Before the

Federal Communications Commission

Washington, D.C. 20554

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| In the Matter of                 | * | CSB-A-0145                   |
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| TKR Cable Company                | ) | DA 95-1179                   |
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| Appeal of Rate Orders of the     | * | Hamilton, NJ                 |
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| State of New Jersey              | * | Elizabeth, NJ                |
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| Board of Public Utilities        | ) | Wildwood, NJ                 |
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|                                  | * | Old Bridge, NJ               |
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|                                  | * | Ramapo, NJ                   |
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|                                  | ) | Rockland, NJ                 |
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|                                  | * | Warwick, NJ                  |
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MEMORANDUM OPINION AND ORDER ON REVIEW

**Adopted: June 23, 2000** **Released: June 30, 2000**

By the Commission:

# INTRODUCTION

1.  The New Jersey Board of Public Utilities ("Board") filed an
    Application for Review of the Memorandum Opinion and Order issued by
    the Cable Services Bureau in *TKR Cable Company* [^1] ("*Bureau*
    *Order*"), which granted the operator's consolidated appeal of local
    rate orders issued by the Board for each of the rate districts
    listed in the caption above. The operator, TKR Cable Company
    ("TKR"), filed an opposition, and the Board replied.

# BACKGROUND AND DISCUSSION

2.  In each of its rate orders, the Board found that packages of a la
    carte channels TKR created on August 31, 1993, the eve of rate
    regulation, were regulated tiers of service. The *Bureau Order*
    relied on *TKR Cable of Hamilton* [^2] and similar orders[^3] and
    found that these packages, which consisted of three to five channels
    each, should not be treated as rate regulated tiers of service. It
    remanded the rate orders for further Board consideration consistent
    with this finding. The Board's Application for Review takes issue
    with this finding. According to the Board, TKR's restructuring of
    its programming offerings was so blatantly an attempt to evade rate
    regulation that treating its a la carte tiers on an unregulated
    basis is inequitable to subscribers. TKR's opposition questions the
    findings of facts on which the Board based its conclusion, and
    argues that the Board's conclusion is not consistent with Commission
    precedent.

3.  The Communications Act of 1934, as amended ("Act") directs the
    Commission to establish regulations designed to ensure the
    reasonableness of rates for the basic service tier ("BST") for cable
    systems not facing effective competition.[^4] The Act exempts video
    programming offered on a per channel or per program basis from rate
    regulation.[^5] The Act also requires that the Commission take steps
    to prevent evasions of rate regulation, including evasions resulting
    from service retiering.[^6] The Commission developed criteria for
    evaluating collective service offerings of a la carte channels in
    its Report and Order in MM Docket No. 92-266 ("*Rate Order*"),[^7]
    and gave guidance for applying these criteria in its Second Order on
    Reconsideration ("*Second Reconsideration Order*").[^8] In the Sixth
    Order on Reconsideration and Fifth Report and Order ("*Going Forward
    Order*"), the Commission acknowledged that application of the test
    for determining whether a la carte packages were permissible was
    unclear.[^9] With respect to a la carte packages created between
    April 1, 1993 and September 30, 1994, the Commission stated, "\[W\]e
    think it is fair, in light of the uncertainty created by our test,
    to allow cable operators to treat existing packages as \[new product
    tiers\] . . ., provided that such packages involve only a small
    number of migrated channels. We see little reason to require an
    operator to 'reverse migrate' a package that was not clearly
    ineligible for unregulated treatment under our a la carte policy."
    [^10] Section 76.986(c)(2) implementing this policy provides that a
    collective offering of a la carte channels could have been treated
    as new product tier if "\[t\]he operator had reasonable grounds to
    believe the collective offering involving only a small number of
    migrated channels complied with the Commission's requirements as of
    the date it was first offered."[^11]

4.  In *TKR Cable of Hamilton*, the Bureau considered several factors
    before concluding, on balance, that it could not reach a clear
    answer as to whether TKR understood its restructuring to be
    impermissible under the criteria announced in the *Rate Order*. In
    light of the confusion about collective offerings, the Bureau added
    that it could not say whether it was clear that TKR's restructuring
    was not a permissible a la carte offering. The *Bureau Order* found
    that the facts reviewed in *TKR Cable of Hamilton* were similar to
    the facts concerning the a la carte offerings in each of TKR's rate
    districts addressed in the Board's rate orders and required
    consistent treatment. The Board's Application for Review takes issue
    with *TKR Cable of Hamilton* and the *Bureau Order* because the a la
    carte packages failed to offer a greater variety of programming
    choices, the operator's pricing methodology made selecting
    individual channels from the package unrealistic, and the operator
    avoided rate reductions. However, the Commission found in *Comcast
    Cablevision* that a package like those offered by TKR was arguably a
    permissible collective offering when created and would be treated as
    new product tier under the *Going Forward Order*.[^12] Given the
    ambiguity in the Commission's rules, *TKR Cable of Hamilton*
    appropriately treated the matters raised in the Board's Application
    for Review as probative rather than conclusive and determined that
    TKR's a la carte package was arguably permissive under the rules in
    effect when it was created and qualified for treatment as new
    product tier under the *Going Forward Order*.[^13] The Bureau's
    application of *TKR Cable of Hamilton* and other similar Bureau
    orders when reviewing the Board's rate orders was appropriate.[^14]

