[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Rules and Regulations]
[Pages 45356-45359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21582]


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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76

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


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

AGENCY: Federal Communications Commission.

ACTION: Final Rule.

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SUMMARY: In this Memorandum Opinion and Order (``Order''), the 
Commission revisits the decision in the Third Report and Order to 
require cable operators to use the same method of initial rate 
regulation, either benchmark or cost-of-service, for both the BST and 
the CPSTs. This requirement applies for one year from the date that the 
operator first becomes subject to regulation on any tier. The Third 
Report and Order sought to remove incentives to engage in retiering 
strategies during the initial rate setting process that would result in 
operators receiving more than compensatory rates. The Commission 
indicated that it would review the requirement after 18 months. Upon

[[Page 45357]]

review of the record the Commission elects to modify the requirement 
set forth in the Third Report and Order so that consistent rate 
methodologies must be used for the entire period in which an operator 
is subject to rate regulation on both the BST and CPST(s). This Order 
is adopted concurrently with a Notice of Proposed Rulemaking which is 
summarized elsewhere in this issue of the Federal Register. The 
intended effect of this Order is that consistent rate methodologies be 
used for the entire period in which an operator is subject to rate 
regulation on both the BST and CPST(s).

EFFECTIVE DATE: September 30, 1996.

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

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Memorandum Opinion and Order, MM Docket No. 92-266 FCC 96-316 adopted 
July 25, 1996, and released August 15, 1996. The full text of this 
decision is available for inspection and copying during normal business 
hours in the FCC Reference Center (room 239), 1919 M Street, NW, 
Washington, D.C. 20554, and may be purchased from the Commission's copy 
contractor, International Transcription Service, (202) 857-3800, 1919 M 
Street, NW, Washington, D.C. 20554.

Synopsis of the Memorandum Opinion and Order

    1. In the Third Report and Order in MM Docket No. 92-266, 58 FR 
63087 (``Third Report and Order'') the Commission determined that 
operators must use the same rate-setting method for all tiers. This 
requirement applies for one year from the date an operator first 
becomes subject to rate regulation on either the BST or a CPST. The 
Commission established this requirement because, in some circumstances, 
using the benchmark approach for one tier and the cost-of-service 
approach for another tier could result in a double recovery of costs by 
the cable operator.
    2. The regulatory review process for BST rates is separate from the 
review process for CPST rates. Regulation of rates for BSTs is the 
responsibility of certified local franchising authorities (``LFAs''), 
pursuant to standards and procedures established by the Commission. An 
operator may appeal an LFA's rate decision to the Commission. CPST 
rates are regulated directly by the Commission upon receipt by the 
Commission of a valid complaint from an LFA.
    3. In the Third Report and Order, the Commission held, that without 
the tier consistency requirement:

    an operator could retier its services and place its most 
expensive programming on the tier regulated by a cost-of-service 
determination. The operator would then be allowed to charge a per 
channel rate for the low cost tier based on the benchmark (which is 
an averaged rate) that actually exceeds its cost for that tier (and, 
thus, the rate it would be able to charge under a cost-of-service 
showing). At the same time, the operator may be able to charge a 
higher-than-benchmark rate for the other tier through a cost-of-
service showing, based on its higher costs for that tier. The end 
result would be rates that exceed the reasonableness standard set 
forth in the 1992 Cable Act.

    4. The Commission upholds the requirement of the Third Report and 
Order that the same methodology for determining rates on all regulated 
tiers shall be used in the initial rate setting process. The Commission 
sees no reason to conclude that the concerns referred to in the 
preceding paragraph have dissipated. In addition, because these 
concerns do not dissipate one year after an operator initially becomes 
subject to regulation, on its own motion, the Commission removes the 
provision that limits the required use of consistent methodologies to 
the one year period beginning on the date an operator initially becomes 
subject to rate regulation, and thereby extend the requirement so that 
consistent methodologies must be used whenever an operator has more 
than one tier subject to rate regulation. This requirement will remain 
effective until such time as the Commission finds that the use of the 
same rate regulatory method on all rate regulated tiers is not 
necessary to prevent operators from charging rates above that which the 
rate regulations contemplate. This provision effectuates the 
Commission's statutory mandate to protect consumers from unreasonable 
rates.
    5. Use of the same rate regulatory method for all rate regulated 
tiers does not hamper an operator's ability to charge fully 
compensatory rates. The Commission provides a cost of service option as 
an alternative to the benchmark formula for operators that believe the 
benchmark would not enable them to recover costs reasonably incurred in 
the provision of regulated cable service. As of the effective date of 
this Order, operators must use consistent rate regulatory methods on 
all rate regulated tiers whenever the operator is required to justify 
its rates on any rate regulated tier.

