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Home My WebLink AboutAgenda - 02-17-2004-9bORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: February 17, 2004 Action Agenda Item No. ~ - 2_ SUBJECT: Acceptance of Report by Action Audits, LLC and adoption of 2004 Rate Order Resolution for Cable Services in Unincorporated Orange County DEPARTMENT: County Manager ATTACHMENT(S): Review of Time Warner Cable's FCC1240 and 1205 Rate Filings, Prepared by Action Audits, LLC 2004 Rate Order Resolution PUBLIC HEARING: (Y/N) No INFORMATION CONTACT: Gwen Harvey, Asst. County Manager, ext. 2300 Michael Patrick, Chair, Cable Advisory Committee Robert Sepe, Action Audits, LLC TELEPHONE NUMBERS: Hillsborough 732-8181 Chapel Hill 968-4501 Durham 688-7331 Mebane 336-227-2031 PURPOSE: To consider approval of the cable consultant's review of a request by Time Warner Gable to increase rates charged far basic cable television service, installation, and equipment rental for 2004, and adoption of a rate order resolution based on that review. BACKGROUND: In October 2003, Time Warner Cable filed with the Federal Communications Commission (FCC) to increase the rates charged for basic cable television service, installation and equipment rental for the 2004 calendar year. The County's cable consultant, as part of the Triangle J Cable Consortium, has evaluated the information provided by the cable company according to FCC rules and regulations, and found its request to comply with FCC interpretation of rates and conditions. The consultant's report and the rate order resolution are attached. Orange County is composed of three federally identified cable television districts - NC 0276a which serves 5753 cable households; NC 0276b, 29 cable households; and NC-0256, 724 cable households. Under the recommended rate order, far example, the approved maximum permitted Basic Service Tier rate for NC 0276a cable households, the largest cable television district in Orange County, will be $12,25 per month, slightly below the Maximum Permitted Rate (MPR). Acceptance of the report and adoption of the rate order does not confer "agreement" with the cable service rates, only that the "cable operator calculated rates consistent with procedures prescribed by the FCC". The BOCC may be aware that the Durham County Board of Commissioners did not approve its 2003 or 2004 rate order and is challenging the cable increase in an action before the FCC. Should Durham County prevail, the BOCC by adopting the attached resolution "reserves its right to revise this Rate Order subject to contrary findings" in the future. FINANCIAL IMPACT: There is no financial impact to the County in the approval of the consultant's report and adoption of the proposed rate order resolution, RECOMMENDATION(S): The Manager recommends that the Board accept the consultant's report and adopt the 2004 rate order for cable services in unincorporated Orange County Action Atcdits, LLC Orange County, NC-0256, NC-0276a, and NC-0276b Review of Time Warner Cable FCC1240 & FCC1205 Rate Filings for 2004 December 18, 200.3 R)CPORT 70: John M, Linlc, Jr, Comity Manager FROM: Robert Sepe, President RL: Review of Time Warner Cable's FCC1240 and 1205 rate filings We have reviewed Time Warner Cable's FCC1240 and FCC1205 filings, documents gathered by the County and consulted related FCC rules, regulations and publications. The values stated in the Company's FCC rate requests is the responsibility of the cable operator. Supplied data were reviewed to determine whether the cable operator calculated "updated" rates consistent with the procedures prescribed by the FCC in accordance with the FCC's 1.3th Report and Order, told the FCC's Cable Rate Rules §76..900 - §76.990 and the Teleconununications Act of 1996, Original computations were performed and compared with information provided by Time Warner Cable. The accompanying report provides a basis for the opinions expressed herein. Action Audits, LLC Coble Rate, Franchise Fee, Utility 1"as Auditing Sr. retecommunication Administration 101 Pocono Lane, Cary, North Carolina 275 t 3-5316 Voice # 919 A67.5392 Pas # 919 460.6868 4 On October I, 2003, Time Warner Cable submitted a FCC1240-Basic Cable Service Tier and FCC 1205-Equipment and htstaflation charges to seek an upward adjustment in the rate charged for basic cable television service, installation and equipment rental for the 2004 calendar year. The consultant evaluated the information Time Warner Cable (TWC) submitted, requested and received supplemental information and evaluated the information with respect to conformance to FCC rules. The Consultant performed independent calculations to verify the proposed rate structure sought.. Orange County is composed of hvo federally identified cable television dishicts, NC-0276a, NC0276b and a third federal district identified as NC-0256.. The smallest federal district, NC 02766, has 29 cable households. NC-276a has 5753 cable households. NC-0256 has 724 cable households. a. NC-0256 TWC subscribers will be charged a "selected" monthly rate of $1.3.00 for the Basic Service Tier (BST) in 2004 which is slightly below the Maximum Permitted Rate (MPR). The MPR includes the BST charge of $ 11.84 plus the "Add-on" Cost of Service Network Upgrade Charge of $1.45. The "selected" monthly combined rate of $1.3.00 is 29-cents less than the Maximum Pernitted Combined Rate of $1.3.29, and represents a $1.26 rate hike in the "selected" monthly combined rate over the prior year, NC-0276a TWC subscribers will be charged a "selected" monthly rate of $12.25 for the Basic Service Tier (BST) in 2004 which is slightly below the Maxinuun Permitted Rate (MPR). The MPR includes the BST charge of $10..76 plus the "Add-on" Cost of Service Network Upgrade Charge of $1.81. The "selected" monthly combined rate of $12.25 is .32-cents less than the Maxinnnn Permitted Combined Rate of $12.57, and represents a .30-cent reduction in rate in the "selected" monthly combined rate compared to the prior year. NC-0276b TWC subscribers will be charged a "selected" monthly rate of $14.30 for the Basic Service Tier (BST) in 2004 which is slightly below the Maximum Permitted Rate (MPR). The MPR includes the BST charge of $13,40 plus the "Add-on" Cost of Service Network Upgrade Charge of $2.1 I . The "selected" monthly combined rate of $14.30 is $1.21 less than the Maximum Pernitted Combined Rate of $15.51, and represents a $1.79 rate hike in the "selected" monthly combined rate over the prior year. Action Audits, LLC Cable Rate, Franchise Pee, Utility Tax Auditing Sc Telecommunication Administration I OI Pocono Lane, Cnry, North Carolina 27513-5316 Voice ;P 919 467 5392 Pax g 919.460.6868 5 The following tables document the shift in the BST "Selected" rates. NC-0256 Selected Rate }tistorv Year 2000 2001 MPR S8 75 510.62 +/- 51.87 % increase 213T%" 2002 S 10.95 SO 33 3 I I'%" 2003 511.74 SO 79 7 21 "/" 2004 513 00 51 2G 10.73'%. NC-0276a Selected Kure hl istory Yenr 2000 2001 MPR 58 75 SI 191 +/- 53 tG "/" increase M 36 I1'% 2002 511.70 5-021 -I 76% 2003 512 55 $0 85 727% 2004 512 25 S-0 30 -2 39"/ NC-02766 Selected Rate I{istorv Year 2000 2001 MPR 510 87 51202 +/- II 5l IS '%increase 10.58"/0 2002 $ 1173 5-0 29 -2 41%. 2003 512.51 S0.78 6 65'%, 2004 $14.30 5I 79 1431'%" Action Audits, LLC Cable Rate, Prnnchise Pec, Utility Tax Auditing Sc Telecommunication Administration 101 Pocono Lane, Cary, North Carolina 27513-5316 Voice tt 919 467.5392 Pax # 919 460 6868 The following table shows the selected Basic Service Tier rate for various eonununities in North Carolina is not inclusive, but offered for comparative purposes. 2004 7 WC DST Com Dined Selected Rates Community Price Apex"* SI3 50 -enson" 51092 Carrbom** 51300 Chatham County" S 10 92 Chatham** 51430/51125 ClaylOn** 51225 Durham County'" 514 95 Fuquny-Vnrinn"" 513 50 Gamer*` 513 00 FIil156orough*" 513 00/512 25 (Molly Springs** 51350 KnighWnlc"* 51225 Lce County" 51095 Lumberton"" SIO BU New Planovar County'"' 5724/7.24 Orange County** 513 00/S I? 25/SI4 30 Oxford'* 51300 Pittsboro"' 514 30 Raleigh** 51225 Sanford' 51095 Silcr City* S10 IS Smith6dd*" 313 50 Wake Forest*" 513 00 Wendell"* 51300 Wilson'" 51430 Zebulon*" 512.25 Chuncr Commm~icnlion "'Time Wamcr 1 NFIC is served by Time Warner Cable and Charter Communications Each has a county wide fYanchise and a requirement to compete for customers in situations where communities want service from the other operator Action Audits, LLC Cable Rate, Franchise Fee, Utility Tax Auditing & Telecommunicatiml Administration 101 Pocono Lane, Cary, North Carolina 27513-5316 Voice # 919.467 5392 Fax # 919 4C>0.6868 Analysis of the Proposed Rate Adjustments: Time Warner's FCC1240 rate adjustments reflect the following external cost elements: external costs for true-up and projected periods, inflation from true-up and projected periods; franchise related (peg) expenses, any program expense adjustments, generally FCC regulatory fees, franchise fees and sales taxes are external Co the calculation of the subscriber monthly bill. External Cost: Tithe Wamer's Form FCC1240 rate adjustments