3o. Authorize Filing for Rate Regulation, Cable TV, FCCn
n
1
MEMORANDUM
30.
CITY OF
CHANHASSEN
690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317
(612) 937 -1900 0 FAX (612) 937 -5739
TO: Mayor and City Council
FROM: Don Ashworth, City Manager
DATE: May 3, 1994
SUBJ: Authorize Filing for Rate Regulation, Cable TV, FCC
The city council authorized staff to submit form FCC 328 (rate regulation form)
approximately one month ago. However, staff informed the council that we would be having
an additional meeting(s) with the cable operator and that before the actual forms were
submitted, that we would notify the city council of such. Our last meeting with our cable
advisor (Brian Grogan), the Mayor, and representatives of Triax concluded with the belief that
it would be in both the city's and Triax's best interest if those forms were submitted [Note -
the South Lake Minnetonka group of cities has completed rate regulation authorization for
that group of cities and, accordingly, Triax is facing no additional burdens if Chanhassen
similarly files for rate regulation.]
J�
LAW O FFICES
' MOSS & BARNETT
A PROFESSIONAL ASSOCIATION
4800 NORwesT CENTER
' 90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402 -4129
BRIAN T. GROGAN TELEPHONE (612) 347 -0300 TELECOPIER 16121 339 -6686
' ) 612) 347 -0340
['ABLE COMMUNICATIONS UPDATE
TO: MOSS & BARN ETT-CLIENTS AND INTERESTED PARTIES .
FROM: BRIAN T. GROGAN
' DATE: APRIL 27, 1994
RE: THE FCC'S NEW RATE REGULATIONS
' Ocopyright 1994, Moss S Barnett, A Professional Association
' Effective May 15, 1994, Al _ cable systems will be governed by the Federal
Communications Commission's ( "FCC ") new rate regulations. These new rate
' regulations require cable operators to reduce rates by 174 from their
September 1992 rate levels (and thereafter adjust them upward for inflation,
channel additions /deletions, and increases in external costs) unless they
qualify for "transition relief."
STEPS FOR IMPLEMENTATION
' Franchising authorities which are already "certified" by the FCC to
regulate rates for the basic cable service tier and related equipment do not
need to take any additional action with the FCC to regulate rates under the
new regulations. Those franchising authorities that have not yet been
certified by the FCC must use FCC Form 328 to obtain certification.
Franchising authorities which previously adopted rate regulations consistent
with the FCC's former rate regulations will not typically need to amend their
' regulations. However, franchising authorities should review their rate
regulation ordinances and resolutions to ensure reference has been made to 47
C.R.F. Part 76, subpart N.
' Franchising authorities wishing to submit a complaint against a cable
operator for "other cable programming services" (i.e. the expanded tiers of
service) must still complete and file FCC Form 329. Complaints regarding
rates in effect since September 1, 1993 are prohibited unless FCC Form 329 was
filed before February 28, 1994. Franchising authorities may file complaints
against cable operators with respect to "increases" in rates for other cable
programming services within 45 days of such an increase, by filing FCC Form
329.
' If a franchising authority has (1) been certified by the FCC, (2#, Ad ptedD
rate regulations consistent with the FCC's, (3) given the cable operator
' 1 CITY Ur
-- Cable operator not required to make any filing until '
certification and written notification are completed.
-- Once certification and written notification are completed, '
cable operator has 30 days to file both Form 393 and Form 1200
with franchising authority.
-- Franchising authority must complete review of Forms within ,
30/120 day time periods.
