HomeMy WebLinkAboutItem 6.2 ViacomBasicCableRtsRev (2)
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CITY OF DUBLIN
AGENDA STATEMENT
CITY COUNCIL MEETING DATE: October 10, 1994
SUBJECT: Public Hearing: Review of Viacom's Basic Cable Rates for September 1,
1993 to July 14, 1994.
1:f (Prepared by: Bo Barker, Management Assistant)
EXHIBITS ATTACHED: l~esolution Ordering a Rate Reduction
2/ Consultant's Report that Reviews Form 393 (Viacom's Rate Application)
3yViacom's Position Letter
RECOMMENDATION: 1. Adopt the Resolution ordering Viacom to comply with the FCC
~gulations by using the "preponderance of use" method of counting
regulated channels, and order a rate reduction for the basic tier.
2. Direct staff to file a request for clarification from the FCC of the
"preponderance of use" method for counting channels.
FINANCIAL STATEMENT: There would be no impact if the City Council approves Viacom's actual
rates. If the City Council ordered a rate reduction, rate payers would
remain unaffected since the FCC would likely allow Viacom to replace any
rate overcharges with rate undercharges.
DESCRIPTION: The Cable Television Consumer Protection and Competition Act of 1992 (the Act)
grants local franchising authorities the right to regulate cable television rates for basic service. Basic
service is defined by the Act as all broadcast stations, public access, government, and education
channels. This level of service does not include satellite stations such as ESPN, CNN, TBS, etc. The
City's cable operator, Via com calls its basic service, limited service. The second tier of service offered by
Viacom is called the Satellite Value Package. The majority of subscribers, 95%, purchase the second tier of
service.
The FCC has issued regulations detailing the rate regulation procedures and setting maximum
permitted rates for regulated services. Local franchising authorities must determine whether the cable
operator's rates for basic service comply with these regulations. In other words, the City, as a certified
local franchising authority, must review and approve Viacom's limited service level rates. The FCC
regulates the more popular second tier, the Satellite Value Package.
Rate Regulation
The City Council is considering rates for the period covering September 1, 1993 to July 14, 1994. For this
period, Viacom was required to submit Form 393 that describes how they are in compliance with the
benchmark rates established by the FCC. Form 393 was given to the City's Cable Consultant,
Telecommunications Management Corporation (TMC), to review and provide findings. In order to
achieve a cost savings, the Cities of Dublin, Livermore, Pleasanton and San Ramon jointly had the
Consultant review Viacom's rates.
The TMC report, Exhibit 1, examines how rates compare to the FCC established benchmark rates.
Benchmark rates are also referred to as "permitted rates." The calculation of the Benchmark rates involve
three primary factors:
1) the number of subscribers
2) the number of regulated channels
3) the number of regulated channels that are satellite delivered.
The TMC report indicates two primary issues as a result of the Form 393 filing; 1) how the number of
regulated channels were counted by Viacom; and 2) the impact of the counting on the permitted rates.
1) The Number of Regulated Channel: The issue stems from how channels that have both regulated and
non regulated programming are counted. (Non-regulated services include premium or pay per view
COPIES TO: Deb Stuart, Viacom Cable
CITY CLERK
FILE I/loI5l0~O'
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channels). For example, Channel 0 carries the California Channel five hours per day, Monday through
Friday which is regulated programming, but carries Playboy, non regulated programming, the
remainder of the time.
The initial FCC regulations were silent on how to treat these cases. The FCC has attempted to address
the situation in various question and answer sessions conducted throughout the country. However,
this exact situation has not been addressed, TMC has concluded from these sessions that a
"preponderance of use" standard should apply to this situation. This means that if the preponderance
of use of a channel is non regulated programming, then it should not be counted in the calculating the
permitted rate. In the example previously given for Channel 0, the preponderance of use is non
regulated programming. This conclusion therefore impacts the permitted rate calculations.
Viacom Cable has reviewed the report of TMC and contends that they counted the channels correctly.
