Report No. DC-2600 ACTION IN DOCKET CASE February 22, 1994 Executive Summary THIRD ORDER ON RECONSIDERATION IN CABLE RATE REGULATION AND TIER BUY-THROUGH PROCEEDINGS (MM DOCKET NOS. 92-266 AND 92-262) Today the Commission adopted a Third Order on Reconsideration in MM Docket Nos. 92- 266 (Rate Regulation) and 92-262 (Tier Buy-Through Provisions), Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992. This notice summarizes the actions taken in the Third Order on Reconsideration. 1. The 1992 Cable Act provides for regulation of cable services where a cable system does not face "effective competition," and the Act provides three specific tests for determining which systems face effective competition. The second test finds effective competition where there is at least one alternative multichannel service provider that reaches at least 50% of the households in the franchise area, and at least 15% of the households in the franchise area subscribe to such alternative service(s). The item adopted today affirms the Commission's rules for determining the presence of effective competition, as adopted on April 1, 1993, in the following ways: * the subscribership of competing multichannel distributors will be considered on a cumulative basis to determine if it exceeds 15%, but only the subscribers to multichannel providers that offer programming to at least 50% of the households in the franchise area will be included in this cumulative measurement; (over) -2- * Satellite Master Antenna Television Systems (SMATV) and Satellite Television Receive Only (TVRO) subscribership in an area may both be counted, generally, toward meeting the 15% test, since satellite service is generally available from at least of these complementary sources; and * in order for a competing multichannel distributor to offer comparable programming, it must offer at least 12 channels of video programming, including at least one nonbroadcast channel. 2. This Order clarifies that, for purposes of all three parts of the 1992 Cable Act's definition of effective competition, housing units that are used solely for seasonal, occasional or recreational use should not be counted. Therefore, a system will not be exempted from rate regulation as a "low penetration" system if the reason for the low penetration rate is that a large number of the households are unoccupied. 3. With regard to the 1992 Cable Act's requirement that cable operators have a rate structure that is uniform throughout the cable system's geographic area, the Order reaches the following decisions: * cable operators may offer nonpredatory bulk discounts to multiple dwelling units (MDUs) if those discounts are offered on a uniform basis to buildings of the same size with contracts of similar duration. Rates cannot be negotiated individually with MDUs; * cable operators' existing contracts with MDUs are grandfathered to the extent they are in compliance with rate regulation; and * the uniform rate structure requirement applies to all franchise areas, regardless of whether the cable system is exempt from rate regulation because of the presence of effective competition. Therefore, a cable operator charging competitive rates where it is subject to effective competition is prohibited from charging higher rates elsewhere. 4. The tier buy-through provision of the 1992 Cable Act prohibits cable operators from requiring subscribers to purchase anything other than the basic service tier in order to obtain access to programming offered on a per-channel or per-program basis. The Order affirms that this provision applies to all cable systems, including those that are not subject to rate regulation. -3- 5. This Order takes the following actions with regard to the process of certifying local franchising authorities to regulate cable service: * it affirms the Commission's decision that, at this time and in most circumstances, it will not assert jurisdiction over basic cable service where franchising authorities have chosen not to regulate rates; * it affirms the Commission's determination that franchising authorities seeking to have the Commission regulate basic rates must demonstrate that proceeds from their franchise fees will not cover the costs of rate regulation; * it allows franchising authorities to voluntarily withdraw their certifications if they determine that rate regulation is no longer in the best interest of local cable subscribers and they have received no consideration in exchange for their decision to decertify; * it affirms the Commission's jurisdiction over basic rates when a franchising authority's certification is denied for lack of legal authority or for failure to adopt regulations consistent with the Commission's rate rules; and * it allows a franchising authority to cure any nonconformance with the Commission's rules that does not involve a substantial or material regulatory conflict before the Commission revokes its certification and assumes jurisdiction. 