ARCHIVED -  Public Notice CRTC 1991-12

Public Notice

Ottawa, 24 January 1991

Public Notice CRTC 1991-12

AMENDMENTS TO THE CABLE TELEVISION REGULATIONS, 1986 - CHANGES TO THE REGULATION OF SUBSCRIBER FEES AND RELATED MATTERS

RELATED DOCUMENTS

Public Notices CRTC 1986-182 dated l August 1986, CRTC 1990-53 dated 15 May 1990 and CRTC 1990-83 dated 23 August 1990.

At a Public Hearing commencing 5 February 1990 in Hull, Quebec, the Commission considered, among various related matters, proposals to change the regulation of cable television subscriber fees. The Commission set out its position with respect to these proposals in Public Notice CRTC 1990-53 dated 15 May 1990.

In line with the views presented in that Public Notice, the Commission proposed for public comment, in Public Notice CRTC 1990-83 dated 23 August 1990, amendments to the Cable Television Regulations, 1986 (the regulations) which would, among other things: revise the definition of pass-through charges; establish a new formula for calculating partial indexing increases of basic monthly rates; limit the fee increases for capital expenditures (capex) to 3% of the basic monthly fee; establish a sunset mechanism for capex increases; extend the periods for prior notification by licensees of proposed rate increases and for comment thereon by subscribers; and deregulate the rates for Class 2 systems with fewer than 2000 subscribers.

In response to its notice, the Commission received eight comments addressing particular aspects of the proposed regulations. These are discussed below. Some interveners suggested additional amendments, also addressed below.

With respect to the proposed amendment to narrow the definition of "pass-through portion" to encompass only CRTC-authorized wholesale fees for programming services, the Manitoba Cable TV Association (MCTA) stated its opposition to the elimination of Manitoba Telephone System lease costs for cable distribution plant from the definition of eligible "pass-through" charges. Fundy Cable Ltd./Ltée (Fundy) also stated its opposition to the deletion of support structure payments from the pass-through provision.

In Public Notice 1990-53, the Commission proposed to treat third-party payments for pole attachment fees, plant leasing costs and microwave fees as normal costs of doing business. The Commission notes that cable operators will still have recourse to the subsection 18(8) fee increase mechanism to recover such expenses, should economic need be demonstrated, and considers that the interveners have not provided any compelling arguments that would warrant a change to the amendment as proposed.

The Canadian Cable Television Association (CCTA) proposed that the wording of subsection 18(3) be amended to delete the phrases "and that is contained in the pass-through portion" and "after September l, 1986" which, in its opinion, could lead to confusion.

The Commission has no objection to the deletion of the first phrase as it concurs that it is no longer required. The Commission, however, will retain the phrase "after September l, 1986" in subsection 18(3); the reference to this date is to ensure that only those pass-through charges that the Commission has authorized after l September 1986 are eligible for recovery pursuant to subsection 18(3).

With respect to the proposed amendment to the definition of "capital expenditure" for the purpose of subsection 18(6), the Ontario Closed Caption Consumers (OCCC) requested that closed caption decoders be considered as eligible capital expenditures, while Fundy objected to the elimination of new plant construction from the capex provision.

The Commission proposed to eliminate new plant construction in unserved areas from the definition of eligible capital expenditures because a large part of such construction relates to the servicing of new subdivisions in urban areas, which is required by regulation, and because the Commission does not favour the use of the capital expenditure method as an incentive to make expenditures that generate an additional revenue stream. The Commission considers that Fundy has presented no compelling arguments that would justify modifying this proposal.

The Commission has considered the OCCC's suggestion that closed caption decoders should be treated as eligible capital expenditures in order to make them widely available to the hearing impaired community. The Commission notes, however, that these costs do not fall within the objectives of subsection 18(6), which relate primarily to encouraging the up-grading and rebuilding of cable distribution plant in order to improve the quality of service provided to all basic service subscribers. The Commission is not of the view that the scope of subsection 18(6) should be expanded at this time, and has therefore concluded that the regulations should not be amended to allow closed caption decoders as eligible capital expenditures.

With respect to the proposed amendment relating to the introduction of a five-year "sunset" provision applicable to all previous capital expenditure increases and to all such increases in the future, the CCTA suggested that licensees who have implemented capex increases during the period 1986 to 1990 should be required to reduce their fees on 31 August of the year of the ninth anniversary of the implementation of the increases, to allow an equal phasing-out of the capex increases implemented before the May 1990 notice. Fundy also supported CCTA's suggestion except that it proposed 1 January, following the ninth anniversary, as the effective date of the reduction.

In its 15 May 1990 public notice, the Commission proposed to take a uniform approach for all past capex increases by requiring a lump sum adjustment covering all subsection 18(6) increases since 1986, effective 1 January 1995, notwithstanding substantial opposition raised in interventions at that time.

After considering the interveners' comments, the Commission has determined that there are no compelling arguments that would warrant changing this position. It notes that licensees will still have recourse to the subsection 18(8) rate increase provision, should their return on net fixed assets fall below the profitability benchmark as a result of reduced revenues due to the sunset clause.