Final Regulatory Flexibility Analysis

    6. As required by Section 603 of the Regulatory Flexibility Act, 5 
U.S.C. Sec. 603 (RFA), an Initial Regulatory Flexibility Analysis 
(IRFA) was incorporated in the Report and Order and Further Notice of 
Proposed Rulemaking in MM Docket 92-266, 58 FR 29736 (``Report and 
Order''). The Commission sought written public comments on the 
proposals in the Report and Order including comments on the IRFA, and 
addressed these responses in the Third Report and Order. No IRFA was 
attached to the Third Report and Order because the Third Report and 
Order only adopted final regulations and did not propose regulations. 
This FRFA thus addresses the impact of regulations on small entities 
only as adopted or modified in this action and not as adopted or 
modified in earlier stages of this rulemaking proceeding. The 
Commission's Final Regulatory Flexibility Analysis (FRFA) conforms to 
the RFA, as amended by the Contract with America Advancement Act of 
1996 (CWAAA), Public Law No. 104-121, 110 Stat. 847. Subtitle II of the 
CWAAA is The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), codified at 5 U.S.C. Sec. 610 et seq. (1996).
    7. Need and Purpose for Action: This action is being taken in 
accordance with the Commission's decision, as set forth in the Third 
Report and Order, to revisit the issues discussed herein, and to carry 
out the Commission's statutory mandate to insure that cable rates are 
reasonable.
    8. Summary of Issues Raised by the Public Comments in Response to 
the Initial Regulatory Flexibility Analysis: There were no comments 
received in response to the Initial Regulatory Flexibility Analysis. A 
single commenter petitioned the Commission for reconsideration of the 
requirements contained in the Third Report and Order, but this petition 
was ultimately withdrawn. The petitioner was not a small entity, and no 
reply comments to the petition were received.
    9. Certification of No Significant Economic Impact on a Substantial 
number of Small Entities: We do not believe that the final rule adopted 
in the Order will have a significant impact on small entities as 
defined by the Small Business Administration (SBA), by statute, or by 
our rules. The Communications Act at 47 U.S.C. 543 (m)(2) defines a 
small cable operator as ``a cable operator that, directly or through an 
affiliate, serves in the aggregate fewer than 1 percent of all 
subscribers in the United States and is

[[Page 45358]]