2. Franchising authority has provided written notice to cable operator '
that it is certified and that cable operator is subject to rate
regulation, but cable operator has not filed Form 393 with
franchising authority, prior to May 15. 1994 '
-- Cable operator need not comply with 30 day time period for
filing Form 393 but is permitted to wait until June 15, 1994 ,
MOSS & BARNETT
t
A PxopmioNAL ASSMATION
appropriate written notification that it is "subject to rate regulation," and
(4) obtained FCC Form 393 from its cable operator, then the 30 day period for
review of Form 393 must be complied with (or 120 days if the franchising
'
authority invokes a 90 day extension). For these communities, cable operators
must automatically provide a new FCC Form 1200 (a /k /a "First -Time Filers
Form ") as well as other applicable FCC forms to notify the franchising
'
authority of adjustments and possible reductions in the rates charged for the
basic cable service tier and related equipment. Form 1200 will be submitted
shortly after May 15, 1994 to franchising authorities which have already
received Form 393. However, some cable. operators may take advantage of a 60
'
day waiver of the FCC's new rate regulations, which will correspondingly delay
the filing of Form 1200 with these franchising authorities.
If a franchising authority has not filed for certification with the FCC,
but takes the steps necessary to become certified, the cable operator must
simultaneously submit both Form 393 and Form 1200 to the franchising
authority. The franchising authority may then review Form 393 for the period
'
between September 1, 1993 and May 15, 1994, and review Form 1200 for the
period beginning May 15, 1994. Franchising authorities are permitted 30 days
(and up to 120 days) to complete review of Forms 393 and 1200. Franchising
,
authorities which do not seek certification from the FCC essentially waive
their right to review and the approve rates charged by their cable operators
for the basic cable service tier and related equipment.
'
WHAT TO EXPECT FROM THE OPERATOR
The cable operators' deadlines for filing applicable forms vary depending
'
upon the status of the franchising authority's review. The following examples
may be helpful for communities to understand exactly what cable operators will
be required to provide as of the effective date of the new regulations (May
'
15, 1994).
1. Franchising authority is not certified and has not notified the
cable operator that it is subject to rate regulation as of May 15
'
1994
-- Cable operator not required to make any filing until '
certification and written notification are completed.
-- Once certification and written notification are completed, '
cable operator has 30 days to file both Form 393 and Form 1200
with franchising authority.
-- Franchising authority must complete review of Forms within ,
30/120 day time periods.
2. Franchising authority has provided written notice to cable operator '
that it is certified and that cable operator is subject to rate
regulation, but cable operator has not filed Form 393 with
franchising authority, prior to May 15. 1994 '
-- Cable operator need not comply with 30 day time period for
filing Form 393 but is permitted to wait until June 15, 1994 ,
i'
MOSS & BARNETT
A PROMSSIONAL Assoc[Anon
(or later depending upon; application of 60 day waiver) to file
both Form 393 and Form 1200 with franchising authority.
-- Franchising authority must complete review of Forms within
30/120 day time periods.
3. Cable operator has filed Form 393. but franchising authority has not
issued decision as of May 15, 1994
' -- Franchising authority must complete review of Form 393 within
30/120 day time periods.
' -- Cable operator must file Form 1200 with franchising authority
within 30 days of May 15, 1994 or within 30 days of
implementing its rates prior to July 14, 1994 under applicable
' FCC 60 day waiver.
-- Franchising authority must complete review of Form 1200 within
30/120 day time periods.
4. Franchising authority has issued final decision on Form 393 as of
May 15, 1994
1 -- Cable operator is required to file Form 1200 with franchising
authority by June 15, 1994 or within 30 days of implementing
' its rates under FCC 60 day waiver.
-- Franchising authority must complete its review of Form 1200
' within 30/120 day time period.
ii'HEN WILL SUB
SCRIBERPRATES CHANGE?
' Cable operators must comply with the FCC's new regulations by May 15,
1994 to avoid refund liability. The FCC, however, will not impose refund
liability for an additional 60 days (until July 14, 1994) provided:
' 1. The cable operator does not change any rate for regulated service or
equipment, or restructure any regulated service or equipment
offering until July 14, 1994;
' 2. The cable operator provides 30 days notice to subscribers of any
change it ultimately makes in response to the new regulations;
' 3. All rate and service restructuring is completed by July 14, 1994.
