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

In the Matter of                     )
                                     )
                                     )
FALCON CABLE SYSTEMS,                )
City of Florence, Oregon             )
                                     )
                                     )
Petition for Review of Local Rate    )
Order by City of Florence, Oregon    )
                                     )


                      MEMORANDUM OPINION AND ORDER

   Adopted:  February 23, 1998                     Released:  February 25, 1998

By the Chief, Cable Services Bureau:

I.      INTRODUCTION

  1.    On September 6, 1995, Falcon Cable Systems ("Falcon"), the franchised cable operator
in the above matter, filed an appeal of the local rate order issued by the City of Florence, Oregon
("City").  The City, which acts as the local franchising authority for the area Falcon provides cable
television service, adopted its local order on August 5, 1995.  Pursuant to the Cable Television
Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), the local order called for the
reduction of Falcon's rates for basic service tier ("BST") and associated equipment and installation
charges and proposed that Falcon issue refunds for overcharges to subscribers for each month during the
period between September 1, 1994 to September 1, 1995.  The City chose not to file an Opposition and,
accordingly, Falcon did not file a Reply.  

  2.    In the local rate proceedings, Falcon elected to use the cost-of-service approach to justify
its rates.  The local rate order covers the time period from July 14, 1994 to August 9, 1995 and is
therefore governed by our Cost Order.  The City states in its order that Falcon's filings justified a BST
rate of only $11.20 per month, or $11.88 less than the actual rate of $23.08 at the time of the filing. 
Relying in large part on its consultant's recommendations, the City pointed to a number of inadequacies
in Falcon's filings that supported the rate reduction.  Falcon's Petition challenges the City's findings,
and states that its cost-of-service filing justified a maximum permitted rate of $38.66 for the BST, well
above its actual rate of $23.08.  Falcon argues that the City's order should be set aside, because it: 1)
excluded essentially all of Falcon's intangible assets from its ratebase; 2) improperly allocated certain
costs between program service tiers; 3) completely disregarded Falcon's substantiation of a rate of return
greater than 11.25%; 4) offsets both local advertising revenue and home shopping commissions against
projected total revenue requirements; and 5) disallowed the use of the Equivalent Billing Unit
methodology for determining Falcon's subscriber count.  We address all five issues in the following
appeal.


II.     STANDARD OF REVIEW

  3.    Under our rules, rate orders adopted 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.  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.


III.    BACKGROUND
  
  4.    On May 3, 1993, the Commission released its Rate Order establishing rules to implement
the cable television rate regulation provisions of the 1992 Cable Act.  In the Rate Order, the Commission
determined that a benchmark approach should serve as the primary method for regulating equipment and
installations and basic and cable programming service tier rates.  The Commission also concluded that
because the benchmark methodology might not produce fully compensatory rates in all cases, it was
appropriate to permit operators, as an alternative, to justify rates based on costs, using individual cost-of-
service showings.  Unlike the benchmark approach which set rates pursuant to a formula derived from
industry-wide data, the cost-of-service approach set rates based on the cable operator's actual cost and
revenue data.  The cost-of-service approach was intended to be used only if an operator believed that
the maximum rate permitted under the benchmark formula would not enable the operator to recover costs
reasonably incurred in providing rate regulated cable services.  When a cable operator elects to make
a cost-of-service showing, however, the Commission's rules permit local authorities to prescribe any rate
that is justified by the cost showing, including a rate lower than the benchmark or operator's current rate
level.  When electing a cost of service showing, the cable operator assumes the risk that its rate could
by lowered if such action is justified by the cost showing.

  5.    The Commission found, however, that the record before it at the time of the adoption of
the Rate Order did not provide sufficient information to develop detailed cost-of-service rules for the
cable industry.  On July 16, 1993, the Commission issued a Notice of Proposed Rulemaking ("Notice")
which proposed requirements to govern cost-of-service showings submitted by cable operators seeking
to justify rates higher than those determined under the benchmark approach.  The Commission indicated
in the Notice, as it did in the Rate Order, that general cost-of-service principles would apply to cost-of-
service filings submitted prior to the adoption of specific rules.  Following consideration of the
comments submitted pursuant to the Notice, on March 30, 1994, the Commission released the Cost Order
establishing interim cost-of-service rules.  Effective May 14, 1994, these interim rules adopted specific
regulatory requirements to govern cost-of-service filings to justify rates above levels determined under
its benchmark requirements.  In particular, the Cost Order sets forth rules on the treatment of an
operator's intangible assets.  These rules are premised on the goal of eliminating from the ratebase any
portion attributable to the expectation of monopolistic profits.  The Cost Order, with its detailed rules on
intangible assets, applies to rates charged from May 14, 1994 to March 9, 1996, when the Commission's
Second Cost Order or final rules took effect.  However, if the local franchising authority had not issued
a final order prior to the effective date of the final rules, the operator can elect to have its cost-of-service
filing decided under either the interim rules or the final rules. 

