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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 ) ) Continental Cablevision, Inc. ) ) Social Contract ) ) ORDER Adopted: July 2, 1997Released: July 3, 1997 By the Chief, Cable Services Bureau: I. INTRODUCTION 1.By letter dated February 6, 1997, and pursuant to Section III.H.1 of its Social Contract with the Commission, as amended ("Social Contract"), MediaOne, formerly Continental Cablevision, Inc., seeks to add 25 cable systems ("Acquired Systems") to the Social Contract. MediaOne served copies of its letter on all local franchising authorities for the Acquired Systems, as well as the Massachusetts Cable Television Commission ("Massachusetts Commission"). MediaOne notified the local franchising authorities and the Massachusetts Commission that any comments concerning the incorporation of the Acquired Systems into the Social Contract should be addressed to the Commission. Subject to the conditions discussed below, we approve the incorporation of the Acquired Systems into the Social Contract. 2.In addition, by a separate letter dated February 6, 1997, MediaOne states that it has reached an agreement with the Massachusetts Commission regarding the filing and implementation dates for its 1997 Form 1240 filings with respect to some of the Acquired Systems. MediaOne believes Commission approval of the agreement is not required but requests that the Commission approve the agreement expeditiously if such action is required. The Massachusetts Commission also requests prompt approval of the agreement. We conclude that Commission approval of the agreement requires a waiver of our rules, and for good cause shown, we grant the necessary waiver and approve the agreement. II. BACKGROUND 3.In the Cable Television Consumer Protection and Competition Act of 1992, Congress stated its intent to ensure that, where economically justified, cable operators continue expanding the capacity and programs offered over their systems. Subsequently, we adopted an upgrade incentive plan which would "permit an operator to enter into a social contract with its customers under which the operator would be given substantial flexibility in setting rates for new regulated services it introduces, such as new service tiers offering additional program channels." These social contracts would remain in effect for a fixed period and would offer operators an opportunity to earn higher profits as an incentive for upgrading their cable systems and introducing new and improved regulated services. 4.In accordance with these objectives, the Commission entered into a social contract with MediaOne under which MediaOne was required to create low-priced lifeline basic service tiers ("BSTs") priced 15 to 20 percent below BST rates in effect at the time of adoption of the Social Contract, invest $1.35 billion to upgrade the channel capacity and technical reliability of its domestic cable systems, and agree to a plan to stabilize rates for the BST and for the cable programming services tier ("CPST") in all of its franchises. Subject to certain rate restrictions, MediaOne was permitted to migrate four existing services from CPSTs to Migrated Product Tiers ("MPTs"). MediaOne was required to price the MPTs initially at the regulated rate but was permitted to increase MPT rates for inflation and external costs and to add an unlimited number of new services to the MPTs at a price of $0.20 per channel plus license fees. As of January 1, 1997, MediaOne was permitted to convert the MPTs to New Product Tiers ("NPTs"). The Social Contract also resolved numerous pending rate proceedings and required MediaOne to pay approximately $9.5 million in in-kind refunds to subscribers. 5.The Commission and MediaOne subsequently agreed to amend the Social Contract to incorporate additional systems and resolve rate proceedings on those systems, increase MediaOne's upgrade investment obligations to $1.7 billion, and allow MediaOne to increase rates annually by $1.00 per month in connection with the performance of its expanded upgrade obligations. Among other things, the amendment also required MediaOne to provide service to schools in its franchise areas, give subscribers rights to manage their inside wiring beyond the rights the Commission's regulations prescribe, create lifeline basic tiers on additional systems, and issue additional rate refunds. MediaOne was permitted to convert MPTs created under the amendment to NPTs as of July 1, 1997. 6.As amended, the Social Contract is effective through December 31, 2000. The Commission delegated to the Cable Services Bureau the authority to implement the Social Contract. III. ADDITION OF ACQUIRED SYSTEMS TO SOCIAL CONTRACT 7.On October 2, 1996, MediaOne acquired eleven systems from TCI Communications, Inc. ("TCI"). On January 2, 1997, it acquired fourteen systems from Cox Communications, Inc. ("Cox"). All of the Acquired Systems are located in Massachusetts. In exchange for the Acquired Systems, TCI and Cox acquired from MediaOne certain systems near St. Louis, Missouri, and systems in Rhode Island and Virginia. Together the Acquired Systems serve approximately 136,000 subscribers. MediaOne states that the Acquired Systems serve approximately the same number of subscribers as the systems MediaOne exchanged. 