FOR RECORD ONLY $//Appeal ORDER, Paragon, Grapevine, TX, DA 95-172//$ $/76.986 A La Carte Offerings/$ $76.944 Commission Review of Franchising Authority Decisions/$ Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 DA 95-172 In the Matter of: ) ) PARAGON CABLE ) ) ) Appeal of Local ) Rate Order of City of ) Grapevine, Texas ) ORDER Adopted: February 7, 1995 Released: February 8, 1995 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. On August 5, 1994, Paragon Cable ("Paragon") filed with the Commission a Petition for Review of Rate Order ("appeal") of the local rate order ("local order") adopted by the City of Grapevine, Texas ("the City"). Paragon also filed a Petition for Stay of Enforcement of Rate Order on August 15, 1994. Paragon's Petition for Stay of the local order was granted pending the resolution of this appeal. In its local order, the City established Paragon's rates for basic cable service, equipment, installations and hourly service charges. As part of this decision setting the basic tier rates, the City found Paragon's collective or package offering of certain individually offered ("a la carte") channels to be a regulated tier of service, and, therefore, included those channels as regulated channels for purposes of the local order. The City ordered Paragon to make refunds to subscribers for all payments made in excess of the rates set forth in the local order for the period September 1, 1993 through July 14, 1994. 2. In its appeal, Paragon challenges the local order on three grounds. First, Paragon argues that the City exceeded its authority in determining that its a la carte services should be treated as regulated channels. Second, it argues that the City's decision to treat the a la carte package as a regulated tier of service is contrary to the objectives of the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") and the Commission's a la carte rules. Third, Paragon contends that it was cooperative with the city's rate consultant and that the allegation that it was not should not serve as a basis for concluding that its a la carte offering should be rate regulated. The City responds that it validly exercised the authority to evaluate the a la carte offerings delegated to it by the Commission and that it properly applied the Commission's guidelines on a la carte packages and concluded that Paragon's package should be treated as a regulated tier. 3. Under our rules, rate orders made by local franchising authorities may be appealed to the Commission. In ruling on appeals of local rate orders, the Commission will not conduct a de novo review, but instead will sustain the franchising authority's decision as long as there is a reasonable basis for that decision. Therefore, the Commission will reverse a franchising authority's decision only if it determines that the franchising authority acted unreasonably in applying the Commission's rules in rendering its local rate order. If the Commission reverses a franchising authority's decision, it will not substitute its own decision but instead will remand the issue to the franchising authority with instructions to resolve the case consistent with the Commission's decision on appeal. With respect to a determination made by a franchising authority on the regulatory status of an a la carte package as part of its final decision setting rates for the basic service tier, the Commission has stated that "the Commission will defer to the local authority's findings of fact if there is a reasonable basis for the local findings," and the Commission "will then apply FCC rules and precedent to those facts to determine the appropriate regulatory status of the [a la carte package] in question." II. DISCUSSION 4. Paragon objects to the City's finding in the local rate order that its a la carte services (WGN and WTBS) must be included in the regulated channel count for the purpose of calculating benchmark rates. Paragon argues that its a la carte package complies with the provisions of the 1992 Cable Act, which it contends encourage cable operators to unbundle programming services from regulated tiers and offer them on a per-channel basis. Paragon further argues that its a la carte package fully complies with Commission rules for unregulated treatment existing at the time the package was created. 5. The Paragon a la carte services at issue were first offered to subscribers on September 1, 1993, when Paragon restructured the service offerings on its Grapevine system. Paragon states that its September 1, 1993, restructuring involved moving two channels, WGN and WTBS, off the basic service tier and offering the two channels on an individual basis and also as a package that Paragon alleges is not subject to rate regulation. 6. The facts presented in this appeal closely resemble the facts presented in one of our recently issued letter of inquiry orders on a la carte packages, Paragon Cable, Irving, Texas, LOI-93-25, DA 94-1315 (Cab. Serv. Bur., released Nov. 25, 1994) ("Paragon of Irving"), in which we resolved the regulatory status of an la carte package offered by Paragon on its Irving, Texas, system that is essentially the same as the a la carte package at issue in this appeal. Specifically, the a la carte package at issue in the Paragon of Irving order was a two channel package, made up of channels formerly available on the basic service tier, which was offered as part of a restructuring. In that case, we found we could not say that it was clear that the a la carte package at issue was not a permissible non-rate regulated offering under our rules. We further concluded that in light of the prior confusion over what constituted a permissible non-rate regulated a la carte offering, it would be inequitable to subject the operator to refund liability or to require the operator to restructure its tiers so as to return the channels offered in the a la carte package to regulated tiers. Instead, we found that the a la carte package at issue may be treated as a new product tier under the Commission's Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, Sixth Order on Reconsideration and Fifth Report and Order, MM Docket Nos. 92-266 and 93-215, FCC 94-286 (released November 18, 1994) ("Going Forward Order"). 7. We find that the City's determination that Paragon's a la carte package is a regulated tier is inconsistent with the action taken in the letter of inquiry orders, and in particular, in Paragon of Irving. We further find that, in accordance with Paragon of Irving, Paragon's a la carte package should not be treated as a rate regulated tier of service. Accordingly, we are remanding this issue to the Cities so that they can enter orders consistent with our findings in Paragon of Irving. III. ORDERING CLAUSES 8. Accordingly, IT IS ORDERED that the appeal of the local order, with respect to the issue of the regulatory status of Paragon's a la carte package, is REMANDED to the City for resolution in accordance with the terms of this Order. 9. IT IS FURTHER ORDERED that our stay of the local order which was granted pending the resolution of this appeal is hereby VACATED. 10. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by section 0.321 of the Commission's rules. 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau