Before the
                     FEDERAL COMMUNICATIONS COMMISSION
FCC 94-254
                               Washington, D.C. 20554
In the Matter of                         )
                                              )
Implementation of Sections of            )
the Cable Television Consumer       )              MM Docket No.
92-266
Protection and Competition Act           )
of 1992:    Rate Regulation              )
                      FOURTH ORDER ON RECONSIDERATION
       Adopted: September 30, 1994                Released:
October 5, 1994
By the Commission:
I. Introduction
     1.   In this Fourth Order on Reconsideration, we consider
whether to amend our
price cap rules governing regulated cable service rates to permit
cable operators to revise rates
for regulated cable services to reflect changes in franchise fees
without receiving prior
franchising authority or Commission approval.  We also consider
whether to amend our rules
to permit external cost treatment of Commission regulatory fees
applicable to cable operators
and to permit these fees to be passed through to subscribers
under the same procedures as
changes in franchise fees.
II. Franchise Fees
    A. Background
     2.   Under the Commission's price cap rules, a cable
operator is permitted to adjust
its maximum monthly charge for regulated service tiers to reflect
changes in certain categories
of external costs, including franchise fees.  If an operator's
basic service tier is being
regulated in a particular franchise area by the franchising
authority or by the Commission,
the operator generally is not allowed under our rules to increase
its rates for the basic service
tier or related equipment and installations without first
submitting the proposed increase to the
franchising authority or the Commission, as the case may be, for
review.  Under our rules, a
franchising authority reviewing a proposed increase in basic
rates has an initial 30 day period
to make its decision. The franchising authority may extend this
period for an additional 90
days in a non-cost-of-service case or 150 days in a
cost-of-service case.  During this period,
the operator's proposed increase is not in effect.  When the
Commission is regulating basic
rates, filings regarding rate increases must be made 30 days
prior to the proposed effective
date and such rate increases are effective on the date proposed
unless the Commission issues
an order deferring the effective date or denying the rate
proposal.  With respect to cable
programming service (CPS) rates, an operator must file rate
increases for prior review by the
Commission if the Commission has ordered the operator to reduce
its CPS rates within the
prior 12 months or some other period specified by the Commission
in a particular case.  In
addition, when a CPS complaint against the operator is pending
before the Commission, an
operator must give the Commission 30 days' notice of changes in
any rates, including
increases in rates attributable to increases in franchise fees.
    B. Discussion
     3.    On reconsideration, we determine that we should permit
adjustments to capped
rates to reflect increases in franchise fees without prior
regulatory approval.  These fees are
generally set by the franchising authority itself.  Thus, the
fees are set by a government entity
which is aware of and sensitive to the fees' impact upon
consumers.  Since it is the
franchising authority which has set the franchise fee, prior
regulatory review appears less
necessary from a consumer protection standpoint than it is for
other categories of external
costs.
      4.  Accordingly, as of the effective date of this Order,
where the franchising
authority is regulating basic rates, increases in basic rates
attributable to increases in franchise
fees will not be subject to the prior approval requirements for
proposed rate increases set
forth in Section 76.933(a)-(c) of our rules.  However, operators
will continue to be required to
give subscribers and the franchising authority 30 days' advance
notice of any rate change, as
required by our rules.  When the operator provides the 30 days'
notice to the franchising
authority, it must also provide documentation that demonstrates
that the rate increase has been
properly calculated.
     5.    As under existing rules, where the Commission is
regulating basic service tier
rates, operators must give the Commission 30 days' advance notice
of any such increase
attributable to franchise fee increases.  Operators must also
give subscribers and franchising
authorities 30 days' advance notice of changes in basic rates
attributable to increases in
franchise fees as required by our rules.  In addition, where the
Commission is regulating
basic service rates, the operator should submit with its filing
to the Commission the same
documentation which it would need to submit if the franchising
authority were regulating
basic service rates as outlined above in paragraph 4.  The
Commission will review such
filings according to its existing rules.
     6.   The franchising authority or the Commission, as
appropriate, may then review
the pass-through of increases in franchise fees and may order a
prospective rate reduction
and refunds in accordance with our rules in the event the
operator has increased its basic
service rates by more than the increase in franchise fees
properly allocable to the basic tier.
