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HomeMy WebLinkAbout1992-11-04 New York State Commission on Cable Television In the Matter of the 92-468 Itemization of Franchise Fees on Subscribers Bills Docket No#90389-ADEC I 6 NEW YORK STATE COMMISSION ON CABLE TELEVISION In the Matter of the 92-468 Itemization of franchise fees on subscriber's bills DOCKET NO. 90389-A NOTICE OF PROPOSED RULEMAKING (Released: November 4, 1992) PLEASE TAKE NOTICE that the Commission proposes to amend Section 590.63 of its rules pertaining to itemized billing statements. The statutory authority for the proposed rule is contained in Sections 811, 815 and 816 of Article 28 of the Executive Law. A copy of the proposed rule is attached hereto. In Docket No. 90389, the Commission issued a Statement of Policy in which it determined that franchise fees cannot be stated as a separate line item on subscriber bills as direct charges on subscribers. (Statement of Policy, In the Matter of Itemization of Franchise Fees on Subscriber Bills, Docket No. 90389, Order No. 92-217, released: April 20, 1992) In reaching its determination, the Commission noted that a franchise fee is merely a component of doing business "similar to other non -sales taxes and business costs" and is fundamentally different from a sales tax. The Commission also observed that while federal law purports to authorize a cable company to inform subscribers of franchise fees and the amount of the fee attributable to an individual bill in statute is not authority for billing the subscriber directly for the amount of the fee attributable to the bill. A complete copy of the Statement of Policy is attached hereto. It appears that some cable companies continue to itemize fees in a manner inconsistent with the Commission's policy statement. Accordingly, the Commission hereby proposes to promulgate a rule which would prohibit such practice. The Commission invites comments from interested parties on the proposed rule. Initial comments in this proceeding shall be submitted no later than January 4, 1993. Comments in reply to initial comments should be submitted no later than January 18, 1993. All written comments should be submitted to William Huff, Administrative Officer, NYS Commission on Cable Television, Empire State Plaza, Corning Tower, 21st Floor, Albany, New York 12223. THE COMMISSION ORDERS: That the proposed rule, regulatory impact statement and regulatory flexibility analysis be submitted to the Secretary of State for publication and to other appropriate officials in accord with the State Administrative Procedure Act and the Executive Law. Commissioners Participating: William B. Finneran, Chairman; Theodore E. Mulford, John A. Passidomo, Commissioners. Tower Building • Empire State Plaza • Albany, NY 12223 Appendix A TEXT OF PROPOSED RULE 590.63 Bill format, late charges, collection charges and downgrade charges. (a) Each subscriber bill shall: (1) include the name, address and telephone number of the company and the toll free subscriber assistance telephone number of the commission; (2) shall itemize each category of service and piece of equipment for which a charge is imposed; - (3) state the billing period, amount of current billing and appropriate credits or past due balance, if any. (b) Each subscriber bill shall specify a minimum time for payment which shall not be less than 15 days from mailing of the bill. (c) Any late charge permitted by law or by the franchise, if imposed upon the subscriber, shall be itemized on the subscriber's bill, or notice of delinquent payment in cases where coupon books are used. (d) If a late charge is to be imposed, it shall not be imposed sooner than 45 days after the mailing of the bill to the subscriber or the due date, if coupons are used. (e) No cable television company shall impose a collection charge upon any subscriber, except as prescribed in section 590.67(e) of this Part. (f) A cable television company may impose a downgrade charge upon the conditions and in the circumstances as follows: (1) subscribers have been notified of such charge in writing in at least 10 point type; (2) the charge does not exceed the cost of the downgrade to the company; (3) the downgrade is from a level of service which the subscriber has not maintained continuously for six (6) months immediately preceding the date of the downgrade; and (4) the downgrade was not requested by a subscriber affected by a significant programming change or a network change within forty-five (45) days of receipt by the subscriber of the notice required by section 590.74(b)(4) and (c)(4) of this Part. (q) A subscriber bill shall not include as a separate item added to the charges for cable television services any amount identified as a franchise fee as if such amount constitutes a separate or direct charge imposed upon, and payable by, the subscriber directly. Appendix B NEW YORK STATE COMMISSION ON CABLE TELEVISION In the Matter of 92-217 The Itemization of Franchise Fees on Subscriber Bills STATEMENT OF POLICY DOCKET NO. 90389 (Released: April 20, 1992) During the past months, various cable companies in the state have commenced the practice of including all or a portion of a franchise fee as a separate line item on a subscriber's bill. The practice is manifest in one of two ways. In some instances, the franchise fee is one of many items, e.g., basic service, premium service, additional outlets, etc. listed in a single column, the amount for which is included with and added to all other amounts to arrive at a total amount due. In other instances, the bill recites the various services subscribed to and the amounts thereof, sets forth a subtotal ,of all such amounts and then includes an amount denominated "franchise fee" which, when added to the subtotal, creates a total amount due at the bottom of the bill. In the latter case, the franchise fee is treated in the same manner as a sales tax. In either case, the fee is stated as if it were a direct charge upon the subscriber. Some companies have instituted this practice coincidental