10 FCC Red No. 5 Federal Communications Commission Record DA 94-1554 basic service, and by the Commission, in the case of cable Before the programming services.2 A stated policy of the 1992 Cable Federal Communications Commission Act is to ensure that "consumer interests are protected in Washington, D.C. 20554 the receipt of cable service." 3 3. The 1992 Cable Act requires cable operators to offer subscribers a basic tier that must contain at least all quali In the Matter of fied local broadcast signals and, unless otherwise specified by the local franchising authority, public, educational, and Vision Cable LOI 93-32 governmental channels.4 The Commission was charged by Television Co., Inc., the 1992 Cable Act with creating regulations that ensure that the rates for the basic service tier are reasonable.5 The Fort Lee, New Jersey 1992 Cable Act directs that "[sjuch regulations shall be designed to achieve the goal of protecting subscribers of Letter of Inquiry any cable system that is not subject to effective competition from rates for the basic service tier that exceed the rates that would be charged for the basic service tier if such MEMORANDUM OPINION AND ORDER cable system were subject to effective competition."6 Under the 1992 Cable Act, operators may offer other channels in a cable programming service tier or tiers.7 The 1992 Cable Adopted: December 19, 1994; Released: December 22, 1994 Act orders the Commission to create regulations for the cable programming service tiers that allow it to identify By the Chief. Cable Services Bureau: individual cases of unreasonable rates.8 The 1992 Cable Act thus protects consumers© interests in continuing to receive the basic service tier and cable programming service tiers I. INTRODUCTION at reasonable rates. 1. The Commission received a Form 329 Complaint on 4. The 1992 Cable Act requires the Commission to adopt October 26, 1993. concerning the reasonableness of the standards and guidelines to prevent evasions, "including rates charged for cable programming services by Vision evasions that result from retiering."9 The 1992 Cable Act©s Cable Television Co., Inc., in Fort Lee, New Jersey ("Vi legislative history states that the Commission should scru sion Cable"). In response to this complaint, the Commis tinize offerings of non-traditional stand-alone services to sion issued Letter of Inquiry 93-32 ("LOI") to Vision Cable "prevent repricing, retiering, or other alterations of rate on December 13, 1993.© The LOI asked Vision Cable to structures" that could have the effect of evading the pur provide information concerning its compliance with the poses of rate regulation. 10 This provision in the 1992 Cable Commission©s rules governing evasion in the offering of Act is intended to give the Commission the authority to packages which allegedly are not rate-regulated. Vision Ca address changes in the cable industry©s business practices ble responded to our LOI on January 12, 1994. that would thwart the intent of rate regulation." 5. In the Rate Order the Commission defined evasion as "any practice or action which avoids the rate regulation II. BACKGROUND provisions of the Cable Act or Commission rules contrary 2. In the Cable Television Consumer Protection and to the intent of the Act or its underlying policies." 12 We Competition Act of 1992 ("the 1992 Cable Act"). Congress must scrutinize a particular operator©s marketing or pricing created a regulatory scheme giving the Commission and practices to determine whether those practices have the local franchising authorities jurisdiction over the cable pro effect of avoiding the requirements of our rate regulations, gramming and equipment rates of non-competitive cable contrary to the intent of the 1992 Cable Act and our rules. systems. The 1992 Cable Act provides that the rates of cable systems not subject to effective competition may be regulated by local franchising authorities, in the case of 1 Letter from Roy J. Stewart, Chief. Mass Media Bureau. FCC. I t 157-161 (1993) ("Rate Order") (franchising authorities may to Vision Cable. Palisades Park, New Jersey, LOI-93-32 (Decem require operators to carry PEG channels on tiers other than ber 13, 1993). Copies of the Letter of Inquiry and Response are basic). available to the public in the FCC©s Cable Reference Center, 5 Communications Act of 1934 § 623 (b)(l), 47 U.S.C. § 543 2033 M Street, N.W., Room 333. Washington, D.C. We also note that there is a pending rate complaint proceeding involving Id. Vision Cable. Our decisions made herein will be made a part of 7 Communications Act of 1934 § 623(1)(2), 47 U.S.C. § 543(1)(2) that proceeding. (1992). 