The burden of demonstrating that any such increases are proper
shall remain on the operator
as with any other rate adjustments.
     7.   Operators that have had cable programming service rates
deemed unreasonable
within the prior 12 months, or some other period specified by the
Commission in a particular
case, must submit increases in CPS rates attributable to an
increase in franchise fees to the
Commission for its review.  Rate justifications relating to
franchise fee-related increases in
CPS tier rates will be reviewed by the Commission according to
existing rules for
Commission review of basic service tier rates.
     8.   These rule revisions do not change our rules governing
rate adjustments
attributable to decreases in external costs, including franchise
fees.  Decreases in franchise
fees allocable to either the basic service or a CPS tier will
continue to be treated as external
cost decreases under our existing rules.  Such decreases must be
passed through to subscribers
within the periods set forth in our rules for passing through
decreases in external costs.  The
operator must provide 30 days' notice to subscribers, the local
franchising authority and the
Commission, as appropriate.  As with franchise fee increases,
operators must provide
documentation for the amount of the decrease.
III. Regulatory Fees
    A. Background
     9.   Section 9 of the Communications Act of 1934, as
amended, requires the
Commission to collect cable system regulatory fees of $370 per
1,000 subscribers from cable
television systems on an annual basis.  The purpose of requiring
cable systems to pay
regulatory fees to the Commission is to permit the Commission to
recover the annual cost of
its various regulatory activities.  In a Report and Order
released June 8, 1994, in MD
Docket No. 94-19, the Commission adopted implementing rules
providing for the payment of
regulatory fees in fiscal year 1994 and thereafter.  In that
Report and Order, we decided to
assess the cable system regulatory fee on an exact per subscriber
basis (i.e., $0.37 per
subscriber per year or approximately $0.03 per subscriber per
month).  We provided that
regulatory fees be paid on this basis so that cable systems
serving less than 1,000 subscribers
would not pay a disproportionately high regulatory fee.   The
first cable system regulatory
fee payments for fiscal year 1994 were due on August 12, 1994.
     10.  Cable operators in MD Docket No. 94-19 urged the
Commission to permit
cable systems to pass regulatory fees through to subscribers as
external costs.  In that Report
and Order, we concluded that the pass-through issue was not
within the scope of the docket
and should, therefore, be addressed separately.
    B. Discussion
      11.       Cable system regulatory fees are mandated by
Congress, collected by the
Commission, and are intended to reimburse the Commission for
administering its regulatory
responsibilities under the Communications Act of 1934.  As such,
they are exceptional, newly
imposed, governmentally-assessed fees that further the purposes
of the Communications Act.
These fees are also beyond the control of the cable operator.
Furthermore, the fees are easily
measurable in amount.  Consistent with the Commission's prior
decision to determine on a
case-by-case basis whether categories of costs should be accorded
external cost treatment,
we determine that Commission regulatory fees should be accorded
external cost treatment
under our price cap rules governing cable service rates.
     12.  We further determine that cable system regulatory fees
should be directly
assigned to the basic service tier.  Direct assignment to the
basic service tier is appropriate
because the cable system regulatory fees are assessed on a per
subscriber basis and all
subscribers receive the basic service tier.  The Commission's
regulatory fees order defines a
"subscriber" in a manner consistent with this method of
assignment as "a member of the
general public who receives broadcast programming distributed by
a cable television
system...." (emphasis added).  Broadcast programming is required
to be offered on the basic
service tier.  In addition, if we were to permit cable systems to
assign all
of the regulatory fee to the CPS tiers, then basic-only
subscribers would not pay any of the
regulatory fee even though the fee is assessed on a per
subscriber basis and is intended to
reimburse the agency for more than CPS tier regulation.  And, if
we were to allow cable
systems to allocate the fee among basic and CPS tiers on a
weighted or other basis, then
some subscribers would pay more than three cents a month and
other subscribers would pay
less.  Assignment to the basic service tier is also consistent
with the fact that regulatory fees
are intended to reimburse the Commission for the costs of
regulating cable service, including
Commission oversight of the basic service tier and other
regulatory activities such as
rulemaking, the direct regulation of some systems' basic tier
rates and review of local
franchising authorities' decisions.  We find, therefore, that the
most equitable means of
permitting cable systems to pass through to subscribers
regulatory fees is by requiring cable
systems to directly assign the fee entirely to the basic service
tier.
