**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the matter of                 | *  | CSB No. 0678                 |
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| ADELPHIA COMMUNICATIONS CORP.    | ** |                              |
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| Appeal of Local Rate Order and   | *  |                              |
| Order Mandating Compliance of    | *) |                              |
| the Massachusetts Department of  | ** |                              |
| Telecommunications and Energy    |    |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted: July 15, 2003 Released: July 16, 2003**

By the Deputy Chief, Policy Division, Media Bureau:

# INTRODUCTION

1.  On August 19, 2002, Adelphia Communications Corp. ("Adelphia") filed
    an appeal of a rate order and an enforcement order adopted by the
    Massachusetts Department of Telecommunications and Energy
    (\"DTE\").[^1] The orders held, in essence, that Adelphia had an
    excessive inventory of digital converters for many communities in
    Massachusetts. DTE filed an opposition on September 3, 2002, to
    which Adelphia filed a reply on September 11. We deny Adelphia's
    appeal.

# BACKGROUND

2.  The Communications Act provides that, where effective competition is
    absent, rates for basic cable service and associated equipment are
    subject to regulation by franchising authorities.[^2] Rates for
    service and equipment should not exceed rates that would be charged
    by systems facing effective competition, as determined in accordance
    with Commission regulations for setting rates.[^3]

3.  Rate orders issued by franchising authorities may be appealed to the
    Commission pursuant to Commission rules.[^4] 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 a reasonable basis for that decision exists.[^5]
    The Commission will reverse a franchising authority\'s rate decision
    only if it determines that the franchising authority acted
    unreasonably in applying the Commission\'s rules. 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.

# DISCUSSION

4.  This appeal concerns two Forms, 1205 and 1240, that Adelphia filed
    with the DTE. Form 1205 concerns the costs of and rates for
    regulated cable equipment and installation for the basic service
    tier ("BST"). Form 1240 concerns adjustments to rates for the BST of
    cable programming.[^6] Commission rules provide that, when the two
    forms are filed simultaneously, the local authority (here, the DTE)
    shall rule on proposed rates within 12 months of the filing. Absent
    a ruling by that deadline, no refunds may be ordered.[^7] If,
    however, a Form 1205 is filed separate and apart from a Form 1240,
    the 12-month rule does not apply to the review of the Form 1205.[^8]

5.  On August 18, 2000, Adelphia filed with the DTE a Form 1205
    containing data for the year ending December 31, 1999 (the "1999
    Form 1205").[^9] On December 29, 2000, Adelphia filed with the DTE a
    Form 1240. Simultaneously, it also filed a copy of the 1999 Form
    1205 it had filed the previous August.[^10] The DTE issued a rate
    order after review of Adelphia's 1999 Form 1205 on March 12,
    2001,[^11] and another rate order after review of Adelphia's Form
    1240 on August 1, 2001.[^12]

6.  On or about April 1, 2001, during the pendency of the review of its
    Form 1240, Adelphia filed another Form 1205, which contained data
    for the year ending December 31, 2000 (the "2000 Form 1205"). The
    DTE issued a Rate Order on the 2000 Form 1205 filing on July 18,
    2002 (the "July 2002 Rate Order")[^13] and, on August 12, an Order
    Mandating Compliance with the July 2002 Rate Order.[^14] The July
    2002 Rate Order, along with the Order Mandating Compliance, are the
    subjects of this appeal.

7.  In the July 2002 Rate Order, the DTE rejected Adelphia's 2000 Form
    1205, finding that Adelphia had failed to meet its burden of
    justifying its inventory. Specifically, the DTE found that the 2000
    Form 1205 included an unreasonably large inventory of digital
    equipment. The DTE ordered Adelphia to re-file its 2000 Form 1205,
    removing the costs associated with the excess inventory.[^15]

8.  One issue between the parties may be characterized as procedural.
    Adelphia contends that its 2000 Form 1205 is an amendment to its
    1999 Form 1205. If this contention is true, then the DTE was
    required (if it wished to order refunds) to rule on the Form within
    12 months of its filing with Adelphia's Form 1240, that is, by the
    end of December 2001, which the DTE did not do.[^16] The DTE, on the
    contrary, contends that Adelphia's 2000 Form 1205 was a new filing,
    separate from its 1999 Form 1205, and one for which there was no
    deadline for the DTE's ruling.[^17]

9.  The second issue between the parties is substantive. Adelphia's 2000
    Form 1205 showed, and sought higher rates to recover the costs of, a
    major purchase of digital equipment. This equipment appears not to
    have been mentioned in Adelphia's 1999 Form 1205. Moreover, the
    digital equipment was not "spares" to replace equipment in service.
    Rather, it was a major shipment of new, digital equipment that
    Adelphia planned to market to its subscribers as an expensive but
    more functional upgrade compared to the "addressable" equipment they
    had been leasing. Adelphia argues that the new equipment was "for
    meeting subscriber demand" and that therefore its costs were
    properly charged to its subscribers.[^18] The DTE argues, on the
    contrary, that Adelphia purchased digital equipment in numbers far
    greater than needed for either replacement or anticipated
    demand.[^19]

