Federal Communications Commission DA 96-853
Before the
Federal Communications Commission 
Washington, D.C. 20554
In the Matter of )
)
Time Warner Cable d/b/a ) CUID Nos. 
Cablevision Industries, Inc. ) FL0043 (Volusia)
) FL0264 (Deltona) 
Benchmark Filings to Support ) 
Cable Programming Service Rates )
MEMORANDUM OPINION AND ORDER 
Adopted: May 28, 1996 Released: May 28, 1996
By the Chief, Financial Analysis and Compliance Division
1. Here we consider complaints concerning the February 1, 1996 rate increases of Time 
Warner Cable d\b\a Cablevision Industries, Inc. ("Time Warner")1 for its cable programming 
service ("CPS") tier in the communities referenced above.2 In response to these complaints, Time 
Warner, pursuant to a Social Contract* which was entered into with the Federal Communications 
Commission ("Commission") submitted its "Time Warner Annual Forms 1240."4 We conclude 
that Time Warner's rate increases are not unreasonable, and thus, notwithstanding certain 
adjustments, its current rates do not exceed our adjusted maximum permitted rate.5
1 Time Warner acquired Cablevision Industries Inc. ("CVI") in January 1996.
2 Volusia, FL and Deltona, FL are both communities in the unincorporated area of Volusia County, FL.
3 Social Contract for Time Warner Cable, 11 FCC Red 2788 (1996). Under the terms of the Social Contract, 
Time Warner may include any cable system acquired from Cablevision Industries Inc. ("CVI") within the provisions 
of the Social Contract. (Social Contract at Sec. III.F.6). However, the Social Contract settlement provisions did not 
apply to CVI, and proceedings involving CVI's CPS tier rates are currently pending before the Commission.
4 Because no official form was available for Time Warner to use to implement the rate restructuring starting 
January 1, 1996 required under the Social Contract, the Commission permitted Time Warner to use a modified 
version of FCC Form 1240 to establish its initial CPS tier rates.
5 Time Warner's underlying CPS tier rates for these communities are under review by the Commission. 
Therefore, we reserve the right to make further adjustments to Time Warner's underlying CPS tier rates upon 
completion of our review. In this Order, we address the rate increases which are the subject of the complaints before 
us in this proceeding.
7579
Federal Communications Commission DA 96-853
2. Under the Cable Television Consumer Protection and Competition Act of 1992 
(the "1992 Cable Act"),6 the Commission is authorized to review the CPS tier rates of cable 
systems not subject to effective competition to ensure that rates charged are not unreasonable. 
If the Commission finds the rate unreasonable, it shall determine the correct rate and any refund 
liability.7 The Telecommunications Act of 19968 and our rules implementing the new legislation,9 
changed the process by which the Commission reviews complaints concerning rates charged for 
a CPS tier.
3. Under the 1992 Cable Act and our rules implementing it, subscribers, franchising 
authorities, or other relevant state or local government entities were permitted to file complaints 
concerning CPS tier rates directly with the Commission. 10 The receipt of one valid complaint 
was sufficient to trigger the Commission's review jurisdiction and imposed an obligation on the 
operator to file a justification of its CPS tier rates." Under the 1996 Act and our Interim Rules 
implementing the new legislation, complaints against the CPS tier rates are to be filed with the 
Commission by a franchising authority that has received subscriber complaints. 12 A franchising 
authority may not file a CPS tier rate complaint unless, within 90 days after such increase 
becomes effective, it receives subscriber complaints. 13 This standard requires more than one 
subscriber rate complaint. 14 The provisions under the 1996 Act became effective upon its 
enactment on February 8, 1996. 15
6 Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 
(1992).
7 Id. See 47 U.S.C. Section 543(c)(1993).
8 Telecommunications Act of 1996, Pub. L. No. 104-104, 11 Stat. 56 (February 8, 1996) ("the 1996 Act").
9 See Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996, FCC 96-154 
(released April 9, 1996)("Interim Rules").
10 47 C.F.R. Section 76.950. 
" 47 C.F.R. Section 76.956.
12 See Communications Act, Section 623(c), as amended, 47 U.S.C. Section 543(c)(3) (1996); and 47 C.F.R. 
Section 76.1402.
13 Id.
14 See 47 C.F.R. Section 76.1402.
15 The Commission's Interim Rules became effective April 30, 1996, upon publication in the Federal Register, 
61 Fed. Reg. 19013. Complaints filed between February 8, 1996 and the effective date of our Interim Rules will 
be handled on a case-by-case basis.
