossible to list potentially evasive practice or to 
determine that a practice constitutes evasion in the absence of a 
specific factual context, while expressing our expectations that 
evasions would be remedied by this Commission and local franchising 
authorities. Id. at 5915, 5916. While we still may be unable to list 
all prohibited practices at this time, certain patterns of conduct have 
emerged since the adoption of the rate regulations that we can 
characterize as creating, under certain circumstances, a possible 
evasion of the rate regulation rules. For example, moving groups of 
programming services that were offered in tiered packages to a la carte 
packages may be considered, in certain circumstances, an attempt to 
avoid the rate regulation of those services that had traditionally been 
offered to customers as part of the programming package intended for 
regulation by Congress. Such practices may not, depending on the 
particular circumstances, provide subscribers with the realistic option 
to purchase unregulated channels on an individual basis, a requirement 
set forth in the Rate Order.\45\ Generally, as discussed in further 
detail in the Second Order on Reconsideration at Section II C (``A la 
carte'' packages''), collective offerings of otherwise exempt per 
channel or per program services will not be considered an evasion if 
(1) the price for the combined package does not exceed the sum of the 
individual charges for each component of service; and (2) the cable 
operator continues to provide the component parts of the package 
separately (which requirement will be met if the a la carte offering 
constitutes a realistic service choice.\46\
---------------------------------------------------------------------------

    \45\Id. at 5837, n.808.
    \46\See also interpretive guidelines on whether collective 
offerings of a la carte channels should be accorded regulated or 
nonregulated treatment, as discussed in the Second Order on 
Reconsideration at Section II C. As noted therein, packages of a la 
carte channels offered prior to April 1, 1993 will be accorded 
nonregulated treatment.
---------------------------------------------------------------------------

    68. Collapsing multiple tiers of service into the basic tier of 
service, which ultimately eliminates the service choice previously 
available to customers and that raises the price of cable service for 
all basic tier subscribers may also be considered an evasion by 
circumventing the rules intended to reduce the cost of cable service 
and to provide for the buy-through of only desired services.\47\ Upon 
receipt of a complaint on any potential evasion, we will consider, 
inter alia, such circumstances as the timing of the cable operator's 
actions (e.g., whether it occurred on the eve of regulation or in 
response to the filing of a complaint), the price to subscribers before 
and after the actions, a comparison of the level of service received by 
the subscriber before and after the cable operator's actions, and 
whether the action resulted in the avoidance of the tier buy-through 
prohibition. Practices that have the effect of increasing subscriber 
choice and/or reducing rates generally will not be found evasive of our 
rules.
---------------------------------------------------------------------------

    \47\The ``price to subscribers'' and ``comparison of the level 
of service'' for purposes of determining whether an operator's 
collective offering of a la carte channels should be accorded 
regulated or nonregulated treatment or will be considered an evasion 
will be evaluated within the context of the factors set forth in the 
Second Order on Reconsideration.
---------------------------------------------------------------------------