10. A third issue between the parties concerns the remedy that the DTE
    imposed. The DTE ordered Adelphia "to re-file its FCC Form 1205,
    removing from the gross book value and accumulated depreciation
    totals the costs associated with the digital units purchased for
    deployment at a future date. Adelphia may include the costs of a
    reasonable number of spare digital units."[^20] Adelphia objects to
    the DTE's complete rejection of its 2000 Form 1205 when DTE's only
    objection was to Adelphia's rates for its digital equipment.
    Adelphia implies that the DTE should have established a reasonable
    rate for the equipment.[^21]

11. [The Procedural Issue.]{.underline} The procedural issue is whether
    Adelphia's 2000 Form 1205 was, as it contends, a mere amendment to
    its 1999 Form 1205 or was, as the DTE contends, a new Form 1205. We
    conclude that Adelphia's 2000 Form 1205 was a new Form 1205. The
    2000 Form 1205 did not merely correct or improve the 1999 Form
    1205.[^22] Rather, it stated an inventory for a completely new year
    and a major purchase of new technology. The 2000 Form 1205 was
    fundamentally different from the 1999 Form 1205 and cannot be fairly
    characterized as a mere amendment to it. Accordingly, the 12 month
    provision for franchising authorities to rule on simultaneously
    filed Forms 1205 and 1240 did not apply to Adelphia's 2000
    Form 1205. The DTE's ruling on it was timely and we reject
    Adelphia's procedural appeal of the July 2002 Rate Order.

12. [The Substantive Issue.]{.underline} The substantive issue concerns
    the propriety of the inventory stated in Adelphia's 2000 Form 1205.
    In rate regulation proceedings, the cable operator, not the
    franchising authority, bears the burden of proof.[^23] The
    determination of whether a cable operator should be allowed to
    recover the costs of allegedly excess inventory in its rates is an
    issue to be left to the discretion of the franchising authority, and
    we will not disturb the findings of a local franchising authority if
    there is a reasonable basis for its decision.[^24] We find that
    there was a reasonable basis for the DTE to conclude that Adelphia's
    attempted justification of the inventory stated in its 2000 Form
    1205 was insufficient. Despite repeated opportunities, Adelphia
    could not show that the new digital equipment was needed either to
    replace existing digital equipment or to meet expected demand for
    new digital equipment. This gave the DTE a reasonable basis to
    conclude that Adelphia had failed to sustain its burden of proof
    that the inventory stated in its 2000 Form 1205 was reasonable.[^25]
    The DTE's written decision stated that conclusion adequately.[^26]
    Accordingly, we reject Adelphia's appeal on this issue.

13. [The Remedy Issue.]{.underline} The DTE, in the July 2002 Rate
    Order, rejected Adelphia's 2000 Form 1205 and ordered it to re-file
    the form, using the words quoted in paragraph ten above. Adelphia
    complains that the DTE erred by rejecting its entire Form after
    finding fault with only one part of it. The DTE, Adelphia argues,
    should have used the information it had, or requested more, and then
    found what would have been a proper inventory and prescribed proper
    rates for converters.[^27] The DTE answers that it did not prescribe
    rates because the way Adelphia maintained its records could require
    a thorough revision of all Adelphia's proposed rates for
    equipment.[^28] Adelphia replies that the DTE misunderstands how its
    records were kept and that the DTE's justification for rejecting its
    Form is nowhere stated in its July 2002 Rate Order.[^29]

14. Although this is issue is not free from doubt, we conclude that the
    DTE's decision was within the bounds of reason. We favor expeditious
    resolution of disputes about rates and we encourage franchise
    authorities to reduce existing rates prospectively to a reasonable
    level rather than awaiting submission of new rates by cable
    operators and determinations thereon. Avoiding the need for
    additional rate proceedings reduces administrative burdens on both
    the franchising authorities and the cable operators.[^30] We have
    granted appeals from franchising authorities that have simply
    rejected proposed rates and not used the best available evidence to
    establish proper rates and give reasonable bases for them.[^31]

15. The DTE did not merely reject Adelphia's 2002 Form 1205, however. It
    also directed Adelphia to remove "from the gross book value and
    accumulated depreciation totals the costs associated with the
    digital units purchased for deployment at a future date" and to
    re-file its 2000 Form 1205. It also stated that Adelphia might
    include the costs of a reasonable number of spare digital units, but
    "must also provide support for the digital inventory level
    selected."[^32] The latter point, the actual demand for the kind of
    equipment that Adelphia had purchased, was something on which the
    record was silent, and for the DTE to have found a precise demand
    would have been speculation.[^33] In light of the deficiencies in
    Adelphia's original 2000 Form 1205 and showings to the DTE, we think
    that what the DTE did fell within the bounds of reasonableness.

