FOR FCC RECORD ONLY $//TCI Cablevision of Greater Michigan, Inc., MO&O, DA95-271//$ $/76.922 Rates for Cable Programming Service tier/$ $/benchmark cable rates/$ Before the Federal Communications Commission Washington, D.C. DA 95-271 In the matter of: ) ) TCI Cablevision of Greater Michigan, Inc. ) CUID Nos. MI0025, MI0056, MI0057, Township of Muskegon, Michigan ) MI0159, MI0193, MI0270, MI0271, City of Muskegon, Michigan ) MI0505, MI0506, MI1260, MI1261 and City of North Muskegon, Michigan ) MI1262 City of Roosevelt Park, Michigan ) City of Norton Shores, Michigan ) Township of Laketon, Michigan ) Township of Fruitport, Michigan ) City of Ferrysburg, Michigan ) Township of Egelston, Michigan ) Township of Cedar Creek, Michigan) Township of Fruitland, Michigan ) Township of Spring Lake, Michigan) ) Benchmark Filing To Support ) Cable Programming Service Prices ) Memorandum Opinion and Order Adopted: February 17, 1995 Released: February 21, 1995 By the Chief, Cable Services Bureau: Introduction 1. Here we consider complaints about the price TCI Cablevision of Greater Michigan, Inc. ("TCI") was charging for its cable programming service ("CPS") tier in the Muskegon County, Michigan, communities designated by the community unit identification ("CUID") numbers referenced above. TCI serves each of these communities from the same headend and TCI has chosen to attempt to justify its price through a benchmark showing by filing amended FCC Form 393s for each of these communities that are identical in all respects. This order addresses the reasonableness of TCI's CPS tier price for each of these communities only through May 14, 1994. At a later time we will issue a separate order addressing the reasonableness of the price for each of these communities after that date. 2. Under the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), and our rules implementing it, 47 C.F.R. Part 76, Subpart N, the Commission must review CPS prices upon the filing of a valid complaint. The filing of a valid complaint triggers an obligation on behalf of the cable operator to file a justification of its CPS prices. Under our rules, an operator may attempt to justify its rates through either a benchmark showing or a cost-of-service showing. In either case, the operator has the burden of demonstrating that its CPS prices are not unreasonable. 3. The Commission's original rate regulations took effect on September 1, 1993. The Commission subsequently revised its rate regulations effective May 15, 1994. Operators with valid CPS complaints filed against them prior to May 15, 1994 must demonstrate that their CPS prices were in compliance with the Commission's initial rules from the time the complaint was filed through May 14, 1994, and that their prices were in compliance with the revised rules from May 15, 1994 forward. Operators attempting to justify their prices for the period prior to May 15, 1994 through a benchmark showing must complete and file FCC Form 393. Generally, to justify their prices for the period beginning May 15, 1994 through a benchmark showing, operators must use the FCC Form 1200 series. Procedural Matters 4. The first valid CPS complaints in the franchise areas addressed in this Order were completed and served on TCI and received by the Commission on the dates set forth in Appendix A. 5. TCI attempted to justify its CPS price for each franchise area through identical FCC Form 393s filed on the dates noted in Appendix B. On May 27, 1994, in response to a Cable Services Bureau Order citing common deficiencies observed in benchmark filings generally, TCI attempted to justify its CPS price by filing amended FCC Form 393s that were identical in all respects for each franchise area. Subsequently, TCI amended its justifications twice: on December 23, 1994, in response to a Commission letter which requested clarification of TCI's amended showing; and on January 20, 1995, in response to a second Commission letter which requested further clarification. 6. On May 31, 1994, local franchising authorities ("LFAs") for eight of the franchising areas under consideration in this Order filed identical motions captioned as a "Request For Default and To Supplement the Record." The LFAs request that we find TCI in default for its failure to file and serve timely and proper responses to their rate complaints. The LFAs state that TCI filed its rate justifications late, in an incomplete fashion and not on the proper form. They also state that in February 1994, TCI began charging a home wire maintenance fee which is not reflected in its rate justification filings. In addition, the LFAs argue that TCI incorrectly counted the number of satellite channels in its rate justifications. 