reflect multiple external cost elements. An external cost is an expense a cable operator incurs during the normal course of business and maybe included in rate calculations. External cost categories are state and local taxes; franchise fees; costs of complying with franchise requirements, including costs of providing public, educational, and governmental access channels; retransmission consent fees and copyright fees incurred for the carriage of broadcast signals; other programming costs; FCC regulatory fees, and costs associated with channel additions.. The FCC 1240 Form must be filed with the local franchise authority ninety (90) days before the rates are scheduled to take effect and may be f led no mote frequently than annually.. The FCC Form 1240 rate filing method represents a departure from the quarterly method of updating cable rates, in that it allows cable operators to estimate their future costs over a 12-month period: this is referred to as the projected period.' The FCC 1240 form allows operators to recover prior period expenses, refeued to as the true-up period. If a cable operator incorrectly estimates its costs for a projected period, it nmst correct those estimates by using the true-up process in the next FCC1240 rate filing. Time Warner's projected period covers the 12-month period of:January through December 2004.. The operator's true-up period covers the 12-month period of October 2002 through September 2003. Inflation Adjushnent: In its FCC 1240 rate filing, Time Warner used an inflation factor of 2..39% for the last nine months of the 2009 hue-up period, because that was the official rate published by the FCC. On October' 7, 2003, the FCC revised the official inflation figure for the 2003 Q2- Q4 true-up period to 1.00%. Time Warner did not use the new vahte in its calculations for the FCC 1240 submitted October 2, because the FCC requires cable operators to use the "then cutTent" rate prior Co the issuance of revised inflation figures Had TWC used the new inflation rates, Time Warner's Maximum Permitted BST rate would have decreased slightly. FCC t Z 10 Forms allow for the recovery of past costs, only, not Future costs. Future costs arc recoverable through the use of the FCC1340 Form only Action Audits, LLC Cuble Rate, Franchise Fee, Utility Tax Auditing & Telecommunication Administration I OI Pocono Lane, Cary, North Carolina 27513-5316 Voice ;. 919 467.5392 Pax ,f 919A60 G868 Franchise Related Lxpenses(Public Access or I-Net): Time Warner Cable reported no franchise related expenses for 2003. Franchise related costs incurred by the operator may include such expenses as public, government and education access facilities and equipment, signal transportation, headend acconunodations as well as Institutional Network related expenses.. Pro~rannnin~ Cost Adjustment: Time Warner will collect for the projected period $1..80 monthly, per subscriber, during 200.3 for anticipated BST external costs, most of which is attributable to progrannning costs, Various cable operators have advised that program service providers customarily increase service fees annually. Time Warner attributes its progrannning cost changes to what it must pay for each service offered, However, this amount is relatively low compared to upper cable tier service progrannning costs. Most of the channels on Time Warner's BST are obtained without cost to the company. With respect to upper tier programming and rate increases, the GAO reported in October 2003 that "(d)uring the past three 3 years, the cost of prop'armning has increased considerably (.34%), driven by the high cost of original progrannning,[].' FCC Regulatory Fees: The Federal Couvnunications Commission collects a "Regulatory Fee" from cable operators to fund the FCC's regulatory oversight of cable television matters. This fee is passed on to subscribers by the operator. The FCC permits cable operators to internalize or externalize the regulatory fee. The fee (-$.66/year) is collected incrementally (~$,OS/month) from it cable television subscribers These revenues are not subject to franchise fees or' other taxes and must be remitted to the federal govennnent to compensate the FCC for the cost of operating the Media Bureau°. An examination of the monthly bills sent to cable customers determined the fee is external to the monthly BST rate, hence it is excluded from the rate treatment process, Cable television subscribers served by Time Warner wilt conhibute more than $4294 5 in regulatory fees to the Federal government during the projected