  6.    Under Commission rules, cable operators may elect to have their regulated rates reviewed
pursuant to either the benchmark or cost-of-service regime.  Falcon's filing of the Form 1220 constitutes
its election of the cost-of-service regime to justify its rates that took effect July 14, 1994.  Pursuant to
this election, Falcon is required to reveal its actual costs for its Florence cable system and assumes the
risk that its rates could be set at levels below that determined under the benchmark approach.  Indeed,
the City's rate order established Falcon's maximum permitted rate at a level lower than the benchmark. 
The City's review of Falcon's 1220 filing was guided by the interim cost-of-service rules established in
the Cost Order, since those rules were in effect when the City issued its final order.  In accordance with
our standard of review, our review of this appeal solely examines the reasonableness of the City's
application of the interim rules to Falcon's cost-of-service filing. 


IV.     DISCUSSION  

  A.    Intangible Assets 
  
  7.    Falcon asserts that the City's exclusion of certain intangible asset values from its ratebase
is inconsistent with the Commission's rules.  Falcon acquired the cable system serving the City in 1990,
and recorded the cost of the intangible assets on its books pursuant to Generally Accepted Accounting
Principles (GAAP).  In its Form 1220, Falcon attempted to include in its ratebase the following
intangible assets (the values in parantheses constitute the gross costs Falcon assigned to such asset): cable
T.V. franchise ($5,195,744); organizational costs ($66,773); franchise renewal costs ($9,020); customer
lists ($180,050); and goodwill ($2,146).  Falcon contends that it is entitled to full recovery of these
intangible assets.  The City accepted Falcon's organizational costs, franchise renewal costs, customer
lists, and goodwill as part of Falcon's ratebase, but rejected the intangible asset identified as "cable T.V.
franchise".

  8.    Falcon disputes the City's exclusion of the cable T.V. franchise from its ratebase.  Falcon
explains that the value assigned to the cable T.V. franchise is derived from the following intangibles:
operating rights; advertising interconnection agreements; programming contracts; licenses; access
agreements; management and operating systems; software; service marks; and assembled workforce. 
Falcon argues that the value of these intangibles is properly included in its ratebase, since these
intangibles provide benefit to Falcon's subscribers and are essential for the provision of cable services. 
In addition, Falcon argues that the Cost Order's use of presumptive tests for the inclusion of a certain
limited number of intangibles "violates equitable principles, as well as sound regulatory practice."  

  9.    In disallowing the cable T.V. franchise asset from Falcon's ratebase, the City concluded
that the value assigned to this asset was essentially excess acquisition cost and represented monopoly
power --"an expectation of a future return greater than the competitive norm."  The City contends that
excluding the cable T.V. franchise from Falcon's ratebase is consistent with the Commission's rules. 

  10.    In the Cost Order, the Commission distinguishes intangible assets that ordinarily benefit
subscribers and are presumptively included in the operator's ratebase from intangible assets that are
associated with monopolistic profits and are presumptively excluded from the ratebase. The assets
presumptively included in the operator's ratebase -- organizational costs, franchise rights, and customer
lists -- are defined in the Cost Order.  The assets presumptively excluded from the ratebase constitute
"excess acquisition costs".  The City concluded that the entire value of the cable T.V. franchise
represented expectations of monopolistic profits which deserve exclusion from the ratebase.  While the
Commission agrees with the City that an operator should not expect to recover monopolistic profits
through its ratebase, we cannot support the City's decision to exclude the entire value of the cable T.V.
franchise.  The intangibles Falcon included in its valuation of the cable T.V. franchise are subject to only
a presumption that they will be excluded from the ratebase.  The City appears to have rejected these
intangibles out of hand.  Accordingly, we remand the issue of Falcon's intangible asset valuation to the
City for further proceedings.  