(Viacom's response is attached as Exhibit 3). Their position is that if any regulated programming is on a
particular channel then the channel should be counted as regulated. Again, the FCC has not made a
definitive ruling on the "preponderance of use" issue although both the City and TMC have informally
requested them to do so.
2. Permitted Rates: The number of regulated channels directly impacts the permitted or benchmark rates
as described in Table 1 below. (The listed rates are exclusive of the franchise fee)
Basic Service (Limited Service)
Tier 2 (Satellite Value
Total
As Submitted b Viacom
Current Rate
$12.93
$10.13
$23.03
Channels
19
15
34
As Calculated b TMC
Permitted Rate Channels Difference
$12.34 17 $-0.59
$10.89 15 $+0.76
$23.23 32 $+0.17
Table 1
The table above demonstrates that the permitted rate for Basic Service should be $0.59 lower than the
current rate. As shown, the Tier 2 permitted rate could be $0.76 higher than the current rate. Based on
this information, the City Council could elect to order the Basic Service Rate to the lower, permitted
amount. However, the FCC has indicated that if rates for one level of service are too high, but are less
than permitted on other Tiers, the total dollars to be refunded must be "offset" by any undercharges.
Additionally, since the FCC determines refund liability based on the total dollars of both service tiers,
the basic service customer would not receive a refund. In short, if the City Council elected to reduce
rates on the basic tier, there would be no impact on rate payers for the period covering September L
1993 to Tuly 14, 1994
If the City Council ordered a rate reduction, there may be an impact on the future rates of basic
customers. The impact will be more clear once the next round of rate reviews are complete.
Tri-Valley Cities Action
San Ramon's City Council approved the actual rates. The City of Pleasanton ordered a rate reduction as
is recommended by Staff and the City of Livermore is hearing this item tonight, October 10, 1994.
Future City Actions
In March, 1994, the FCC made revisions to its rate regulations. Cable operators were required to adjust
their rates which took affect July 14, 1994. This will require the City Council to approve another rate
application in December of 1994. Additionally, Viacom is required to submit new rate application forms
that will be evaluated and brought back to the City Council at a future meeting. The four cities, Dublin,
Pleasanton, Livermore, and San Ramon will again share in the cost of the evaluation.
Staff recommends the City Council order Viacom to comply with the FCC regulations by using the
"preponderance of use" method of counting regulated channels, and order a rate reduction for the basic
tier. Viacom should apply refunds in actordance with FCC regulations, and to show compliance within
60 days.
It also recommend that the City Council direct staff to file a request for clarification from the FCC of the
"preponderance of use" method for counting channels.
COPIES TO: Deb Stuart, Viacom Cable
ITEM NO.
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RESOLUTION NO. - 94
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
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DISAPPROVING OF CERTAIN RATES FOR THE BASIC SERVICE TIER
AND ORDERING A RATE REDUCTION FOR THE PAST RATES COLLECTED
WHEREAS, The Cable Television and Consumer Protection Act of 1992 grants the City of Dublin, as a
franchising authority, the power to review rates for basic cable television service within it s jurisdiction.
WHEREAS, The City has taken the necessary measures to comply with FCC regulations governing
certification and rate review; and
WHEREAS, On June 14, 1994, Viacom Cable submitted to the City an FCC Form 393 documenting the
rates that became effective September 1, 1993; and
WHEREAS, Telecommunications Management Corporation, a professional cable television
regulations consulting firm, has reviewed Viacom's Form 393 and found the rates for basic service to be above
the FCC's maximum "benchmark" rates; and
WHEREAS, the City has provided reasonable opportunity for the consideration of views of interested
parties and has provided Viacom Cable with a copy of the consultant's report dated July 25, 1994.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Dublin resolves as
follows:
Section 1: The rates and charges for the Basic Service Tier as identified in the FCC Form 393 dated
June 14, 1994, which were in effect form September 1, 1993 to June 14, 1994 are hereby disapproved for
the reason's cited in the Telecommunications Management Corporations report dated July 25, 1994,
incorporated into this resolution by reference. Rates for the Basic Service Tier are hereby ordered to be
reduced by $0.59 per month for the period from September 1, 1993 to July 14, 1994.