7. In response, we note that on May 27, 1994, TCI did file its rate justifications on the proper form within the "window of opportunity" established in our May 23, 1994 Order. We also note that while TCI may have filed its rate justifications in an untimely fashion, we calculate the Inflation Adjustment Factor for each franchise area based on the date TCI should have used in justifying its rate for that franchise area. With regard to TCI's satellite channel count, we note that this issue was the subject of a Commission deficiency letter to which TCI responded on December 23, 1994. TCI states that it served its response on the LFAs. The wire maintenance fee issue is addressed below. Accordingly, we grant in part and deny in part the LFAs' motions. Discussion 8. TCI asserts that its monthly CPS tier price of $10.88 per subscriber is justified by its benchmark filings because its price is equal to the maximum permitted charge of $10.88 as calculated in its amended filings. Upon review, however, we have determined that TCI has not correctly calculated its maximum permitted price, and it is therefore appropriate to make the following adjustment to TCI's calculations in the Form 393s: a. The 1992 Cable Act requires operators to fully unbundle equipment and installation costs from programming costs. The Commission's regulations implement Congress's directive by requiring operators to establish an equipment basket. Section 76.923(c) of the Commission's regulations specifically states that equipment basket costs shall include "the direct and indirect material and labor costs of providing, leasing, installing, repairing, and servicing customer equipment." In its Order adopting rate regulations, the Commission amplified this regulation by stating that "[t]he basket will include an allocation of all those system joint and common costs that service installation, leasing, and equipment repair share with other system activities, excluding general system overhead." When completed correctly Part III of FCC Form 393 unbundles equipment costs from programming costs. b. TCI, however, has not properly completed Part III of its FCC Form 393s and thus has not completely unbundled equipment and installation costs from programming costs as directed by the 1992 Cable Act and the Commission's regulations. Specifically, on Schedule A of Part III TCI has not reported any maintenance facility cost for installations and service of customer leased equipment, and on Schedule B it has not reported any costs for utilities. The lack of maintenance facility and utility costs might be correct if TCI's Schedule B allocations reflected that contract or third-party labor was performing all equipment installations and repairs. The allocations that TCI makes in its Schedule B Analysis, however, indicate that its own employees performed customer equipment installation and maintenance. c. Not only are TCI's Schedule B allocations inconsistent with not having any maintenance facility costs, its allocations are also inconsistent with its response to the Commission's second deficiency letter. In its response TCI states that "[t]he actual repair of these converters is performed by a third party off premises." This response indicates that there should be an allocation representing the cost of third-party or contract labor. TCI's Schedule B Analysis, however, does not allocate any contract labor to customer equipment installation and maintenance. d. TCI has included on its Schedule B Analysis an entry of $3,096.91 for "Converter Maintenance." This entry, however, further indicates that TCI has not fully unbundled its equipment costs from its regulated service costs. In its Part III, Step C, Line 9 explanation, TCI states that it devoted 2,562 hours to maintenance and service of remotes and converters. This number of hours allocated to maintenance and service of remotes and converters is inconsistent with having a converter maintenance cost of $3,096.91. Even assuming that $3,096.91 is intended to represent only TCI's labor costs, this would indicate a cost to TCI of only $1.21 per hour, clearly an implausible figure. Thus, $3,096.91 cannot represent all of TCI's converter maintenance costs, and there must remain costs related to installations and service of customer leased equipment that TCI has not included on Form 393, Part III. e. TCI has not justified its Part III allocations and has failed to correct its allocations even after receiving two deficiency letters. The Commission has repeatedly stated that where an operator does not provide