With respect to the procedure that the Commission proposes to implement in dealing with overcharging of subscribers, the CCTA stated its opposition to the inclusion of a refund mechanism in the regulations as a method of compensation.

While it appreciates the CCTA's preference for a credit mechanism, the Commission notes that subsection 18(11) does not oblige licensees to provide a refund mechanism. Rather, this subsection provides licensees with the discretion to use this method or a credit on subsequent bills to correct for overcharging. Accordingly, the Commission considers it unnecessary to change the proposed regulation.

The CCTA also suggested that the term "fee", contained in subsection 18(11), should be clarified to exclude explicitly federal and provincial taxes. The Commission considers that the meaning of the word does not normally include such taxes and that, accordingly, there is no need for such clarification.

The CCTA was concerned with the proposed 60-day "suspension/disallowance" notification period for subsection 18(6) increases, and the 90-day notification period for subsection 18(8) increases. The CCTA stated that situations might still occur where increases would be suspended or disallowed at the end of the notification period or after it had expired, thereby creating billing problems for licensees. Instead, the CCTA proposed suspension/ disallowance periods of 40 days and 60 days for subsection 18(6) and subsection 18(8) increases, respectively, and also suggested that these deadline dates be incorporated in the amended regulations.

While the Commission recognizes the CCTA's concerns, it has decided not to amend the regulations as suggested by the CCTA. The Commission will therefore amend the regulations as proposed in Public Notice 1990-53 with respect to minimum notification periods. The Commission has also decided to adopt a policy whereby it will notify licensees of its decision to suspend or disallow a proposed increase within 60 and 90 days of receipt by the Commission of a filing for increases pursuant to subsections 18(6) and 18(8), respectively.

Both the CCTA and C-l Cablesystems Inc. (Cl) opposed the "reasonableness" requirement proposed for deregulated fee increases of Class 2 systems with fewer than 2000 subscribers. In their view, the "reasonable amount" constraint for such systems would represent a vague and subjective form of regulation, and could ultimately become a question of law to be determined by the courts instead of by the Commission.

The Commission wishes to emphasize that the reason for the proposed introduction of the "reasonable amount" requirement for Class 2 deregulated systems was not to limit their rate increases, but rather to authorize such increases in the case of undertakings with fewer than 2000 subscribers, thereby facilitating the resumption of rate regulation once the limit of 2000 subscribers was passed. At the same time, it recognizes the validity of the concerns raised by the CCTA and Cl.

In view of these concerns, the Commission has reviewed its approach to the deregulation of subscriber fees for Class 2 systems having fewer than 2000 subscribers, and has decided to amend the regulations to deregulate the rates for all Class 2 systems with under 2000 subscribers, as of 3l August 1990. Once a Class 2 licensee has more than 2000 subscribers, the Commission will consider the resumption of rate regulation at the next renewal hearing, by condition of licence. In light of this revised approach, the Commission considers that a "reasonable amount" requirement for Class 2 deregulated systems is no longer necessary.

The Commission also received a comment from the Conseil des usagers des médias de la Sagamie, asking that measures be taken to ensure that subscribers in small communities not pay an unreasonable amount for basic service. As stated in the 15 May 1990 notice, the Commission intends to adopt a rate review mechanism that will enable it to review and possibly modify the basic monthly fees of deregulated cable systems upon receipt of legitimate subscriber complaints. The Commission considers that this safeguard mechanism, which it proposes to attach as a condition of licence when it issues or renews the licences of deregulated Class 2 and Part III cable systems, should provide it with the means to ensure that all subscriber interests are adequately protected.

Fundy also reiterated a number of concerns regarding the proposed new rate-setting provisions, most of which have already been considered at the 5 February 1990 hearing, and which, in the Commission's opinion, do not warrant changes to the amendments as proposed. Additional concerns were raised by Michael E. Pongray of Port Erie, Ontario, the Yukon Community and Transportation Services, and by previously-mentioned interveners, with respect to the intricacy of Commission-originated publications and procedures; tiering of specialty services; poor quality of cable service; obsolete equipment used by cable companies; commercial substitution practices; need for satisfactory notification for changes to rates of, and program services distributed by, Part III licensees; and possible municipal tax demands. Although the Commission has taken note of each of these concerns, it is of the view that these comments go beyond the scope of the changes upon which public comment was sought in this proceeding.

Accordingly, on the recommendation of the Executive Committee, on 10 January 1991 the Commission approved the amendments to the regulations as they appeared in the schedule attached to Public Notice CRTC 1990-83, except for the technical changes to the wording of subsection 18(3) and for the modification to the deregulation approach proposed for Class 2 systems of under 2000 subscribers, as discussed above.

The amendments, which are included in the schedule attached to this notice, were registered on 17 January 1991 (SOR/91-96), to come into force immediately.

Allan J. Darling
Secretary General