not affiliated with any entity or entities whose gross annual revenues 
in the aggregate exceed $250,000,000.'' Under the Communications Act, 
at 47 U.S.C. 543(m)(1), a small cable operator is not subject to the 
rate regulation requirements of Sections 543 (a), (b) and (c) on cable 
programming service tiers (``CPSTs'') in any franchise area in which it 
serves 50,000 or fewer subscribers. The rule adopted in this Order 
requires that the same rate regulatory methodology be used across the 
basic service tier (``BST'') and CPSTs. Thus, the rule adopted in this 
Order only applies to operators that are rate regulated on both the BST 
and CPST, and would therefore not apply to a small cable operator in 
any franchise area in which it serves 50,000 or fewer subscribers.
    10. Section 623(i) of the Communications Act, 47 U.S.C. 
Sec. 543(i), requires that the Commission design rate regulations in 
such a way as to reduce the administrative burdens and the cost of 
compliance for cable systems with 1,000 or fewer subscribers. The 
Commission introduced a form of rate regulation known as the small 
system cost-of-service methodology. This approach is more streamlined 
than the standard cost-of-service methodology available to cable 
operators that are not small cable systems owned by small cable 
companies. In addition, the small system rules include substantive 
differences from the standard cost-of-service rules to take account of 
the proportionately higher costs of providing service faced by small 
systems. This rate adjustment methodology is an alternative to the 
standard rate adjustment methodologies which are the subject of this 
Order. In designing this alternative methodology, the Commission 
extended the small system relief required by Section 623(i) of the 
Communications Act to cable systems with 15,000 or fewer subscribers 
owned by cable companies serving 400,000 or fewer subscribers over all 
of their cable systems. Because of the utilization of this alternative 
rate adjustment methodology by small cable operators, we do not believe 
that this Order, which does not concern this alternative methodology, 
will have any significant economic impact on a substantial number of 
small cable companies as defined by the Commission's rules.
    11. The SBA, at 13 CFR Part 121.201 (as of July 25, 1996), defines 
a small cable business concern as a cable business, including its 
affiliates, that has $11 million or less in annual receipts. The 
Commission, in defining a small system as a cable system with 15,000 or 
fewer subscribers owned by a cable company serving 400,000 or fewer 
subscribers, stated that $100 million in annual regulated revenues 
equates to approximately 400,000 subscribers. We therefore believe that 
many cable operators that are within this SBA definition will also be 
within the Commission's definition of small cable operator, and will 
not experience significant economic impact for the reasons described in 
the preceding paragraph. If, however, a cable operator has $11 million 
or less in annual receipts, but does not fall within the class of small 
cable companies entities to small system rate relief under the 
Commissions rules, we believe that such a company would fall under the 
Communications Act at 47 U.S.C. 543(m)(1), which states that a small 
cable operator is not subject to the rate regulation requirements of 
Sections 543 (a), (b) and (c) on CPSTs in any franchise area in which 
it serves 50,000 or fewer subscribers. If $100 million in annual 
regulated revenues equates to approximately 400,000 subscribers, then 
50,000 subscribers, expressed in terms of dollars, should meet or 
exceed the $11 million in annual receipts from the SBA definition of a 
small cable business concern. Using this same approach, we likewise 
believe that the SBA definition of a cable business concern will fall 
within the one percent of United States subscribers from the 
Communications Act definition of a small cable operator, because the 
Commission has determined that there are approximately 61,700,000 
subscribers in the United States. We believe that small cable business 
concerns as defined by the SBA will fall within the Communication Act's 
definition of a small cable operator and the Act's provision of CPST 
rate deregulation for small cable operators that serve 50,000 or fewer 
subscribers. As explained above, the rule adopted in this Order is 
inapplicable to operators that are not subject to CPST rate regulation.
    12. The SBA, at 5 U.S.C. Section 601 (Vol. 5), states that small 
governmental jurisdictions are ``[g]overnments of cities, counties, 
towns, townships, villages, school districts or special districts with 
populations of less than 50,000.'' Under the Commissions current rules, 
if a local governmental has elected to rate regulate the BST, a cable 
operator must submit rate justifications to the local government on FCC 
Forms. We do not believe that a substantial number of small 
governmental jurisdictions will face a significant economic impact due 
to this Order for the following reasons. First, we do not know of any 
cable operators that are currently using inconsistent rate setting 
methods on their rate regulated tiers, and that would therefore have to 
switch to consistent methods as a result of this Order. If such an 
operator did exist, the operator would not be required to use 
consistent rate regulatory methods until the next time the operator was 
required to justify rates on a rate regulated tier. Thus, the 
requirement would not generate an increased number of rate reviews by a 
local franchising authority. Even in this instance, an operator may 
elect to change its CPST ratemaking methodology in order to conform to 
the rule as opposed to its BST ratemaking methodology. Such a change 
would not affect small governmental jurisdictions because the CPST rate 
is regulated by the Commission, and not by small governmental 
jurisdictions.
    13. The Commission shall send a copy of this Final Regulatory 
Flexibility Analysis, along with this Report and Order, in a report to 
Congress pursuant to the Small Business Regulatory Enforcement Fairness 
Act of 1996, 5 U.S.C. Sec. 801(a)(1)(A). A copy of this FRFA will also 
be published in the Federal Register.