period! There are 67 million cable television subscribers in the United States which pay an annual 66-cent regulatory fee to the Federal govennnent. This amounts to $35.5 million annually to fund the FCC's cable television regulatory enforcement activities. Franchise Fees: The County levies a 5°/u franchise fee on the cable operator's gross receipts. Franchise fees are levied on cable program services, advertising revenues, launch fees Home ~lssucs Related to Competition and Subscriber Rates in the Cable Television Industry, United States General Accounting Office, October 2003 The Cable Service Dureau was folded into the Media nureau in a recent FCC reorganization 56506 * 5 66 = 54294 Action Audits, LLC Cable Rate, Franchise Fec, Utility Tax Auditing & Telecommunication Administration 101 Pocono Lane, Cary, North Carolina 27513-5316 Voice ;E 919 467 5392 Fnx ;E 919AG0.6868 Shopping/QVC conunissions and advertising.. The Cable Industry has demonstrated uncanny adroitness with respect to passing franchise fee on to its customers.. The Cable industry stopped paying franchise fees on cable modems. At least 25% of Time Warner's cable customers subscriber to its high-speed hrternet service. Many local governments believe that Time Warner and other cable operators terminated the franchise fee levy on cable modem service prematurely as the FCC has not issued a final ruling on the matter. In a similar maneuver, Time Wamer intends to pass on to its customers apro-rata share of the franchise fee levied on advertising revenues in Tanuary 2004. Normally, this expense is typically born by the business, not added as a line item on the customer's monthly statement. Summary: That nationally rate hikes across most viewed cable tiers averaged 6%. However, in markets where there is head-to-head wireline competition rates were I S% less than in those markets without competition. GAO report noted that the cost of programming increased 34% during the past three years Many subscribers view a hand full of channels and would prefer to purchase "just those channels." The GAO noted that "an a-la-carte approach would facilitate more subscriber choice but require additional technology and customer service."` Whereupon, advertising revenues to cable netwodcs would decrease and programming costs would be increased to offset the revenue loss.. One possible outcome is that the cost per channel would increase and minimize any redttetion in the cost for cable service,. FCC1235 Cable System Upgrade Costs Time Warner Cable submitted in 2000 and 2001 an abbreviated FCC1.235 Cost of Service Filing for Cable Network Upgrades for BST services' to establish a Cost of Service rate. This fee is "Added on" to the BST rate, Under the FCC's Hiles, cable operators are permitted to recover system upgrade outlays on a tier-by-tier basis. FCC rules allow capital upgrade costs to be apportioned among the cable tiers, e g, BST, cable program service tier (CPST), new product tiers (NPT), eta Issues Related to Competition and Subscriber Rates in the Cable Television Industry, United States Genernl Accounting Oftiee, Ocrober 2003 Since 1995, pursuant to [he Social Contract, T ime Warner collected substantial pre-capitalization upgrndc fees amounting to seve rnt dollars monthly from CPST subscribers The PCC has ruled that these fiords cannot be applied to off-set that portion of the cable operator's cost to upgrade the portion of the network used to distribute 6ST services Consequently, Time Warner is able to recover from its BST customers only the cost of the network upgrade associated with the distribution of IIST cable services Action Audits, LLC Cable Rate, Franchise Fee, Utility Tax Auditing Se Telecommunication Administration 101 Pocono Lane, Cary, North Carolina 27513-531 G Voice tf 919.467 5392 Fos # 9 i9 460 6868 Time Warner will continue to charge a monthly fee to recover FCC 1235 Network Upgrade costs for 2003; an amount approved several years ago. The charge is added to the BST-Selected rate to create the combined rate subscribers pay. Subscribers will be charged a combined rate which includes the "Add-on" and the BST rates, FCC1205 Equipment & Installation Rates Time Warner calculated the FCCI205 maxinmm permitted equipments and installation rates by aggregating its costs on a national basis, The 2001 year costs were aggregated on a regional basis. 