Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | * | CSB-A-0661                   |
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| TIME WARNER COMMUNICATIONS       | ) |                              |
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| Appeal of Local Rate Order of    | * |                              |
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| Public Cable Television          | * |                              |
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| Concerning the Communities of    | * |                              |
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| Fountain Valley, CA CUID CA0752  |   |                              |
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| Huntington Beach, CA CUID CA0751 | * |                              |
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| Stanton, CA CUID CA0932          | * |                              |
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| Westminster, CA CUID CA0750      |   |                              |
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**MEMORANDUM OPINION AND ORDER**

**Adopted: March 30, 2001 Released: April 3, 2001**

By the Deputy Chief, Cable Services Bureau:

# introduction

1.  Time Warner Communications ("TWC"), the franchised cable operator
    serving the cities of Fountain Valley, Huntington Beach, Stanton,
    and Westminster, California, filed an appeal of the local rate order
    issued by the Public Cable Television Authority ("PCTA") on February
    20, 2001.[^1] This order asserted jurisdiction over TWC's charge for
    its Service Protection Plan ("SPP"), reduced the rate, and ordered
    refunds.[^2] PCTA filed an opposition to this appeal, and TWC
    replied. TWC additionally requested an emergency stay of the rate
    order, which PCTA opposed.[^3]

# scope of review

2.  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

## Service Protection Plan

3.  TWC offers a Service Protection Plan for \$1.00 per month that it
    claims is distinguished from a traditional regulated wire
    maintenance plan and, therefore, not subject to local rate
    regulation. TWC describes the SPP as including features beyond
    simple repair of cable inside wiring; namely, repair of internal and
    external cable lines accidentally cut as a result of dog chews,
    gardening, or construction on the customer's property; fine tuning
    reception devices such as televisions or VCRs; assisting the
    subscriber by trouble-shooting problems; free service upgrades
    (hooking up an additional outlet or upgrading to a premium service);
    and providing free replacement batteries for TWC-provided remote
    controls.[^6]

4.  PCTA found in its February 20, 2001 rate order that the SPP was not
    justified on TWC's Form 1205 or in any substantive response to PCTA
    requests for supporting data, does not cover telephone wiring, and
    is not competitive with any service offered by an incumbent local
    exchange carrier.[^7] Relying on actual service call data from
    another cable system as the best information available and TWC's
    maximum permitted hourly service charge ("HSC") for one hour of
    service at the HSC, PCTA determined that annual service calls for
    inside wiring are for only 1.99% of the total number of cable
    subscribers and, accordingly, ordered TWC to reduce its SPP rate to
    \$0.07.[^8]

5.  TWC claims its SPP is not subject to regulation because it is
    comprised of a variety of elements, including some that are
    available competitively from other sources.[^9] This inclusion of
    competitively available elements allegedly distinguishes the SPP
    from cable inside wire maintenance plans that are subject to local
    rate regulation. Further, according the TWC, as a matter of good
    public policy, cable operators should be encouraged to make
    available optional service plans that include a wide range of
    products and services. PCTA disagrees, arguing that wire maintenance
    plans have been consistently treated as regulated services by the
    Commission's rules and decisions and that TWC's public policy
    argument is inconsistent with these rules and decisions.[^10] PCTA
    disagrees that TWC's bundling of a clearly regulated commodity with
    non-regulated cable commodities of dubious value is reason to
    deregulate the whole package. In reply, TWC continues to argue that
    public policy considerations support its appeal.[^11]

6.  We find PCTA's treatment of TWC's package to be reasonable. In
    addressing cable wire maintenance plans, the Commission has
    repeatedly held that the rates are subject to local franchising
    authority rate review and regulation and has rejected arguments
    regarding the availability of competitive alternatives where the
    operator has not shown how competitive pressures will insure
    compliance with the statutory standard that prices be based on
    operators' actual costs.[^12] Simply bundling wire maintenance with
    additional outlet installation, other repair activities that would
    normally be subject to rate regulation if obtained from the cable
    operator, or including programming tier upgrades for which there
    would otherwise be a regulated charge, does not address this burden
    for the package as a whole or for any of its parts, and no other
    showing was tendered in this case. Nor do we find that the
    competitive availability of equipment tuning and replacement
    batteries requires a different result. Absent a showing of
    competitive pressures on the rate for the package as a whole,[^13]
    which TWC has not made, the inclusion of some services that may be
    available from other sources does not, by itself, insulate the
    package from rate regulation.