  11.   On remand, the City should use the asset valuation approach followed in Telemedia
Company of Western Connecticut ("Telemedia") and Falcon Cablevision,since the facts presented in
this appeal are substantially similar to these prior cost-of-service cases.  In both Telemedia and Falcon
Cablevision, we found the local franchising authority's rejection of intangibles to be unreasonable under
the interim cost-of-service rules.  We have reached a similar conclusion here.  The Telemedia and Falcon
Cablevision approach achieves a fair balance between the operator's interests for reasonable recovery of 
investment and the local franchising authority's interest in setting reasonable cable rates.

  12.   In Telemedia and Falcon Cablevision, the Commission explained an acceptable method
to calculate the operator's ratebase.  Pursuant to Telemedia, an operator should include in its ratebase
66% of a system's entire purchase price, including tangible and intangible assets.  Conversely, 34% of
the entire purchase price should be excluded from the ratebase, for this amount is attributable to the
expectation of monopoly profits in an unregulated environment.  The determination of 34% is best
explained through example.  If a cable operator with an expectation of monopoly profits buys a system
for $1,000, based on a system valuation of ten times cash flow, that operator anticipates an annual cash
flow of $100 and annual revenues of $200, based on an assumption of a 2:1 ratio between revenues and
cash flows.  According to the Commission's benchmark survey, 17% of an operator's annual revenues
reflects a system's monopoly revenues.  Thus, in the example given, $34 of the $200 annual revenues
would be deemed to reflect the operator's monopoly revenues.  Therefore, because expenses should
remain the same before and after rate regulation and because it is assumed that monopoly revenues would
flow straight to cash flow, $34 or 34% of the operator's $100 annual cash flow would constitute
monopoly revenues.  Under this methodology the 34% adjustment must be applied to the entire purchase
price, both intangible and tangible assets, because cable operators derive revenues, including monopoly
revenues, from the employment of both categories.  Thus, had there been effective competition, the
system would have been expected to generate only $66 in annual cash flow.  If the acquisition price for
a system is ten times cash flow, then it can be concluded that the system in the example would have been
purchased for $660 in a competitive environment, not the $1,000 paid based on its monopoly status. 
Therefore, $340 of the actual purchase price, or 34% is attributable to monopoly expectations.  This
approach of excluding 34% of the entire purchase price satisfies the Commission's objective of preventing
recovery of monopoly profits through the ratebase.  Moreover, this approach greatly simplifies the asset
valuation process by eliminating the need to characterize and assess the value of each individual asset. 


  B.    Cost Allocations

  13.   Falcon contends that the City erred in rejecting Falcon's use of a "weighted channel
factor" for allocating joint and common costs for provision of cable services.  The weighted channel
factor multiplies the number of channels by the number of subscribers for each respective category of
service (e.g. basic, cable programming service, and premium) and then apportions costs based on the
relative percentage of the total weighted count represented by the weighted count for each category. 
Falcon argues that the use of the weighted channel factor best achieves the Commission's goal that joint
and common costs, which are not directly assignable, should be allocated on a cost causative basis. 
Nonetheless, the City adopted a straight channel count methodology for allocating such joint and common
costs.  A straight channel count methodology apportions costs per tier based on number of channels per
tier, without weighting the allocation by the number of subscribers.  According to Falcon, the City's
straight channel count allocation method focuses solely on plant capacity but ignores the cause of the
costs.  Falcon further alleges that the City's allocation method does not recognize relative usage and
ultimately results in an under-allocation of costs to the BST.  Falcon also acknowledges that a "pure
cost-causative" allocation would result in an over-allocation of costs to the BST, based on the premise
that the majority of plant related costs are incurred in order to provide the BST.  Falcon opted for the
weighted channel allocation which it characterizes as the middle ground approach that results in a proper
allocation of costs to the BST.  

  14.   The City rejected Falcon's weighted channel factor and opted instead for channel counts
as the most reasonable and appropriate method to allocate joint and common costs, in this case primarily
plant and plant related resources.  The City states that channel counts, unweighted by the number of
subscribers, bear a direct relationship to costs, since they represent relative physical usage of the plant
capacity.  Falcon's weighted channel factor rests on the assumption that the cost of plant related resources
varies with the number of subscribers.  The City takes issue with this assumption and argues that the
number of subscribers for any particular service is generally not "cost causative" for plant related
resources. The City states that the amount required to build a given mile of plant is approximately the
same whether there are ten or one hundred subscribers to any given channel or package of channels. 
The City advocates that the channel count method best satisfied the Commission's mandate that costs
should  be allocated on a cost-causative basis.