Any operator that does restructure its rates and service offerings before
' July 14, 1994 will have its refund liability triggered on the date the
restructuring occurs. Any cable operator electing to take advantage of the
FCC's 60 day waiver described above must notify either the franchising
' authority or the FCC of the waiver by the date on which its rate justification
on Form 1200 must be filed with the franchising authority.
I
Under the FCC's original rules, the benchmark -rate was based on three '
variables: the number of subscribers, the number of regulated channels and
the percentage of satellite delivered channels. The New Benchmark Rate
formula (under Form 1200) is more complex and involves the application of nine
different variables: '
1. Total number of channels per tier as of March 31, 1994;
2. Number of non - broadcast channels per tier as of March 31, 1994; '
3. Number of subscribers on each tier as of March 31, 1994;
4. Number of customers in service tiers in 1993; ,
5. Median household income for the franchise area; '
6. Monthly average number of subscriber additional outlets in 1993;
7. Monthly average number of remotes rented in 1993; '
8. Total number of subscribers for the whole system as of March 31,
1994; and '
9. For systems owned by a multiple system operator (MSO), the number of
systems in the MSO as of March 31, 1994. '
1 To compute a system's "Full Reduction Rate," a system first calculates its '
September 30, 1992 regulated revenues per subscriber, less 17 %. The resulting
figure is then adjusted to account for inflation from October 1992 through
September 1993; changes in external costs occurring after the earliest of the '
date in which the system received notice of local certification to regulate
basic service, the date on which a complaint was filed regarding expanded
service, or February 28, 1994; and changes in the number of channels carried '
on regulated service tiers occurring after September 30, 1992.
2 This calculation takes a system's per subscriber regulated revenues (for
service and equipment) as of March 31, 1994 and adjusts it to reflect any '
external costs increases (described in the regulations but not including
inflation) occurring after the system's initial date of regulation (or
February 28, 1994, whichever was earlier) and before March 31, 1994. 1
MOSS & BARNETT
A PaoressIONAL AssocIAmON
HOA�DO OPERATORS CALCULATE NEW RATES
The
FCC's new regulations have substantially modified the FCC's
old
'
benchmark
rate regulation approach. The modified approach requires
cable
operators
to compute their New Benchmark Rate (described below),
Full
Reduction
Rate (based on a 17% "competitive differential ") and
their
'
March 31,
1994 Rate 2 . If the cable operator's March 31, 1994 Rate exceeds
its Full
Reduction Rate, the cable operator must lower its rates to the
Full
Reduction
Rate level unless the system qualifies for "transition relief."
FCC
Form 1200
is to be used by cable operators to complete these calculations.
'
Under the FCC's original rules, the benchmark -rate was based on three '
variables: the number of subscribers, the number of regulated channels and
the percentage of satellite delivered channels. The New Benchmark Rate
formula (under Form 1200) is more complex and involves the application of nine
different variables: '
1. Total number of channels per tier as of March 31, 1994;
2. Number of non - broadcast channels per tier as of March 31, 1994; '
3. Number of subscribers on each tier as of March 31, 1994;
4. Number of customers in service tiers in 1993; ,
5. Median household income for the franchise area; '
6. Monthly average number of subscriber additional outlets in 1993;
7. Monthly average number of remotes rented in 1993; '
8. Total number of subscribers for the whole system as of March 31,
1994; and '
9. For systems owned by a multiple system operator (MSO), the number of
systems in the MSO as of March 31, 1994. '
1 To compute a system's "Full Reduction Rate," a system first calculates its '
September 30, 1992 regulated revenues per subscriber, less 17 %. The resulting
figure is then adjusted to account for inflation from October 1992 through
September 1993; changes in external costs occurring after the earliest of the '
date in which the system received notice of local certification to regulate
basic service, the date on which a complaint was filed regarding expanded
service, or February 28, 1994; and changes in the number of channels carried '
on regulated service tiers occurring after September 30, 1992.