7.  When reviewing an optional wire maintenance plan in *Southeast
    Mississippi*, we were concerned that the task of comparing the costs
    and benefits over time associated with purchasing a wire maintenance
    plan for a flat monthly fee, verses relying on the regulated hourly
    service charge if and when maintenance or repair is needed, is a
    "difficult, if not amorphous, task" for the subscriber and,
    accordingly, found that the two types of maintenance offered by the
    cable operator were not comparable and would not exert competitive
    pressures upon one another.[^14] The difficulty in evaluating the
    price for the maintenance plan addressed in *Southeast Mississippi*
    is compounded with TWC's SPP where multiple activities are bundled
    in the plan. Comparing the costs and benefits of a service plan
    verses paying an hourly service charge to the operator or paying a
    third party's charges is no less difficult for a subscriber when the
    activity is equipment tuning, adding an outlet, or ordering a
    premium service than when it is wire maintenance or repair. In
    contrast, the "whole house" wire maintenance situation addressed in
    *Clarification* and relied on by TWC was shown not to raise this
    concern. There the operator included cable wire maintenance in a
    package of similar but unregulated services for non-cable wiring and
    established that its plan was in direct competition with monthly
    maintenance plans offered by the local exchange carrier and that its
    price was less than the price charged by the competing local
    exchange carrier for only part of the package. Under those
    circumstances, the cable part of the package was not subject to rate
    regulation.[^15] The problems associated with evaluating any
    competitive offering in *Southeast Mississippi* and in this case
    were not present in *Clarification*.

## Prescribed Rate

8.  Assuming that the elements of the SPP are subject to rate
    regulation, TWC faults PCTA for ignoring costs of some of the
    products included in its SPP when setting an unreasonably low rate
    for the SPP.[^16] TWC argues that the PCTA order must be remanded so
    that the rate prescribed by PCTA can take into account all of the
    costs associated with the plan. Section 76.937 of the Commission's
    rules places the burden of justifying rates on the cable
    operator.[^17] An operator that does not attempt to demonstrate the
    reasonableness of its rates or respond to reasonable requests for
    supportive information from the franchising authority has not met
    its burden and can be subject to an order mandating appropriate
    relief. This relief can include ordering a prospective rate
    reduction and a refund based on the best information available at
    the time.[^18]

9.  In this case, the PCTA twice sought service call information in
    order to evaluate the SPP,[^19] and TWC twice declined to provide
    the information.[^20] Lacking information from TWC, the PCTA used
    actual service call data acquired from a neighboring operator to
    determine the percent of total cable subscribers receiving service
    calls for inside home wiring. This percent was applied to TWC's
    subscriber base to determine the number of TWC subscribers that
    likely required a service call of one hour at the hourly service
    charge. Although the data relied on was only for service calls
    associated with inside home wiring, TWC does not suggest that other
    information was available to the PCTA for prescribing a rate or that
    the PCTA should have prescribed a rate based on pure speculation.
    Under the circumstances here, the information available to the PCTA
    provided a reasonable basis for its decision.

## Refund Period

10. Finally, the PCTA order requires TWC to provide a refund plan and to
    provide refunds with interest for any amounts collected since
    October 1, 2000 in excess of the prescribed rate.[^21] TWC argues
    that the PCTA erred in ordering refunds dating back farther than
    January 1, 2001, the effective date of rates implemented pursuant to
    the Form 1205 it filed on or about October 1, 2000.[^22] In
    opposition, the PCTA argues it can work backward to the filing date
    of the company's most recent rate form when the form does not
    purport to justify the SPP rate and the operator has refused to
    provide the requested justification for the rate.[^23]

11. When an operator uses the annual rate adjustment method for
    justifying its rates, the procedures in section 76.933(g) govern the
    review process.[^24] An operator files its proposed rates with the
    franchising authority no later than 90 days before the effective
    date of the proposed rates. If the franchising authority does not
    act within this 90 day period, the operator can put its new rates in
    effect, but the franchising authority will have 12 months from the
    date the operator filed for the rate adjustment to issue its rate
    order. If the franchising authority concludes that the operator has
    submitted a facially incomplete application, however, the
    franchising authority's deadline for issuing a decision, the date on
    which rates may go into effect if no decision is issued, and the
    period for which refunds are payable will be tolled while the
    franchising authority is waiting for the missing information,
    provided that the franchising authority has notified the operator of
    the incomplete filing within 45 days of the date the filing is made.
    Absent fraudulent conduct on the operator's part, which is not
    alleged here,[^25] these procedures govern and the refund period for
    rates reviewed during the annual review process begins with the
    effective date of the rates under review.[^26] Ordering refunds for
    rates charged during a rate period not before the PCTA was not
    reasonable and requires a remand.

# ordering clauses

12. Accordingly, IT IS ORDERED that the Appeal of Local Rate Order filed
    by Time Warner Communications on March 2, 2001 IS GRANTED IN PART
    and otherwise DENIED and the PCTA Rate Order adopted February 20,
    2001 IS REMANDED to the Public Cable Television Authority for
    further consideration consistent with this Memorandum Opinion and
    Order.