  15.   The Commission's Cost Order established general allocation rules that encourage direct
assignment of costs where possible, but also allow for operator flexibility in determining specific
allocators and allocation schemes.  The general propositions upon which we base our cost allocation
requirements are as follows: 

        (1) costs shall be directly assigned among the equipment basket and
        service cost categories whenever possible; (2) costs that cannot be
        directly assigned and as to which no allocator has been specified by the
        Commission are to be allocated based on direct analysis of the origin of
        the costs, and where allocation based on direct analysis is not possible,
        operators must attempt to make a cost causative linkage to other costs
        directly assigned or allocated to the service cost categories and the
        equipment basket; (3) for costs that cannot be directly assigned and for
        which no indirect measures of cost allocation can be found, such costs
        shall be allocated to each service cost category based on the ratio of all
        other costs directly assigned and attributed to a service cost category over
        total costs directly or indirectly assigned and directly or indirectly
        attributable.  

Although the Commission rules permit flexibility in cost allocation, the method selected must adhere to
Commission's guidelines requiring the demonstration of cost causative links.  We have previously found
the channel-based method, upon the facts and justifications submitted, reasonable.  Generally, the operator
carries the burden of proof in demonstrating the reasonableness of proposed rates for the BST.

  16.   We find that the City's decision to use a channel count allocation was reasonable and
consistent with our rules.  This case involves the allocation of various joint and common costs (plant
related assets, plant related operating expenses, administrative costs) that were otherwise not directly
assignable.  The Commission requires that allocation of such joint and common costs adhere to the cost-
causative principle.  We agree with the City's conclusion that the Commission's allocation objectives are
best achieved through the straight channel count, rather than the weighted channel factor.  The straight
channel count methodology bears a direct relationship to costs, since the methodology represent the
relative physical usage of their plant.  The weighted channel factor fails to demonstrate such a
relationship, as the common and joint costs at issue do not substantially vary with the number of
subscribers.  

  17.   The Commission has rejected the propriety of the weighted channel allocation.  The
reasons for doing so are several.  First, the magnitude of channel numbers and subscriber numbers on
the regulated tiers are such that, when multiplied, their product dwarfs those of the unregulated tiers and
unduly skews common cost distributions to regulated tiers.  Second, cable plant and supporting
equipment are designed around the transmission of channels to subscribers.  The greater the number of
channel offerings, the larger the plant and the more costly the supporting equipment.  The causation is
clear in this example.  Conversely, incremental increases in plant are seldom attributable to subscriber
growth.  There is no cost-causative link to support subscriber based allocations of plant assets.  Third,
because plant asset costs should be allocated based on channel ratios then, too, should their corresponding
expenses.  Fourth, plant-related expenses, including depreciation, generally account for the majority of
common expenses.  In terms of materiality, the potential propriety of weighted channel allocations is
limited at best.  For the foregoing reasons, we uphold the City's decision to employ channel counts on
cost allocation matters.

  C.    Revenue Offsets

  18.   Falcon claims that the City erred when it treated home shopping commissions and
advertising revenue as an offset against subscriber revenue requirements.  Falcon's argument is twofold. 
First, the revenue offset should not apply to home shopping commissions, since the Form 1220 does not
require it, and such an offset is inconsistent with the Commission's rate regulations.  Falcon interprets
the Going Forward Order, as modified by the 12th Recon. Order, as permitting rate increases from the
addition of home shopping channels without the calculation of an offset from home shopping
commissions, i.e. revenues.  Second, Falcon argues that the Commission's policy requiring that
advertising revenue be offset is "misguided and counterproductive."  Falcon acknowledges that Form
1220 instructs operators to treat advertising revenue as an offset against subscriber revenue
requirements.  Falcon also acknowledges that the City properly followed the Commission's rules. 
Nonetheless, Falcon raises several arguments that challenge the efficacy of our rules requiring the offset
of advertising revenue.  In its local rate order, the City stated that its treatment of both home shopping
commissions and advertising revenues was consistent with our rules that require the offsets.