1° Rates climbed steadily until this year when Time Warner sold a significant number of its assets (cable properties) to Bright House Networks, Year HSC +/- "/o increase ?001 $28.39 2002 535.83~~ 57.44 2621"/" 2003 537 62 51 79 5.00" ?004 53750 $-012 -0.32% s§76.923 (c)(I) Costs of customer equipment may be aggregated, on a franchise, system, regional, or company level. When submitting its equipment costs based on average charges, the cable operator must provide a general description of the averaging methodology employed and a justification tlmt its nvernging methodology produces reasonable equipment rates. ~§76 923 (c)(3) Installation costs may be aggregated, on a franchise, system, regional, or company Level When submitting its installation costs based on average charges, the cable operator must provide a general description of the averaging methodology employed and a justification that its averaging methodology produces reasonable equipment rates 10T ime Warner is treated as a single company for FCC 1205 rate-making purposes T W C files n single FCC t ZOS throughout the United States with over 30001ocal franchise authorities, Lk As, to establish uniform rates [br equipment and installation charges ~tCompany-wide national aggregation -.3000 franchises Action Audits, LLC Cable Rate, Franchise Fee, Utility iax Anditing & Telecommunication Administration I OI Pocono Lane, Cary, North Carolina 27513-5316 Voice # 919 467 5392 Fax # 919 460.6868 70 The following table chronicles FCC 1205 equipment and installation rates since 2001. Beginning in 2002, Time Warner's rates are based on nationally aggregated financial and operational infornation. FCC1205 2001 regional 2002 national 2003 national 2004 national Delta Remote Control 30 28 $0.35 50.35 50 34 5-0.01 Addressable 1 54 26 58 49 57..34 57 99 50 GS Non-addressable 2 50.93 50 G8 $0.59 50 68 $0 09 Time Warner aggregated its equipment and installation expenses on a national basis to establish a uniform rate struehue in its 3000 fi~anehises. hr addition to equipment rentals, a variety of installation services are tied to the HSC rate. The next table lists the differences in the amount of time required to install cable service since 2001. The 2001 installation average installation times represent North Carolina "regional" values where as the later years reflect Company-wide aggregated measurements. Average Hours* per 2001 2002 ?003 2004 Delta Installation FCC1205 FCC1205 FCC1205 FCC1205 +/- change NC regional company company company Average Flours per Umvired 0.96 120 122 126 0 04 4 17% Home Installation Average Flours per Pre-wired 0 84 0 85 0 85 0 8R 0.03 3 5T% (-lone histallation Average ]-lours per 0.55 0 54 0 53 0.50 -0 03 -5 45% Additional Comtcction at time of Instnllation Average ]{ours per 0 73 0.85 0.84 0.88 0 04 5 48%" Additional Connection Requiring Separate lnstallation *time in hours is expressed as decimal equivalents Time Warner did not provide documentation to support the basis for Total Maintenance Hours (Schedule C(B)), the average time required to wire a home (Schedule D(A)), time required to complete a "pre-wire" (Schedule D(B), extra average time required to install an additional outlet simultaneously with a primary installation (Schedule D(C), average time required to install an additional outlet subsequent to the primacy installation (Schedule D(D)), average time to perform a hard disconnection (Schedule D(E), average time to perform a tier change, and the average time to perform an "aparhnent"installation (Schedule D(F)} Action Audits, LLC Cable Rate, Franchise Fee, Utility lax Auditing & Telecommunication Administration 101 Pocono Lame, Cnry, North Carolina 27513-5316 Voice Il 919 A67.5392 Fax it 919 460 6868 11 Time Warner calculated the FCC1205 maximum permitted equipment12 and installation" rates by aggregating its costs on a national basis. The prior year costs were aggregated on a regional basis,''' The guiding principle of the Cable Act of 1992,15 is to protect subscribers from unreasonable rates by ensuring that cable rate levels are equivalent to rates that would be charged in the presence of effective competition 1° Anecdotal evidence of rates examined in various markets where Time Warner faces taste effective competition reveals that Time Warner's BST rates are between 15'% to 78 % higher than those in these competitive markets and that basic cable installation rates are between 200% - 4500 % higher than effectively competitive markets. The GAO recently reported that "cable rates are substantially lower (by 15%) than in markets without competition."t' It is the Consultant's opinion the FCC's rate malting process no longer yields rates that would be '"'§76.923 (c)(I) Costs of custmner equipment may 6e aggregated, on a franchise, system, regional, or company level When submitting its equipment costs based on average charges, the cable operator must provide n general description of the averaging methodology employed mid a justification that its averaging methodology produces reasonnble equipment rates. 