13. IT IS FURTHER ORDERED that the Emergency Petition for Stay of
    Enforcement Pending Appeal of Local Rate Order IS DISMISSED.

14. This action is taken pursuant to authority delegated by section
    0.321 of the Commission's Rules, 47 C.F.R. § 0.321.

FEDERAL COMMUNICATIONS COMMISSION

William H. Johnson

Deputy Chief, Cable Services Bureau

[^1]: TWC, Appeal of Local Rate Order (Mar. 2, 2001) ("TWC Appeal");
    PCTA, Opposition to Appeal of Local Rate Order; Opposition to
    Emergency Petition for Stay of Enforcement Pending Appeal of Local
    Rate Order (Mar 13, 2001) ("PCTA Opposition"); TWC, Reply to
    Opposition to Appeal of Local Rate Order (Mar. 19, 2001) ("TWC
    Reply").

[^2]: TWC Appeal, Exhibit A, A Rate Order of Board of Directors of the
    Public Cable Television Authority Finding a Regulated Cable Rate of
    AOL Time Warner Cable ("TWC") to be Unreasonable, Prescribing a
    Reasonable Rate and Ordering Refunds to Subscribers (adopted Feb.
    20, 2001) ("PCTA Rate Order").

[^3]: Emergency Petition for Stay of Enforcement Pending Appeal of Local
    Rate Order (Mar. 2, 2001). In light of our action on the merits,
    this stay request is dismissed as moot.

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

[^5]: ^?^ *Implementation of Sections of the Cable Television Consumer
    Protection and Competition Act of 1992: Rate Regulation*, Report and
    Order and Further Notice of Proposed Rulemaking, 8 FCC Rcd 5631,
    5731-32 para. 149 (1993) (\"*Rate Order*\"), Third Order on
    Reconsideration, 9 FCC Rcd 4316, 4346 para. 81 (1994) (\"*Third
    Reconsideration Order*\").

[^6]: TWC Appeal, Exhibit C, Nov. 9, 2000 Letter from Kristy Hennessey
    (TWC) to Mary Morales (PCTA), and Exhibit E, Jan. 2, 2001 Letter
    from Hennessey to Morales.

[^7]: PCTA Rate Order at 1, 2, 3.

[^8]: *Id.* at 2.

[^9]: TWC Appeal at 4-5.

[^10]: PCTA Opposition at 3-6.

[^11]: TWC Reply at 2-3.

[^12]: *E.g., TCI of Southeast Mississippi*, 13 FCC Rcd 11080 (Cab.
    Serv. Bur. 1998) ("*Southeast Mississippi*").

[^13]: *See Request for Clarification of Rate Regulatory Rules Inside
    Wire Maintenance*, CSR-5424, DA 01-154 paras. 7-9 (Cab. Serv. Bur.
    released Jan. 22, 2001) ("*Clarification*").

[^14]: *Southeast Mississippi*, at 11085-86 para. 17.

[^15]: *Clarification* at para. 9.

[^16]: TWC Appeal at 5; Reply at 3-4.

[^17]: 47 C.F.R. § 76.937(a).

[^18]: 47 C.F.R. § 76.937(d); *Third Reconsideration Order*, 9 FCC Rcd
    at 4347-48.

[^19]: Appeal Exhibit D, January 2, 2001 letter from Mary Morales (PCTA)
    to Kristy Hennessey (TWC), and Exhibit F, January 11, 2001 letter
    from Morales to Hennessey.

[^20]: Appeal Exhibit E, January 2, 2001 letter from Hennessey to
    Morales, and Exhibit G, February 2, 2001 letter from Gary R. Matz
    (TWC) to Morales.

[^21]: PCTA Rate Order at 3.

[^22]: TWC Appeal at 6.

[^23]: PCTA Opposition at 7.

[^24]: 47 C.F.R. § 76.933(g).

[^25]: The report from PCTA's consultant advises, "As has been noted in
    the past, the Time Warner rate card indicates a \$1.00 per month
    charge for a 'Service Protection Plan.'" TWC Reply, Appendix A,
    Telecommunications Management Corp., Review of FCC Forms 1205 & 1240
    Submitted by Time Warner Communications to the Public Cable
    Television Authority (Oct. 26, 2000), p.3. The PCTA could have
    pursued this charge as part of its review of TWC's prior rate
    filing. *See Marcus Cable Associates, L.L.C.*, DA 01-268 (Cab. Serv.
    Bur. released Feb. 1, 2001), *petition for partial reconsideration
    pending*.

[^26]: *See* 47 C.F.R. § 76.933(g)(2). TWC states that the rate year
    began January 1, 2001. TWC Appeal at 2.