NOTICE ************************************************************************* NOTICE ************************************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file pnmc5021. File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of: ) ) ) Greater Chicopee Cablevision, Inc. ) CSR 4536-D Greater New England Cablevision, Inc.) Greater East Longmeadow Cablevision, Inc.) Greater Media, Inc. ) ) Petition for Special Relief ) MEMORANDUM OPINION AND ORDER Adopted: December 3, 1996 Released: December 4, 1996 By the Chief, Cable Services Bureau: INTRODUCTION 1. Here we address a petition for special relief ("Petition") in which Greater Media, Inc., ("Greater Media") seeks a waiver of the Commission's rules to the extent necessary to permit Greater Media to establish regulated cable rates on behalf of its Greater Chicopee Cablevision, Inc. ("Chicopee") system and its Greater New England Cablevision, Inc./Greater East Longmeadow Cablevision, Inc., ("New England/Longmeadow") system in accordance with the small system cost-of-service methodology adopted in the Sixth Report and Order and Eleventh Order on Reconsideration in MM Docket Nos. 92-266 and 93-215 ("Small System Order"). No oppositions to the Petition were filed. 2. Section 623(i) of the Communications Act of 1934, as amended ("Communications Act"), requires that the Commission design rate regulations in such a way as to reduce the administrative burdens and the cost of compliance for cable systems with 1,000 or fewer subscribers. Accordingly, in the course of establishing the standard benchmark and cost-of- service ratemaking methodologies generally available to cable operators, the Commission adopted various measures aimed specifically at easing regulatory burdens for these smaller systems. In the Small System Order, the Commission further extended small system rate relief to certain systems that exceed the 1,000-subscriber standard. These systems were deemed eligible for small system rate relief because they were found to face higher costs and other burdens disproportionate to their size. 3. The Small System Order defines a small system as any system that serves 15,000 or fewer subscribers. The Commission recognized that systems with no more than 15,000 subscribers were qualitatively different from larger systems with respect to a number of characteristics, including: (1) average monthly regulated revenues per channel per subscriber; (2) average number of subscribers per mile; and (3) average annual premium revenues per subscriber. The magnitude of the differences between the two classes of systems as to these characteristics indicated that the 15,000 subscriber threshold was the appropriate point of demarcation for purposes of providing for substantive and procedural regulatory relief. 4. However, most forms of rate relief provided under the Small System Order and the Commission's rules are available only to those small systems that are owned by a small cable company, which is defined as a cable operator that serves a total of 400,000 or fewer subscribers over all of its systems. The Commission adopted this threshold because it roughly corresponds to $100 million in annual regulated revenues, a standard the Commission has used in other contexts to identify smaller entities deserving of relaxed regulatory treatment. The Commission found that cable companies exceeding this threshold would find it easier than smaller companies to attract the financing and investment necessary to maintain and improve service. In addition, the Commission determined that cable companies that exceeded the small company definition "are better able to absorb the costs and burdens of regulation due to their expanded administrative and technical resources." 5. In addition to adopting the new categories of small systems and small cable companies, the Small System Order introduced a form of rate regulation known as the small system cost-of-service methodology. This approach, which is available only to small systems owned by small cable companies, is more streamlined than the standard cost-of-service methodology available to cable operators generally. In addition, the small system rules include substantive differences from the standard cost-of-service rules to take account of the proportionately higher costs of providing service faced by small systems. Eligible systems establish their rates under this methodology by completing and filing FCC Form 1230. In order to qualify for the small system cost-of-service methodology, systems and companies must meet the new size standards as of either the effective date of the Small System Order, or on the date thereafter when they file the documents necessary to elect the relief they seek. 6. Cable systems that fail to meet the numerical definition of a small system, or whose operators do not qualify as small cable companies, may submit petitions for special relief requesting that the Commission grant a waiver of its rules to enable the petitioning systems to utilize the various forms of rate relief available to small systems owned by small cable companies. The Commission stated that petitioners should demonstrate that they "share relevant characteristics with qualifying systems." Other potentially pertinent factors include "the degree by which the system fails to satisfy either or both definitions, whether the system recently has been the subject of an acquisition or other transaction that substantially reduced its size or that of its operator, and evidence of increased costs (e.g., lack of programming or equipment discounts) faced by the operator." If the system fails to qualify for relief based on its affiliation with a larger cable company, the Commission will consider "the degree to which that affiliation exceeds our affiliation standards, and whether other attributes of the system warrant that it be treated as a small system notwithstanding the percentage ownership of the affiliate." The Commission specifically stated that this list of relevant factors was not exclusive and invited petitioners to support their petitions with any other information and arguments they deemed relevant. THE PETITION 7. Greater Media serves approximately 238,380 subscribers and accordingly qualifies as a small cable company. The individual system of Greater Chicopee serves approximately 18,978 subscribers in Chicopee, Massachusetts. The Greater New England/Greater Longmeadow system serves approximately 16,318 subscribers in the towns of East Longmeadow, Hamden, Ludlow and Wilbraham, Massachusetts. 