5.  The Board argues that the Commission does not conduct *de novo*
    reviews of rate orders issued by franchising authorities and defers
    to a local authority's decisions if there is a reasonable basis for
    the decision. While this statement generally reflects the
    Commission's review of local rate orders, it is incomplete. The
    Commission's responsibility to establish rate regulations includes
    the responsibility to ensure the uniform interpretation of these
    guidelines.[^15] With respect to a la carte determinations, the
    Commission has clarified that it will defer to the local authority's
    findings of fact if there is a reasonable basis for the local
    findings, but "will then apply FCC rules and precedent to those
    facts to determine the appropriate regulatory status of the tier in
    question."[^16] The Board's determination that TKR's a la carte
    packages are subject to rate regulation is a legal conclusion. The
    Bureau acted appropriately in reviewing this conclusion in light of
    Commission and Bureau precedent. Consistency on both the federal and
    the local levels is desirable and justifies Commission review of a
    local franchising authority's legal conclusions when properly raised
    before the Commission.[^17]

6.  In view of the foregoing considerations, we affirm the *Bureau
    Order*. We therefore deny the Board's Application for Review.

# ORDERING CLAUSES

7.  Accordingly, pursuant to 47 C.F.R. § 1.115(g), IT IS ORDERED THAT
    the Application for Review of Cable Services Bureau Memorandum
    Opinion and Order filed by the New Jersey Board of Public Utilities
    on July 3, 1995 IS DENIED.

8.  IT IS FURTHER ORDERED THAT the staff of the Cable Services Bureau
    SHALL SEND copies of this decision to the authorized representatives
    of the parties by certified mail, return receipt requested.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

[^1]: DA 95-1179 (released June 1, 1995).

[^2]: LOI-93-31, 9 FCC Rcd 7325 (Cab. Serv. Bur. 1994). *TKR Cable of
    Hamilton* reviewed facts for TKR's Hamilton system identical to
    those in TKR's appeal for the system. In light of prior confusion as
    to what constituted a permissible a la carte offering and the
    finding that TKR's a la carte package did not constitute a clear
    evasion of the Commission's rate rules when created, TKR was not
    required to retier its service, adjust its rates, or pay refunds for
    its Hamilton system.

[^3]: *E.g. Cablevision Industries*, 10 FCC Rcd 618 (Cab. Serv. Bur.
    1994) (Long Beach, CA) (5-channel a la carte tier created by moving
    channels from another tier was not clearly unreasonable; operator
    was not required to retier its service, adjust its rates, or make
    refunds), *followed in* *Long Beach Acquisition Corp.*, 10 FCC Rcd
    3922 (Cab. Serv. Bur. 1995) (Long Beach, CA) (appeal of local rate
    order granted).

[^4]: 47 U.S.C. § 543(a)(2), (b)(1). Rates for cable programming
    services offered through March 31, 1999 were also subject to rate
    regulation pursuant to Commission criteria for identifying
    unreasonable rates in individual cases. 47 U.S.C. § 543(c).

[^5]: 47 U.S.C. § 543(l)(2).

[^6]: 47 C.F.R. § 543(h).

[^7]: Implementation of Sections of the Cable Television Consumer
    Protection and Competition Act of 1992: Rate Regulation, MM Docket
    No. 92-266, Report and Order and Further Notice of Proposed
    Rulemaking, 8 FCC Rcd 5631, 5836-37 paras. 327-28:

    > \[W\]e will not regulate collective offerings of otherwise exempt
    > per-channel or per-program services so long as two essential
    > conditions are met. First, the price for the combined package must
    > not exceed the sum of the individual charges for each component of
    > service. . . . Second, the cable operator must continue to provide
    > the component parts of the package to subscribers separately in
    > addition to the collective offering.

    The second condition is satisfied when the per channel offering
    presents subscribers with a realistic choice. *Id*. at 5837 n.808.

[^8]: Implementation of Sections of the Cable Television Consumer
    Protection and Competition Act of 1992: Rate Regulation, MM Docket
    No. 92-266, Second Order on Reconsideration, Fourth Report and
    Order, and Fifth Notice of Proposed Rulemaking, 9 FCC Rcd 4119,
    4214-16 para. 196 (1994) (15 factors listed as guidance for applying
    these criteria).