8.MediaOne does not request any modification of the terms of the Social Contract. We will approve the addition of the Acquired Systems to the Social Contract, subject to the following conditions. These conditions prescribe the manner in which various existing Social Contract provisions will apply to the Acquired Systems. All provisions of the Social Contract and Amended Social Contract that are not inconsistent with these conditions will apply to the Acquired Systems, regardless of whether they are discussed or referenced herein. A. Creation of Lifeline Basic Tiers 9.MediaOne must create lifeline basic tiers on the Acquired Systems pursuant to the terms of the Social Contract. We will establish new dates for the implementation and calculation of the lifeline rates. Concurrently with its first rate adjustment after our release of this Order ("Release Date"), but no later than July 1, 1998, MediaOne must create a lifeline basic tier on each of the Acquired Systems. The date when the lifeline rates become effective shall be the Implementation Date, as that term is used below. The minimum reduction for a lifeline basic tier in each of the Acquired Systems will be 15 percent from the "Current Rate," which is the BST rate in effect on February 6, 1997, unless MediaOne or the system's previous owner filed a Form 1210 or 1240 before the Release Date to implement revised rates or notified subscribers before that date that revised rates would be implemented, in which case the Current Rate will be the revised rate. If the Current Rate was under review by a local franchising authority on the Release Date, then the minimum reduction for the lifeline basic tier will be determined in accordance with Section IV.A.6 of the Amended Social Contract. In order to achieve uniform BST rates in a given system, MediaOne may reduce BST rates up to an additional five percent for a maximum reduction of 20 percent. CPST rates on the Acquired Systems may be adjusted in accordance with the terms of the Social Contract to offset any BST reductions associated with MediaOne's creation of lifeline basic tier rates. 10.In addition, MediaOne may adjust the reduced BST rates and the increased CPST rates in each system to account for (a) unrecovered external costs that were incurred as of the end of the calendar quarter immediately preceding the Implementation Date (including "gap period" external costs), (b) unrecovered inflation for the 12-month period specified by Sections 76.922(d)(2) and 76.922(e)(2)-(3) of the Commission's rules, and (c) an adjustment to reflect channels carried on the applicable tier in each respective franchise area as of the Implementation Date. MediaOne may not avail itself of the per-channel rate adjustment that otherwise would be permitted by our rules with respect to channels added in 1997. MediaOne may, however, increase CPST rates by $1.00 in each of 1997, 1998, and 1999, in accordance with the Social Contract. B. Creation of Migrated Product Tiers and New Product Tiers 11.MediaOne may create MPTs on the Acquired Systems in accordance with the terms of the Social Contract. Under Section III.H.1 of the Social Contract, MediaOne may not create an MPT on any system that already offers an NPT created as the result of a la carte packaging by the prior owner. Accordingly, MediaOne may not create MPTs on any of the Acquired Systems formerly owned by Cox because these systems already offer NPTs that were created as the result of a la carte packaging by a previous owner. Subject to the foregoing restriction set forth in Section III.H.1 of the Social Contract, MediaOne may create MPTs on the Acquired Systems formerly owned by TCI by moving a maximum of four channels from existing BSTs or CPSTs to the MPTs, except that MediaOne may not create an MPT on any Acquired Systems formerly owned by TCI that already offers an MPT or NPT created under the TCI rate resolution. 12.On or after January 1, 1998, MediaOne may convert the MPTs created on the Acquired Systems to NPTs by filing a notice of its intention to do so with the Commission and the affected local franchising authorities. If MediaOne does not file an NPT notice with respect to a particular MPT, the MPT will retain its MPT regulatory status, including the Social Contract provisions governing MPT rate increases. C. System Upgrades 13.MediaOne will be required to extend to the Acquired Systems the system upgrade commitment set forth in the Social Contract. Because the Acquired Systems serve approximately the same number of subscribers as the systems MediaOne exchanged with TCI and Cox, there is no need to increase or decrease the dollar amount of MediaOne's overall upgrade commitment. 14.In furtherance of the Social Contract provisions governing the acquisition and divestiture of systems, MediaOne shall notify the Commission within 30 days of the date we release this Order whether the $1.00 rate increase permitted by the Social Contract was implemented in any system that MediaOne divested through its exchanges with TCI and Cox for the Acquired Systems. If MediaOne implemented the rate increase in any system that was not at or above 550 MHz of capacity at the time of the system exchange and such system is not upgraded to 550 MHz on or before December 31, 2000, by any subsequent owner, then MediaOne will be required to issue refunds to subscribers in accordance with the terms of the Social Contract. IV. MODIFICATION OF FORM 1240 FILING AND IMPLEMENTATION DATES 15.Operators may justify adjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain and quantifiable changes in external costs, inflation, and the number of regulated channels that are projected for the twelve months following the rate change. Any incurred cost that is not projected may be accrued with interest and added to rates at a later time. The Form 1240 filing date may be changed from year to year, but any resulting rate adjustment may be implemented only after at least 12 months have passed since the previous Form 1240 rate adjustment. 