[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Rules and Regulations]
[Pages 45356-45359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21582]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MM Docket No. 92-266; FCC 96-316]
Implementation of Sections of the Cable Television Consumer
Protection and Competition Act of 1992--Rate Regulation
AGENCY: Federal Communications Commission.
ACTION: Final Rule.
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SUMMARY: In this Memorandum Opinion and Order (``Order''), the
Commission revisits the decision in the Third Report and Order to
require cable operators to use the same method of initial rate
regulation, either benchmark or cost-of-service, for both the BST and
the CPSTs. This requirement applies for one year from the date that the
operator first becomes subject to regulation on any tier. The Third
Report and Order sought to remove incentives to engage in retiering
strategies during the initial rate setting process that would result in
operators receiving more than compensatory rates. The Commission
indicated that it would review the requirement after 18 months. Upon
[[Page 45357]]
review of the record the Commission elects to modify the requirement
set forth in the Third Report and Order so that consistent rate
methodologies must be used for the entire period in which an operator
is subject to rate regulation on both the BST and CPST(s). This Order
is adopted concurrently with a Notice of Proposed Rulemaking which is
summarized elsewhere in this issue of the Federal Register. The
intended effect of this Order is that consistent rate methodologies be
used for the entire period in which an operator is subject to rate
regulation on both the BST and CPST(s).
EFFECTIVE DATE: September 30, 1996.
FOR FURTHER INFORMATION CONTACT: Cable Services Bureau, (202) 418-7200.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Memorandum Opinion and Order, MM Docket No. 92-266 FCC 96-316 adopted
July 25, 1996, and released August 15, 1996. The full text of this
decision is available for inspection and copying during normal business
hours in the FCC Reference Center (room 239), 1919 M Street, NW,
Washington, D.C. 20554, and may be purchased from the Commission's copy
contractor, International Transcription Service, (202) 857-3800, 1919 M
Street, NW, Washington, D.C. 20554.
Synopsis of the Memorandum Opinion and Order
1. In the Third Report and Order in MM Docket No. 92-266, 58 FR
63087 (``Third Report and Order'') the Commission determined that
operators must use the same rate-setting method for all tiers. This
requirement applies for one year from the date an operator first
becomes subject to rate regulation on either the BST or a CPST. The
Commission established this requirement because, in some circumstances,
using the benchmark approach for one tier and the cost-of-service
approach for another tier could result in a double recovery of costs by
the cable operator.
2. The regulatory review process for BST rates is separate from the
review process for CPST rates. Regulation of rates for BSTs is the
responsibility of certified local franchising authorities (``LFAs''),
pursuant to standards and procedures established by the Commission. An
operator may appeal an LFA's rate decision to the Commission. CPST
rates are regulated directly by the Commission upon receipt by the
Commission of a valid complaint from an LFA.
3. In the Third Report and Order, the Commission held, that without
the tier consistency requirement:
an operator could retier its services and place its most
expensive programming on the tier regulated by a cost-of-service
determination. The operator would then be allowed to charge a per
channel rate for the low cost tier based on the benchmark (which is
an averaged rate) that actually exceeds its cost for that tier (and,
thus, the rate it would be able to charge under a cost-of-service
showing). At the same time, the operator may be able to charge a
higher-than-benchmark rate for the other tier through a cost-of-
service showing, based on its higher costs for that tier. The end
result would be rates that exceed the reasonableness standard set
forth in the 1992 Cable Act.
4. The Commission upholds the requirement of the Third Report and
Order that the same methodology for determining rates on all regulated
tiers shall be used in the initial rate setting process. The Commission
sees no reason to conclude that the concerns referred to in the
preceding paragraph have dissipated. In addition, because these
concerns do not dissipate one year after an operator initially becomes
subject to regulation, on its own motion, the Commission removes the
provision that limits the required use of consistent methodologies to
the one year period beginning on the date an operator initially becomes
subject to rate regulation, and thereby extend the requirement so that
consistent methodologies must be used whenever an operator has more
than one tier subject to rate regulation. This requirement will remain
effective until such time as the Commission finds that the use of the
same rate regulatory method on all rate regulated tiers is not
necessary to prevent operators from charging rates above that which the
rate regulations contemplate. This provision effectuates the
Commission's statutory mandate to protect consumers from unreasonable
rates.