    69. Numerous other practices that have developed since the advent 
of rate regulation might also be found, depending on individual 
circumstances, to constitute evasions of the rules or to violate the 
rules themselves. For instance, operators cannot now charge for 
services previously provided without extra charge (e.g., routine 
service calls, program guides) unless the value of that service, as now 
reflected in the new charges, was removed from the base rate number 
when calculating the reduction in rates necessary to establish 
reasonable rates. Also, a single channel provided to the customer that 
may consist of two or more programming services can be counted only as 
one channel of service provided for rate-setting purposes. Charging 
customers to downgrade from service packages that were added without 
their explicit consent, even where those service packages include 
previously subscribed services, may be a violation or an evasion of the 
negative option prohibition. In addition, the delivery of new packages 
(ironically intended to represent subscriber choice) without an 
affirmative assent from the subscriber may violate negative option 
requirements and result in a refund to the customer. Adding previously 
unneeded equipment and charging for that equipment in order to provide 
customers with the same services they received previously may also be 
an evasion of our rules. Operators must realize that these and similar 
practices, and other practices which directly violate or evade our 
rules will not be permitted, and that sanctions will be imposed in 
appropriate circumstances.
C. Grandfathering of Rate Agreements
    70. The 1992 Cable Act's grandfather clause allows a franchising 
authority with a franchise agreement executed before July 1, 1990, that 
was regulating basic cable rates at that time, to continue such 
regulation for the remaining term of that agreement without following 
the Commission's substantive rate standards. 47 U.S.C. 543(j). The Rate 
Order correctly limited this provision to its explicit terms. Rate 
Order, 8 FCC Rcd at 5926.
D. Subscriber Bill Itemization
    71. Special taxes. The 1992 Cable Act allows a cable operator to 
separately identify certain charges on its bill. i.e. the amounts of 
the bill (1) assessed as a franchise fee (as well as the identity of 
the franchising authority); (2) assessed to satisfy any requirements 
the franchise agreement imposes on the operator for costs related to 
public, educational, or governmental (PEG) channels; and (3) 
attributable to charges a governmental authority imposes on the 
transaction between the operator and the subscriber. 47 U.S.C. 542(c). 
The Rate Order limited the itemization provision to its express terms 
and found that itemized costs must be direct and verifiable,\48\ as 
well as a reasonable allocation of overhead, and for PEG costs, the sum 
of the per-channel costs for the number of channels used to meet 
franchise requirements. Rate Order, 8 FCC Rcd at 5967, 68. The Rate 
Order also made clear that section 622(c) does not require operators to 
undertake itemization of any costs. Id. at 5967. In the Rate Order, the 
Commission specifically determined that taxes imposed on rights-of-way 
and also applicable to other utilities would not be part of a franchise 
fee and thus could not be itemized, and specifically excluded from 
itemization California's possessory interest tax. Id. at 5968, n. 1399.
---------------------------------------------------------------------------

    \48\The House Report states that a cable operator shall itemize 
``only [the] direct and verifiable costs'' associated with the 
categories of costs the Act specifies and should ``not include in 
itemized costs indirect costs.'' House Committee on Energy and 
Commerce, H.R. Rep. No. 628, 102d Cong., 2d Sess. at 86 (1992).
---------------------------------------------------------------------------

    72. We have already found ourselves unable to conclude that the 
California possessory interest tax is, in every instance, a tax on the 
transaction between the operator and subscriber. See First Rates 
Reconsideration, supra note 17, at para. 106. We found that with 
varying applications of the tax in different jurisdictions within 
California, different treatments under our rules would pertain from 
case to case. Where the assessment of the possessory interest tax is 
directly related to subscriber revenues, such as where the tax is based 
on a value of intangible assets formula affectively calculated from the 
operator's income for the provision of cable service, then it could be 
accorded external cost treatment, and it similarly would be eligible 
for itemization on subscriber bills. Id. at para. 107. Otherwise it is 
eligible for neither treatment. As we stated in that earlier decision, 
we are prepared to allow itemization of utility user taxes in 
California, or any other jurisdiction, if additional evidence regarding 
their application in specific instances demonstrates such treatment is 
warranted under this analytical framework.
    73. Advertising of rates. The Rate Order prohibited cable operators 
from advertising prices for cable service that do not include the 
amount of franchise fees. Rate Order, 8 FCC Rcd at 5972, n. 1415. We 
remain concerned that consumers could be misled as to the cost of cable 
services by advertisements which do not include complete rates, and 
cable operators generally will be required to advertise rates that 
include all costs and fees. However, in those cases where a system 
covers multiple franchise areas that have differing franchise fees or 
other franchise costs, different channel line-ups, or have slightly 
different rate structures, an operator should be permitted some 
flexibility for efficient advertising that will reasonably advise 
potential subscribers of the true cost of service. In such 
circumstances, an operator can advertise a range of fees, or a ``fee 
plus,'' rate that indicates the core rate plus the range of possible 
additions, based on the particular location of the subscriber.\49\ An 
operator need not indicate the total rate for each individual area in 
such circumstances.
---------------------------------------------------------------------------

    \49\For instance, an advertisement might declare that basic 
service is $14.00 per month plus a franchise fee of 28 cents to 
70 cents, depending on location, or that it is $14.28 to $14.70, 
depending on location.
---------------------------------------------------------------------------

    74. Itemization of ``Franchise Related'' costs. We clarify that the 
costs required under a franchise agreement for ``support of 
institutional networks, free wiring of public buildings, provision of 
special municipal video services and voice and data transmissions'' are 
properly classified as PEG-related and are therefore itemizable under 
section 622(c)(2). Rate Order, 8 FCC Rcd at 5967-69.

