[Federal Register Volume 60, Number 38 (Monday, February 27, 1995)]
[Rules and Regulations]
[Pages 10512-10514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4554]



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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76

[MM Docket 92-266; FCC 95-43]


Cable Television Act of 1992--Rate Regulation

agency: Federal Communications Commission.

action: Final rule.

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summary: On its own motion, the Federal Communication Commission (the 
``Commission'') has adopted a Ninth Order on Reconsideration in order 
to allow small cable operators and low-price systems that have been 
provided with transition relief to adjust their transition rates to 
reflect increases in inflation. Between April 1, 1995 and August 31, 
1995, cable operators that have been afforded transition relief may 
adjust their rates to reflect the net of a 5.21% inflation adjustment, 
minus any inflation adjustments they have already received. In the 
future, all transition relief systems may join other operators by 
making inflation adjustments on an annual basis, no earlier than 
October 1, of each year and no later than August 31 of the following 
year to reflect the final GNP-PI through June 30 of the applicable 
year.

effective date: April 1, 1995.

for further information contact: Paul D'Ari, Cable Services Bureau 
(202) 416-0800.

supplementary information: This is a synopsis of the Ninth Order on 
Reconsideration in MM Docket No. 92-266, FCC 95-43, adopted February 3, 
1995 and released February 6, 1995.
    The complete text of this Ninth Order on Reconsideration is 
available for inspection and copying during normal business hours in 
the FCC Reference Center (room 239), 1919 M Street NW., Washington, DC, 
and also may be purchased from the Commission's copy contractor, 
International Transcription Services, Inc. (``ITS, Inc.'') at (202) 
857-3800, 2100 M Street NW., Suite 140, Washington, DC 20037.

Synopsis of the Ninth Order on Reconsideration

A. Background

    In the Report and Order and Further Notice of Proposed Rulemaking 
in MM Docket No. 92-266 (``Rate Order''), 58 FR 29736 (May 21, 1993), 
the Commission developed a benchmark formula for the purpose of 
establishing initial rates for regulated services. Under the benchmark 
approach, regulated cable systems were required to calculate an 
applicable benchmark, an estimate of the rate that a cable system with 
similar characteristics, but subject to effective competition, would be 
permitted to charge. Cable systems whose rates exceeded the applicable 
benchmark were generally required to reduce their rates either to the 
benchmark or by 10%, whichever reduction was less. This 10% 
``competitive differential'' represented the average difference that 
the Commission determined existed between the rates of competitive and 
noncompetitive systems.
    In the Second Order on Reconsideration, Fourth Report and Order, 
and Fifth Notice of Proposed Rulemaking (``Second Reconsideration 
Order''), 59 FR 17943 (April 15, 1994), the Commission refined the 
econometric model, recalculated the competitive differential, and 
concluded that a competitive differential of 17% more accurately 
estimates the difference between effectively competitive and 
noncompetitive cable rates. Accordingly, the Commission required most 
systems with rates above the benchmark to either reduce their regulated 
rates to a level that represented their September 30, 1992 regulated 
revenues, reduced by 17% (mitigated by annual inflation increases, 
changes in external costs and changes in the number of programming 
channels) or to submit a cost-of-service showing supporting higher 
rates.
    The Commission granted two classes of cable operators transition 
relief, by not requiring them to implement the full 17% reduction rate. 
The first category of systems that were provided with transition relief 
is systems owned by ``small operators,'' defined as operators serving 
15,000 or fewer subscribers and not affiliated with a larger operator. 
Systems owned by small operators were not required to reduce rates by 
17%. Rather these operators were allowed to use the permitted rate 
charged on March 31, 1994 to establish initial restructured rates, and 
adjust accordingly to reflect [[Page 10513]] external costs until the 
Commission completed its study of prices and costs experienced by small 
operators.
    The second category of systems that were provided with transition 
relief is systems that charge relatively low prices for regulated 
services. Low-price systems are defined as systems (1) whose March 31, 
1994 rates were below the benchmark rate, or (2) whose March 31, 1994 
rates were above their March 31, 1994 benchmark rates, but whose March 
31, 1994 full reduction rates are below their March 31, 1994 benchmark 
rates as determined under FCC Form 1200. During the transition period, 
systems whose March 31, 1994 rates were below the benchmark rate had 
their rates capped at March 31, 1994 levels. Systems whose March 31, 
1994 rates were above the benchmark, but whose full reduction rates 
were below the benchmark were only required to reduce their rates to, 
but not below, the benchmark.
    The Commission stated that it would not require small cable 
operators and low-price systems that were provided with transition 
relief to make full competitive rate reductions until the Commission 
collected and analyzed data about such operators' prices and costs, and 
determined whether the competitive rate reduction was appropriate.
    Systems entitled to transition relief have been permitted to 
increase their rates to reflect increases in external costs and a per 
channel adjustment when increasing the number of channels. The 
Commission decided not to allow such systems, however, to increase 
their transition rates to reflect increases in inflation until the 
transition rate equals their full reduction rate. The Commission 
determined that because the full reduction rate rises with inflation, 
as well as with changes in external costs and channel changes, a 
transition rate system's hypothetical full reduction rate may 
eventually exceed the transition rate. The Commission decided, 
therefore, that if a system's transition rate and the full reduction 
rate became equal, that system would be entitled to take advantage of 
inflation adjustments.
    The Commission also stated that after it has determined whether it 
should require transition relief operators to reduce their rates in 
accordance with an appropriate competitive differential, those systems 
will be entitled to an aggregate inflation adjustment equal to the GNP-
PI inflation adjustments for the period beginning October 1, 1992 
through the most recent June 30. For those systems that have already 
received some inflation adjustment, because their hypothetical full 
reduction rate exceeded their transition rate, the Commission stated 
that the system will receive the net of the aggregate inflation 
adjustment minus any inflation adjustment already received. The 
Commission found that such systems will be eligible for additional 
inflation adjustments on an annual basis, but no earlier than September 
30 of each year to reflect the final GNP-PI through June 30 of the 
applicable year.