5. Use of the same rate regulatory method for all rate regulated
tiers does not hamper an operator's ability to charge fully
compensatory rates. The Commission provides a cost of service option as
an alternative to the benchmark formula for operators that believe the
benchmark would not enable them to recover costs reasonably incurred in
the provision of regulated cable service. As of the effective date of
this Order, operators must use consistent rate regulatory methods on
all rate regulated tiers whenever the operator is required to justify
its rates on any rate regulated tier.
Final Regulatory Flexibility Analysis
6. As required by Section 603 of the Regulatory Flexibility Act, 5
U.S.C. Sec. 603 (RFA), an Initial Regulatory Flexibility Analysis
(IRFA) was incorporated in the Report and Order and Further Notice of
Proposed Rulemaking in MM Docket 92-266, 58 FR 29736 (``Report and
Order''). The Commission sought written public comments on the
proposals in the Report and Order including comments on the IRFA, and
addressed these responses in the Third Report and Order. No IRFA was
attached to the Third Report and Order because the Third Report and
Order only adopted final regulations and did not propose regulations.
This FRFA thus addresses the impact of regulations on small entities
only as adopted or modified in this action and not as adopted or
modified in earlier stages of this rulemaking proceeding. The
Commission's Final Regulatory Flexibility Analysis (FRFA) conforms to
the RFA, as amended by the Contract with America Advancement Act of
1996 (CWAAA), Public Law No. 104-121, 110 Stat. 847. Subtitle II of the
CWAAA is The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA), codified at 5 U.S.C. Sec. 610 et seq. (1996).
7. Need and Purpose for Action: This action is being taken in
accordance with the Commission's decision, as set forth in the Third
Report and Order, to revisit the issues discussed herein, and to carry
out the Commission's statutory mandate to insure that cable rates are
reasonable.
8. Summary of Issues Raised by the Public Comments in Response to
the Initial Regulatory Flexibility Analysis: There were no comments
received in response to the Initial Regulatory Flexibility Analysis. A
single commenter petitioned the Commission for reconsideration of the
requirements contained in the Third Report and Order, but this petition
was ultimately withdrawn. The petitioner was not a small entity, and no
reply comments to the petition were received.
9. Certification of No Significant Economic Impact on a Substantial
number of Small Entities: We do not believe that the final rule adopted
in the Order will have a significant impact on small entities as
defined by the Small Business Administration (SBA), by statute, or by
our rules. The Communications Act at 47 U.S.C. 543 (m)(2) defines a
small cable operator as ``a cable operator that, directly or through an
affiliate, serves in the aggregate fewer than 1 percent of all
subscribers in the United States and is
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not affiliated with any entity or entities whose gross annual revenues
in the aggregate exceed $250,000,000.'' Under the Communications Act,
at 47 U.S.C. 543(m)(1), a small cable operator is not subject to the
rate regulation requirements of Sections 543 (a), (b) and (c) on cable
programming service tiers (``CPSTs'') in any franchise area in which it
serves 50,000 or fewer subscribers. The rule adopted in this Order
requires that the same rate regulatory methodology be used across the
basic service tier (``BST'') and CPSTs. Thus, the rule adopted in this
Order only applies to operators that are rate regulated on both the BST
and CPST, and would therefore not apply to a small cable operator in
any franchise area in which it serves 50,000 or fewer subscribers.