V. Equipment and Installation

A. Promotions
    75. In the Rate Order we stated that operators would be afforded 
substantial discretion to offer promotions, including a below cost 
offering for some equipment and installations. Rate Order, 8 FCC Rcd at 
5819, 20. Additionally, we stated that certain limits would apply. Id. 
at 5820-21. Consistent with these statements, Section 76.923(j) of our 
rules allows promotions but limits the recovery, stating: ``Operators 
may not recover the cost of promotional offerings by increasing program 
service rates above the maximum monthly charge per subscriber 
prescribed by these rules.'' Although the rules do not state how in the 
normal course of setting rates such recovery is to be effected, they do 
allow that ``as part of a general cost-of-service showing, an operator 
may include the cost of promotions in its general system overhead 
costs.''\50\
---------------------------------------------------------------------------

    \50\47 CFR 76.923(j).
---------------------------------------------------------------------------

    76. We believe that our rules do not prevent the recovery of costs 
of equipment and installations provided to customers free or at reduced 
rates for the purpose of promoting services. Further, we expect that 
the benchmark rates already reflect an element of promotional costs 
because, prior to the inception of benchmark rates, it was fairly 
routine in the cable industry to periodically run promotional offerings 
to entice customers to purchase cable services. Considering this, we 
believe that we have adequately provided for the recovery of 
promotional offerings when setting the benchmark rates themselves. To 
the extent that this does not apply to any operator, that operator may 
attain recovery, if justified, by making a cost-of-service showing. In 
such case, the costs of promotional offerings may be included, pursuant 
to Sec. 76.924, in general system overheads. We will, however, continue 
to monitor this issue. If we find that over time there is evidence that 
such costs have not been adequately provided for under our existing 
approach, we will consider any appropriate revisions to our rules or 
policies at that time.
B. Seasonal Property Related Charges
    77. Some operators experience seasonally high maintenance costs 
associated with the need to turn service on and off at the beginning 
and end of the season for resort properties. Others provide special 
maintenance at a special fee that allows seasonal subscribers to avoid 
the inconvenience of having to disconnect and reconnect at the end and 
beginning of each season. We do not find that provision should be made 
for such operators to allow the rates for service to remain higher than 
average by allowing the cost for the seasonal turn-on and turn-off to 
remain in the rates for programming service. First of all, these 
operators are allowed to include the revenues from seasonal orders in 
their benchmark calculations of rates per channel in effect at 
September 30, 1992 and on the initial date of regulation.\51\ They 
eliminate the associated costs in determining the maximum allowable 
rates because these costs are recoverable from separate rates for 
equipment. If seasonal operators wish to provide special charges for 
seasonal connect/disconnect services or for off-season maintenance, 
they may calculate rates for such on Line 7e of Form 393, Part III (or 
Line 7.e Step B, Equipment and Installation Worksheet, FCC Form 1205), 
in accordance with our rules.
---------------------------------------------------------------------------

    \51\47 CFR 76.922.
---------------------------------------------------------------------------

C. Sale of Home Wiring
    78. The Commission requires that upon termination of service, home 
wiring must be offered for sale to subscribers. Such wiring is to be 
priced at the replacement cost of the installed material on a per foot 
basis.\52\ There is currently no required schedule for calculation of 
the charges allowable for home wiring sold to cable customers. It has 
not been demonstrated that a significantly unique and complicated 
situation prevails for pricing of home wiring and consequently that a 
special form is needed. We thus will not impose the additional burden 
of a special schedule for home wiring. Nevertheless, we clarify that 
adequate documentation should be maintained to demonstrate compliance 
with Commission pricing requirements for home wiring as well as for 
other equipment sold and for installations.
---------------------------------------------------------------------------

    \52\See Report and Order in MM Docket No. 92-260, 8 FCC Rcd 
1435, 1437 (1993); 58 Fed. Reg. 11970 (Mar. 2, 1993), petitions for 
recon. pending. See also Communications Act, Section 624(i); 47 
U.S.C. 544(i).
---------------------------------------------------------------------------