7580
Federal Communications Commission DA 96-853
4. After the 1996 Act became effective, on February 28, 1996, the County of Volusia, 
filed a complaint with the Commission against Time Warner's February 1, 1996 CPS tier rate 
increases in each of the above referenced communities. 16 The franchise authority asserts that it 
has received numerous complaints against Time Warner's CPS tier rate increases in each of these 
communities. 17 Time Warner requested that the Commission dismiss the complaints against the 
rate increases in each of the above referenced communities asserting that its rates are reasonable 
and, in fact, lower than the rates permitted by the terms of the Time Warner Social Contract.  
Because the County of Volusia has filed a valid complaint against Time Warner's rate increases 
in each of the above referenced communities, we hereby deny the motions to dismiss. 19
5. The Commission's initial rate regulations took effect on September 1, 1993.20 The 
Commission subsequently revised its rate regulations effective May 15, 1994.21 To justify their 
rates for the period beginning May 15, 1994 through a benchmark or cost of service showing, 
operators must use the FCC Form 1200 series. Operators are permitted to make changes to their 
rates on a quarterly basis using FCC Form 1210.22 Operators may alternatively justify 
adjustments to their rates on an annual basis using FCC Form 1240 to reflect reasonably certain 
quantifiable changes in external costs, inflation, and the number of regulated channels that are 
projected for the twelve months following the rate change. In the Matter of Sections of the Cable 
Television Consumer Protection and Competition Act of 1992: Rate Regulation, MM Docket No. 
92-266, Thirteenth Order on Reconsideration ("Thirteenth Reconsideration Order").23 Any
16 The County of Volusia is the local franchising authority for both franchise areas set forth in the above- 
mentioned caption.
17 See Letter dated March 15, 1996 from Arlene Childs, Administrative Assistant, Community Information, 
County of Volusia, Deland, Florida.
18 See Responses of Time Warner to Cable Programming Service complaints filed against its rates in FL0043 
(filed March 25, 1996) and FL0264 (filed April 4, 1996).
19 The Commission also received a complaint against Time Warner's CPS tier rate increase in FL0043 from a 
subscriber filed after February 8, 1996. Thus, the complaint is subject to the 1996 Act, which requires that the 
Commission review CPS tier rate complaints filed by a franchising authority that has received subscriber complaints. 
Thus, although the complaint filed by the subscriber after February 8, 1996 is not properly before us under the 1996 
Act, the complaint filed by the local franchising authority, the County of Volusia, on February 28, 1996, is properly 
before the Commission under the 1996 Act.
20 Order in MM Docket No. 92-266, Implementation of Sections of the Cable Consumer Protection and 
Competition Act of 1992: Rate Regulation, FCC 93-372, 58 Fed. Reg. 41042 (Aug. 2, 1993).
21 47 C.F.R. Section 76.922(b).
22 47 C.F.R. Section 76.922(b)(6); see also Second Order on Reconsideration, 9 FCC Red at 4189 n.195.
23 Third Order on Reconsideration, \ 1 FCC Red 388, 391 (1996).
7581
Federal Communications Commission DA 96-853
incurred cost that is not projected may be accrued with interest and added to rates at a later 
time.24 If actual and projected costs are different during the rate year a "true-up" mechanism is 
available to correct estimated costs with actual cost changes.25 The "true-up" requires operators 
to decrease their rates or alternatively permits them to increase their rates to make an adjustment 
for over or under estimations of these cost changes.26
6. On November 30, 1995, the Commission adopted an order approving the Time Warner 
Social Contract ("Social Contract") between Time Warner and the Commission.27 Under the 
terms of the Social Contract, Time Warner is required, among other things, to invest $4 billion 
over a five year period to upgrade all of its systems.28 To fund this investment, Time Warner 
is permitted to increase the monthly rate for its CPS tier having the greatest number of 
subscribers by $1.00 during each year of the Social Contract, beginning on January 1, 1996, and 
is permitted certain cost adjustments for external costs and inflation.29 Time Warner is also 
required to create a low-cost, lifeline basic service tier on systems serving at least 85% of Time 
Warner's total subscribers by reducing the basic service tier rate of such systems by 10% and by 
offsetting this reduction in a revenue neutral manner by adjusting CPS tier rates.30 Additionally, 
Time Warner may migrate up to four existing services from its regulated tiers to a Migrated 
Product Tier ("MPT") in those systems where a la carte packages were not created through 
migration of services from regulated tiers.31 Furthermore, Time Warner may create MPTs 
containing no more than six services by restructuring the a la carte packages created by certain 
Newhouse systems purchased by Time Warner.32 The terms of the Social Contract apply to cable 
systems acquired from CVI, however, the Social Contra^ settlement provisions did not resolve 
pending complaints against CPS tier rates in these acquired cable systems.33
7. There are no official Commission forms available for use in establishing the initial rate 
restructuring as required under the Social Contract. Therefore, the Commission allowed Time