adequate information to justify its rate, the Commission will set the maximum permitted rate based on the best evidence available to it. Simply put, TCI cannot be permitted to delay subscriber refunds by failing to provide information that is needed to determine a maximum permitted rate. Since TCI has not justified its Part III allocations and has not calculated an acceptable figure for unbundling equipment and installation costs from programming costs, we must impute an estimated equipment cost figure. We have determined based on the best evidence available to us at this time that TCI's Part II, Worksheet 3, Line 303 entry should be $0.060 of installation and customer equipment costs per subscriber per channel. We have derived this figure by analyzing a sample of other operators' FCC Form 393 filings, including both filings as to which we have already issued orders and filings that are currently under review, and we have observed that generally operators have an average unbundling figure of $0.06 per subscriber per channel. We have further determined that in order to yield an unbundling figure of $0.060 per subscriber per channel, TCI must have incurred $60,741.00 of installation and customer equipment costs, and we have therefore entered this figure on Part II, Worksheet 1, Line 104 and Part II, Worksheet 3, Line 301. While we recognize that this is not an ideal way to determine the correct amount of costs to unbundle and thus to derive a maximum permitted CPS rate, it is the only approach available to us where an operator does not supply sufficient information to justify its price. 9. Because of this error, we conclude that TCI has failed to demonstrate that its maximum permitted price for the CPS tier was not unreasonable. We will therefore set a maximum permitted price for this tier, incorporating the adjustment discussed above. In doing so, we must also recalculate the Inflation Adjustment Factor in Form 393, Part II, Worksheets 1 and 4. a. On its amended Form 393s, TCI calculated the Inflation Adjustment Factor as of the end of October 1993 using data released on July 31, 1993. For CUID Nos. MI0271, MI1260, MI1261 and MI1262, October 31, 1993, is a permissible base date. We must, however, recalculate the Inflation Adjustment Factor for these four franchise areas using the most accurate data currently available for the date for which TCI filed. On July 29, 1994, the U.S. Department of Commerce released corrected inflation data including Gross National Product Price Index ("GNP-PI") figures of 122.3 for the third quarter of 1992 and 125.7 for the fourth quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor through October 1993, the base date TCI used in justifying its rates for CUID Nos. MI0271, MI1260, MI1261 and MI1262, of 1.030. b. For CUID Nos. MI0025, MI0056, MI0057, MI0159, MI0193, MI0270, MI0505 and MI0506, however, TCI cannot permissibly calculate inflation through the end of October 1993. In these franchise areas, TCI was served with rate complaints in September 1993. The instructions to FCC Form 393, page 11, require that the Inflation Adjustment Factor be calculated using "the number of whole months from September 30, 1992 to the date you will submit this form." In general, a cable operator must submit a justification of its rates no more than 30 days after service of the earliest valid complaint. TCI cannot be permitted to claim an additional inflation adjustment simply because it did not file its Form 393s within this 30-day period. For these franchise areas, therefore, we must recalculate the Inflation Adjustment Factor on the basis of the most accurate data currently available for the latest date contemplated by the Form 393 instructions. On July 29, 1994, the U.S. Department of Commerce released corrected inflation data including Gross National Product Price Index ("GNP- PI") figures of 122.3 for the third quarter of 1992 and 125.7 for the fourth quarter of 1993. Using these GNP-PI figures, we calculate an Inflation Adjustment Factor through September 1993, the base date TCI should have used in justifying its rates for CUID Nos. MI0025, MI0056, MI0057, MI0159, MI0193, MI0270, MI0505 and MI0506, of 1.028. 