D. Time Lag
    79. In the Rate Order, the Commission directed operators to 
establish an equipment basket for accumulation of equipment and 
installation costs but did not establish the time periods for measuring 
equipment basket costs. The Form 393 and related instructions, however, 
generally require inclusion of historical costs rather than 
historically-based projected costs. In other words, the actual costs of 
the year ending are used for the development of rates for the upcoming 
year instead of projected costs. However, we believe that our 
methodology, as modified on reconsideration, does not prevent timely 
recovery of unusually high costs for equipment and installation. We 
have provided a methodology that eliminates the cost of equipment from 
service rate calculation because there is a provision to calculate 
separate rates for installations and equipment. Further, we have 
clarified in the First Rates Reconsideration that adjustments for 
unusual changes in operations are permitted, subject to regulatory 
approval, by using a representative month for developing equipment 
rates. First Rates Reconsideration, supra note 17, at para. 67. Since 
we believe that this provision will allow operators to recover the full 
cost of equipment, we will not allow cable operators to use pro forma 
expense figures averaged over the life of the franchise.

VI. Ordering Clauses

    80. Accordingly, It is Ordered That part 76 of the Commission's 
rules, 47 U.S.C. part 76, Is Amended, as indicated below, May 15, 1994.
    81. It is Further Ordered That the Petitions for Reconsideration 
Are Granted in part, Denied in part, as indicated above, and to the 
extent that Petitions raise issues concerning leased access rates, they 
will be disposed of in future orders.

List of Subjects in 47 CFR Part 76

    Cable television.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

    Part 76 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 76.905 is amended by revising paragraph (c) to read as 
follows:


Sec. 76.905  Standards for identification of cable systems subject to 
effective competition.

* * * * *
    (c) For purposes of paragraphs (b)(1) through (b)(3) of this 
section, each separately billed or billable customer will count as a 
household subscribing to or being offered video programming services, 
with the exception of multiple dwelling buildings billed as a single 
customer. Individual units of multiple dwelling buildings will count as 
separate households. The term ``households'' shall not include those 
dwellings that are used solely for seasonal, occasional, or 
recreational use.
* * * * *
    3. Section 76.914(a)(1) is revised to read as follows:


Sec. 76.914  Revocation of certification.

    (a) A franchising authority's certification shall be revoked if:
    (1) After the franchising authority has been given a reasonable 
opportunity to comment and cure any minor nonconformance, it is 
determined that state and local laws and regulations are in substantial 
and material conflict with the Commission's regulations governing cable 
rates.
* * * * *
    4. Section 76.917 is added to subpart N to read as follows:


Sec. 76.917  Notification of certification withdrawal.

    A franchising authority that has been certified to regulate rates 
may, at any time, notify the Commission that it no longer intends to 
regulate basic cable rates. Such notification shall include the 
franchising authority's determination that rate regulation no longer 
serves the interests of cable subscribers served by the cable system 
within the franchising authority's jurisdiction, and that it has 
received no consideration for its withdrawal of certification. Such 
notification shall be served on the cable operator. The Commission 
retains the right to review such determinations and to request the 
factual finding of the franchising authority underlying its decision to 
withdraw certification. The franchising authority's withdrawal becomes 
effective upon notification to the Commission.
    5. Section 76.922(b) is amended by adding paragraph (b)(9) to read 
as follows:


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

* * * * *
    (b) * * *
    (9) Updating Data Calculations.
    (i) For purposes of this section, if:
    (A) A cable operator, prior to becoming subject to regulation, 
revised its rates to comply with the Commission's rules; and
    (B) The data on which the cable operator relied was current and 
accurate at the time of revision, and the rate is accurate and 
justified by the prior data; and
    (C) Through no fault of the cable operator, the rates that resulted 
from using such data differ from the rates that would result from using 
data current and accurate at the time the cable operator's system 
becomes subject to regulation;

then the cable operator is not required to change its rates to reflect 
the data current at the time it becomes subject to regulation.
    (ii) Notwithstanding the above, any subsequent changes in a cable 
operator's rates must be made from rate levels derived from data [that 
was current as of the date of the rate change].
    (iii) For purposes of this subsection, if the rates charged by a 
cable operator are not justified by an analysis based on the data 
available at the time it initially adjusted its rates, the cable 
operator must adjust its rates in accordance with the most accurate 
data available at the time of the analysis.
* * * * *
    6. Section 76.923 is amended by adding paragraph (m) to read as 
follows:


Sec. 76.923  Rates for equipment and installation used to receive the 
basic service tier.