2 Communications Act of 1934. as amended, § 623 (a)(2), 47 * Communications Act of 1934 § 623 (c)(l)(A), 47 U.S.C. § 543 U.S.C. § 543 (a)(2) (1992). (cXU(A) (1992). Identification of individual cases of unreason 3 Pub. L. No. 102-385 § 2 (b) (4), 106 Stat. 1460 (1992); see also able rates is achieved by a process in which the Commission H.R. Rep. No. 628. 102d Cong., 2d Sess. at 34 (1992). assumes jurisdiction over systems where a complaint about a 4 Communications Act of 1934 § 623 (b)(7)(A)(ii-iii), 47 U.S.C. cable programming service tier rate is filed. § 543 (b)(7)(A)(ii-iii) (1992); Implementation of Sections of the 9 Communications Act of 1934 § 623(h), 47 U.S.C. § 543(h) Cable Television Consumer Protection and Competition Act of (1992). 1992: Rate Regulation, MM Docket 92-266, Report and Order © H.R. Rep. No. 628 at 79. and Further Notice of Proposed Rulemaking, 8 FCC Red 5631 at 11 S. Rep. No. 92, 102d Cong.. 2d Sess. at 77 (1992). 12 Rate Order^, 451. 2207 DA 94-1554 Federal Communications Commission Record 10 FCC Red No. 5 III. FACTS 11. Vision Cable argues, inter alia, that it began offering 6. Before September 1, 1993, Vision Cable©s services its Preferred Service channels individually, as well as included a 15 channel basic tier, called Broadcast Basic, for WTBS, ESPN2, TNT, and the Discovery Channel, individ $1.00 per month, a 22 channel cable programming service ually and through its SuperStation Package, in order to tier, called Cable Service, for $20.20 per month, and an implement Congress© intent to maximize consumer choice. additional 4 channel cable programming service tier, called However, based on this record, very few consumers elected Preferred Service for $4.40 per month. to exercise that choice. Vision Cable©s response provides a 7. The following chart summarizes Vision Cable©s service breakdown of its subscribers who chose the packages and tier offerings prior to September 1, 1993: the individual channels. As of January 10, 1994, 46,196 subscribers elected to take the SuperStation Package, while Offering Channels Price the numbers of subscribers taking the individual channels comprising that package are as follows: WTBS-279; 1. Broadcast Basic IS $ 1.00 ESPN2-216; TNT-150; Discovery-106. With respect to the 2. Cable Service 22 $20.20 Preferred Service package, as of January 10, 1994, 12,921 3. Preferred Service 4 $ 4.40 TOTAL 41 $25.60 subscribers elected to take the entire package, while 479 took SportsChannel; 296 took the Sci-Fi Channel; 133 took 8. On September 1, 1993, the date our rate regulations Court TV; 123 took TNN; and 0 took BET. 16 became effective, Vision Cable restructured its service offerings. Vision Cable©s restructured service offerings in cluded a 15 channel Basic Service tier for $ 9.18 per IV. DISCUSSION month, and a 19 channel cable programming service tier 12. The 1992 Cable Act requires the Commission to called Cable Service for $11.63 per month. Vision Cable adopt standards and guidelines to prevent evasions, "in also created two programming packages, SuperStation cluding evasions that result from retiering." 17 An evasion, Package and a package called Preferred Service, with the as defined by the Commission, is an act or practice that channels also offered on an individual basis. "avoids the rate regulation provisions of the [Cable] Act or 9. The first package, SuperStation Package, included four our rules contrary to the intent of the Act or its underlying channels (two channels, WTBS and WSBK,13 originally policies." 18 In the Rate Order, we stated that "retiering offered in Vision Cable©s Broadcast Basic tier, and two otherwise permitted under our rules will not be deemed an channels, TNT and The Discovery Channel, originally of evasion." 1* First, we examine whether Vision Cable©s re fered in Vision Cable©s Cable Service tier). The channels sponse to the LOI shows that its restructuring of its could be purchased individually for $.75 per month, or as offerings had the effect of evading rate regulation for the a package for $2.00 per month. The second package, Pre channels that Congress intended to be rate-regulated. ferred Service, included the same four channels originally 13. Vision Cable©s restructuring involved (1) its offering offered on the Preferred Service tier (SportsChannel, Sci-Fi of two channels previously offered on its Broadcast Basic Channel, Court TV, and the Nashville Network (TNN)), tier plus two channels previously offered on its Cable plus Black Entertainment Television (BET), which was not Service tier on an individual and package basis, and (2) its previously available on the system. 14 SportsChannel could movement of four channels, previously offered on its Pre be purchased individually for $2.00 per month and the ferred Service tier and the addition of one new channel, to other four channels could be purchased individually for create the packages that it alleges are not rate-regulated.