ATTACHMENT A

REVIEW OF FCC FORMS 1205 AND 1240
SUBMITTED BY TCI CABLEVISION OF CALIFORNIA, INC.
TO THE
CITY OF SUNNYVALE
April 17, 2002

            The following caveats should be noted:

• The financial information has not been audited for accuracy.  However, the data have been examined for consistency with industry standards.  It is noted that the Forms are submitted with a signature under a provision that states that willful false statements are punishable by fine and/or imprisonment.

• The findings contained herein are based solely on the representations made in the materials provided by the cable operator.  Should information come to TMC's attention that these representations (including representations as to equipment, installation and programming costs) were materially inaccurate, TMC reserves the right to modify its conclusions. 

• 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.

As noted in TMC's previous reports to the City, the cable operator is required to submit the Form 1240 to the City 90 days prior to a proposed rate change.  Key review periods for Form 1240 are as follows:

• The franchising authority has 45 days to determine whether the filing was incomplete. 

• The rates may go into effect after 90 days if the franchising authority has taken no action to disapprove the rates, subject to refund liability if the franchising authority subsequently issues a rate decision disapproving any portion of the proposed rates. 

• At the end of the 90 days, if the cable operator inquires as to whether the franchising authority intends to issue a rate order, the franchising authority has 15 days to notify the operator of the intent to issue an order.  If no response is provided within this period, the franchising authority loses its ability to order subsequent refunds.

• Subject to the conditions indicated above, the franchising authority has 12 months from the date the Form is filed to order refunds.  Failure to act within this period results in the franchising authority losing its right to order refunds. 

With limited exceptions, an operator who files Form 1240 is allowed only one rate change per year for regulated services.  It is for this reason that the Form 1240 is required to be accompanied by a Form 1205 (for equipment and installation rates).  With all regulated subscriber rates changed at the same time, the subscriber experiences only one annual rate change.^[3]

Form 1240 allows an operator to project costs which are "reasonably certain and reasonably quantifiable."  If the operator is incorrect in its projections, there is a "true-up" process for the subsequent Form 1240 filing.  Past undercharges and overcharges can be factored into future rates.  In the City, the true-up period is December 1, 2000 through November 30, 2001.

The City received the Forms 1205/1240 (and supporting materials) on or about March 1, 2002, for a rate increase proposed to be implemented on July 1, 2002.^[4]  The documentation indicates a rate increase for the Basic Service Tier as well as for converters and some installation charges.  The remote control rate is decreasing, while many installation charges will be unchanged.

As previously noted, it is beyond the scope of TMC's review to determine whether the projected programming costs indicated are, in fact, "reasonably certain and reasonably quantifiable."  However, the costs indicated appear to be within a range of reasonableness.

The City is reminded that its regulatory authority is limited by FCC regulations to the Basic Service Tier (marketed as "Basic") and the equipment and installation services associated with this tier.  In the past, the Cable Programming Services Tier (marketed as "Expanded Basic") was regulated by the FCC upon receipt of a "complaint" from the franchising authority.  However, by law, the FCC authority to regulate the rate for the Expanded Basic expired on March 31, 1999.

In reviewing the Forms, a number of items were noted which either deserve comment or require additional information.  TMC's review of these Forms is summarized below.

FORM 1205

The computations contained in the Form have been accurately completed.

In the opening paragraph of its "Preparation Documentation," the cable operator indicates that it has chosen to aggregate its costs at the company level.  This is permitted by an FCC ruling issued in 1996.^[5]  AT&T goes on to indicate that, "The average hours per installation, costs and hours of installation and maintenance of customer equipment were estimated based on a sample of AT&T Broadband cable systems."  A copy has been provided of the "Sampling Plan & Analysis for AT&T Broadband Rates" which documents the methodology utilized in determining the averages.

Although a few communities have challenged whether the sampling methodology is an appropriate means of establishing estimates, most (including the City) have accepted the methodology as one reasonable attempt to estimate actual costs. 

