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                          June 13, 1997
                                                       DA 97-1249
                                                     CSB-ILR 97-5
                                         Released:  June 16, 1997

Mr. Don Schanding, Manager
Local Government Operations and
     Information Assistance
Georgia Municipal Association
201 Pryor Street, S.W. 
Atlanta, Georgia 30303

Peter H. Feinberg, Esquire
Dow, Lohnes & Albertson
Counsel for Intermedia Partners
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036


Dear Sirs: 

     This letter responds to your requests for a letter ruling addressing the application of the
Commission's rate regulation rules regarding the addition of channels to, and movement of channels
between, a cable operator's cable programming services tier ("CPST") and basic service tier ("BST"). 
Specifically, you ask our view on rate adjustments required when a channel is shifted from the CPST
to the BST while at the same time two new channels are added to the CPST. 

     Pursuant to Section 623 of the Communications Act, the Commission adopted a
comprehensive framework governing the rates for BSTs and CPSTs for cable operators not subject
to effective competition.  Under this framework, once initial rates are set pursuant to either the
benchmark or cost of service approaches, rates are governed by rules designed to assure that rates
for regulated cable services remain reasonable.  The Commission's rules allow an operator to adjust
its permitted charges for inflation, changes in the number of regulated channels on tiers, or changes
in external costs.   The Commission's rules also allow operators to adjust rates when channels are
added to, deleted from, or moved between regulated tiers.  When adding channels to a CPST, an
operator may choose between the "Mark-up Method," and the "Caps Method."  When adding
channels to its BST, an operator may use only the Mark-up Method, unless the system only has only
a BST.   Channels added to a CPST using the Caps Method may not be moved to the BST. 
Therefore, for the purposes of this letter ruling, all of the channels being discussed are presumed to
have been added, or will be added, to the relevant BST or CPST using any method other than the
Caps Method.

     The Georgia Municipal Association ("GMA") takes the position that when a channel is
moved from the CPST to the BST, and a channel is added to the CPST, the residual amount relating
to the moved channel remains in the calculation of the permitted rate for the CPST.  The residual is
that component of a permitted rate remaining after adjustments for external costs have been
subtracted.  The tier to which the residual is allocated affects the permitted rate for that tier. 
Intermedia Partners ("Intermedia") asserts that when a channel is shifted from the CPST to the BST,
the residual moves to the BST.  The two new channels added to the CPST would each adjust the
permitted rate of that tier under the Commission's channel addition rules.  

     Section 76.922(g) of the Commission's rules addresses how to adjust tier rates when
channels are added to or deleted from a tier of regulated cable service.  We think it consistent with
the Commission's rules that when a channel is shifted from the CPST to the BST, and is an
additional channel on the BST, the shifted channel is treated as if it was dropped from the CPST. 
The residual and programming costs associated with the shifted channel are moved to the BST. 
The residual and programming costs associated with the new channels added to the CPST shall be
added to the CPST rate pursuant to the Commission's rules for new channels added to the tier.

     Where an operator is only substituting a channel, the residual associated with the original
channel is not moved or replaced.  The purpose of the Commission's channel addition rules is to
provide incentives for additional service.  If an operator was able to substitute a new channel for an
existing channel and obtain the additional per channel adjustment provided under our rules, the
purpose of the rule would be undermined as the subscriber sees no increase in channels.  It is for
this reason that when a channel is merely substituted, the residual remains and no per channel
adjustment takes place.   

     This is not the circumstance here.  Moving the residual associated with the shifted channel
to the BST does not increase the permitted rate without providing additional service for the
subscriber. The operator is providing one additional channel to the BST.  Moving the residual of the
shifted channel places it in the calculation of the permitted rate for the BST.  Similarly, additional
channels on the CPST will be reflected in the permitted rate of that tier.  


                              Sincerely, 



                              Meredith J. Jones
                              Chief, Cable Services Bureau