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                            Before the
                Federal Communications Commission
                      Washington, D.C. 20554

                                 
  In the Matter of:                )
                                   )
  CABLEVISION OF NEW YORK CITY - PHASE I)
                                   )
       Petitioner,                 )
                                   )
                                         v.)
                                   )
  CITY OF NEW YORK                 )
                                   )
                                        Respondent.)
                                   )
  Appeal of Local Rate Order       )
                                 

                  MEMORANDUM OPINION AND ORDER

    Adopted:  December 13, 1996Released:  December 17, 1996  

By the Chief, Cable Services Bureau:


   I.INTRODUCTION

      1.On February 16, 1995, Cablevision of New York City - Phase I ("Cablevision")  filed
an appeal of the local rate order, issued on January 17, 1995, by its franchising authority, the City
of New York, New York ("NYC").  In its local order, NYC adopted rates for basic tier service and
for associated equipment and installations in Brooklyn and in the Bronx, New York  and required
Cablevision to refund overcharges to subscribers for the period September 1, 1993 to July 14, 1994. 
Cablevision contends that NYC incorrectly computed the system's gross monthly programming
service revenues from its basic tier subscribers in the rate order, because NYC incorrectly claims that
the term "gross revenues" includes franchise fees, and because NYC will not permit Cablevision to
calculate its monthly franchise fees on line 208 of FCC Form 393, the same way cable operators
calculate their monthly equipment revenue amounts on line 204 of FCC Form 393, by adding the
appropriate amounts together for all twelve months, and then dividing the total by twelve.
 
      2.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 the 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.

      3.FCC Form 393 is the official form used by regulators to determine whether an
operator's regulated rates for programming, equipment and installations were reasonable during the
time period from September 1, 1993 until May 14, 1994.  Form 393 is divided into three separate,
but interrelated parts.  In Part II, the operator calculates its maximum permitted programming rates,
while in Part III, the operator calculates its equipment and installation costs and maximum permitted
equipment and installation rates.  Part I is a cover sheet that lists the various programming,
equipment and installation rates that have been calculated in Parts II and III and compares them to
the rates the operator has actually charged during the period of review.

  II.DEFINITION OF "GROSS REVENUES"

      A. Contentions of the parties
                                                                                                                     
      4.Cablevision asserts that franchising authorities are precluded from charging franchise
fees in excess of five percent of gross subscriber revenues, pursuant to 622(b) of the 1992 Cable
Act.  Cablevision argues that it is required each month to pay NYC a franchise fee of 5.27%, which
consists of 5% of the total amount that subscribers pay for cable services in addition to 5% of the 
franchise fee that Cablevision collects from its subscribers.  According to Cablevision, this is, in
effect, a tax-on-tax, which is precluded by 47 U.S.C. 542(b).  In support of its argument,
Cablevision cites the Third Recon. Order, in which the Commission held that where a franchise fee
was calculated as a percentage of the cable operator's gross revenues, and those revenues have been
reduced because 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." 
According to Cablevision, NYC believes that all governmental levies imposed upon a cable system,
including taxes and franchise fees, are part of gross revenues,  which may be subject to local
franchise fees.  Cablevision argues, however, that the Commission has stated that a cable operator's
maximum permissible revenue for service can be established only after subtracting monies collected
from subscribers that are paid to cities in the form of franchise fees.  Citing page 2 of FCC Form
1200, and note 1, page 8 of the same form, Cablevision notes that a system's maximum permitted
rates under the cost of service rules are calculated after excluding franchise fees.  Likewise, page 10
of the FCC's instructions to its Form 393 for comparing initial subscriber rates to the permissible
benchmark contains the following provision:  ". . . you separate out any franchise fees that you
include in your subscriber rates."  Cablevision asserts that these instructions make clear that
franchise fees are not to be included in gross revenues.

      5.In response, NYC asserts that pursuant to 1.22 of the City's Franchise Agreement
with Cablevision, dated July 19, 1983, the term "gross revenues," which is subject to a franchise fee
of 5%, means the total amount that Cablevision receives from its subscribers, including the amount
of franchise fees.  NYC adds that normally the Commission will defer to the judgment of local
franchising authorities and uphold their rate orders if there are rational bases for them, citing the
Commission's Rate Order. 