2 This calculation takes a system's per subscriber regulated revenues (for
service and equipment) as of March 31, 1994 and adjusts it to reflect any '
external costs increases (described in the regulations but not including
inflation) occurring after the system's initial date of regulation (or
February 28, 1994, whichever was earlier) and before March 31, 1994. 1
MOSS & BARNETT
A PaovessioNAL Assomvon
Once a cable operator _has computed its Full Reduction Rate, its New
Benchmark Rate and its March 31, 1994 Rate, it is in a position to determine
' whether it must reduce its rates to the Full Reduction Rate or if it qualifies
for "transition relief."
' WHICH SYSTEMS QUALIFYFOR MAMMON RELIEF?
Transition relief is available for two types of systems -- systems owned
' by "small operators" and "low price" systems. Systems eligible for transition
relief are not required to immediately reduce their rates. However, these
systems will be subject to a study by the FCC, during which time the system's
inflation adjustments will be capped.
' For purposes of qualifying for transition relief, a "small operator" is
defined as a cable operator with a total subscriber base of 15,000 or fewer as
' of March 31, 1994. The small operator will not be eligible for transition
relief if a 20% or greater equity interest in the small operator is held by a
cable operator with more than 15,000 subscribers or if a cable operator with
' more than 15,000 subscribers exercises control over the small operator. In
addition, the FCC has grandfathered small operators as of March 31, 1994.
Thus, for ezample, if a larger company acquires a small operator after March
31, 1994, the systems formerly owned by the small operator do no lose their
' eligibility for transitional relief. The transition rate for a system owned
by a small operator will be its March 31, 1994 Rate after separating out
equipment rates.
'
There are two categories of "low
price" systems
entitled to transitional
relief. The first category includes
any system in
which its March 31, 1994
Rate is below its New Benchmark Rate (calculated
using the new FCC Form
1200). The transition rate for such
systems is the
March 31, 1994 Rate with
equipment rates separated out or "unbundled." The second category of "low
price" systems includes any system in which its March 31, 1994 Rate is above
' its New Benchmark Rate, but in which its Full Reduction Rate is below the New
Benchmark Rate. The transition rate for these "low price" systems is the New
Benchmark Rate with equipment rates unbundled.
' Systems qualifying for transition relief are not required to immediately
reduce their rate to the Full Reduction Rate. However, systems with
transition rates will be the subject of a study by the FCC. This study will
' be based on information collected through an industry -wide survey of affected
systems. The FCC will release its results when available and may order
further reductions for "transition" systems.
' HOWARE SMALL SYSTEMS AFFECTED?
' The FCC lifted the stay of rate regulation for small systems (systems
serving 1,000 or fewer subscribers) effective May 15, 1994. The FCC also
adopted administrative rate relief for any independent small systems and small
systems "owned" (20% active or passive equity interest) by multiple system
operators with 250,000 or fewer subscribers all of whose systems have less
than 10,000 subscribers and an average system size of 1,000 subscribers.
These small systems are = required to unbundle equipment and services and in
lieu of using FCC Form 393/1200, the systems, on an interim basis (until
MOSS & BARNETT
The subscriber is free to select.which channels will
be included in
A PROFESSIONAL ASSOCIATION
the package.
'
the FCC adopts average cost
differentials
for equipment), may reduce their
March 31, 1994 rates for each
regulated billed item by 14 %.
'
This 14% reduction
reflects the
17% competitive differential
(contemplated in Form 1200)
adjusted for
inflation from September 1992 to
'
September 1993. The 1,000
and 10,000
subscriber measurements will be
'
determined on a headend rather than franchise basis. In addition, streamlined
rate reductions will = be
available to
otherwise qualified small systems
'
that already have restructured their rates in an effort to comply with the old
'
FCC regulations.