Section 2: This resolution constitutes a written decision disapproving the initial rate within the
meaning of Section 76.936 of the Rules and Regulations of the FCC.
Section 3: Viacom Cable is hereby directed and ordered to provide refunds, in accordance with the
Rules and Regulations of the FCC, to subscribers for any accounts collected since September 1, 1993 in
excess of the rates authorized by this order, and to provide to the City written evidence of compliance
within sixty (60) days of this resolution.
PASSED, APPROVED AND ADOPTED this, 1994
AYES:
NOES:
ABSENT:
ABSTAIN:
Mayor
ArrEST:
City Clerk
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5757 Wilshire Blvd. . Suite 635 . Los Angeles, CA 90036 . (213) 931-2600 . Fax (213) 931-7355
July 25, 1994
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Mr. Chris Sherwood
Management Analyst
City of Pleasanton
P.O. Box 520
Pleasanton, CA 94566-0802
Dear Mr. Sherwood:
Telecommunications Management Corp. (TMC) has received
the revised FCC Form 393 submitted by Viacom Cable to the
Cities of DUblin, Livermore, Pleasanton and San Ramon (the
Cities). This letter constitutes TMC's evaluation and
review of this information.
The following caveats should be noted:
. The Viacom financial information has not been
audited for accuracy. However, the numbers
have been examined for consistency with
iridustry standards. It is noted that the
Form 393 is submitted with a signature under
a provision that states that willful false
statements are punishable by fine and/or
imprisonment.
. The rules established by the FCC are subject
to revision and modification. The evaluation
is based on the rules established and
available as of the date of this report.
. Viacom has submitted one Form 393 for all of
the cities. This practice is permitted by
the FCC.l However, Viacom has made a single
filing to the Cities, even though "elll
1 Footnote 1 to the FCC's instructions for Form 393 reads, "When
completing this form, except where noted, your should use data from the
community unit involved. However, you may use data for the system
instead of the community unit if all relevant factors (including program
service and equipment rates, channel line-ups and franchise fees) are
identical and the local franchising authority (or where relevant, the
FCC) permits you to use such system data."
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EXHIBIT d.
Mr. Chris Sherw~
City of Pleasanton
July 25, 1994
Page 2
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relevant factors" were not "identical". 2
Upon direction from the Cities, it was
determined that this information is
acceptable for the purposes of this review.
It is noted that separating San Ramon from
the other cities would not have a significant
impact on the results of the Form 393.
viacom submitted a Form 393 dated June 14, 1994, in
response to the cities' notice of certification by the FCC
to regulate the rates for the basic service tier. The Form
393 appears to have been completed in compliance with FCC
regulations, except perhaps for one key item.
This item involves the counting of channels utilized in
the calculation of the benchmark.
Form 393 involves the calculation of the maximum rate
per channel that a cable operator is permitted to charge.
The calculation involves computing the current permitted
rate and comparing it to the "benchmark" which the FCC has
determined represents the rate that the cable operator would
charge in a competitive environment. If the current rate
equals or is less than the benchmark, then the current rate
is the permitted rate. If the current rate exceeds the
benchmark, then the Form compares the rate in place with 90%
of the September 30, 1992 rate3 (a 10% reduction), with the
benchmark permitted at that time. The permitted rate is
either the benchmark (adjusted for inflation and program
changes) or 90% of the September 30, 1992 rate, whichever
reduction is less.
The calculation of the benchmark involves three primary
factors: Number of subscribers, number of regulated
channels and number of regulated channels which are
satellite delivered. Since the benchmark rate is inversely
proportional to the number of channels (i.e., the more
channels, the lower the permitted charge per channel), the
2 On the effective date of regulation, the basic rate (exclusive of
franchise fees) in Dublin, Livermore and Pleasanton was $12.96 and
$12.84 in San Ramon. Viacom utilized a "weighted average rate" of
$12.93. It is noted that this is actually a straight average (total of
four numbers divided by four) rather than a weighted average).