# ORDERING CLAUSES

16. Accordingly, **IT IS ORDERED** that the Appeal filed by Adelphia
    Communications Corporation **IS DISMISSED**.

17. **IT IS FURTHER ORDERED** that the Emergency Petition for Stay of
    Enforcement Pending Appeal **IS DISMISSED**.

18. This action is taken pursuant to authority delegated by Section
    0.283 of the Commission\'s rules. 47 C.F.R. § 0.283.

FEDERAL COMMUNICATIONS COMMISSION

John B. Norton

Deputy Chief, Policy Division, Media Bureau

[^1]: The proceeding before the DTE from which Adelphia filed the
    present appeal is Docket No. CTV 01-4. Simultaneously with its
    appeal, Adelphia filed an Emergency Petition for Stay of Enforcement
    Pending Appeal of Rate Order ("Emergency Petition for Stay"). Since
    we are reviewing Adelphia's appeal on its merits, we are dismissing
    the Emergency Petition for Stay as moot.

[^2]: 47 U.S.C. § 543(a)(2).

[^3]: 47 U.S.C. § 543(b)(1); 47 C.F.R. § 76.922.

[^4]: 47 U.S.C. § 543(b)(5)(B); 47 C.F.R. § 76.944.

[^5]: *Harron Commun. Corp*., 15 FCC Rcd 7901 (2000) ¶ 2;
    *Implementation of Sections of the Cable Television Consumer
    Protection & Competition Act*, 8 FCC Rcd 5631 (1993), 9 FCC Rcd
    4316, 4346 (1994) ¶ 81.

[^6]: See Commission web page, http://www.fcc.gov/mb/mbform.html
    (visited June 24, 2003).

[^7]: Under 47 C.F.R. § 76.933(g)(2), if the franchising authority fails
    to act within 12 months, it may not order a refund or reduction.

[^8]: Extension of Time to File Form 1205 Pursuant to Sections 76.922,
    76.923 of the Commission's Rules, 12 FCC Rcd 10193, 10194-95 (1996)
    ¶ 4 n.14.

[^9]: Opposition of the Cable Television Division of the Massachusetts
    Department of Telecommunications and Energy to Adelphia
    Communications Corporation's Appeal of Local Rate Order
    ("Opposition"), filed by Adelphia on Sept. 3, 2002.

[^10]: Opposition at 3.

[^11]: Rate Order in DTE Docket No. CTV 00-5, issued March 12, 2001,
    Exhibit D to Opposition at 1-9.

[^12]: Rate Order in DTE Docket No. CTV 00-11, issued Aug. 1, 2001,
    Exhibit E to Opposition.

[^13]: Rate Order in Docket No. CTV 01-4, issued July 18, 2002, Exhibit
    A to Appeal of Local Rate Orders ("Appeal") filed by Adelphia on
    Aug. 19, 2002.

[^14]: Order Mandating Compliance in Docket No. CTV 01-4, issued Aug.
    12, 2002, Exhibit B to Appeal.

[^15]: July 2002 Rate Order at 2-5.

[^16]: Appeal at 2-5.

[^17]: Opposition at 4-6.

[^18]: *Id.* at 6.

[^19]: *Id.* at 7.

[^20]: July 2002 Rate Order at 5.

[^21]: Appeal at 5 & n.4.

[^22]: Opposition at 4.

[^23]: See 47 C.F.R. § 76.937.

[^24]: *Crown Media, Inc*., 10 F.C.C.R. 6626, 6629 (1995) ¶ 17.

[^25]: *Warner Cable Commun., Inc.*, 11 FCC Rcd 9246, 9250 (1996) ¶ 9 (a
    cable operator may recover the cost of inventory or spare equipment
    for which it demonstrates demand).

[^26]: July 2002 Rate Order at 2-5. *Compare Crown Media, Inc.,*
    10 F.C.C.R. 6626, 6629 (1995) ¶ 17, with *Falcon Community Ventures
    I*, 13 FCC Rcd 12503, 12505 (1998) ¶ 5 (the Commission will reverse
    and remand local rate orders that "summarily or vaguely reject a
    cable operator\'s proposed rate increase").

[^27]: Appeal at 5 & n.4 at 5-6.

[^28]: Opposition at 8-9.

[^29]: Reply to Opposition to Appeal of Local Rate Orders, filed by
    Adelphia on Sept. 11, 2002.

[^30]: *Implementation of Sections of the Cable Television Consumer
    Protection & Competition Act of 1992 -- Rate Regulation*, 8 FCC Rcd
    5631, 572 (1993) ¶ 137.

[^31]: *See, e.g., Century New Mexico Cable Corp*., 11 FCC Rcd 17335,
    17342 (1996) ¶ 15.

[^32]: July 2000 Rate Order at 5.

[^33]: If the DTE had attempted to prescribe an inventory level on the
    evidence before it, it would have run an unreasonable risk of making
    an erroneous or arbitrary prescription and being reversed by us.
    *See* *Falcon Telecable*, DA 99-2386 at ¶ 17 (1999); *Warner Cable
    Commun., Inc.*, 11 FCC Rcd 9246, 9251 (1996) ¶ 12.