* * * * *
    (m) Cable operators shall maintain adequate documentation to 
demonstrate that charges for the sale and lease of equipment and for 
installations have been developed in accordance with the rules set 
forth in this section.
    7. Section 76.930 is revised to read as follows:


Sec. 76.930  Initiation of review of basic cable service and equipment 
rates.

    A cable operator shall file its schedule of rates for the basic 
service tier and associated equipment with a franchising authority 
within 30 days of receiving written notification from the franchising 
authority that the franchising authority has been certified by the 
Commission to regulate rates for the basic service tier. Basic service 
and equipment rate schedule filings for existing rates or proposed rate 
increases (including increases in the baseline channel change that 
results from reductions in the number of channels in a tier) must use 
the appropriate official FCC form, a copy thereof, or a copy generated 
by FCC software. Failure to file on the official FCC form, a copy 
thereof, or a copy generated by FCC software, may result in the 
imposition of sanctions specified in Sec. 76.937(d). A cable operator 
shall include rate cards and channel line-ups with its filing and 
include an explanation of any discrepancy in the figures provided in 
these documents and its rate filing.
    8. Section 76.933 is amended by adding paragraph (d) to read as 
follows:


Sec. 76.933  Franchising authority review of basic cable rates and 
equipment costs.

* * * * *
    (d) A franchising authority may request, pursuant to a petition for 
special relief under Sec. 76.7, that the Commission examine a cable 
operator's cost-of-service showing, submitted to the franchising 
authority as justification of basic tier rates, within 30 days of 
receipt of a cost-of-service showing. In its petition, the franchising 
authority shall document its reasons for seeking Commission assistance. 
The franchising authority shall issue an order stating that it is 
seeking Commission assistance and serve a copy before the 30-day 
deadline on the cable operator submitting the cost showing. The cable 
operator shall deliver a copy of the cost showing, together with all 
relevant attachments, to the Commission within 15 days of receipt of 
the local authority's notice to seek Commission assistance. The 
Commission shall notify the local franchising authority and the cable 
operator of its ruling and of the basic tier rate, as established by 
the Commission. The rate shall take effect upon implementation by the 
franchising authority of such ruling and refund liability shall be 
governed thereon. The Commission's ruling shall be binding on the 
franchising authority and the cable operator. A cable operator or 
franchising authority may seek reconsideration of the ruling pursuant 
to Sec. 1.106(a)(1) of this chapter or review by the Commission 
pursuant to Sec. 1.115(a) of this chapter.
    9. Section 76.937 is amended by adding paragraphs (d) and (e) to 
read as follows:


Sec. 76.937  Burden of proof.

* * * * *
    (d) A franchising authority or the Commission may find a cable 
operator that does not attempt to demonstrate the reasonableness of its 
rates in default and, using the best information available, enter an 
order finding the cable operator's rates unreasonable and mandating 
appropriate relief, as specified in Secs. 76.940, 76.941, and 76.942.
    (e) A franchising authority or the Commission may order a cable 
operator that has filed a facially incomplete form to file supplemental 
information, and the franchising authority's deadline to rule on the 
reasonableness of the proposed rates will be tolled pending the receipt 
of such information. A franchising authority may set reasonable 
deadlines for the filing of such information, and may find the cable 
operator in default and mandate appropriate relief, pursuant to 
paragraph (d) of this section, for the cable operator's failure to 
comply with the deadline or otherwise provide complete information in 
good faith.
    10. Section 76.938 is revised to read as follows:


Sec. 76.938  Proprietary information.

    A franchising authority may require the production of proprietary 
information to make a rate determination in those cases where cable 
operators have submitted initial rates, or have proposed rate 
increases, pursuant to an FCC Form 393 (and/or FCC Forms 1200/1205) 
filing or a cost-of-service showing. The franchising authority shall 
state a justification for each item of information requested and, where 
related to an FCC Form 393 (and/or FCC Forms 1200/1205) filing, 
indicate the question or section of the form to which the request 
specifically relates. Upon request to the franchising authority, the 
parties to a rate proceeding shall have access to such information, 
subject to the franchising authority's procedures governing non-
disclosure by the parties. Public access to such proprietary 
information shall be governed by applicable state or local law.
    11. Section 76.939 is added to subpart N to read as follows:


Sec. 76.939  Truthful written statements and responses to requests of 
franchising authority.