B. Discussion

    On its own motion, the Commission found that low-price systems and 
small operators that have been provided with transition relief should 
no longer be prevented from adjusting their rates to reflect changes in 
inflation. In the Second Order on Reconsideration, 59 FR 17943 (April 
15, 1994), the Commission decided to defer implementing the inflation 
adjustment for transition relief systems because it was not yet 
requiring them to reduce their rates by the competitive differential. 
The Commission decided that it would provide transition relief systems 
with the opportunity to make inflation adjustments after it developed a 
better picture of the price/cost profiles of these systems and 
determined the appropriate competitive differential for such systems. 
In making the decision, the Commission stated that it expected to 
complete the collection of cost/price data within nine months.
    Because the Commission has not yet completed the collection of this 
data and nearly ten months have passed since the Commission released 
the Second Order on Reconsideration, the Commission finds that it would 
be unfair to further delay implementation of inflation adjustments for 
transition relief systems. The Commission is concerned that a further 
delay in permitting transition relief systems to make inflation 
adjustments could be particularly burdensome on small operators because 
many small operators may not have the financial resources to withstand 
the impact of not being able to make inflation adjustments.
    The Commission also finds that low-price systems should not be 
required to experience any further delays in implementing inflation 
adjustments. In the Second Order on Reconsideration, the Commission 
found that because their prices are significantly lower than those 
charged by most noncompetitive systems, low price systems may face 
unusual demand, costs or other influences that were not captured in the 
Commission's analysis. A further delay in allowing low-price systems to 
make inflation adjustments may, therefore, impose a substantial burden 
upon those operators.
    Accordingly, between April 1, 1995 and August 31, 1995, cable 
operators that have been afforded transition relief may adjust their 
rates to reflect the net of a 5.21% inflation adjustment, minus any 
inflation adjustments they have already received. This adjustment 
accounts for the 3% inflation that regulated cable operators were 
permitted to recover for the September 30, 1992 to September 30, 1993 
period, and the 2.15% inflation factor that operators were permitted to 
recover between October 1, 1994 and August 31, 1995 for the October 1, 
1993 to June 30, 1994 period.
    With one exception, however, transition relief systems will not 
receive the full 5.21% inflation adjustment because, under the old 
rules, they received an inflation adjustment from September 30, 1992 to 
the date they were subject to regulation for the purpose of 
establishing their initial rates prior to May 15, 1994. The exception 
is for most low price systems that had their March 31, 1994 rates above 
the benchmark, but their full reduction rate below the benchmark. When 
these systems set their rates for the period after May 15, 1994, they 
lost the inflation adjustment they received prior to May 15, 1994, 
because they were required to reduce their rates to the benchmark. 
Therefore, they will be permitted to adjust their rates to reflect the 
full 5.21% inflation factor. If, however, their actual post-May 15, 
1994 rate reduction was less than their earlier inflation adjustment, 
they will be permitted to receive the 5.21% inflation adjustment minus 
the difference between their inflation adjustment and their actual 
post-May 15, 1994 rate reduction.
    The Commission determined in the Second Order on Reconsideration 
that, because the full reduction rate rises with inflation, a 
transition rate system's hypothetical full reduction rate may 
eventually exceed the transition rate. The Commission decided that a 
transition rate system will be entitled to take an inflation adjustment 
once the hypothetical full reduction rate and transition rate become 
equal. Therefore, those transition relief systems that have already 
received this inflation adjustment, because their hypothetical full 
reduction rate exceeded their transition rate, will only be allowed to 
receive the net of the aggregate inflation adjustment minus any 
inflation adjustment already received.
    With the inflation adjustment they received prior to May 15, 1994 
and the inflation adjustment the Commission is [[Page 10514]] granting 
them now, transition relief systems will be able to adjust their rates 
to reflect the same inflation adjustment that the Commission has 
granted all other operators. Moreover, in the future, all transition 
relief systems may join other cable operators in making inflation 
adjustments on an annual basis, no earlier than October 1 of each year 
and no later than August 31 of the following year to reflect the final 
GNP-PI through June 30 of the applicable year.