24 Id. 392.
25 Id.
26 Id.
27 Time Warner Social Contract, 11 FCC Red 2788.
28 Id. at 2798; Social Contract at Sec. III.F.l.
29 Id. at 2798; Social Contract at Sec. III.F.4.
30 Id. at 2792; Social Contract at Sec. III.A.l.
31 Id. at 2815; Social Contract at Sec. HID.
32 Id.
33 Id. at 2798; Social Contract at Sec. III.F.6.
	7582
Federal Communications Commission DA 96-853
Warner to use a modified format of FCC Form 1240 (the "Time Warner Form 1240") to reflect 
the adjustments required under the Social Contract. At the time the Social Contract was entered 
into and the Time Warner Form 1240 was developed, the Commission was in the process of 
finalizing the FCC Form 1240. The official FCC Form 1240, approved on December 15, 1995 
("December Form 1240"), contained a change in the calculation of inflation from the version of 
the form that Time Warner used to create the Time Warner Form 1240. Upon receiving approval 
of the December Form 1240 from the Office of Management and Budget in December, 1995, the 
Bureau advised counsel to Time Warner that the inflation calculation contained in the December 
Form 1240 differed in some respects from the version that had been used to create the Time 
Warner Form 1240.
8. On January 19, 1996, the Bureau made corrections to the December Form 1240 with 
respect to the interest calculation and released a corrected version of FCC Form 1240 ("January 
Form 1240"). At that time, the Bureau established certain procedures for refiling FCC Form 
1240 to conform to the January Form 1240. In the Matter of Implementation of Sections of the 
Cable Television Consumer Protection and Competition Act of 1992: Rate Regulation MM 
Docket No. 92-266, Thirteenth Order on Reconsideration: FCC Form 1240.3i> In a letter dated 
January 26, 1996, the Bureau clarified that the refiling of January Form 1240 would not be 
required under certain circumstances where the December Form 1240 had been filed on or before 
February 1, 1996.35
r. Pursuant to the Social Contract, the Commission received Time Warner Forms 1240 
on January 11, 1996 with respect to Time Warner Cable systems covered by the Social Contract 
as of December 31,1995, and on January 31,1996 with respect to Time Warner systems acquired 
from CVI. The Time Warner Forms 1240 used a methodology to compute the inflation factor 
that differed from the general principles and mechanics of the December Form 1240 and used 
a different methodology to compute interest from the general principles and mechanics of the 
January Form 1240. Since the Time Warner Forms 1240 were filed on or before February 1, 
199636 and in order to expeditiously implement the rate restructuring required under the terms of 
the Social Contract beginning January 1, 1996,37 we did not require Time Wamer to resubmit its 
filing to reflect the changes between the format of the FCC Form 1240 that was used to create 
the Time Warner Forms 1240 and the revised inflation and interest calculations reflected in the 
January Form 1240. Instead, it was agreed that Time Warner would "true-up" any overcharges 
in subsequent FCC Form 1240 filings to reflect the corrected amounts.
34 See 11 FCC Red 1882(1996).
35 See Letter to Seth A. Davidson, Esq., released January 26, 1996, DA 96-81.
36 Id
37 Even though the Social Contract required rate restructuring beginning January 1, 1996, we note that the rates 
for Cablevision Industries Incorporated were not restructured until February 1996.
7583
Federal Communications Commission DA 96-853
10. Time Warner submitted its Time Warner Forms 1240 in response to the complaints 
filed against the rate increases in the above referenced communities.38 We examined Time 
Warner's Forms 1240, accepting for purposes of this review, the initial CPS tier rate,39 and 
making certain adjustments to Time Wamer's calculations. These adjustments result in maximum 
permitted rates that are lower than the maximum permitted rates calculated by Time Warner. 
However, since Time Warner's actual rates are lower than our adjusted maximum permitted rates, 
we find that Time Warner's current rates are reasonable. The adjustments we made are described 
below and these adjustments should be taken into account in Time Warner's true-up calculation 
in its next rate adjustment calculation.
11. Inflation Calculation: We note that Time Warner Forms 1240 use an inflation factor 
of 2.96%, which is the annual factor for the period July 1, 1994 through June 30, 1995. 
However, the Time Warner Forms 1240 filed with respect to the communities in this proceeding, 
reflect a true-up period of only seven months from (July 1, 1995 through January 31, 1996). 