10. For CUID Nos. MI0271, MI1260, MI1261 and MI1262, these adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $10.88 (as TCI calculated) to $10.24. For CUID Nos. MI0025, MI0056, MI0057, MI0159, MI0193, MI0270, MI0505 and MI0506, these adjustments have the cumulative effect of reducing the maximum permitted monthly CPS tier price from $10.88 (as TCI calculated) to $10.21. Conclusions 11. Upon review of the record herein, we conclude that TCI's showing for CUID Nos. MI0271, MI1260, MI1261 and MI1262 supports a maximum reasonable CPS tier price of $10.24 per month (plus franchise fee) for the period from the filing of the earliest complaint in each franchise area (as set forth on Appendix A) to May 14, 1994. We also conclude that TCI's showing for CUID Nos. MI0025, MI0056, MI0057, MI0159, MI0193, MI0270, MI0505 and MI0506 supports a maximum reasonable CPS tier price of $10.21 per month (plus franchise fee) for the period from the filing of the earliest complaint in each franchise area (as set forth on Appendix A) to May 14, 1994. We further determine that with respect to each of the franchise areas discussed in this Order we will order appropriate refunds pursuant to Section 76.957 of the Commission's Rules, 47 C.F.R.  76.957, in order to reimburse subscribers for the amount they paid in excess of a reasonable price. 12. We further conclude that for the period after May 14, 1994, TCI must reflect in its Form 1200 rate filings for each of the franchise areas addressed in this Order the fact that TCI's prices during the earlier period were unreasonable. We reserve the right to make further adjustments to TCI's prices for the period after May 14, 1994, upon completion of our review of TCI's FCC Form 1200 rate filings. 13. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the complaints referred to in Appendix A against the cable programming service price charged by TCI Cablevision of Greater Michigan, Inc. in the Township of Muskegon, Michigan, CUID No. MI0025; City of Muskegon, Michigan, CUID No. MI0056; City of North Muskegon, Michigan, CUID No. MI0057; City of Roosevelt Park, Michigan, CUID No. MI0159; City of Norton Shores, Michigan, CUID No. MI0193; Township of Laketon, Michigan, CUID No. MI0270; Township of Fruitport, Michigan, CUID No. MI0271; City of Ferrysburg, Michigan, CUID No. MI0505; Township of Egelston, Michigan, CUID No. MI0506; Township of Cedar Creek, Michigan, CUID No. MI1260; Township of Fruitland, Michigan, CUID No. MI1261; and Township of Spring Lake, Michigan, CUID No. MI1262, and all other complaints in these franchise areas related to the same price, ARE GRANTED TO THE EXTENT INDICATED HEREIN. 14. IT IS FURTHER ORDERED that the May 31, 1994, motions filed by the local franchising authorities for the Township of Muskegon, Michigan, CUID No. MI0025; City of Muskegon, Michigan, CUID No. MI0056; City of North Muskegon, Michigan, CUID No MI0057; Township of Laketon, Michigan, CUID No. MI0270; Township of Fruitport, Michigan, CUID No. MI0271; City of Ferrysburg, Michigan, CUID No. MI0505; Township of Egelston, Michigan, CUID No. MI0506; and Township of Cedar Creek, Michigan, CUID No. MI1260 ARE GRANTED AND DENIED TO THE EXTENT INDICATED HEREIN. 15. IT IS FURTHER ORDERED that the benchmark filings submitted by TCI Cablevision of Greater Michigan, Inc. with respect to the Township of Fruitport, Michigan, CUID No. MI0271; Township of Cedar Creek, Michigan, CUID No. MI1260; Township of Fruitland, Michigan, CUID No. MI1261; and Township of Spring Lake, Michigan, CUID No. MI1262, for the period beginning with the filing of the first valid complaint in each franchise area (as set forth in Appendix A) and ending on May 14, 1994, justify a maximum price of $10.24 per month (plus franchise fee) for TCI Cablevision of Greater Michigan, Inc.'s cable programming service tier. 16. IT IS FURTHER ORDERED that the benchmark filings submitted by TCI Cablevision of Greater Michigan, Inc. with respect to the Township of Muskegon, Michigan, CUID No. MI0025; City of Muskegon, Michigan, CUID No. MI0056; City of North Muskegon, Michigan, CUID No. MI0057; City of Roosevelt Park, Michigan, CUID No. MI0159; City of Norton Shores, Michigan, CUID No. MI0193; Township of Laketon, Michigan, CUID No. MI0270; City of Ferrysburg, Michigan, CUID No. MI0505; and Township of Egelston, Michigan, CUID No. MI0506, for the period beginning with the filing of the first valid complaint in each franchise area (as set forth in Appendix A) and ending on May 14, 1994, justify a maximum price of $10.21 per month (plus franchise fee) for TCI Cablevision of Greater Michigan, Inc.'s cable programming service tier. 17. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R. 76.961, that TCI Cablevision of Greater Michigan, Inc. shall refund to subscribers in the Township of Fruitport, Michigan, CUID No. MI0271; Township of Cedar Creek, Michigan, CUID No. MI1260; Township of Fruitland, Michigan, CUID No. MI1261; and Township of Spring Lake, Michigan, CUID No. MI1262, that portion of the amounts paid for cable programming service for the period from the filing of the first valid complaint in each franchise area (as set forth in Appendix A) to May 14, 1994, that exceeded $10.24 (plus franchise fee) per month and was thus unreasonable, plus interest to the date of the refund. 