3 September 30, 1992 is used because the FCC determined that many
operators increased rates in anticipation of the passage of the 1992
Cable Act in October 1992. The FCC thus eliminated the rate increases
which were implemented primarily as a result of the proposed
legislation.
Mr. Chris Sherwttd
City of Pleasanton
July 25, 1994
Page 3
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counting of channels is a key factor in determining the rate
permitted.
viacom indicates that in December 1993, there were a
total of 34 regulated channels (Basic and the Satellite
Value Package) of which 18 were satellite delivered. On
September 30, 1992, Viacom indicates that there were a total
of 32 regulated channels and 18 satellite channels.
Contained in this total are channels which are counted as
regulated channels ever. though they are shared with services
that are otherwise exempt from rate regulation.4 These
include:
. Channel 0 which carries the California
Channel five hours per day, Monday-Friday and
Playboy the remainder of the time.
. Channel 27 which carries C-SPAN 2 seven hours
per day and Viewers Choice the remainder of
the time.
. In 1992, two channels were of similar shared
use, although hours of carriage were not
indicated (Channel 0 CNBC/Playboy, Channel 34
KMTP/C-SPAN)
The initial FCC rules were silent on how channels were
to be carried which were shared in use. On June 1, 1994,
the FCC issued a "Question and Answer" which attempted to
clarify this issue. In item number 1, the FCC stated:
"Q1: If a channel is split between satellite and
non-satellite programming or between broadcast and
non-broadcast programming, how is that channel
treated for purposes of completing FCC Form 1200
and Form 393?
A1: Channels should be classified according to
their preponderance of use. Thus, a channel that
carried satellite programming more than-half the
time would be considered to carry satellite
programming. Similarly, a channel carrying non-
broadcast signals more than half the time would be
considered to carry non-broadcast signals. See
Form 1200, lines C2, H3i Form 393, page 22.11
4 Services which are provided an a per channel (e.g., HBO) or per
program (e.g., pay-per-view) basis are exempt from rate regulation.
Mr. Chris Sherw~
City of Pleasanton
July 25, 1994
Page 4
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Although this answer does not specifically address the
issue of channels which are shared between regulated and
unregulated use (the example given involves two types of
regulated services), it would appear reasonable that the
"preponderance of use" standard would apply to this
situation. In this case, assuming that the 1992 hours of
carriage were reasonably comparable to the hours utilized in
1993, this would reduce the regulated channels in December
1993 to 32 (16 satellite) and in September 1992 to 31 (16
satellite) .
The impact on the permitted rate is indicated below
(Note: Rates listed are exclusive of the franchise fee):
Current Rate Permitted Difference
Rate
Basic Service $ 12.93 $ 12.34 -0.59
(17 Channels)
Tier 2 10.13 10.89 +0.76
(15 Channels)
Total 23.06 23.23 +0.17
As can be seen, the total rate could have been higher
than charged by Viacom. This is due to the inverse ratio of
channels to the benchmark rate. However, it is possible
that the rate charged to subscribers could result in being
reduced.
Before explaining how this may be possible, it is very
important for the cities to understand that the FCC rules
are less than clear cut in this area. Despite repeated
requests from both cable operators and franchising
authorities, the FCC has been slow in responding to many
specific questions regarding implementation of the rules.
The FCC's regulations for review of Form" 393 appear to
permit the regulatory authority (either a city or the FCC)
to reduce rates which exceed the permitted amount, or freeze
rates which are less than the permitted amount. In the
specific case before the cities, this may mean that the
cities could order the Basic Service rate to be reduced to
$12.34. Upon notification to the FCC by the cities, the FCC
may then "freeze" the Tier 2 rate at $10.13.
This would be significant because the second round of
rate regulation utilizes the rates which were in place on
Mr. Chris sherwo4lt
City of Pleasanton
July 25, 1994
Page 5
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March 31, 1994.5 However, the FCC has said that if the
rates on March 31 were incorrect, the filing would have to
be corrected to reflect the what the rates should have been
at that time.
Further, the FCC has yet to resolve the issue of refund
liability. Initially, the FCC appeared to state that if a
franchising authority found the rates for the basic tier to
be too high, the authority could order reductions and
refunds. Subsequently, the FCC has appeared to indicate
that if rates for one level of service are too high, but are
less than permitted in other areas, the total dollars to be
refunded must be "offset" by any undercharges. Many
franchising authorities believe that this is contrary to the
letter and intent of the original rules.
The cities would appear to have a number of possible
actions to consider:
1. The cities can accept Viacom's filing and
direct that rates be maintained as
indicated. 6
2. The cities can find that Viacom has
inappropriately counted channels to be
included in the benchmark and direct rates
for the Basic Tier to be reduced to reflect
this incorrect counting.
3. Viacom should be invited to comment on the
possible findings and provide justification
of its rates based on the analysis indicated
above.
4. The cities should permit the participation of
"interested parties" in the review process.
This is a requirement of the FCC regulation,
and must be done during the 120 day review
period. This may be a public hearing, but
the FCC rules do not specify that one must be
held (for example, the cities could invite
written comment).
5 FCC Form 1200.
6 Note that the rates would only be maintained for the period from
September 1, 1993 through July 14, 1994 since the second phase of rate
regulation (including modified rates) went into effect in the Cities on
July 14, 1994.
Mr. Chris Sherw~d
City of Pleasanton
July 25, 1994
Page 6
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5. The cities may wish to contact the FCC
directly to provide information on local
actions and/or to determine whether the
specifics of this case can be explained more
clearly. TMC has placed initial inquiries in
this regard, but has not yet received a
response. The cities will be advised of any
responses TMC receives from the FCC on the
issues involved in this analysis. The FCC
can be reached directly at (202) 416-0953.
If number 1 above is selected, it is noted that the
rates charged by Viacom are less than permitted. Figure 1
summarizes the rates charged by Viacom as compared to the
rates permitted. If the cities find that these rates
acceptable, Viacom should be directed to maintain its
charges at the "actual" level, otherwise the cities may be
considered to have approved the "permitted" rates.
If the cities find the rates documented on the Form 393
acceptable, and there is no opposition to the rates by an
interested party, no City action needs to be taken and the
rates will be automatically considered approved at the end
of the 120 day period. As noted above, in order to prevent
the "permitted" rates from becoming approved, the cities
will most likely desire to take action and direct Viacom to
maintain its rates at "actual" levels.
If there is any opposition by an interested party, or
the cities disapprove any initial rate in whole or in part,
a written decision must be issued by the franchising
authority. This will most likely be the situation in the
cities.
In conclusion, it appears that Viacom has completed the
Form 393 in substantial accord with the regulations
established by the FCC. The key outstanding issue is the
counting of certain channels and the impact on the permitted
rate for regulated service. -
After discussion with the FCC and Viacom, if the cities
find that Viacom has counted the channels consistent with
FCC instructions, the cities should direct Viacom to
maintain rates as stated in the "actual" column of Figure 1.
If, the cities find that rates should be reduced for the
Basic Service Tier as a result of a miscounting of channels,
then Viacom should be advised to reduce its rates for the
Basic Service Tier and maintain its rates for all other
services indicated in Figure 1. The cities should then
Mr. Chris sherwjlk
City of Pleasanton
July 25, 1994
Page 7
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inform the FCC of their finding and recommend that the rates
for Tier 2 be frozen at the levels which were in place on
the dated of regulation.
It is unfortunate that the FCC has been less than
forthcoming in responses to requests for information by both
cities and cable operators. As a result, a number of fairly
confusing situations are arising that the FCC has been
delinquent in providing responses.
If you have any questions regarding this information,
please feel free to contact me.
Sincerely,
L~
Michael J. Friedman
Vice President
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FIGURE 1
COMPARISON OF PERMITTED AND ACTUAL RATES
AS INDICATED ON THE VIACOM FORM 393
Note:" All rates are exclusive of franchise fees.