[^9]: Implementation of Sections of the Cable Television Consumer
    Protection and Competition Act of 1992: Rate Regulation, MM Docket
    No. 92-266, Sixth Order on Reconsideration, Fifth Report and Order,
    and Seventh Notice of Proposed Rulemaking, 10 FCC Rcd 1226, 1241
    para. 45, 1243 para. 51 (1994), *aff'd*, *Adelphia Communications
    Corp. v. FCC*, 88 F.3d 1250 (D.C. Cir.1996) (Commission treatment of
    a la carte offerings upheld).

[^10]: *Going Forward Order*, 10 FCC Rcd at 1243 para. 51 (footnote
    omitted). The conclusions were based on evidence obtained in
    response to letters of inquiry issued to cable operators offering a
    la carte packages. *Id*. at 1241 para. 45. New product tiers were
    created as a category of cable programming service tiers ("CPSTs")
    in order to give operators incentives to expand capacity and provide
    new services by allowing operators to price the tiers as they chose.
    *Id*. at 1234-35.

[^11]: 47 C.F.R. § 76.986(c)(2).

[^12]: 11 FCC Rcd 1246, 1249 (1995) (Tallahassee, FL) (4-channel a la
    carte tier created on September 1, 1993 by moving channels from
    other tiers; subscribership to individual channels was low).

[^13]: *See Comcast Cablevision*, 11 FCC Rcd 1248-49. When operators
    attempted to remove more channels from rate regulation than TKR
    moved to its a la carte offerings, the Commission and the Bureau
    found an evasion of rate regulation and ordered corrective action.
    *See* *Adelphia Cable Partners, L.P.*, 9 FCC Rcd 7781 (Cab. Serv.
    Bur. 1994) (South Dade County, FL*)* (operator's attempt to remove
    entire regulated package of 32 channels from rate regulation found
    to be evasion of rate regulation), *rev. denied* FCC 95-378, 1995 WL
    713487 (released Dec. 1, 1995); *Vision Cable Television Co., Inc.*
    LOI 93-32, 10 FCC Rcd 2207 (Cab. Serv. Bur. 1994) (Fort Lee, NJ) (a
    la carte packages totaling 8 channels not reasonable).

[^14]: In resolving issues addressed in letters of inquiry, the Bureau
    had found that 6-channel a la carte offerings made up of channels
    previously on the system were not clearly unreasonable in *Nashoba
    Cable Services,* LOI-93-23, 10 FCC Rcd 994 (1994) (Danvers, MA);
    *Falcon Cable TV*, LOI-93-50, 10 FCC Rcd 998 (1994) (Port Orchard,
    WA). The Bureau had found that 4-channel a la carte offerings were
    not clearly unreasonable in, *e.g., Comcast Cablevision*, LOI 94-11,
    10 FCC Rcd 537 (1994) (Sterling Heights, MI); *US Cable*, LOI-93-13,
    10 FCC Rcd 533 (1994) (Lake Forest, IL, Lake Bluff, IL); *Warner
    Cable Communications*, LOI-93-14, 9 FCC Rcd 7777 (1994) (Milwaukee,
    WI); *Dimension Cable Services*, LOI-93-36, 9 FCC RCd 7311 (1994)
    (Oceanside, CA). No refunds or restructurings were ordered in these
    cases for a la carte offerings.

[^15]: *Rate Order*, 8 FCC Rcd at 5729-30 para. 147.

[^16]: *Second Reconsideration Order*, 9 FCC Rcd at 4217 para. 199.
    Local franchising authorities may make determinations as to whether
    a collective offering of a la carte channels should be considered a
    regulated tier, even though a la carte channels are not part of the
    BST, because the rate rules take into account the total number of
    channels subject to rate regulation. Determining the status of an a
    la carte package is necessary to determine the correct permitted
    rate for the BST. *See* *Second Reconsideration Order*, 9 FCC Rcd at
    4213 n.262.

[^17]: *See Comcast Cablevision*, 11 FCC Rcd at 1248 para. 14
    (Tallahassee, FL); *Falcon Cablevision*, 11 FCC Rcd 10534, 10536-37
    (Cab. Serv. Bur. 1996) (channels in 4-channel a la carte package
    should not be treated as regulated); Request by the County of
    Clackamas, 10 FCC Rcd 8258 (Cab. Serv. Bur. 1995) (6-channel package
    may be treated prospectively as new product tier). In *TKR Cable
    Company of Wildwood*, 10 FCC Rcd 6703 (1995), citing *TKR Cable of
    Hamilton*, 9 FCC Rcd 7325, the Bureau found that the a la carte
    package for TKR's Wildwood rate district at issue in this proceeding
    may be treated as a new product tier and, therefore, dismissed
    complaints against TKR's CPST.