18. IT IS FURTHER ORDERED, pursuant to Section 76.961 of the Commission's Rules, 47 C.F.R. 76.961, that TCI Cablevision of Greater Michigan, Inc. shall refund to subscribers in the Township of Muskegon, Michigan, CUID No. MI0025; City of Muskegon, Michigan, CUID No. MI0056; City of North Muskegon, Michigan, CUID No. MI0057; City of Roosevelt Park, Michigan, CUID No. MI0159; City of Norton Shores, Michigan, CUID No. MI0193; Township of Laketon, Michigan, CUID No. MI0270; City of Ferrysburg, Michigan, CUID No. MI0505; and Township of Egelston, Michigan, CUID No. MI0506, that portion of the amounts paid for cable programming service for the period from the filing of the first valid complaint in each franchise area (as set forth in Appendix A) to May 14, 1994, that exceeded $10.21 (plus franchise fee) per month and was thus unreasonable, plus interest to the date of the refund. 19. IT IS FURTHER ORDERED that TCI Cablevision of Greater Michigan, Inc. shall promptly determine the overcharges to CPS subscribers in each franchise area for the stated period, and shall within 30 days of the release of this Order file a report with the Chief, Cable Services Bureau, stating the cumulative refund amounts so determined (including franchise fees and interest), describing the calculation thereof, and describing its plan to implement the refunds within 60 days of Commission approval thereof. 20. IT IS FURTHER ORDERED, pursuant to Section 76.922(b)(4)(C) of the Commission's rules, 47 C.F.R.  76.922(b)(4)(C), that TCI Cablevision of Greater Michigan, Inc. shall, within 30 days of the release of this Order, revise its Form 1200 filings with respect to its franchise areas in the Township of Muskegon, Michigan, CUID No. MI0025; City of Muskegon, Michigan, CUID No. MI0056; City of North Muskegon, Michigan, CUID No. MI0057; City of Roosevelt Park, Michigan, CUID No. MI0159; City of Norton Shores, Michigan, CUID No. MI0193; Township of Laketon, Michigan, CUID No. MI0270; Township of Fruitport, Michigan, CUID No. MI0271; City of Ferrysburg, Michigan, CUID No. MI0505; Township of Egelston, Michigan, CUID No. MI0506; Township of Cedar Creek, Michigan, CUID No. MI1260; Township of Fruitland, Michigan, CUID No. MI1261; and Township of Spring Lake, Michigan, CUID No. MI1262, for the period beginning May 15, 1994, to reduce the monthly charge per tier as of March 31, 1994 for Tier 2 (Line A6b) to equal the maximum price for that franchise area (plus franchise fee). 21. IT IS FURTHER ORDERED that TCI Cablevision of Greater Michigan, Inc. shall place into effect, within 30 days after its submission of the revised Form 1200 filing required above, a CPS tier price that reflects the reduction in the CPS rate determined in this Order for its franchise areas in the Township of Muskegon, Michigan, CUID No. MI0025; City of Muskegon, Michigan, CUID No. MI0056; City of North Muskegon, Michigan, CUID No. MI0057; City of Roosevelt Park, Michigan, CUID No. MI0159; City of Norton Shores, Michigan, CUID No. MI0193; Township of Laketon, Michigan, CUID No. MI0270; Township of Fruitport, Michigan, CUID No. MI0271; City of Ferrysburg, Michigan, CUID No. MI0505; Township of Egelston, Michigan, CUID No. MI0506; Township of Cedar Creek, Michigan, CUID No. MI1260; Township of Fruitland, Michigan, CUID No. MI1261; and Township of Spring Lake, Michigan, CUID No. MI1262. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau Appendix A CUID No. Date First Complaint Date Complaint Filed with FCC Served MI0025 10/4/93 9/29/93 MI0056 10/4/93 9/28/93 MI0057 9/27/93 9/24/93 MI0159 10/15/93 9/20/93 MI0193 10/15/93 9/21/93 MI0270 9/27/93 9/24/93 MI0271 10/22/93 10/14/93 MI0505 10/4/93 9/28/93 MI0506 9/28/93 9/24/93 MI1260 1/3/94 12/22/93 MI1261 2/17/94 2/17/94 MI1262 11/23/93 11/19/93 Appendix B CUID No. 393 Filing Dates Prior to May 27, 1994 MI0025 1/10/94 MI0056 1/10/94 MI0057 11/15/93; 12/2/93; 12/8/93 MI0159 12/2/93; 12/8/93 MI0193 12/2/93; 12/8/93 MI0270 11/15/93; 12/2/93; 12/8/93; 1/10/93 MI0271 1/10/94 MI0505 1/10/94 MI0506 12/2/93; 12/8/93 MI1260 3/10/94 MI1261 1/10/94 MI1262 1/10/94 Appendix C CUID No. Inflation Adjustment Factor Maximum Permitted Price MI0025 1.028 $10.21 MI0056 1.028 $10.21 MI0057 1.028 $10.21 MI0159 1.028 $10.21 MI0193 1.028 $10.21 MI0270 1.028 $10.21 MI0271 1.030 $10.24 MI0505 1.028 $10.21 MI0506 1.028 $10.21 MI1260 1.030 $10.24 MI1261 1.030 $10.24 MI1262 1.030 $10.24