13¢76.923 (c)(3) Instnllation costs may be aggregated, on a franchise, system, regional, or company level When snbmitting its installation costs based on average charges, the cable operator must provide a general description of the averaging methodology employed and a justification tlmt its averaging methodology produces reasonable equipment rates t't7 ime Warner is treated as a single company for FCC 1205 rate-making purposes TWC tiles a single FCC 1205 throughout the United States with over 3000 local franchise authorities, LFAs, to establish uniform rates for equipment and installation charges 15Specitically, the 1992 Cable Act requires the Commission's regulations "shall be designed to achieve the goal of protecting subscribers of any cable system that is not subject to effective competition from rotes for the basic service tier that exceed the rates that would be charged for the basic service tier if'such cable system were subject to effective competition." Communications Act, ~ 623(6)(1), 47 U.S C. § 543(6)(1) 1~As the FCC stated in its first rate rulemaking order: "The priority established in the Act is clearly to protect the interests of subscribers An important focus for both basic tier and cable programming service rates, consistent with providing system operators a fair retunr, is the establishment of rate levels equivalent to rates that would be charged in the presence of effective competition The criteria to be applied in setting both basic tier and cable programming service rates include a comparison with 'the rates for cable systems, if any, that are subject to effective competition "'See Implementation of Sections of the Cable Television Consmner Protection and Competition Act of 1992, 8 FCC Rcd 56.31 at pars Band footnote 10 [April 1993 Report and Order] l~tssues Related to Competitimt and Subscriber Rates in the Cable Television Industry, United States General Accounting Office, October 2003. Action Audits, LLC Cabte Rate, Franchise Fee, Utility Tax Auditing & Telecommunication Administration I OI Pocono Lane, Cary, North Carolinas 27513-5316 Voice tli 919 467.5392 Fax t! 919 460.6868 12 found in a competitive head-to-head wireline and no longer satisfies federal law.18 It fails to consider whether the FCC's formulas yield rates that are cemparahfe to those found in competitive environments.'v Lexington (NC) is such a competitive environment where Lexcom Cablevision and Time Wamer Cable compete head-to-head for cable television customers. Upper Tier CPST Rate Regulation Expiration A sunset provision within the Teleconununications Act of 1996 terminated upper cable service tier regulation on March 31, 1999. Since then, the cable operator' is allowed to change upper service tier rates at will upon thirty (30) days notice to the franchise authority and subscribers. Subscriber Trend Time Warner predicts it will have 6506 subscribers by the end of the Projected Period, an increase of 95 customers, 2004 2003 2002 2001 2000 18The 1992 Cable Act (§ 623(b)(I), 47 U S.G ys 543(6)(1)) required the Commission [o prescribe rate regulations that protect subscribers from having to pay unreasonable rotes by ensuring that rates for regulated services do not exceed rates that would be charged in the presence of effective competition For a system that is not subject to effective competition, the Commission is obligated to ensure the reasonableness of rates charged for the basic service tier ("BST"). 19The FCC wrote in "In the Matter of IM PLEMENTAT[ON OF SECTION OP TI{E CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OP 1992 RATE REGULATION, MM Docket 92-266, that. "The priority established in the Act is clearly to protect the interests of subscribers. An important focus for both basic tier and cable programming service rates, consistent with providing system operators a fair return, is the establishment of rate levels equivalent to rotes that would be charged in the presence of effective competition " Action Audits, LLC Cable Rate, Franchise Fee, Utility Tax Auditing & Telecommunication Administration 101 Pocono Lane, Cary, North Cnmlina 27513-5316 Voice ,. 