A small system wishing to implement the streamlined rate reduction '
approach must provide its subscribers and the franchising authority with
written notice describing the rates that it will be adopting. Such notice
must be provided with respect to basic rates by June 15, 1994, if a certified
franchising authority had attempted to commence rate regulation prior to May '
15, 1994, or within 30 days after the date on which the franchising authority
commences rate regulation if after May 15, 1994. The statutory period of 180
days for filing cable programming service complaints against small systems '
starts on May 15, 1994, and will terminate on November 14, 1994.
ARF. "A 1.A CARTE" SERVICES ALLOW -ED?
The FCC has retained its two part test for determining whether rates for '
"a la carte" offerings should be regulated or unregulated. This two part test
considers whether 1) the price of the package is less than the sum of the '
prices of the individual channels and 2) the component parts of the package
are all available individually. The FCC has identified five factors which, if
present, support the conclusion that the "a la carte" package is exempt from '
regulation:
1. The cable operator offered "a la carte" packages consisting of
non - premium channels prior to regulation. '
2. The cable operator conducted market research that suggests
introducing an "a Is carte" package would be profitable, other than '
as a means of evading rate regulation.
3.
The subscriber is free to select.which channels will
be included in
the package.
'
4.
Subscribers are given a notice which fully discloses their options
and the total price associated with exercising any of
these options.
'
5.
An insignificant percentage or number of channels
in the package
were removed from the regulated tiers.
'
The
FCC also identified 10 factors which, if present, support the
conclusion that the "a Is carte" package should be treated as a
regulated tier:
'
MOSS & BARNETT
A PROFESSIONAL AssociArwx
1. The introduction of the "a la carte" package results in avoiding
rate reductions that Mould have otherwise been required under the
FCC's regulations.
2. A significant percentage or number of channels in the package were
removed from regulated tiers.
3. The package price is deeply discounted when compared to the price of
an individual channel.
4. The channels taken from regulated tiers have not traditionally been
marketed as "a la carte."
5. An entire regulated tier has been eliminated and turned into an "a
la carte" package.
6. The subscriber must pay a significant equipment charge to purchase
an individual channel in the package.
7. The subscriber must pay a "downgrade charge" to purchase an
individual channel in the package.
S. The "a la carte" package includes channels that were removed from
lower tiers of channels, so that subscribers to those lower tiers
are required to buy one or more intermediate tiers in order to
receive the same channels.
9. Subscribers are automatically subscribed to an "a la carte" package
through, for example, a negative option billing.
10. The affected programmers object to the restructuring of their
services into "a la carte" packages.
Cable operators must submit FCC Form 1215 whenever they submit Form 1200
to identify "a la carte" information. The FCC has also identified a specific
procedure for franchising authorities to address "a la carte" offerings within
a specified time period during the local review process. Franchising
authorities affected by such "a la carte" packaging should consult FCC
regulations for more detailed information regarding this issue.
The FCC's new rate regulations include significant information which has
not been summarized in this Cable Communications IIpdate For example, the FCC
released detailed interim regulations on cost of service proceedings which
cable operators may undertake to establish rates within a given community.
Should you have specific questions regarding rate regulation within your
community or if we can provide any additional information to assist you in
this process, please contact Brian T. Grogan (612) 347 -0340. For those
communities with whom we work regularly on rate regulation, please do not
hesitate to contact us with any specific questions or comments, you may have
on the status of your review and the impact which these new FCC rate
regulations may have on the rates currently charged in your community.
7
MOSS & BARNETT
A PROFESSIONAL ASSOC ATION
The materials in this Cable Communications Update have been compiled from
a variety of sources and address only a few points contained within hundreds
of pages of regulations. We have not addressed many important points which
may apply to your situation. You should consult with legal counsel before
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Send to Brian T. Grogan, Moss 6 Barnett, 4800 Norwest Center, 90 South Seventh '
Street, Minneapolis, MN 55402 -4129, or faz to 612- 339 -6686.
Please feel free to call with questions at 612- 347 -0340.
BTG /slo
216ZBTG '