    Cable operators shall comply with franchising authorities' and the 
Commission's requests for information, orders, and decisions. No cable 
operator shall, in any information submitted to a franchising authority 
or the Commission in making a rate determination pursuant to an FCC 
Form 393 (and/or FCC Forms 1200/1205) filing or a cost-of-service 
showing, make any misrepresentation or willful material omission 
bearing on any matter within the franchising authority's or the 
Commission's jurisdiction.
    12. Section 76.942 is amended by revising paragraphs (a), (c)(2), 
and adding paragraphs (c)(3) and (f) to read as follows:


Sec. 76.942  Refunds.

    (a) A franchising authority (or the Commission, pursuant to 
Sec. 76.945) may order a cable operator to refund to subscribers that 
portion of previously paid rates determined to be in excess of the 
permitted tier charge or above the actual cost of equipment, unless the 
operator has submitted a cost-of-service showing which justifies the 
rate charged as reasonable. An operator's liability for refunds shall 
be based on the difference between the old bundled rates and the sum of 
the new unbundled program service charge(s) and the new unbundled 
equipment charge(s). Where an operator was charging separately for 
program services and equipment but the rates were not in compliance 
with the Commission's rules, the operator's refund liability shall be 
based on the difference between the sum of the old charges and the sum 
of the new, unbundled program service and equipment charges. Before 
ordering a cable operator to refund previously paid rates to 
subscribers, a franchising authority (or the Commission) must give the 
operator notice and opportunity to comment.
* * * * *
    (c) * * *
    (2) From the date a franchising authority issues an accounting 
order pursuant to Sec. 76.933(c), to the date a prospective rate 
reduction is issued, then back in time from the date of the accounting 
order to the effective date of the rules; however, the total refund 
period shall not exceed one year from the date of the accounting order.
    (3) Refund liability shall be calculated on the reasonableness of 
the rates as determined by the rules in effect during the period under 
review by the franchising authority or the Commission.
* * * * *
    (f) At the time a franchising authority (or the Commission, 
pursuant to paragraph (a) of this section) orders a cable operator to 
pay refunds to subscribers, the franchising authority must return to 
the cable operator an amount equal to that portion of the franchise fee 
that was paid on the total amount of the refund to subscribers. The 
franchising authority must promptly return the franchise fee overcharge 
either in an immediate lump sum payment, or the cable operator may 
deduct it from the cable system's future franchise fee payments.
    13. Section 76.943 is amended by revising paragraph (b) and adding 
paragraph (c) to read as follows:


Sec. 76.943  Fines.

* * * * *
    (b) If a cable operator willfully fails to comply with the terms of 
any franchising authority's order, decision, or request for 
information, as required by Sec. 76.939, the Commission may, in 
addition to other remedies, impose a forfeiture pursuant to section 
503(b) of the Communications Act of 1934, as amended, 47 U.S.C. 503(b).
    (c) A cable operator shall not be subject to forfeiture because its 
rate for basic service or equipment is determined to be unreasonable.
    14. Section 76.944 is amended by revising paragraph (b) to read as 
follows:


Sec. 76.944  Commission review of franchising authority decisions on 
rates for the basic service tier and associated equipment.

* * * * *
    (b) Any participant at the franchising authority level in a 
ratemaking proceeding may file an appeal of the franchising authority's 
decision with the Commission within 30 days of release of the text of 
the franchising authority's decision as computed under Sec. 1.4(b) of 
this chapter. Appeals shall be served on the franchising authority or 
other authority that issued the rate decision. Where the state is the 
appropriate decisionmaking authority, the state shall forward a copy of 
the appeal to the appropriate local official(s). Oppositions may be 
filed within 15 days after the appeals is filed, and must be served on 
the party(ies) appealing the rate decision. Replies may be filed 7 days 
after the last day for oppositions and shall be served on the parties 
to the proceeding.
    15. Section 76.945(b) is revised to read as follows:


Sec. 76.945  Procedures for Commission review of basic service rates.

* * * * *
    (b) Basic service and equipment rate schedule filings for existing 
rates or proposed rate increases (including increases in the baseline 
channel change that results from reductions in the number of channels 
in a tier) must use the official FCC form, a copy thereof, or a copy 
generated by FCC software. Failure to file on the official FCC form or 
a copy may result in the imposition of sanctions specified in 
Sec. 76.937(d). Cable operators seeking to justify the reasonableness 
of existing or proposed rates above the permitted tier rate must submit 
a cost-of-service showing sufficient to support a finding that the 
rates are reasonable.
* * * * *
    16. Section 76.946 is added to subpart N to read as follows:


Sec. 76.946  Advertising of rates.