10. Section 623(i) of the Communications Act, 47 U.S.C.
Sec. 543(i), requires that the Commission design rate regulations in
such a way as to reduce the administrative burdens and the cost of
compliance for cable systems with 1,000 or fewer subscribers. The
Commission introduced a form of rate regulation known as the small
system cost-of-service methodology. This approach is more streamlined
than the standard cost-of-service methodology available to cable
operators that are not small cable systems owned by small cable
companies. In addition, the small system rules include substantive
differences from the standard cost-of-service rules to take account of
the proportionately higher costs of providing service faced by small
systems. This rate adjustment methodology is an alternative to the
standard rate adjustment methodologies which are the subject of this
Order. In designing this alternative methodology, the Commission
extended the small system relief required by Section 623(i) of the
Communications Act to cable systems with 15,000 or fewer subscribers
owned by cable companies serving 400,000 or fewer subscribers over all
of their cable systems. Because of the utilization of this alternative
rate adjustment methodology by small cable operators, we do not believe
that this Order, which does not concern this alternative methodology,
will have any significant economic impact on a substantial number of
small cable companies as defined by the Commission's rules.
11. The SBA, at 13 CFR Part 121.201 (as of July 25, 1996), defines
a small cable business concern as a cable business, including its
affiliates, that has $11 million or less in annual receipts. The
Commission, in defining a small system as a cable system with 15,000 or
fewer subscribers owned by a cable company serving 400,000 or fewer
subscribers, stated that $100 million in annual regulated revenues
equates to approximately 400,000 subscribers. We therefore believe that
many cable operators that are within this SBA definition will also be
within the Commission's definition of small cable operator, and will
not experience significant economic impact for the reasons described in
the preceding paragraph. If, however, a cable operator has $11 million
or less in annual receipts, but does not fall within the class of small
cable companies entities to small system rate relief under the
Commissions rules, we believe that such a company would fall under the
Communications Act at 47 U.S.C. 543(m)(1), which states that a small
cable operator is not subject to the rate regulation requirements of
Sections 543 (a), (b) and (c) on CPSTs in any franchise area in which
it serves 50,000 or fewer subscribers. If $100 million in annual
regulated revenues equates to approximately 400,000 subscribers, then
50,000 subscribers, expressed in terms of dollars, should meet or
exceed the $11 million in annual receipts from the SBA definition of a
small cable business concern. Using this same approach, we likewise
believe that the SBA definition of a cable business concern will fall
within the one percent of United States subscribers from the
Communications Act definition of a small cable operator, because the
Commission has determined that there are approximately 61,700,000
subscribers in the United States. We believe that small cable business
concerns as defined by the SBA will fall within the Communication Act's
definition of a small cable operator and the Act's provision of CPST
rate deregulation for small cable operators that serve 50,000 or fewer
subscribers. As explained above, the rule adopted in this Order is
inapplicable to operators that are not subject to CPST rate regulation.
12. The SBA, at 5 U.S.C. Section 601 (Vol. 5), states that small
governmental jurisdictions are ``[g]overnments of cities, counties,
towns, townships, villages, school districts or special districts with
populations of less than 50,000.'' Under the Commissions current rules,
if a local governmental has elected to rate regulate the BST, a cable
operator must submit rate justifications to the local government on FCC
Forms. We do not believe that a substantial number of small
governmental jurisdictions will face a significant economic impact due
to this Order for the following reasons. First, we do not know of any
cable operators that are currently using inconsistent rate setting
methods on their rate regulated tiers, and that would therefore have to
switch to consistent methods as a result of this Order. If such an
operator did exist, the operator would not be required to use
consistent rate regulatory methods until the next time the operator was
required to justify rates on a rate regulated tier. Thus, the
requirement would not generate an increased number of rate reviews by a
local franchising authority. Even in this instance, an operator may
elect to change its CPST ratemaking methodology in order to conform to
the rule as opposed to its BST ratemaking methodology. Such a change
would not affect small governmental jurisdictions because the CPST rate
is regulated by the Commission, and not by small governmental
jurisdictions.
13. The Commission shall send a copy of this Final Regulatory
Flexibility Analysis, along with this Report and Order, in a report to
Congress pursuant to the Small Business Regulatory Enforcement Fairness
Act of 1996, 5 U.S.C. Sec. 801(a)(1)(A). A copy of this FRFA will also
be published in the Federal Register.