Procedural Provisions

    14. Ex parte Rules--Non-Restricted Proceeding. This is a non-
restricted notice and comment rulemaking proceeding. Ex parte 
presentations are permitted, except during the Sunshine Agenda period, 
provided that they are disclosed as provided in the Commission's rules. 
See generally, 47 CFR Sections 1.1202, 1.1203, and 1.1206(a).
    15. Pursuant to applicable procedures set forth in Sections 1.415 
and 1.419 of the Commission's rules, interested parties may file 
comments on or before October 6, 1996, and reply comments on or before 
November 8, 1996. To file formally in this proceeding, you must file an 
original plus four copies of all comments, reply comments, and 
supporting comments. If you would like each Commissioner to receive a 
personal copy of your comments and reply comments, you must file an 
original plus nine copies. You should send comments and reply comments 
to the Office of the Secretary, Federal Communications Commission, 1919 
M Street, N.W. Washington, D.C. 20554. Comments and reply comments will 
be available for public inspection during regular business hours in the 
FCC Reference Center, Room 239, Federal Communications Commission, 1919 
M Street N.W., Washington D.C. 20554.

[[Page 45359]]

Ordering Clauses

    16. Accordingly, it is ordered that, pursuant to the authority 
granted in Sections 4(i), 4(j), 303(r) and 623 of the Communications 
Act of 1934, as amended, 47 U.S.C. Sections 154(i), 154(j), 303(r) and 
543, the requirements set forth in the Third Report and Order are 
amended to provide that the use of the same rate regulatory methodology 
will be required for all rate regulated tiers for the entire period in 
which an operator is subject to rate regulation on more than one tier.
    17. It is further ordered that the requirements established in this 
decision shall become effective September 30, 1996.
    18. It is further ordered that, the Secretary shall send a copy of 
this Memorandum Opinion and Order, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration in accordance with paragraph 603(a) of the 
Regulatory Flexibility Act. Public Law No. 96-354, 94 Stat. 1164, 5 
U.S.C. Secs. 601 et seq. (1981).

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

List of Subjects in 47 CFR Part 76

    Cable television.

Rule Changes

    Part 76 of Title 47 of the Code of Federal Regulations is amended 
as follows:

PART 76--CABLE TELEVISION SERVICE

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

    Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a, 
307, 308, 309, 312, 315, 317, 325, 503, 521, 522, 531, 532, 533, 
534, 535, 536, 537, 543, 544, 544a, 545, 548, 552, 554, 556, 558, 
560, 561, 571, 572, 573.

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


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

    (a) Basic and cable programming service tier rates. Basic service 
tier and cable programming service rates shall be subject to regulation 
by the Commission and by state and local authorities, as is 
appropriate, in order to assure that they are in compliance with the 
requirements of 47 U.S.C. 543. Rates that are demonstrated, in 
accordance with this part, not to exceed the ``Initial Permitted Per 
Channel Charge'' or the ``Subsequent Permitted Per Channel Charge'' as 
described in this section, or the equipment charges as specified in 
Sec. 76.923, will be accepted as in compliance. The maximum monthly 
charge per subscriber for a tier of regulated programming services 
offered by a cable system shall consist of a permitted per channel 
charge multiplied by the number of channels on the tier, plus a charge 
for franchise fees. The maximum monthly charges for regulated 
programming services shall not include any charges for equipment or 
installations. Charges for equipment and installations are to be 
calculated separately pursuant to Sec. 76.923. The same rate-making 
methodology (either the benchmark methodology found in paragraph (b) of 
this section, or a cost-of-service showing) shall be used to set 
initial rates on all rate regulated tiers, and shall continue to 
provide the basis for subsequent permitted charges.
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[FR Doc. 96-21582 Filed 8-28-96; 8:45 am]
BILLING CODE 6712-01-U