  19.    Cable operators who submit cost-of-service filings are permitted recovery of all operating
expenses normally incurred in the provision of regulated cable service. Pursuant to general cost-of-
service principles and the interim rules, however, the expenses a company incurs are offset against
revenues.  The Form 1220 instructions at the time of the interim rules required the offsetting of
revenues derived both from cable advertising operations and from the use of cable plant and resources. 
The phrase "use of cable plant and resources" encompasses home shopping commissions.  

  20.   Falcon's reliance on the Going Forward Order is misplaced.  The Going Forward Order
provided cable operators a mechanism to revise their rates previously established under their benchmark
or cost-of-service filings to account for the addition of new programming on their regulated tiers. 
Specifically, the Going Forward Order provided incentives for operators to add channels to their CPST
channel line-ups.  It has no application to an initial rate justification.  As the instant appeal concerns
Falcon's attempt to justify its initial rates for its BST channel line-up, neither the Going Forward Order
nor the 12th Recon. Order has any application.     

  21.   Falcon's argument that advertising revenue should not be offset against costs is also
unavailing.  We note that Falcon does not challenge the City's interpretation and application of our rules. 
Rather, Falcon contends that our policy and rules are misguided and counterproductive and submits
various reasons to support its position.  The rationale behind the Commission's offset rules is that, while
the operator's production of advertising does not benefit subscribers, revenues from subscribers help
defray the operator's cost of production.  Revenues received from advertising must offset subscriber
revenue to prevent subscribers from funding an activity from which they do not receive a benefit.  Falcon
alleges that subscribers do, in fact, receive a benefit from advertising--local information--and that the
Commission should change its offset policy.  This appeal is not the appropriate forum for Falcon to
present its policy and legal arguments for changing our rules.  If Falcon disagrees with the
Commission's rules regarding advertising offsets, it should submit such arguments in the context of a
rulemaking.  Based on the foregoing, we sustain the City's treatment of Falcon's home shopping
commissions and advertising revenue as offsets against subscriber revenue requirements.  


  D.    Rate of Return

  22.   Falcon next argues that the City improperly set its overall weighted rate of return at
11.25%, the Commission's presumptive rate.  Falcon contends that this rate is inadequate, because it does
not permit the company to realize its actual rate of return or to properly compensate its investors.  Falcon
argues that a rate of return of 13% is necessary to maintain its financial integrity.  Falcon provided to
the City general data on its cost of capital to support its higher rate.  In formulating its presumptive rate
of return of 11.25%, the Commission adopted the average equity return of the S&P 400, determined to
be in the 12% to 15% range.  According to Falcon's data, its cost of equity significantly exceeds this
range, with investors' expectations at a minimum of 20% for their equity return.  Further, the
Commission's presumptive rate assumed the cost of debt at 8.5%.  According to Falcon's data, however,
its actual cost of debt is 10.67%.  Based on the stated equity and debt requirements, Falcon claims that
its cost of capital reasonably falls within the range of 15% to 18%.  Falcon believes its actual experience
more than justifies a rate of return of 13%, the amount  requested in its cost-of-service filing.  In its local
rate order, the City found Falcon's arguments unpersuasive to overcome the presumptive rate.  The City
set Falcon's rate of return at the presumptive 11.25%.

  23.   Under the Commission's rules and general cost of service principles, the rate of return
is  composed of a company's weighted cost of its various classes of capital.  The weighting reflects the
proportion of each class of capital to total capital.  The calculation of the rate of return is designed to
provide a return sufficiently large to maintain the financial integrity of a company, as well as to allow
it to attract new capital when necessary.  In the Cost Order, the Commission adopted a presumptive rate
of return of 11.25%.  Under the Commission's rules the cable operator bears a heavy burden of proving
the reasonableness of a higher rate of return.  

  24.   We find Falcon's arguments unpersuasive.  Based on our own review of the information
provided on appeal, Falcon has not met its burden of proving the reasonableness of a higher rate of
return.  The language and legislative history of the 1992 Cable Act demonstrate a primary concern with
preventing cable operators with undue market power from setting supra-competitive rates.  Thus, to the
extent share prices or shareholder expectations for equity returns reflect such supra-competitive elements,
they are disregarded under our rate regulation.  Moreover, the courts have made clear, "the FCC has no
obligation to maintain the current market value of investors' property." 