8. Greater Media argues that its systems qualify for special relief, in part, because Greater Media itself meets the small cable company definition and the systems in question only "slightly exceed the 15,000 subscriber cap established under the new regulations." Greater Media asserts that the principal factor identified in the Small System Order in determining if a system warrants special relief is "the degree by which the system fails either or both definitions." 9. Greater Media also states that it does not enjoy significant bulk discounts for programming and equipment costs. In addition, Greater Media asserts that it has undertaken efforts to provide high quality service. For instance, Greater Media has sought to improve its infrastructure, has provided funds for local programming, and has improved its customer service. Greater Media also provides local governments with the ability to issue local emergency alerts over the cable system, has participated in the Cable in the Classroom program, and supports community organizations. DISCUSSION 10. The Commission adopted the 15,000 subscriber threshold for small systems "on the basis of shared economic, physical, and financial characteristics" for any systems at or below that size. Based on the available data, the Commission found that systems with fewer than 15,000 subscribers differ from systems with more than 15,000 subscribers with respect to the following characteristics: a) the average monthly regulated revenue per channel per subscriber is $0.86 for systems with fewer than 15,000 subscribers and $0.44 for systems with more than 15,000 subscribers; b) the average number of subscribers per mile is 35.3 for systems with fewer than 15,000 subscribers and 68.7 for systems with more than 15,000 subscribers; c) the average annual premium revenue per subscriber is $41.00 for systems with fewer than 15,000 subscribers and $73.13 for systems with more than 15,000 subscribers. 11. The magnitude of these differences between the two classes of systems indicated that the 15,000 subscriber threshold was the appropriate point of demarcation for purposes of providing for substantive and procedural regulatory relief. However, the Commission also stated its willingness to "entertain petitions for special relief from systems who fail to meet the new definitions but are able to demonstrate that they share relevant characteristics with qualifying systems and therefore should be entitled to the same regulatory treatment." 12. Greater Media clearly falls below the 400,000 subscriber threshold for small cable companies. However, its Chicopee and New England/Longmeadow systems exceed the 15,000 subscriber cap, serving 18,978 and 16,318 subscribers, respectively. While the degree by which the system exceeds either or both numerical caps is relevant, it is not the only determining factor or even, as Greater Media asserts, the "principal factor" to be considered in special relief cases. In its Petition, Greater Media also states that enforcement of the numerical caps should be flexible, "particularly where (as here) one of the factors is extremely favorable." However, that the Greater Media company easily falls below the 400,000 subscriber threshold does not by itself mitigate the fact that the systems in question exceed the 15,000 system cap, and therefore are presumed not to be in need of regulatory releif. 13. We note that we recently granted a petition for special relief for a system with approximately 23,000 subscribers. However, because that system was the only system owned by the petitioning cable company, the company fell significantly below the 400,000 subscriber cap. As importantly, the petitioning company in the former proceeding was also able to demonstrate that its system shared relevant characteristics with other small cable systems. In contrast, Greater Media offers no evidence in this regard, save its assertion that it is ineligible for significant bulk discounts. Nowhere in its Petition does Greater Media make mention of system characteristics such as its average monthly regulated revenue per channel per subscriber, subscriber density, or its average annual premium revenue per subscriber. 14. Greater Media states that it faces high operating costs due to its use of interdiction technology that is not recoverable as customer premises equipment on FCC Form 1205. In addition, Greater Media asserts that it plans to employ digital compression and incorporate on line services in its cable systems. While we support Greater Media in its efforts to configure its system as it sees fit, we do not believe that granting Greater Media's systems small system status is necessarily relevant to the accomplishment of these goals. Our rules provide avenues for an operator to fund an upgrade of its systems. For example, an operator that undertakes a significant network upgrade requiring added capital investment may justify a rate increase via an abbreviated cost-of-service showing. Alternatively, an operator can utilize our standard cost-of- service rules that permit an operator to set regulated rates based on the specific costs it incurs in providing regulated service. 15. We also support Greater Media's commitment to quality customer service, local programming, and other community services. However, Greater Media fails to demonstrate that its local efforts are somehow disproportionate to its size, and therefore generate higher than average costs per subscriber than larger cable systems. 16. Finally, Greater Media asserts that administrative costs associated with rate regulation are high for small cable operators, yet does not offer any specific evidence regarding the costs of regulation for its systems. Nevertheless, the Commission has previously determined that the costs associated with regulation have a greater impact on small cable companies than on larger companies. In the case of Greater Media, however, an assumption of a greater impact on small cable companies of costs associated with rate regulation is not enough, given the totality of the circumstances described above, to warrant special relief. 17. Greater Media has failed to meet its burden under Section 76.7(c)(1) of establishing a need for special relief. Accordingly, Greater Media's petition for special relief must be denied. ORDERING CLAUSES 18. Accordingly, IT IS ORDERED that the Petition for Special Relief filed by Greater Media Inc. IS DENIED. 19. This action is taken pursuant to delegated authority under Section 0.321 of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau