_____________ Federal Communications Commission_______DA 96-1753
Before the
Federal Communications Commission 
Washington, D.C. 20554
In the Matter of ) 
TCI Cablevision of Nevada, Inc. )
Appeal of Local Rate Order ) 
of Washoe County, NV; )
Appeal of Local Rate Order ) 
of the City of Sparks, NV; )
Appeal of Local Rate Order ) 
of the City of Reno, NV; )
Appeal of Local Rate Order ) 
of Carson City, NV. )
CONSOLIDATED ORDER 
Adopted: October 23,1996 Released: October 30,1996
By the Chief, Cable Services Bureau:
INTRODUCTION
1. By this order, the Commission consolidates and resolves four separate appeals of 
local cable rate orders filed by TCI Cablevision of Nevada, Inc. ("TCI"). The first appeal 
involves the local rate order of Washoe County, Nevada, adopted on August 31, 1995.' The 
second appeal the involves the local rate order of the City of Reno, Nevada, adopted on July 17, 
1995. The third appeal involves the local rate order of Carson City, Nevada adopted on July 
6, 1995, and the fourth appeal involves the local rate order adopted by the City of Sparks, 
Nevada on June 26, 1995. In each of these cases the franchising authority rejected TCI's 
inclusion of "capitalized direct overhead" costs of $20 per converter on its FCC Form 1205. In 
addition, each local rate order requires TCI to implement certain rate reductions consistent with 
this disallowance, and issue refunds to subscribers.2 Because the issues and arguments in each 
appeal are identical, the Bureau has determined that the joint resolution of these appeals in a
'TCI Cablevision of California is also named as a party in the appeal of the rate order of Washoe County, 
Nevada.
2Each of the rate orders at issue incorporates the findings 'and recommendations of the Buske Group, an 
independent consulting firm.
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Federal Communications Commission DA 96-1753
single consolidated order will not prejudice any of the parties and will serve the interests of 
administrative efficiency.3 For the reasons set forth below, we deny TCI's appeals.4
2. In the rate orders, the Cities found that TCI incorrectly included certain costs 
described by the operator as overhead expenses for converter units. To calculate the equipment 
related costs of $20 per converter, TCI added: $7 per converter for the labor costs of installation, 
$7 per converter for the labor costs of retrieving a unit from a customer's home, $3 per converter 
for inventory management costs, and $3 per converter for material costs, including cable jumpers, 
fittings and splitters.5 This appeal concerns TCI's inclusion of these costs in its FCC Form 1205.
3. Under our rules, rate orders made by local franchising authorities may be appealed 
to the Commission* In ruling on appeals of local rate orders, the Commission will not conduct 
a de novo review, but instead will sustain the franchising authority's decision as long as there is 
a reasonable basis for this decision.7 Therefore, the Commission will reverse a franchising 
authority's decision only if it determines that the franchising authority acted unreasonably in 
applying the Commission's rules in rendering its local rate order.
DISCUSSION
4. Form 1205 is the official form used by regulators to determine whether an 
operator's regulated rates for equipment and installations are reasonable under the revised 
benchmark rules which apply to operators beginning May 15, 1994.8 Pursuant to the 1992 
Cable Act, the Commission has established standards for setting, on the basis of actual cost, the
3The local franchising authorities are hereafter referred to as "the Cities." Washoe County, the City of Reno, 
and the City of Sparks, each filed identical oppositions ("Cities' Oppositions") to TCI's identical appeals ("TCI 
Appeals") of the local rate orders. In addition to the arguments in the TCI appeals, the appeal of the Carson City 
rate order contains one additional argument, see paragraph 17 infra, and because of pagination differences the 
pleadings will be referred to separately as "Carson City Appeal" and "Carson City Opposition."
Concurrent with its appeal of the City of Sparks' rate order, TCI filed a request for emergency stay. This request 
is dismissed as moot in light of the resolution of the appeal on the merits.
*See TCI Appeals at 6; Carson City Appeal at 7. 
'See 47 C.F.R. § 76.944.
''See Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: 
Report and Order and Further Notice of Proposed Rulemaking in MM Docket 92-266, 8 FCC Red 5631 (1S93) 
("Rate Order"); Third Order on Reconsideration' in MM 92-266, 9 FCC Red 4316 (1994) ("Third Recon. Order").
*See Second Order on Reconsideration, Fourth Report and Order and Fifth Notice of Proposed Rule Making in 
MM Docket 92-266, 9 FCC Red 4119 (1994) ("Second Recon. Order").
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Federal Communications Commission DA 96-1753
rates for installation and lease of equipment used by subscribers to receive the basic service tier. 
Equipment rates are derived from total capital and maintenance costs per unit of equipment. 
Installation rates are derived from a calculation of an hourly service charge and an application 
of that charge to different types of installations. 10 The maximum permitted rates for installation 
and lease of equipment calculated pursuant to these Commission regulations as determined on 
Form 1205 are deemed to be reasonable, and are, therefore, lawful under the 1992 Cable Act." 
Under Commission rules, cable operators have the burden of proof in demonstrating the 
reasonableness of existing or proposed rates for their basic service tier and associated equipment. 12
5. The Cities disallowed TCI's capitalization of converter costs in TCI's Form 1205 
stating that the proposed rates would be tantamount to a double recovery of these costs, first in 
the monthly programming rates and again in the converter charges themselves. 13 In addition 
to this "double recovery" concern, the costs were disallowed because: (1) the costs are 
inconsistent with the Commission's definition of "annual purchase costs;" (2) the proposed 
capital costs for converters are not based on a local system; (3) capitalization of the costs is 
inconsistent with generally accepted accounting principles ("GAAP"); (4) TCI has not 
substantiated that the material costs it seeks to capitalize are not already in the converter lease 
charge as an hourly service charge; and (5) labor or other operating costs associated with 
converter disconnects and converter inventory management are already incorporated in 
programming service rates. 14 The Cities excluded the $20 per unit capital cost from Form 1205, 
thereby reducing TCI's lease rates to the Cities' maximum permitted converter rates in the case 
of all Cities except Carson City, from $1.12 to $0.75 per month for "converter 1" and from $2.00 
to $1.63 per month for "converter 2," and in the case of Carson City, from .98 per month to .61 
for "converter 1" and from $1.52 per month to $1.09 for "converter 2."15
6. In support of its appeals, TCI argues that (1) the contested costs are incidental 
costs allowed under existing benchmark rules; (2) rigid adherence to generally accepted 
accounting principles is not required; (3) TCI's use of nation-wide system information rather than 
local system information does not justify rejecting the $20 figure in its entirety; and (4) there
9See Communications Act of 1934, § 543(b).
10The hourly service charge, or HSC, is used as a factor in developing charges for installation and monthly leases 
of individual pieces of equipment. See FCC Form 1205 at 14.
11 See Communications Act of 1934, § 623(b), 47 U.S.C. § 543(b).
l2See 47 C.F.R. § 76.937(a).
"See TCI Appeals, Exh. 1, at 2; Carson City Appeal, Exh. 1, at 2.
"Id
lsSee TCI Appeals, Attachment A; Carson City Appeal at Attachment A.
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Federal Communications Commission DA 96-1753
was no double recovery. 16 In addition to disputing the reasons offered by the Cities for 
disallowing the $20 of capital costs per converter, TCI also presents four affirmative reasons for 
including these costs in Form 1205.17 First, TCI argues that its material costs for converters 
should be capitalized because these costs have always been reflected in its capital accounts. TCI 
maintains that it recently reassigned "certain direct, in-home converter-related costs," i.e., the 
material costs at issue, to a converter capital account so they will now be recovered through its 
converter rental charges. Second, TCI claims that the actual cost of installing and retrieving 
converters and managing converter inventory cannot be recouped through one-time charges. 
Third, TCI states that the contested figure for inventory control costs includes a panoply of 
expenses that are directly linked to the deployment of converters that have not been tallied 
elsewhere in the equipment basket calculation. Finally, TCI claims that the converter installation 
costs cover those costs not covered by existing installation charges."
A. ANNUAL PURCHASE COSTS
7. In asserting the converter costs at issue are "annual purchase costs" as defined by 
the Commission, TCI argues that annual purchase costs include certain incidental costs, under 
which its costs should be allowed. TCI acknowledges that none of these costs are among those 
listed in the'rule, but argues incidental costs not included in these examples should not be 
discarded. 19 In opposing TCI's appeal, the Cities argue that Commission rules allow only for 
capitalization of costs that are incidental to annual purchase costs. Citing 47 C.F.R. § 76.923(f), 
the Cities claim that the costs TCI capitalized are not among those costs that the Commission 
defines as incidental to converter purchase costs, but are operating costs.20
8. The Commission rule defining the "equipment basket" states that the basket shall 
include all "direct and indirect material and labor costs of providing, leasing, installing, repairing, 
and servicing customer equipment."21 Pursuant to the 1992 Cable Act, material and labor costs 
included in the equipment basket must be recoverable by the operator.22 The costs of installing
"See TCI Appeals at 3-6; Canon City Appeal at 4-7. 
11 See TCI Appeals at 7-8; Carson City Appeal at 7-9.
"See 47 C.F.R. § 76.923(f).
"See Cities' Oppositions at 3; Carson City Opposition at 6.
"See 47 C.F.R. § 76.923.
"See Communications Act, § 623(b), 47 U.S.C. § 543(b). Section 623(b)(3) of the Communications Act requires 
that rates for equipment and installation reflect their actual costs. See also First Order on Reconsideration, Second 
Report and Order, and Third Notice of Proposed Rulemaking in MM Docket 92-266, 9 FCC Red 1 164, 1 190-1201 
(1993) ("First Recon. Order").
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Federal Communications Commission DA 96-1753
and retrieving converters, the costs of managing the converter inventory, and the material costs 
of converters are clearly related to providing and installing equipment, and are properly classified 
as part of the equipment basket. Thus, upon proper application of the rules, TCI must be 
permitted to recover the labor costs of installing and retrieving converters, the costs of managing 
converter inventory, and the material costs of converters.
9. Although TCI states that the costs are incidental to annual purchase costs for 
converters, TCI does not adequately justify its reasons for treating the labor costs of installing 
and retrieving converters, the costs of managing converter inventory, and the material costs of 
converters as capital costs as it provides on its Form 1205.23 Pursuant to Commission rules, 
annual purchase costs include "acquisition price and incidental costs such as sales tax, financing, 
and storage up to the time [the converter] is provided to the customer."24 While the list of 
incidental costs in § 76.923(f) is not exhaustive, the costs at issue, i.e., labor costs of installation 
and retrieval, inventory management costs, and material costs for converters, are more substantive 
in nature than those mentioned as incidental costs. Rules governing the recovery of equipment 
and installation costs do not provide for the capitalization of the cost of retrieval, re-installation, 
and re-inventorying of converters. Installation costs are to be recovered as separate installation 
charges, and therefore such costs may not also be capitalized. In addition, our rules define 
incidental costs as costs incurred up to the time the converter is provided to the customer, and 
the converter installation and retrieval costs that TCI seeks to capitalize would be incurred after 
the converter is provided to the customer. Indeed, TCI does not distinguish clearly the converter 
costs at issue from the operating expenses and labor costs that are ordinarily included in Form 
1205. TCI has failed to respond to the Cities' assertion that TCI incorrectly recorded these 
operating costs as equipment costs on the Form. TCI's appeal with respect to this issue is denied.
B. VARIANCE FROM GAAP
10. TCI also contests the Cities' rejection of its capitalized costs because Form 1205 
was not maintained in accordance with GAAP.25 TCI cites 47 C.F.R. § 32.1 which states that 
the Commission's accounting rules are based on GAAP only "to the extent regulatory 
considerations permit." According to TCI, the issue is not whether an operator had adhered to 
GAAP, but whether the operator's accounting treatment meets the regulatory objective of 
establishing actual costs for providing converters to cable customers.26 However, in support oi 
its costs, TCI merely states that the $20 capital costs are "very real costs" that must be recovered
23See TCI Appeals at 3; Carson City Appeal at 4. 
"See 47 C.F.R. § 76.923(f). 
"See TCI Appeals at 3; Carson City Appeal at 4. 
26See TCI Appeals at 4; Carson City Appeal at 5.
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Federal Communications Commission DA 96-1753
through a separate converter charge, without offering any other basis for the costs.27 The Cities 
note that TCI admitted it did not comply with GAAP, and argue TCI has not adequately justified 
this departure, particularly since the instructions for Form 1205 expressly direct operators to 
complete the Form "using financial data . . . maintained in accordance with generally accepted 
accounting principles."28
11. The instructions to Form 1205 are an integral part of the Commission's guidelines. 
These instructions require operators to adhere to GAAP when completing Form 1205 "to the 
extent that regulatory considerations permit."29 If regulatory considerations compel a departure 
from GAAP, the operator should provide reasons for any such deviations. TCI's statement that 
its costs are "very real" is not an adequate explanation of why its accounting treatment of certain 
converter costs must deviate from GAAP. Consequently, TCI's appeal of this issue is denied.
C. USE OF NATIONAL FIGURES TO CALCULATE COSTS
12. ' TCI challenges the Cities' assertions that its $20 in capital costs per converter 
should be rejected because the $20 figure was not based on system-level information.30 TCI 
admits that the $20 figure is based on national, rather than system-specific information, but states 
that this does'not justify rejecting the figure in its entirety. Because TCI's existing books do not 
comply with regulatory demands placed on the books, TCI claims it made more sense to use a 
conservative figure based on a national cost survey rather than try to develop system-specific 
figures.31 In arriving at the $20 figure, TCI provided only a dollar breakdown into four cost 
components: material costs, installation costs, retrieval costs, and inventory control costs. The 
Cities respond that TCI failed to provide any description of how these costs were determined or 
what supporting data was used to establish the reasonableness of the costs.32
13. We find that TCI has not provided any support for its $20 figure for converter 
capital costs, aside from its assertion that the figure is based on a national cost survey. Therefore, 
TCI has failed to meet its burden of proving the reasonableness of its rates.33 As the Cities note, 
TCI failed to submit any data or methodology supporting the national figures, such as how a
"Id.
xSee Cities' Oppositions at 4; Carson City Opposition at 8.
"See 47 C.F.R. §32.1.
MSee TCI Appeals at 5; Carson City Appeal at 7.
"See TCI Appeals at 5; Carson City Appeal at 6.
i2See Cities' Oppositions at 5; Carson City Opposition at 9.
"See 47 C.F.R. § 76.937(a).
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Federal Communications Commission DA 96-1753
representative sample was selected and the size of this sample.34 In addition, the instructions to 
Form 1205 require that the data be identified at the level of organization at which records are 
kept, e.g., system-wide.35 TCI keeps its records on a system level, so its capital costs per 
converter figure must be identified at the system level as well. Accordingly, because TCI failed 
to establish the credibility of the reported data, the Cities acted reasonably in rejecting the $20 
figure.
D. DOUBLE RECOVERY
14. The Cities claim that by introducing the costs on the Form 1205 at issue, without 
having included these costs on its previous Form 1205, TCI is seeking to add charges without any 
corresponding "unbundling" reduction in its maximum permitted monthly programming costs.36 
Consequently, the Cities assert that TCI already recovers labor costs of installing and retrieving 
converters, costs of managing converter inventory and material costs for converters through direct 
installation charges and programming service rates. The Cities state that TCI's $20 per converter 
charge is attributable solely to an artificial change in TCI's accounting policy allowing TCI to 
double recover costs. On appeal, TCI maintains that the updated filing of Form 1205 is not 
linked with its previous Form 1205 filing, but represents a separate and distinct rate proceeding. 
Furthermore, according to TCI, although the Cities state that some of the contested costs may 
have been recovered elsewhere hi the equipment basket, the Cities fail to identify exactly where 
these costs have already been included.37 Moreover, TCI argues that its own failure in the past 
to seek recovery for these actual costs should not prevent the operator from recovering them now 
through its present filing.38 We agree with TCI that it should be allowed to recover bonafide 
equipment costs; however, we find that the issue here is not whether these costs are bonafide, 
but whether these costs were claimed when TCI established its initial rates for monthly 
programming services.
15. The 1992 Cable Act requires cable operators to charge rates based on actual costs 
for installation and subscriber equipment.39 Regulated equipment includes all of the equipment 
located in the subscriber's home, including converter boxes, remote control units, connections for
34See Cities Opposition at 5; Carson City Opposition at 10. 
"See FCC Form 1205 at 4.
"Under FCC Rules, the actual cost of regulated equipment and installation plus a reasonable profit must be 
separated or "unbundled" from an operators's maximum permitted rates for regulated cable services. See FCC Form 
1205 at 1.
"See TCI Appeals at 5; Carson City Appeal at 5.
38Id at 6.
"1992 Cable Act, § 3(bX3); Communications Act, § 623(bX3).
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Federal Communications Commission DA 96-1753
additional television receivers, and other cable wiring used to obtain basic services.40 Cable 
operators must unbundle charges for equipment, installation, and additional outlets from the basic 
service tier rate.41 They must also use a specific methodology for determining the actual cost 
of each piece of equipment and installation.42 Under this methodology, the cable operator must 
establish an equipment basket to which it assigns the direct costs of service installation, additional 
outlets, and leasing and repairing equipment.43 In the equipment basket, the cable operator must 
allocate the system's joint and common costs including installation, leasing, and equipment repair 
(but not general system overhead) plus a reasonable profit.44 FCC Form 1205 -is used to 
determine the costs associated with equipment and installation for the basic service tier, and has 
two distinct uses. First, Form 1205 is submitted along with Form 1200 to establish equipment 
and installation costs in determining initial rates for regulated cable services. The second use for 
Form 1205 is to update permitted regulated equipment and installation charges based on 
equipment basket costs.
16. In filing the Form 1205 at issue, TCI has not established that the costs at issue are 
new "direct overhead" costs, i.e. from a change hi TCI's operations or TCI's investment in new 
equipment. Instead, TCI asserts that these costs result from a change in its accounting to 
conform to regulatory demands.45 A result of changes hi TCI's policy for cost classification, 
however, is not a sufficient justification to include the costs on Form 1205. Because TCI did not 
include these costs hi its previous Form 1205 used for the Form 1200 unbundling, including the 
costs now would result hi a double recovery of the costs, once in the monthly programming 
service rates and again in the converter charges themselves. Allowing these costs permits an 
operator to identify "overhead" costs for the equipment basket it had not unbundled when the 
initial rates for monthly programming services were established. Consequently, the Cities were 
correct in disallowing costs solely attributable to TCI's change hi accounting methods or to a 
change hi its policy of classifying costs for Form 1205 purposes. Accordingly, TCI's appeal 
regarding this issue is denied.
" 47 C.F.R. § 76.923(a).
"47 C.F.R. § 76.923(b).
"247 C.F.R. § 76.923(dMm).
4347 C.F.R. § 76.923(c).
44 W
"See TCI Appeals at 2; Carson City Appeal at 2.
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Federal Communications Commission DA 96-1753
E. TOLLING ORDERS
17. Finally, we note that the Carson City appeal raises the additional argument that in 
failing to issue a tolling order within 30 days of TCI's filing, Carson City cannot review or act 
on the filing. Carson City responds that TCI is incorrect with respect to its ability to order a 
prospective rate judgment, but recognizes that a tolling order is necessary if it were to delay the 
proposed rates from going into effect or assess a refund liability. We agree with Carson City that 
the regulations require an accounting order before the close of its review period; however, the 
franchising authority still has the right to prescribe rates and order a prospective rate reduction. 
Although TCI is not liable for any refunds with regard to its rates set before the City's July 6, 
1995 order, it has no impact on the City's authority to order prospective refunds to bring TCI's 
rates in compliance with the City's July 6, 1995 order. We deny TCI's appeal of this issue.
ORDERING CLAUSES
18. Accordingly, it is ORDERED that the appeal by TCI Cablevision of Nevada 
Inc. and TCI Cablevision of California, of the local rate order of Washoe County, Nevada with 
respect to the proposed converter rates IS DENIED.
19. It is FURTHER ORDERED, that the appeal by TCI Cablevision of Nevada of 
the local rate order of the City of Sparks, Nevada with respect to the proposed converter rates 
is DENIED.
20. It is FURTHER ORDERED, that the appeal by TCI Cablevision of Nevada of 
the local rate order of the City of Reno, Nevada with respect to the proposed converter rates is 
DENIED
21. It is FURTHER ORDERED, that the appeal by TCI Cablevision of Nevada of 
the local rate order of Carson City, Nevada with respect to the proposed converter rates and 
Carson City's authority to review TCI's filing is DENIED.
22. This action is taken by the Chief, Cable Services Bureau, pursuant to authority 
delegated by § 0.321 of the Commission's rules, 47 C.F.R. § 0.321.
FEDERAL COMMUNICATIONS COMMISSION
Meredith J. Jones
Chief, Cable Services Bureau.
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