     13.  We believe that cable operators should be permitted to
adjust rates on account
of the regulatory fees without prior regulatory approval, subject
to our requirements for 30
days' advance notice.  Thus, operators may adjust rates to
reflect the newly imposed
regulatory fees, and any subsequent increases in the fees, in the
same manner that rates may
be adjusted for increases in franchise fees, as discussed above.
Decreases in Commission
regulatory fees will continue to be treated as external cost
decreases under our existing rules
and must be passed through to subscribers in accordance with
those rules.
     14.  Operators shall recover the annual regulatory fee
according to the following
schedule.  Regulatory fees of $0.37 per subscriber that were due
on August 12, 1994 and/or
September 9, 1994 for fiscal year 1994 (October 1, 1993 -
September 30, 1994) shall be
recovered from subscribers over a ten month period beginning in
December of 1994 and
ending in September of 1995.  For the first three months of this
ten month period (December
1994 -February 1995), operators shall recover $0.03 per month per
subscriber.  For the
remaining seven months (March 1995 - September 1995), operators
shall recover $0.04 per
month per subscriber.  Operators may provide notice of the entire
fiscal year's regulatory fee
pass-through in a single notice so long as that notice states
that the fee pass-through will
increase from $0.03 in February 1995 to $0.04 in March 1995.
Regulatory fees that are
assessed for subsequent fiscal years shall be recovered in twelve
monthly installments during
the fiscal year following the fiscal year for which the payment
was imposed.  For example,
operators may begin recovering regulatory fees paid for fiscal
year 1995 during the 12 month
period from October 1995 through September 1996.  Payments shall
be collected in equal
monthly installments, except that for so many months as may be
necessary to avoid fractional
payments, an additional $0.01 payment per month may be collected.
All such additional
payments shall be collected in the last month or months of the
fiscal year, so that once
collections of such payments begin there shall be no month
remaining in the year in which
the operator is not entitled to such an additional payment.
Recovery of regulatory fees paid
for fiscal year 1995 and subsequent fiscal years is, of course,
subject to the notice
requirements contained in this Order.  We recognize that
operators will not recover the
regulatory fee until after they have paid it.  However, operators
may not assess interest on the
amount charged to subscribers for regulatory fees in order to
avoid the substantial
administrative burdens on operators and regulators in determining
and reviewing interest
calculations.
IV. Regulatory Flexibility Act Analysis
     Final Analysis for the Fourth Order on Reconsideration
     15.  Pursuant to the Regulatory Flexibility Act of 1980, 5
U.S.C.  601-612, the
Commission's final analysis with respect to the Fourth Order on
Reconsideration is as
follows:
     16.  Need and purpose of this action. The Commission, in
compliance with  3 of
the Cable Television Consumer Protection and Competition Act of
1992, 47 U.S.C.  543
(1992) pertaining to rate regulation, adopts revised rules and
procedures intended to ensure
cable subscribers of reasonable rates for cable services with
minimum regulatory and
administrative burden on cable entities.
     17.  Summary of issues raised by the public in response to
the Initial Regulatory
Flexibility Analysis. There were no comments submitted in
response to the Initial Regulatory
Flexibility Analysis. The Chief Counsel for Advocacy of the
United States Small Business
Administration (SBA) filed comments in the original rulemaking
order. The Commission
addressed the concerns raised by the Office of Advocacy in the
Rate Order.
     18.  Significant alternatives considered and rejected.
Petitioners representing cable
interests and franchising authorities submitted several
alternatives aimed at minimizing
administrative burdens.  The Commission responded to these
comments in previous Orders in
this docket.  Although the Commission is issuing this Order on
its own motion, the
Commission has attempted to accommodate commenters' concerns and
to reduce
administrative burdens by providing an expedited method to pass
through franchise fees and
Commission regulatory fees.
V. Ordering Clauses
     19.  Accordingly, IT IS ORDERED that, pursuant to Sections
4(i), 303(r), and 623
of the Communications Act of 1934, as amended, 47 U.S.C. 