Procedural Provisions
14. Ex parte Rules--Non-Restricted Proceeding. This is a non-
restricted notice and comment rulemaking proceeding. Ex parte
presentations are permitted, except during the Sunshine Agenda period,
provided that they are disclosed as provided in the Commission's rules.
See generally, 47 CFR Sections 1.1202, 1.1203, and 1.1206(a).
15. Pursuant to applicable procedures set forth in Sections 1.415
and 1.419 of the Commission's rules, interested parties may file
comments on or before October 6, 1996, and reply comments on or before
November 8, 1996. To file formally in this proceeding, you must file an
original plus four copies of all comments, reply comments, and
supporting comments. If you would like each Commissioner to receive a
personal copy of your comments and reply comments, you must file an
original plus nine copies. You should send comments and reply comments
to the Office of the Secretary, Federal Communications Commission, 1919
M Street, N.W. Washington, D.C. 20554. Comments and reply comments will
be available for public inspection during regular business hours in the
FCC Reference Center, Room 239, Federal Communications Commission, 1919
M Street N.W., Washington D.C. 20554.
[[Page 45359]]
Ordering Clauses
16. Accordingly, it is ordered that, pursuant to the authority
granted in Sections 4(i), 4(j), 303(r) and 623 of the Communications
Act of 1934, as amended, 47 U.S.C. Sections 154(i), 154(j), 303(r) and
543, the requirements set forth in the Third Report and Order are
amended to provide that the use of the same rate regulatory methodology
will be required for all rate regulated tiers for the entire period in
which an operator is subject to rate regulation on more than one tier.
17. It is further ordered that the requirements established in this
decision shall become effective September 30, 1996.
18. It is further ordered that, the Secretary shall send a copy of
this Memorandum Opinion and Order, including the Final Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration in accordance with paragraph 603(a) of the
Regulatory Flexibility Act. Public Law No. 96-354, 94 Stat. 1164, 5
U.S.C. Secs. 601 et seq. (1981).
Federal Communications Commission.
William F. Caton,
Acting Secretary.
List of Subjects in 47 CFR Part 76
Cable television.
Rule Changes
Part 76 of Title 47 of the Code of Federal Regulations is amended
as follows:
PART 76--CABLE TELEVISION SERVICE
The authority citation for Part 76 continues to read as follows:
Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a,
307, 308, 309, 312, 315, 317, 325, 503, 521, 522, 531, 532, 533,
534, 535, 536, 537, 543, 544, 544a, 545, 548, 552, 554, 556, 558,
560, 561, 571, 572, 573.
Section 76.922(a) is revised to read as follows:
Sec. 76.922 Rates for the basic service tier and cable programming
services tiers.
(a) Basic and cable programming service tier rates. Basic service
tier and cable programming service rates shall be subject to regulation
by the Commission and by state and local authorities, as is
appropriate, in order to assure that they are in compliance with the
requirements of 47 U.S.C. 543. Rates that are demonstrated, in
accordance with this part, not to exceed the ``Initial Permitted Per
Channel Charge'' or the ``Subsequent Permitted Per Channel Charge'' as
described in this section, or the equipment charges as specified in
Sec. 76.923, will be accepted as in compliance. The maximum monthly
charge per subscriber for a tier of regulated programming services
offered by a cable system shall consist of a permitted per channel
charge multiplied by the number of channels on the tier, plus a charge
for franchise fees. The maximum monthly charges for regulated
programming services shall not include any charges for equipment or
installations. Charges for equipment and installations are to be
calculated separately pursuant to Sec. 76.923. The same rate-making
methodology (either the benchmark methodology found in paragraph (b) of
this section, or a cost-of-service showing) shall be used to set
initial rates on all rate regulated tiers, and shall continue to
provide the basis for subsequent permitted charges.
* * * * *
[FR Doc. 96-21582 Filed 8-28-96; 8:45 am]
BILLING CODE 6712-01-U