Administrative Matters

Regulatory Flexibility Act Analysis

    Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 601-
612, the Commission's final analysis with respect to the Ninth Order on 
Reconsideration is as follows:
    Need and purpose of this action. The Commission, in compliance with 
section 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 that cable 
services are offered at reasonable rates with minimum regulatory and 
administrative burdens on cable entities.
    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 Report 
and Order and Further Notice of Proposed Rulemaking.
    Significant alternatives considered and rejected. In the course of 
this proceeding, petitioners representing cable interests and 
franchising authorities submitted several alternatives aimed at 
minimizing administrative burdens. The Commission has attempted to 
accommodate the concerns expressed by these parties. In this order, the 
Commission is providing relief to small systems and low-price systems 
by permitting them to adjust their transition rates with an inflation 
adjustment.

Paperwork Reduction Act

    The requirements adopted herein have been analyzed with respect to 
the Paperwork Reduction Act of 1980 and are found to impose a new 
information collection requirement on the public. Implementation of the 
new requirement will be subject to approval by the Office of Management 
and Budget.

Ordering Clauses
    Accordingly, it is ordered that, pursuant to sections 4(i), 4(j), 
303(r), 612, 622(c) and 623 of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 154(j), 303(r), 532, 542(c) and 543, the 
rules, requirements and policies discussed in this Ninth Order on 
Reconsideration, are adopted and part 76 of the Commission's rules, 47 
CFR part 76, is amended as set forth below.
    It is further ordered that the Secretary shall send a copy of this 
Order to the Chief Counsel for Advocacy of the Small Business 
Administration in accordance with paragraph 603(a) of the Regulatory 
Flexibility Act. Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. 601 et 
seq. (1981).
    It is further ordered that the requirements and regulations 
established in this decision shall become effective on April 1, 1995.

List of Subjects in 47 CFR Part 76

    Cable television.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

    Title 47, Part 76 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, 535, 542, 
543, 552 as amended, 106 Stat. 1460.

    2. Section 76.922 is amended by revising paragraph (d)(2) to read 
as follows:


Sec. 76.922  Rates for the basic service tier and cable programming 
service tiers.

* * * * *
    (d) * * *
    (2) Inflation Adjustments. The residual component of a system's 
permitted charge may be adjusted annually for inflation. The annual 
inflation adjustment shall be based on inflation occurring from June 30 
of the previous year to June 30 of the year in which the inflation 
adjustment is made, except that the first annual inflation adjustment 
shall cover inflation from September 30, 1993 until June 30 of the year 
in which the inflation adjustment is made. The adjustment may be made 
after September 30, but no later than August 31, of the next calendar 
year. Adjustments shall be based on changes in the Gross National 
Product Price Index as published by the Bureau of Economic Analysis of 
the United States Department of Commerce. Cable systems that establish 
a transition rate pursuant to paragraph (b)(4) of this section may not 
begin adjusting rates on account of inflation before April 1, 1995. 
Between April 1, 1995 and August 31, 1995 cable systems that 
established a transition rate may adjust their rates to reflect the net 
of a 5.21% inflation adjustment minus any inflation adjustments they 
have already received. Low price systems that had their March 31, 1994 
rates above the benchmark, but their full reduction rate below the 
benchmark will be permitted to adjust their rates to reflect the full 
5.21% inflation factor unless the rate reduction was less than the 
inflation adjustment received on an FCC Form 393 for rates established 
prior to May 15, 1994. If the rate reduction established by a low price 
system that reduced its rate to the benchmark was less than the 
inflation adjustment received on an FCC Form 393, the system will be 
permitted to receive the 5.21% inflation adjustment minus the 
difference between the rate reduction and the inflation adjustment the 
system made on its FCC Form 393. Cable systems that established a 
transition rate may make future inflation adjustments on an annual 
basis with all other cable operators, no earlier than October 1 of each 
year and no later than August 31 of the following year to reflect the 
final GNP-PI through June 30 of the applicable year.
* * * * *
[FR Doc. 95-4554 Filed 2-24-95; 8:45 am]
BILLING CODE 6712-01-M