PERMITTED ACTUAL*
Basic Service 13.00 12.93
Tier 2** 10.26 10.13
Installation
Unwired Home 33.51 32.65
prewired Home 16.91 16.48
Additional
connection with 16.63 16.20
initial install
Additional
connection
requiring a 22.24 21. 67
separate install
Reconnection 22.66 22.08
Remote Control .10 .10
Addressable 1. 71 1. 69
Converter
Straight Converter .20 .19
*
This "actual" is the "weighted average" utilized by viacom.
**
Tier 2 is subject to FCC regulation upon receipt of a "complaint"
(FCC Form 329).
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September 30, 1994
Mr. Richard C, Ambrose
City Manager
City of Dublin
100 Civic Plaza
Dublin, CA 94568
BY FAX
BY MESSENGER
Dear Mr. Ambrose:
Thank you for your letter of September 23 inviting Viacom to review and
comment on the City of Dublin's cable consultant evaluation of Form 393 that
covers rates from September 1, 1993 to July 14, 1994.
We have reviewed the TMC report dated July 25, 1994, authored by Michael J.
Friedman. As we read Mr. Friedman's document, we have identified distinct
issues that are relevant to our evaluation of the Form 393 rates charged by
Viacom and regulated by the FCC: 1) regulated channel count, and 2) refund
policy, I will respond to each issue separately.
REGULATED CHANNEL COUNT
In the TMC report, page 4, Mr. Friedman addresses the issue of channel sharing
and states that the FCC Q&A "does not specifically addresses the issue of
channels which are shared between regulated and unregulated use..." He
continues to say that 'H would appear reasonable that the 'preponderance of use'
standard would apply to this situation."
Mr. Friedman's supposition leads him to reduce the number of regulated satellite
channels from 18 to 16 and thereby conclude that Viacom has over-charged $.59
on what he refers to as the Basic Service (Limited Cable) and under-charged on
Tier 2 (Satellite Value Package) by $.76, with a total undercharging for Standard
Cable customers of $.17.
Based upon this conclusion, you have understandably raised the issue that Viacom
over-charged for Limited service, the service you are enabled to regulate by $.59.
Viacom's response: Viacom does not agree with Mr. Friedman's conclusion about
reducing regulated channel counts, because in fact we believe that the FCC has
been clear on how to count the number of regulated channels. We would be
willing to accept Mr. Friedman's determination about overcharging for Basic
Service (Limited Cable) and under-charging for Tier 2 (Satellite Value Package),
since this results in no financial impact to Viacom.
2055 Folsom · San Francisco. CA 94110-1330 · Telephone 415863-8500
fXHISIT 3
Viacom is an Equal Opporlunily Employer and encourages business with Minorily and Femala-Owned Businesses
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REFUND POLICY
Mr. Friedman also states at the bottom of page 4, regarding refunds, ''this may
mean that the Cities could order the Basic Service rate to be reduced to $12.34.
Upon notification to the FCC by the Cities, the FCC may then 'freeze' the Tier 2
rate at $10.13."
According to Mr. Friedman, the City may be able to order a reduction of the Basic
Service rate and the FCC may order a freeze on the Tier 2 rate, thereby requesting
Viacom to grant a refund to customers for the alleged over-charging on the Basic
Service rate.
Viacom's response: Viacom believes the attached documents demonstrate that
the FCC clearly allows a netting out of all regulated rate adjustments as long as
the total regulated revenue of a cable operator does not exceed the total oermitted
revenue as determined by maximum allowable FCC rates. I refer you to Section
104, page 37, of the FCC guidelines, Paragraph 6 in the TCI St. Louis decision,
and Paragraph 5 of the Sammons decision. Therefore, because Viacom has
charged less than the permitted rates for Standard Cable as determined by Mr.
Friedman, there would be no refund liability due to our Dublin customers.
We appreciate the opportunity to provide comment on this matter. If I can be of
further assistance, please do not hesitate to give me a call.
Very truly yours,
JI::= li J0o,y; ~
Vice President and General Manager
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