******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Falcon Enstar Communications ) CUID Nos. NC0358 (Walstonburg) ) NC0359 (Grifton) Order Dismissing ) NC0360 (Hookerton) Complaints ) NC0362 (Snow Hill) ) NC0363 (Greene County) ORDER Adopted: January 9, 1997 Released: January 16, 1997 By the Chief, Financial Analysis and Compliance Division, Cable Services Bureau: 1. In this Order we consider complaints about the rates Falcon Enstar Communications ("Falcon") charges for its cable programming services tier ("CPST") in the several communities designated by the Community Unit Identification ("CUID") numbers referenced above. Rather than attempting to justify its prices through a benchmark or cost of service showing, Falcon responded to the complaints by stating that the tier in issue is an unregulated, a la carte service tier. For the following reasons, we conclude that the a la carte packages in issue are not rate regulated tiers. 2. Under the Communications Act, the Federal Communications Commission ("Commission") is authorized to review the CPST rates of cable systems not subject to effective competition to ensure that rates charged are not unreasonable. The filing of a valid complaint triggers an obligation on behalf of the cable operator to file a justification of its CPST prices through either a benchmark or cost of service showing. In either case, the operator has the burden of demonstrating that its CPST rates are not unreasonable. If the Commission finds the rate unreasonable, it shall determine the correct rate and any refund liability. 3. The Commission's original rate regulations took effect on September 1, 1993. See, Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket 92-266, Report and Order and Further Notice of Proposed Rulemaking, 8 FCC Rcd 5631 (1993) ("Rate Order"). The Commission subsequently revised its rate regulations effective May 15, 1994. See, Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket No. 92-266, Second Order on Reconsideration, Fourth Report and Order, and Fifth Notice of Proposed Rulemaking, 9 FCC Rcd 4119 (1994) ("Second Order on Reconsideration"). Cable operators with valid CPST complaints filed against them prior to May 15, 1994 must demonstrate that their CPST rates were in compliance with the Commission's initial rules from the time the complaint was filed through May 14, 1994, and that their rates 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. Cable operators attempting to justify their rates for the period beginning May 15, 1994 through a benchmark showing must use the FCC Form 1200 series. 4. On February 22, 1994, Greene County, North Carolina ("Franchising Authority") filed five valid complaints with the Commission regarding Falcon's CPST rates in the above- referenced communities. The valid complaints from the Local Franchising Authority ("LFA") trigger an obligation on behalf of the cable operator to justify its CPST rates. Falcon responded on March 8, 1994 with a letter addressed to the FCC which claimed that the rates complained of are not subject to regulation. The Franchising Authority responded by reiterating their complaints that the movement of five channels from the basic tier to an a la carte package was an attempt to avoid rate regulation in violation of FCC rules. 5. In order to determine whether or not the subject tier is regulated, we must review the rules that were in effect September 1, 1993 and subsequent orders. We held in the Rate Order that collective a la carte offerings will not be regulated so long as two essential conditions are met. We determined that a la carte packages would be exempt from rate regulation if: 1) the price for the combined package does not exceed the sum of the individual charges for each component service and 2) the cable operator continues to provide the component part of the package to subscribers separately in addition to the package. We said that the second condition would be satisfied only when "the per channel offering provides consumers with a realistic service choice." In the Second Order on Reconsideration, we identified several factors that local franchising authorities and the Commission should consider in assessing whether an a la carte package enhances consumer choice and therefore does not constitute an evasion of rate regulation. Finally, in the Sixth Order on Reconsideration, Fifth Report and Order, and Seventh Notice of Proposed Rulemaking, MM Docket Nos. 92-266, 93-215, FCC 94-286 (1994) ("Going Forward Order"), the Commission reconsidered its regulatory treatment of a la carte offerings. Specifically, we determined that such packages are cable programming tiers within the meaning of Section 3(1)(2) of the 1992 Cable Act and therefore will be subject to our general rate regulation rules. We established criteria for the creation of New Product Tiers ("NPTs"), which cannot include channels taken from regulated tiers. We concluded, however, that cable operators may treat existing packages as NPTs, so long as such packages involve only a small number of migrated channels. 6. In Falcon Cable TV, Port Orchard, Washington, 10 FCC Rcd 998 (1994), we concluded that the movement of six channels to an a la carte tier was not a clear evasion of rate regulation. In Falcon Cable TV, Southern Shores, North Carolina, 10 FCC Rcd 1002 (1994), we concluded that the a la carte tier, which started with seven channels and was enlarged to include ten channels, was a regulated tier. The Port Orchard Order found that the operator's restructuring of its CPST into the basic tier and an a la carte tier of six channels did not constitute an evasion of rate regulation. It concluded that those channels not placed on the basic service tier could be treated as a NPT and that there was no CPST in that community as of September 1, 1993 that was subject to rate regulation. More recently, in Falcon Holding Group, Inc., 10 FCC Rcd 7267 (1995), we dismissed numerous complaints against the operator concerning a la carte tiers consisting of two to six channels which were restructured in essentially the same way as the tier addressed in the Port Orchard Order. 7. Based on an analysis of the Commission's Rate Order, application of the factors established in the Second Order on Reconsideration to the available information, a review of our treatment of NPTs in the Going Forward Order, and our previous treatment of similar complaints, we conclude that the subject tiers may be treated as NPTs under our Going Forward Order. Channel lineup cards for the period in question indicate that as of March 15, 1993, Falcon offered basic service consisting of ten channels, a tier(a) service of 5 channels and a tier(b) service of 14 channels, all of which would have been considered regulated tiers under the FCC rules. In addition, Falcon offered six a la carte premium services. As of September 1, 1993, Falcon offered only the basic tier service which consisted of the twenty-nine channels consolidated from the previous tiers and the six a la carte premium channels. Subsequently, Falcon changed its channel lineup to create five new a la carte channels which were sold for $2.00 each or at a discount package rate of $5.95. All five channels were taken from the regulated basic tier. That change prompted the filing of the complaints. The a la carte package price offers a 40.5% discount from the per channel total of $10.00. A subscriber can purchase two out of five a la carte channels and still save $1.95 off the package price. This combination appears to offer a realistic service choice. Although several of the factors established in the Second Order on Reconsideration favor regulation of the tier, as was the case in Port Orchard and Falcon Holding Group, we conclude that the restructuring in issue was similar to that considered in the Port Orchard Order and the Falcon Holding Group Order and falls within the guidelines contained in the Going Forward Order. 8. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the a la carte packages discussed above, which are the subject of the referenced complaints, may be treated as new product tiers under our Going Forward Order. 9. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's Rules, 47 C.F.R.  0.321, that the above-referenced FCC Form 329 complaints pending against Falcon's rates for the a la carte tiers are DISMISSED. FEDERAL COMMUNICATIONS COMMISSION Elizabeth W. Beaty Chief, Financial Analysis and Compliance Division Cable Services Bureau