919 467.5392 Fax ,f 919 460 6868 0 1000 2000 3000 4000 5000 6000 7000 '3 The Marketplace Rate Hike: The FCC reported that cable television service rates in the United States increased mate than 6 percent last year, while the number of new subscribers declined said the Federal Communications Conunission in the Tenth .Annual Video Competition Report released December 200.3.. About 69 million people subscribe to television service offered by cable operators like Charter Conunuuications, Time Warner or ComcasY. The hike in the cost of cable service has caught the attention of Senator John McCain, Republican of Arizona and chairman of the Commerce Conunittee. McCain is expected to conduct a series hearings regarding the cost of cable service and the lack of wireline competition in the industry,. The FCC also reported that Satellite companies now have about 18 million customers and it was now possible for a number of major cable system operators to begin losing more subscribers than they gain.. Cable Modem High Speed Internet Service: The total number of residential cable modem in the U.S.. and Canada topped the 14-million as of September .30, according to research From Cable Datacom News publisher IGnetic Strategies Ina The following table shows the pervasiveness with which the cable industry has been able to capture the demand for high-speed Internet Service Provider market with its cable modem product. Cable Operator Cable Modem Customers Comcust 4,861,000 Time Warner 3,046,000 Cox 1,844,125 Charter 1,489,700 Cabtevision 984,835 Adelphia 376,991 Wright I{ouse 600,000 Mediacom 261,000 Insight 206,500 RCN 187,431 CableOne 121,461 Other 20Q,000 Toml 14,681,043 Action Audits, LLC Cable Rate, Franchise Fee, Utility Tax Auditing & Telecommunication Administration 101 Pocono Lane, Cary, North Carolina 27513-5316 Voice;: 919 467 5392 Fax .P 919 460.6868 14 A recent SkyRL^PORT poll predicts cable modem subscribers will number 32 million'-0 by 2005, more than double the current number.. Cable Phone: Time Warner Cable believes that Video over Internet Protocol (VoIP) services will enable cable operators, like Time Warner to compete with local telephone companies on a ^ational scale. In May 2003, Time Watner' Cable began offering residential VoIP in Portland, Maine and has 7,200 customers of which 70% have transferred to transfer their old wireline phone numbers to the "cable phone." Time Watner intends to launch VoIP phone service in North Carolina in 2004'- Reco>TUTlendation The Consultant recommends the County: Approve the FCC1240 maximum permitted BST rate and the FCC1235 "Add-on" rate applications and FCC1205 Equipment and Installation rates submitted by Time Warner Cable as compliant with PCC rate regulations and approved subject to conditions. Proceeding The franchise authority must either approve or deny the operator's FCC1240 BST, FCC1235 Upgrade "Add-on" charge and FCC 1205 Equipment and hrstallation charges by finding the rates to be either reasonable, or not reasonable. This determination must be based upon a finding of fact. The franchise authority should adopt the Consultant's report as its own, and the public must be granted an opporhmity to offer comment on the matter. It is suggested that a public continent period on the matter coincide with a regular public meeting.. A rate order, conveying approval is attached. To be valid, the order must be executed following the conclusion of: a. a public meeting where the County grants interested pazties an oppor°tunity to comment; and b. adoption by the County of the report as its own -required by FCC rules (this requires a tnotion to adopt, and a vote).. ~OSourc e: wwwskvrenort.com December 5, 2007 ''~www.convergedigest com/Dandwidth/newnehvorksarticlensp'![D=9551 Action Audits, LLC Cable Rate, Franchise Fee, Utility Tax Auditing & 7etecmnmunicntion Administration l01 Pocono Lane, Cary, North Carolina 27513-5316 Voice ;: 919 467 5392 Pax : 919A60 68C>8 15 It is appropriate for public corrunent to be heard, as related to the various rate issues, at the time the County Commission meets to deliberate this matter. Although a statutory public hearing is not required, it is customary to call for public cormnent in these matters. The comment period may be publicized by issuing a press release to the print and electronic media or announced in other appropriate ways. The Company nmst be notified of the public meeting and advised to have a representative present to respond to County officials, the public and otherwise offer comment. 