16.TCI last filed Form 1240s for the systems acquired by MediaOne on March 4, 1996, and implemented the resulting rates on June 1, 1996. MediaOne and the Massachusetts Commission agreed that MediaOne could delay the filing of its Form 1240s for the Acquired Systems formerly owned by TCI from March 4, 1997, to May 1, 1997, and that MediaOne may implement the revised rates supported by those filings on July 1, 1997. MediaOne states that it will comply with the advance-notification requirements contained in its franchise agreements so that subscribers have adequate notice of any rate change supported by the Form 1240s. 17.But for the extension of the Form 1240 filing deadline, MediaOne would have had to file its Form 1240s on March 4, 1997, and implement revised rates on June 1, 1997. MediaOne states that the extension of the filing deadline would allow the Massachusetts Commission to complete its review of the 1996 Form 1240s filed by TCI before MediaOne filed the 1997 Form 1240s. The revised schedule also would allow MediaOne to incorporate the results of the Massachusetts Commission's review of the 1996 Form 1240s into its preparation of the 1997 Form 1240s. 18.Because TCI last implemented Form 1240 rate changes for the affected systems more than 12 months before MediaOne's proposed July 1, 1997 effective date for the 1997 Form 1240 rate changes, the agreement of MediaOne and the Massachusetts Commission to extend the Form 1240 filing date to May 1, 1997, does not violate our rules and does not require Commission approval. 19.MediaOne does need Commission approval to implement its revised rates less than 90 days after it files them with the Massachusetts Commission, even though the Massachusetts Commission has already agreed to a shorter implementation schedule. Our rules provide that an operator must file its Form 1240 at least 90 days before the implementation of any resulting rate change. Absent a waiver of our rules, a local franchising authority and a cable operator may not change a Commission-imposed procedural deadline through mutual agreement. Accordingly, MediaOne may not implement its revised rates less than 90 days after it files its Form 1240s with the Massachusetts Commission unless we grant a waiver of our rules to permit an earlier implementation date. 20.MediaOne and the Massachusetts Commission have agreed that MediaOne may file its Form 1240s only 60 days before the implementation of any resulting rate change. The 60-day time period results from the extension of the filing deadline by two months to May 1, 1997, and from the extension of the implementation date by only one month to July 1, 1997. The effect of these extensions is that MediaOne will implement any Form 1240 rate increases one month later than scheduled, but the Massachusetts Commission will have less time than our rules allow to complete its review of the Form 1240s before any resulting rate changes are implemented. To comply with our rules, MediaOne would have to file its Form 1240 one month earlier than the agreed-upon filing date or delay the agreed-upon rate-effective date by one month. 21.We grant the necessary waiver of our rules to permit MediaOne and the Massachusetts Commission to implement their agreement. Our rules attempt to ensure that operators' ability to implement requested rate changes within a reasonable time period is balanced against local franchising authorities' need for adequate time to scrutinize and evaluate operators' rate filings. The agreement between MediaOne and the Massachusetts Commission is consistent with these goals. The agreement will not deprive subscribers of the full advance notice required by MediaOne's franchise agreements, and MediaOne will have sufficient time to comply with the Commission's advance-notice requirement. V. ORDERING CLAUSES 22.Accordingly, for the reasons set forth herein, IT IS ORDERED that, effective immediately, the cable systems listed in the Appendix to this Order ARE HEREBY INCORPORATED INTO MediaOne's Social Contract with the Commission, as amended, subject to the terms and conditions discussed herein. 23.IT IS FURTHER ORDERED that a waiver of Section 76.933(g) of the Commission's rules, which requires operators to file a Form 1240 at least 90 days before the proposed effective date of any resulting rate change, IS GRANTED. 24.This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by Section 0.321 of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau APPENDIX Cable Television Systems Acquired By MediaOne From TCI Communications, Inc. ("TCI"), and Cox Communications, Inc. ("Cox") Systems Acquired From TCI NameCommunity Unit Identification Number AndoverMA0172 DracutMA0169 MiddletonMA0223 North ReadingMA0171 WalthamMA0261 NantucketMA0045 YarmouthMA0006 DennisMA0041 HarwichMA0040 ChathamMA0058 Barnstable MA0039 Systems Acquired From Cox NameCommunity Unit Identification Number AmherstMA0019 PelhamMA0084 BucklandMA0070 ErvingMA0069 GillMA0134 GreenfieldMA0021 Montague (Turner Falls)MA0023 ShelburneMA0030 HardwickMA0085 MonsonMA0022 PalmerMA0024 WareMA0025 WarrenMA0026 WeymouthMA0129