Thus, Time Warner used an annual inflation factor of 2.96% for a stated true-up period of seven 
months.40
12. The Thirteenth Reconsideration Order provides a true-up mechanism which allows 
operators to correct differences between charges the operator has actually collected and charges 
which reflect costs actually incurred by the operator.41 Time Warner, thus, may properly claim 
inflation which has not yet been reflected in rates. We will permit Time Warner to include 
inflation for the 12 months as claimed on the instant Time Warner Forms 1240. However, this 
inflation allowance is conditioned upon our review of Time Warner's underlying rates.42 
Therefore, we make no adjustments to Time Wamer's inflation factor and permit Time Warner 
to calculate inflation using the 12 month factor.
38 Time Warner filed its response on March 25, 1996 (FL0043) and April 4, 1996 (FL0264). Time Warner 
provided an additional updated filing for both communities on April 29, 1996.
39 As noted earlier, Time Wamer's underlying CPS tier rates for these communities were not subject to the 
settlement terms of the Social Contract and are currently under review by the Commission. Therefore, we reserve 
the right to make further adjustments to Time Wamer's underlying CPS tier rates upon completion of our pending 
review.
40 The Time Warner Forms 1240 did not reflect a change in the method of calculating inflation as reflected in 
the December and January Forms 1240.
41 Third Reconsideration Order, 11 FCC Red 388, 392 (1996).
42 As noted earlier, Time Wamer's underlying CPS tier rates for these communities are under review by the 
Commission. Therefore, we reserve the right to make further adjustments to Time Warner's underlying CPS tier 
rates and will make appropriate adjustments if the inflation allowance has already been included in Time Warner's 
rates.
7584
Federal Communications Commission DA 96-853
13. Interest Calculation: We have made adjustments to the Time Warner Forms 1240 
that reflect the correct methodology to calculate interest, as shown in the January Form 1240.43 
We recognize, however, that the use of the incorrect formula to compute interest has an impact 
on Time Warner's maximum permitted CPS tier rates. However, even with our correction for 
interest, Time Warner's current rates are below the maximum permitted rates pursuant to the 
Social Contract.
14. External Cost Calculation: We have made adjustments to the external cost 
calculations on Time Warner Forms 1240. In calculating the monthly per-subscriber External 
Cost Segment for the Projected Period, Worksheet 7 - External Costs, Time Warner incorrectly 
reflected a 12 month period for its calculation on Line 708.1 (Price Cap Allowance per Section 
III.F.a of Time Warner Social Contract). However, the correct period is 11 months because Time 
Warner used a Projected Period of 11 months beginning February 1, 1996 through December 31, 
1996.44 We made no other adjustments to Time Warner's projected period calculations in 
Worksheet 7 - External Costs based on our understanding that all other projected amounts reflect 
costs for the correct 11 month projected period to December 31, 1996.
15. Upon review of the record herein, we conclude that notwithstanding our adjustments, 
Time Warner has justified the rate increases which it made effective in the above referenced 
communities on February 1, 1996. Time Warner increased its monthly CPS tier rates for FL0043 
by $2.29 and for FL0264 by $2.36. Our review found justification for a monthly CPS tier rate 
increases of $2.51 for FL0043 and $2.56 for FL0264. The actual rate increases therefore are less 
than the justified rate increases in both communities.
16. Accordingly, IT IS ORDERED, pursuant to Section 0.321 of the Commission's 
Rules, 47 C.F.R. § 0.321, that the complaints referenced herein with respect to the above- 
referenced communities, against Time Wamer's CPS tier rate increases for the period from 
February 1, 1996 to December 31, 1996, ARE DENIED TO THE EXTENT INDICATED 
HEREIN.
17. IT IS FURTHER ORDERED, pursuant to Section 0.321 of the Commission's Rules, 
47 C.F.R. § 0.321, and subject to our review of the reasonableness of Time Warner's underlying 
CPS tier rates, that Time Warner's monthly CPS tier rates of $14.32 (plus franchise fee) for 
FL0043 and $14.76 for FL0264 (plus franchise fee) for the period from February 1, 1996 to 
December 31, 1996, are not unreasonable.
43 The error in calculating the interest was found only in the Instructions in the December Form 1240 and 
involved three formulas on pages 19 and 20 of the Instructions. The formulas corrected in the January Form 1240 
involved Line H4, option 1; Line H4, option 2; and Line H8.
44 Pursuant to the Social Contract, beginning January 1, 1996, Time Warner may increase the monthly rates 
for the most highly penetrated CPS tier rates on each of its systems by $ 1.00 during each year of the Social Contract. 
(Social Contract Sec. III.4.a.) This $1.00 increase applies to the acquired CVI cable systems. (Social Contract Sec. 
III. F.6.)
7585
Federal Communications Commission DA 96-853
18. IT IS FURTHER ORDERED that the Motions to Dismiss filed by Time Warner ARE 
DENIED.
FEDERAL COMMUNICATIONS COMMISSION
JoAnn Lucanik
Chief, Financial Analysis and Compliance Division
7586