154(i), 303(r), and 543, that,
Sections 76.922, 76.924, and  76.933 of the Commission's rules,
47 C.F.R. Sections 76.922,
76.924, and 76.933 ARE AMENDED as set forth in the attached
Appendix.
     20.  IT IS FURTHER ORDERED that, this Fourth Order on
Reconsideration IS
EFFECTIVE 30 days after the date of publication in the Federal
Register.
                         FEDERAL COMMUNICATIONS COMMISSION
                                   William F. Caton
                         Acting Secretary                                 APPENDIX
Part 76 of Chapter I of Title 47 of the Code of Federal
Regulations is amended as follows:
PART 76 - CABLE TELEVISION SERVICE
1.   The authority citation for Part 76 continues to read as
follows:
     Authority: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat.,
as amended, 1064, 1065,
1066, 1081, 1082, 1083, 1084, 1085, 1101; 47 U.S.C. Secs. 152,
153, 154, 301, 303, 307,
308, 309, 532, 533, 535, 542, 543, 552, as amended, 106 Stat.
1460.
2.   Section 76.922(d)(3)(iv) is amended to add section (F) to
read as follows:
 76.922 Rates for the basic service tier and cable programming
services tiers.
      (d)(3)(iv) External costs shall consist of costs in the
following categories:
          (A) State and local taxes applicable to the provision
of cable television service;
          (B) Franchise fees;
          (C) Costs of complying with franchise requirements,
including costs of
providing      public, educational, and governmental access
channels as required by the
franchising    authority;
          (D) Retransmission consent fees and copyright fees
incurred for the carriage of
     broadcast signals;
          (E) Other programming costs; and
          (F) Commission cable television system regulatory fees
imposed pursuant to 47
     U.S.C  159.
3.   Section 76.924 is amended to add a new paragraph (f)(5) to
read as follows and to
redesignate existing paragraphs (5) and (6) as paragraphs (6) and
(7):
  76.924 Cost accounting and cost allocation requirements.
     (f)(5) Commission cable television system regulatory fees
imposed pursuant to 47
U.S.C.  159 shall be directly assigned to the basic service
tier.
4.   Section 76.933 is amended to add paragraphs (e) and (f) to
read as follows:
 76.933 Franchising authority review of basic cable rates and
equipment costs.
     (e)  Notwithstanding the foregoing, when the franchising
authority is regulating
basic service tier rates, a cable operator may increase its rates
for basic service to reflect the
imposition of, or increase in, franchise fees or Commission cable
television system regulatory
fees imposed pursuant to 47 U.S.C.  159, upon 30 days' notice to
subscribers and the
franchising authority and, where required by Section 76.958, to
the Commission. For the
purposes of paragraphs (a) - (c) of this Section 76.933, the
increased rate attributable to
Commission regulatory fees or franchise fees shall be treated as
an "existing rate," subject to
subsequent review and refund if the franchising authority
determines that the increase in basic
tier rates exceeds the increase in regulatory fees or in
franchise fees allocable to the basic tier.
This determination shall be appealable to the Commission pursuant
to Section 76.944 of these
rules.  When the Commission is regulating basic service tier
rates pursuant to Section 76.945
of these rules or cable programming service rates pursuant to
Section 76.960 of these rules,
an increase in those rates resulting from franchise fees or
Commission regulatory fees shall be
reviewed by the Commission pursuant to the mechanisms set forth
in Section 76.945 of these
rules.  A cable operator must adjust its rates to reflect
decreases in franchise fees or
Commission regulatory fees within the periods set forth in
Section 76.922(d)(3)(i),(iii) of
these rules.
     (f)  Cable television system regulatory fees assessed by the
Commission pursuant
to 47 U.S.C.  159 shall be recovered in monthly installments
during the fiscal year following
the fiscal year for which the payment was imposed.  Payments
shall be collected in equal
monthly installments, except that for so many months as may be
necessary to avoid fractional
payments, an additional $0.01 payment per month may be collected.
All such additional
payments shall be collected in the last month or months of the
fiscal year, so that once
collections of such payments begin there shall be no month
remaining in the year in which
the operator is not entitled to such an additional payment.
Operators may not assess interest.
Operators may provide notice of the entire fiscal year's
regulatory fee pass-through in a single
notice.