AT&T indicates that it has elected to charge less than the maximum permitted rate for all equipment and installation rates.  The "permitted" and "selected" rates are summarized in Figure 1.  It is noted that the regulatory authority of the City is for the "permitted" rate (i.e., this is the only rate which can be found to be reasonable or unreasonable).

FORM 1240

AT&T has completed the Form 1240 in a manner consistent with the FCC regulations.  The following items are noted:

• The rate for Basic Service is increasing from $12.56 to $13.09 (excluding franchise fees and the FCC regulatory fee).  This change is $0.53 or 4.2%.  It is noted that this is less than the maximum permitted rate of $14.68.

• The calculations for the "Expanded Basic" rate are not provided, since this service is no longer subject to rate regulation.

• As noted above, AT&T will be adjusting its rates on July 1, one month later than permitted.

•  AT&T does not indicate any planned programming changes through the projected period (June 1, 2002 through May 31, 2003) for the Basic Service Tier.

• In October 2001, the Food Network was dropped from the Basic Tier and KMTP (a broadcast channel) was added.

• The cost of programming for the Basic Tier is indicated as $0.97 during the projected period.  As can be seen, this is a relatively small portion of the cost for this tier of service.

• There has been an increase in the number of Basic subscribers in the City.  Comparing the average subscriber count from the previous and current Forms 1240 for the true-up period, the change is as follows:

The permitted rates for Basic Service, equipment and installation are summarized on Figure 1. 

            Based on the preceding, the following actions are recommended:

1. The City should provide AT&T with the opportunity to comment on the conclusions of this report.  Perhaps the simplest way to do this is to provide AT&T with a copy of this report and request written comments by a specific date.
   No objections from AT&T are expected.

2. No action by the City is necessary to accept the rates as proposed by AT&T.  FCC regulations require the participation of interested parties (including AT&T) and a "rate order" only in circumstances where a rate other than that calculated by the cable company is prescribed by the City.

3. If the City believes it is necessary to take action on the proposed rates, the City can approve the rates contained in the Forms 1205 and 1240, and summarized in Figure 1, as being calculated in a manner consistent with FCC regulations. 

As with any rate order (if the City elects to issue an order), the cable operator has the option to appeal any decision to the FCC.  According to Section 76.944 of the FCC regulations, the cable operator has 30 days from the release of the text of the City's decision to submit its appeal to the FCC.  The City then has 15 days to respond to the appeal, with cable operator replies to franchising authorities' response due 7 days thereafter.  Because of the potential for appeal, the City may wish to have legal counsel review any decisions prior to final action.

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FIGURE 1
FCC FORMS 1205 & 1240 PERMITTED RATES

	Current	Permitted*	Selected Rate @ 7/1/02	Change to Selected Rate
Basic Service	$12.56	$14.68	$13.09	+0.53
Installations
Unwired Home	$41.99	$45.49	$43.99	+2.00
Prewired Home	24.99	30.59	27.99	+3.00
Add'l. Outlet – Initial Trip	13.49	14.76	13.99	+0.50
Add'l. Outlet – Separate Trip	19.99	24.16	21.99	+2.00
Relocate Outlet	18.99	20.17	18.99	--
Upgrade (non-addressable)	15.99	16.59	15.99	--
Downgrade (non-addressable)	9.99	12.94	10.99	+1.00
Upgrade/Downgrade (addressable)	1.99	1.99	1.99	--
VCR Connect – Initial Trip	5.99	7.12	5.99	--
VCR Connect - Separate Trip	12.99	14.63	12.99	--
Hourly Service Charge	27.99	29.68	28.49	+0.50
Equipment
Remote Control	0.35	0.34	0.30	-0.05
Converter Type 1	1.85	5.66	2.00	+0.15
Converter Type 2	4.25	7.17	4.70	+0.45
Notes:
Basic Service rate excludes FCC regulatory fees. All rates exclude franchise fee. *     Rounded to two digits.