  25.   Falcon's case for a higher cost of debt is equally unpersuasive.  Falcon's representations
regarding its cost of debt are based on company-wide data and do not reflect the financing specific to the
purchase of the Florence system alone, which was likely financed primarily by debt.  In addition, Falcon
has not presented any unique characteristics of its debt/equity structure to substantiate a higher rate of
return.  Falcon essentially seeks a synchronization of interest expenses, based on company-wide rather
than franchise-specific financing, and a higher rate of return than the presumptive rate.  The City
permitted Falcon an 11.25% rate of return and an income tax allowance based on synchronized interest
expenses.  This result is consistent with both the Cost Order and Second Cost Order.  The City's
decision to adopt the presumptive rate of return is sustained.


  E.    Equivalent Billing Unit

  26.   Falcon submits that the City erred in not permitting Falcon to use equivalent billing units
("EBUs") to calculate the number of subscribers on the Form 1220.  Following a common practice in
the cable industry, Falcon has entered into bulk service agreements at discounted rates with operators of
multiple dwelling units ("MDUs").  Falcon recognized the bulk discounts for these MDUs by reporting
subscriber numbers on an EBU basis, which is calculated by dividing total revenue from the MDUs by
the standard residential rate.  Falcon believes that its use of the EBU methodology for calculating the
number of subscribers in MDUs is consistent with Commission policy.  Falcon states that the
Commission approved the use of EBUs in the calculation of permitted rates using Forms 1200 and 1210
where the number of subscribers is unknown.  Although Falcon tracks the total number of residential
subscribers and the total number of MDUs involved, Falcon claims to not know its total number of
subscribers.  Falcon explains that it can offer discounted rates for bulk and commercial subscribers due
to the lower capital and operating costs imposed by such subscribers.  The City rejected Falcon's use of
the EBU methodology to determine subscriber count based on the belief that it causes regular residential
subscribers to subsidize bulk accounts. 

  27.   The Commission has permitted the use of the EBU methodology in cases where the
operator does not have an actual count of its total number of subscribers.  In this case, the total number
of subscribers is known, despite Falcon's assertions to the contrary.  At the City's request, Falcon
provided the City with a list of bulk subscriber accounts, showing "1,397 bulk subscriber units billed,
compared to the 445 EBU count that Falcon reported on its basic subscriber count."  With this
information, the City substituted the actual bulk subscriber count for the EBU figure, and adjusted the
total basic subscriber count to show 4,961, compared to 4,009 that Falcon reported.  Because Falcon has
an actual count of its total subscribers, bulk and residential, it fails to meet the threshold requirement and
is precluded from using the EBU methodology.  Consequently, we do not reach Falcon's economic
justifications which support the use of EBU methodology or the City's concerns regarding cross-
subsidization.  We sustain the City's action to recalculate Falcon's Form 1220 using an actual subscriber
count instead of a EBU count. 


V.      ORDERING CLAUSES

  28.   Accordingly, IT IS ORDERED that Falcon Cable System's appeal of the City of
Florence, Oregon, local rate order of August 5, 1995, regarding the issue of the City's treatment of
Falcon's intangible assets is REMANDED to the City for resolution in accordance with the terms of this
Memorandum Opinion and Order.

  29.   IT IS FURTHER ORDERED that Falcon Cable System's appeal of the City of Florence,
Oregon, local rate order of August 5, 1995, regarding the issue of the City's allocation of costs based
on channel counts is DENIED.

  30.   IT IS FURTHER ORDERED that Falcon Cable System's appeal of the City of Florence,
Oregon, local rate order of August 5, 1995, regarding the issue of the City's use of Falcon's home
shopping channel commissions and advertising revenue as an offset against subscriber revenue
requirements is DENIED.

  31.   IT IS FURTHER ORDERED that Falcon Cable System's appeal of the City of Florence,
Oregon, local rate order of August 5, 1995, regarding the issue of the City's reduction of Falcon's rate
of return from 13 percent to the presumptive 11.25% is DENIED.

  32.   IT IS FURTHER ORDERED that Falcon Cable System's appeal of the City of Florence,
Oregon, local rate order of August 5, 1995, regarding the issue of the City's substitution of actual basic
subscriber count for Equivalent Billing Unit is DENIED.

  33.   IT IS FURTHER ORDERED that the stay granted previously in this proceeding is
VACATED.

  34.   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