16 STATE OF NORTH CAROLINA ORANGE COUNTY NC-0256, NC-0276 z&b BEFORE THE ORANGE COUNTY BOARD OF COUNTY COMMISSIONERS IN TFIE MATTER OF: 1 he Review of FCC 1240 Annunl Rate Adjustment Request, FCC1235 Abbreviated Cost of Scrvice Rnte Request, and FCC 1205 Equipment and Installation Rate Request filed by T ime Warner Cable An Order Finding Time Warner Cable's 2004 FCC1240 Dasic Service Tier, FCC1235 Cost of Service hates and FCC1205 Installation Rates Comply with the FCC's Rules and arc Subject to the Conditions Stated Fterein WHEREAS, in accordance with the provisions of the Cable Television Consumer Protection and Competition Act of 1992 (1992 Act), the Federal Telecommunications Act of 1996 (1996 Act), the County Code, and regulations adopted pursuant to that Code, the County is permitted to regulate rates for basic cable services and associated equipment; WHEREAS, Time Warner Cable of Raleigh-Durham (Time Warner) subtitled FCC 1240 Updating Amoral Maximum Permitted Rates filings for Regulated Cable Services with the County. Time Warner's filings encompass external costs, inflation, and program costs for the True-up period of October 2002 through September 2003, and the projected period of January through December 2004; WHEREAS, the County received a report from its Consultant stating that Time Watner submitted its FCC 1240 before the FCC published its October 200.3 updated inflation factors; Time Warner's FCC1240 rate calculations comply with the FCC's rate-making rules; WHEREAS, Time Warner submitted a consolidated "Company" FCC1205 Deternining Regulated Equipment and Installation Costs filing with the County to set the regulated rate for the I-Iourly Service Charge, Installation Services and Equipment rental rates; WHEREAS, the County is certified with the FCC to regulate basic service tier rates provided by Time Warner in the County; 17 NOW TH>/RETORT/ TH)/ BOARD OT COUNTY COMMISSIONERS MAIC)/S THI; TOLLOWING TINDINGS: THAT Time Warner's Maximum Permitted $13.29 Rate for Basic Tier Service NC-256 complies with the FCC's Rate Rules; THAT Time Warner's Maximum Permitted $12.57 Rate for Basic Tier Service NC-276a complies with the FCC's Rate Rules; THAT Time Warner's Maximum Permitted $15.51 Rate for Basic Tier Service NC-276b complies with the FCC's Rate Rules; THAT Time Warner's $1.45 Add-on Rate for Basic Tier Service NC-256 complies with the FCC's Rate Rules; THAT Time Warner's $1.81 Add-on Rate for Basic Tier Service NC-276a complies with the FCC's Rate Rules; THAT Time Warner's $2.11 Add-on Rate for Basic Tier Service NC-276b complies with the FCC's Rate Rules; THAT Time Warner's National $37.50 HSC complies with the FCC's complies with the FCC's Rate Rules; THAT Time Warner may charge a Basic Service Tier rate below the approved combined maxinnun permitted rate; THAT Time Warner may base its installation rates on its 2004 FCC 1205 HSC rate of $37..50; THAT Time Warner has substantiated adjustments to its FCC1205 equipment rates; and THAT Time Warner has substantiated the other adjustments to its cable service rates based on past and estimated cost elements. 13 IT IS TH1;RT;FOR1 ORDI;I2I/D: TIIAT Time Warner's Maximum Permitted Rate fir Basic Tier Service for NC-256 ($1.3.29), for NC-276a ($12.57), and for NC-276b ($I5,51)comply with the FCC's Rate Rules; and the FCC1235 "Add-on"for NC-256 ($1..45), for NC-276a ($1.81)and for NC-276b ($2 1 I) comply with FCC Rate Rules and that Time Warner may charge a combined "selected" BST rate below the approved maximmm permitted rates, but not above it; THAT the maximum permitted Basic Service Tier rate for Time Warner subscribers in The County for the projected period shall not exceed $ 13.29 per month for NC-256, $12.57 per month for NC-276a, and $ 15.51 per month for NC-276b, subject to subsequent findings by the County to the contrary; THAT Time Warner's Equipment, fltstallation and HSC rates comply with the FCC's Rate Rules; THAT the County reserves its right to revise this Rate Order sul?ject to subsequent contrary findings by the County, and THAT this Order wilt be effective immediately, copies will be released to Time Warner and the public. ISSUI/D BY ORDER Or THT; OI2ANCI; COUNTY BOARD Or COUNTY COMMISSIONT/RS This the 1 TI' day of February 2004, BY: Chair' ATTEST: Cleric SCnI Deliver Report and Executed Order vin Certified U.S Mail to: Paul Baccellieri, VP Finance, Time Warner Cable Iol Innovation AV., Suite IOQ Morrisville, NC 27560 Copy to: Action Audits, LLC , I0t Pocono LN , Cary, NC 27513 Actimt Audits, LLC Cable Rnte, Franchise Fee, Utility Tax Auditing & Telecommunication Administration 101 Pocono Lane, Cary, North Carolina 2751.3-5316 Voice ;F 919.467 5392 Fax m 919 460 G868