NEWSReport No. DC-95-29    ACTION IN DOCKET CASE           February 7, 1995
                                     
                 FCC PROPOSES SEPARATE PRICE CAP BASKET
                      FOR VIDEO DIALTONE SERVICES 
                             (CC DOCKET 94-1)

     The Commission today proposed to establish a separate price cap basket for video
dialtone services and sought comment on whether this plan would promote efficient pricing,
protect telephone ratepayers and reduce administrative costs of regulating video dialtone
prices.  In October, the Commission tentatively concluded that a separate price cap basket
for video dialtone services should be established within the local exchange carrier (LEC)
price cap plan, and pledged to initiate a rulemaking to consider appropriate price cap rules
for video dialtone services. Today the Commission began that process. 

     The Notice of Proposed Rulemaking also seeks comment on whether the creation of a
separate video dialtone price cap basket will further the Commission's public interest
objectives of facilitating fair competition in the provision of video services, promoting
efficient investment in the national telecommunications infrastructure and fostering the
availability of new and diverse sources of video programming to the public.

     Under price cap regulation, broad groupings of LEC services are divided into four
baskets.  Each basket is subject to its own price cap, which limits the prices a LEC may
charge for that services within that basket.  Placing LEC services with similar technical
characteristics, subject to comparable competitive pressure, in the same basket is intended to
give LECs pricing flexibility with respect to comparable services and to restrict the ability of
LECs to offset price increases for some services with rate decreases for dissimilar services. 

     The Commission's price cap plan is designed to balance the competing interests of
LECs and their ratepayers.  Price cap regulation gives LECs flexibility as an incentive to be
efficient and productive, without subjecting ratepayers to precipitous fluctuations in price or
allowing LECs to favor one class of ratepayers at the expense of another class.








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     In addition to seeking comment on its tentative conclusion to establish a separate
video dialtone price cap basket, the Notice also requests comment on what method the
Commission should use to select the initial rates for a new video dialtone basket and the
appropriate formula to be used to adjust the Price Cap Index which would limit the rates
charged for services placed in the basket, assuming a separate basket is required.  The
Notice also seeks comment on whether the costs and revenues associated with this basket
should be included with those from the other baskets for purposes of computing a LEC's
interstate earnings.  Under the current price cap rules, if a LEC's interstate earnings in a
year reach specified levels, it is required to share part or all of the earnings above those
levels with its ratepayers.  If a LEC's interstate earnings fall below a specified benchmark,
the carrier is entitled to raise its rates on a one-time basis in order to increase its earnings to
the benchmark. 

     Action by the Commission February 7, 1995, by Further Notice of Proposed
Rulemaking (FCC 95-49).  Chairman Hundt, Commissioners Quello, Barrett, Ness and
Chong.

                                  - FCC -


     News Media contact: Susan Lewis Sallet at (202) 418-1500.
     Common Carrier Bureau contacts: Joanne Wall at (202) 418-1550; David Nall at
(202) 418-1545 and Geri Matise at (202) 418-1547.