      B.Discussion

      6.In its recent decision in United Artists Cable of Baltimore, the Commission noted that
it would ". . . exercise jurisdiction over franchise fee disputes that impinge on a 'national policy
concerning cable communications.'"  Specifically, the Commission indicated that it intended to
exercise jurisdiction over disputes arising directly under the the provisions of the Communications
Act, as opposed to specific fact patterns concerning various local issues.  The Commission gave
as a specific example the fact that  622(b) states that franchise fees are to be calculated based on
"gross revenues . . . derived from the operation of the cable system."  Therefore the Commission
reasoned, the issue of precisely what constitutes "gross revenues . . . derived from the operation of
a cable system" does not arise from individual franchise agreements, but from a specific provision
of the statute itself.  When Congress enacted this provision, it established a uniform federal
standard governing the calculation of franchise fees, and the issue of franchise fee calculation
necessarily impinges upon a national policy on cable franchise fees, according to the Commission. 
The Commission concluded that it is fully consistent with our policy on resolving franchise fee
disputes and appropriate for the Commission to exercise its jurisdiction over this issue in order to
provide a Commission interpretation of this statutory term that can serve as precedent in future cases.

      7.In United Artists Cable of Baltimore, the Commission also upheld the Bureau's
conclusion that the franchise fee a cable operator collects from subscribers should not be included
in calculating an operator's "gross revenues," because franchise fees are a charge levied by the
franchising authority, rather than revenues derived from the operation of the cable system. 
Moreover, given the statutory franchise fee cap of 5%, a cable operator could be obligated to pay
more than the maximum franchise fee permitted under the Cable Act, were the franchise fee itself
subject to a franchise fee.  We hold, therefore, that Cablevision is correct in its contention that the
franchise fee it collects from its subscribers for NYC does not constitute gross revenues from the
operation of the cable system, and that NYC is not entitled, therefore, to charge a 5% franchise fee
on the total amount that Cablevision collects from its subscribers, including the franchise fee.
 
 III.MONTHLY FRANCHISE FEES ON LINE 204

      A.Contentions of the parties

      8.The second issue raised by Cablevision concerns NYC's methodology in determining
equipment revenues on line 204 of FCC Form 393 and for determining franchise fee expenses on
line 208 of the same form.  Cablevision claims this is inconsistent and results in an overstatement
of the system's average franchise fee expense and an understatement of the system's average
equipment revenue, and that it artificially decreases Cablevision's maximum permitted per channel
rate from $0.394 to $0.367.  According to Cablevision, because FCC Form 393 specifies that to
calculate its monthly average equipment revenue on line 204, a cable operator should divide its total
yearly revenues by twelve, FCC Form 393 must also mean that a cable operator should follow the
same procedure in calculating the average monthly franchise fee on line 208 of the same form.  

      9.NYC, however, notes that the instructions for line 208 of FCC Form 393 direct cable
operators to "[c]alculate the (non-itemized) franchise fees you paid for regulated tiers of service for
the community unit during an average month."  NYC contends that, had this language meant that
cable operators should total the year's franchise fees and then divide the total by twelve to obtain an
average figure, instead of merely entering the figure for an average or a representative month, the
Commission would have so specified, as it did in the instructions for line 204 of the same form.

      B.Discussion

      10.Cablevision's contention regarding the instructions for lines 204 and 208 of FCC
Form 393 is correct.  Line 204 of FCC Form 393 states:  to obtain the monthly equipment revenue
figures as of September 30, 1992, cable operators must add the seven revenue components listed for
the year together and then divide the total amount by twelve.  The instructions for line 208 of the
same form state:  "[c]alculate the (non-itemized) franchise fees you paid for regulated tiers of service
for the community unit during an average month during the fiscal year preceding September 30,
1992.  Enter that total monthly payment in Column E of Line 208,"  We think it is clear that
operators should total the relevant fees for the year and then divide the resulting sum by twelve.  We
will remand this issue to the City for resolution in accordance with the terms of this Order.
   
  IV.ORDERING CLAUSES

      11.Accordingly, IT IS ORDERED that the appeal filed by Cablevision of New York
City - Phase I IS GRANTED, and the proceeding IS REMANDED to the City of New York for
proceedings consistent with the terms of this Order.

      12.This action is taken by the Chief, Cable Services Bureau pursuant to authority
delegated by 0.321 of the Commission's Rules.  47 C.F.R. 0.321. 

     FEDERAL COMMUNICATIONS COMMISSION



     Meredith J. Jones
     Chief, Cable Services Bureau