    Cable operators that advertise rates for basic service and cable 
programming service tiers shall be required to advertise rates that 
include all costs and fees. Cable systems that cover multiple franchise 
areas having differing franchise fees or other franchise costs, 
different channel line-ups, or different rate structures may advertise 
a complete range of fees without specific identification of the rate 
for each individual area. In such circumstances, the operator may 
advertise a ``fee plus'' rate that indicates the core rate plus the 
range of possible additions, depending on the particular location of 
the subscriber.
    17. Section 76.953(b) is revised to read as follows:


Sec. 76.953  Limitation on filing a complaint.

* * * * *
    (b) Complaint regarding a rate change. Except as provided in 
paragraph (a) of this section, a complaint alleging an unreasonable 
rate for cable programming service or associated equipment may be filed 
against a cable operator only in the event of a rate change, including 
an increase or decrease in rates, or a change in rates that results 
from a change in a system's service tiers. A rate change may involve an 
implicit rate increase (such as deleting channels from a tier without a 
corresponding lowering of the rate for that tier). A complaint 
regarding a rate change for cable programming service or associated 
equipment may be filed against a cable operator only in the event of a 
rate change. A complaint regarding a rate change for cable programming 
service or associated equipment must be filed with the Commission 
within 45 days from the date the complainant receives a bill from the 
cable operator that reflects the rate change.
* * * * *
    18. Section 76.956(a) is revised to read as follows:


Sec. 76.956  Cable operator response.

    (a) Unless the Commission notifies a cable operator to the 
contrary, the cable operator must file with the Commission a response 
to the complaint filed on the applicable form, within 30 days of the 
date of service of the complaint. The response shall indicate when 
service occurred. Service by mail is complete upon mailing. See 
Sec. 1.47(f) of this chapter. The response shall include the 
information required by the appropriate FCC form, including rate cards, 
channel line-ups, and an explanation of any discrepancy in the figures 
provided in these documents and the rate filing. The cable operator 
must serve its response on the complainant (and, if the complainant is 
a subscriber, the relevant franchising authority) via first class mail.
* * * * *
    19. Section 76.961 is amended by revising paragraph (b) and adding 
paragraph (e) to read as follows:


Sec. 76.961  Refunds.

* * * * *
    (b) The cumulative refund due subscribers shall be calculated from 
the date a valid complaint is filed until the date a cable operator 
implements a prospective rate reduction as ordered by the Commission 
pursuant to Sec. 76.960. The Commission shall calculate refund 
liability according to the rules in effect for determining the 
reasonableness of the rates for the period of time covered by the 
complaint.
* * * * *
    (e) At the time the Commission orders a cable operator to pay 
refunds to subscribers, the franchising authority must return to the 
cable operator an amount equal to that portion of the franchise fee 
that was paid on the total amount of the refund to subscribers. The 
franchising authority may return the franchise fee overcharge either in 
an immediate lump sum payment, or the cable operator may deduct it from 
the cable system's future franchise fee payments.
    20. Section 76.984 is revised to read as follows:


Sec. 76.984  Geographically uniform rate structure.

    (a) The rates charged by cable operators for basic service, cable 
programming service, and associated equipment and installation shall be 
provided pursuant to a rate structure that is uniform throughout each 
franchise area in which cable service is provided.
    (b) This section does not prohibit the establishment by cable 
operators of reasonable categories of service and customers with 
separate rates and terms and conditions of service, within a franchise 
area. Cable operators may offer different rates to multiple dwelling 
units of different sizes and may set rates based on the duration of the 
contract, provided that the operator can demonstrate that its costs 
savings vary with the size of the building and the duration of the 
contract, and as long as the same rate is offered to buildings of the 
same size with contracts of similar duration.
    (c) Contracts between cable operators and multiple dwelling units 
entered into on or before April 1, 1993 may remain in effect until 
their previously agreed-upon expiration date.

[FR Doc. 94-9050 Filed 4-14-94; 8:45 am]
BILLING CODE 6712-01-M