6. The Order takes the following actions with regard to franchising authorities' basic rate regulation: * establishes procedures whereby the Commission will make cost determinations for the basic service tier, when requested by local franchising authorities, in an effort to assist franchising authorities whose limited resources may preclude conducting cost- of-service proceedings; * affirms franchising authorities' right to order cable companies to provide refunds upon a determination that basic tier rates are unreasonable; * clarifies that franchising authorities may delegate their rate regulation responsibilities to a local commission or other subordinate entity, if so authorized by state and/or local law; (over) -4- * affirms the Commission's decision that cable operators may not enter into settlement agreements with franchising authorities outside the scope of the Commission's rate regulations, but states that the parties may stipulate to any facts for which there is a basis in the record; * clarifies that franchising authorities are entitled to request information from the cable operator, including proprietary information, that is reasonably necessary to support assertions made by the cable operator on Form 393 as well as those made in a cost-of-service showing, but modifies the Commission's position on the confidentiality of such proprietary information by determining that state and local laws will govern such issues; * clarifies that, to the extent that franchise fees are calculated as a percentage of gross revenues, franchising authorities must promptly return overpayments of franchise fees to cable operators that result from the cable operator's newly-diminished gross revenues after refunds (or allow cable operators to deduct such overpayments from future payments); * reminds franchising authorities that they may impose forfeitures and fines for violations of their rules, orders, or decisions, including the failure to file requested information, if permitted under state or local law; and * modifies the Commission's rules to require that cable operators comply with franchising authorities' requests for information, as well as those made by the Commission. 7. The Order takes the following actions with regard to Form 393 (filed by cable operators with their local franchising authority once that authority has certified to regulate cable service, and with the Commission in response to a subscriber complaint): * informs franchising authorities that, if a cable operator fails to file a Form 393, they may deem the operator in default, find that the operator's rates are unreasonable, and order appropriate relief, such as a refund and a prospective rate reduction; * informs franchising authorities that they may order a cable operator to file supplemental information if the cable operator's form is facially incomplete or lacks supporting information, and the franchising authority's deadline to rule on the reasonableness of the rates will be suspended pending the receipt of the additional information; -5- * prohibits filings on anything but an official FCC Form 393 or a photocopy, orders cable operators that have filed on a non-FCC form with the Commission to refile on an official form within 14 days after the effective date of this Order, and entitles the franchising authority to similarly order a refiling by a cable operator that has filed on a non-FCC form within 14 days from the effective date of this Order; and * reminds franchising authorities that they have the discretion to resolve questions or ambiguities regarding the application of the rate-setting process to individual circumstances and that, if challenged on appeal, the Commission will defer to the franchising authority's decision if supported by a reasonable basis. 8. The Order continues to require that, when advertising rates, cable operators disclose costs and fees, but cable operators advertising for multiple systems on a regional basis may advertise a range of actual total prices, without delineating the specific fees for each area. 9. Identifies certain cable operator practices as possible evasions or violations of the Commission's rate regulations and tier buy-through prohibition, such as: * moving groups of programming offered in tiered packages to a la carte; * collapsing multiple tiers of service into the basic tier; * charging for services previously provided without extra charge (e.g. routine services, program guides) unless the value of that service, as now reflected in the new charges, was taken out of their basic rate number when calculating the reduction necessary to establish reasonable rates. * assessing downgrade charges for service packages that were added without a subscriber's explicit consent. 10. The order recognizes that the 1992 Cable Act provides that the Commission and the states have concurrent jurisdiction to regulate cable operators' negative option billing practices and that the 1992 Cable Act does not preempt the states from regulating those practices under state consumer protection laws. (over) -6- 11. The Order makes the following determinations with regard to equipment and installation: * the rate-setting process already reflects promotional costs and seasonal maintenance costs; therefore, rates may not be raised to reflect such costs; and * no special schedule for calculation of charges for home wiring is needed when that wiring is offered for sale to subscribers upon termination of cable service. Action by the Commission February 22, 1994, by Third Order on Reconsideration (FCC 94-40). Chairman Hundt, Commissioners Quello and Barrett, with Commissioner Barrett issuing a separate statement. -FCC- News Media Contact: Karen Watson or Susan Sallet at (202) 632-5050 Cable Services Bureau contacts: Amy J. Zoslov at (202) 416-0808 and Julia Buchanan at (202) 416-1170.