with a franchise renewal or current increase in the amount of the fee or both. For other companies, the practice is unrelated to the franchise term or any change in franchise fee requirements. Because the practice raises fundamental issues concerning the effect of federal law and the relation of federal statute to state statute, Commission regulations and franchise fee provisions in cable television franchise agreements, the Commission has determined that it is appropriate at this time to issue a general statement of policy on franchise fee itemization and "pass-throughs." Itemization of Fee Section 622(f) of the Cable Communications Policy Act of 1984 ("Cable Act") (47 USC Section 542(f)) provides that "[a] cable operator may designate that portion of a subscriber's bill attributable to the franchise fee as a separate item on the bill." Consistent with this section, a cable operator may include on a subscriber's bill a separate statement indicating the portion of the bill --as a percentage or fixed amount --that will be payable as a franchise fee by the cable company to the franchising authority. This section is not authority for including a franchise fee as a separate billable line item on a subscriber's bill. 2 In this regard, we note that franchise agreements in New York State have traditionally required franchise fees based on a percentage of revenues --either all or some portion thereof --received by the company from subscribers and, in some cases, from other sources. In other words, the fee is calculated as a percentage of all revenues received without deduction or allocation for such portion of the revenues as may ultimately be paid by the cable company to the municipal government in fulfillment of the franchise fee obligation. This practice is fully consistent with Section 817 of the Executive Law which requires the Commission to impose an assessment upon cable companies calculated on "gross annual receipts."' The only exception from "gross annual receipts" recognized in the statute would include sales taxes which are imposed directly on subscribers. (See, e.g., Tax Law, Section 1131(2)) Neither the municipal franchise fee nor the amount of the Commission's assessment is excluded from "gross annual receipts." The practice of billing the fee as a separate line item in addition to rates transforms the very nature of the fee from a component of doing business calculated on all revenues to a separate add-on charge imposed directly on subscribers. This practice also has the effect of transforming the very method by which the fee is calculated and, therefore, purports to modify the underlying statutory and franchise obligations. A simple example will illustrate the effect of itemization. Assume a cable company has been charging $20 per month for a service under a franchise which requires a franchise fee of 3%. The franchise fee attributable to such bill would be sixty cents. If the company determines to separate and itemize the fee as an add-on in the manner of a sales tax, the bill is likely to read as follows: Basic service rate --- $20.00 Franchise fee --- $0.60 Total $20.60 1 Section 817(2) provides that the Commission "shall...bill and collect. ..[from cable companies]. ..the total direct and indirect costs necessary to operate and administer the commission for the. ..state fiscal year." Each company is required to pay a pro rata share of the commission's costs based upon its gross annual receipts when compared to the gross annual receipts of all companies: "Gross annual receipts" is defined in Section 812(5) as follows: ". . .any and all compensation received directly or indirectly by a cable television company from its operations within the state, including but not limited to sums received from subscribers or users in payment for programs received and/or transmitted, advertising and carrier service revenue and any other moneys that constitute income in accordance with the system of accounts approved by the commission. Gross annual receipts shall not include any taxes on services furnished by a cable television company imposed directly on any subscriber or user by any municipality, state, or other governmental unit and collected by the company for such governmental unit." 3 Apart from the fact that this is a rate increase subject to notice requirements (and government approval in the absence of effective competition), it is readily apparent that the company, by its own unilateral act, has purported to change the manner of calculating the fee by reducing the base from the total amount billed to an amount which is artificially described as the "rate." In fact, $0.60 is but 2.91% of $20.60 -- the total amount billed. If the fee is calculated as before -- 3% of the full amount billed -- the fee attributable to the bill would be sixty-two cents. We find nothing in the Cable Act to suggest that Congress intended to transform the nature of a franchise fee or to amend existing franchises by permitting cable television companies to reduce franchise fee obligations by manipulating the subscriber's bill in such manner. On the contrary, the effect of Section 622(a) was to increase from 3% to 5% of gross receipts the amount of franchise fees which could be required in a franchise.. It could be argued that a cable company is free to bill in this manner without also intending to modify its franchise fee obligation. If so, such a bill would be inaccurate and, therefore, misleading. Nothing in the Cable Act authorizes cable companies to engage in inaccurate and misleading billing practices. We also note the likelihood that some cable companies would argue that the franchise fee is a tax and, as such, is a separately billable item. We need not finally determine whether the franchise fee is a tax for the simple reason that even if the franchise fee is in the nature of the tax, under New York State law it would be in the nature of a special franchise or real property tax; but clearly not in the nature of a sales tax.2 The special franchise tax is imposed on the owner of the special franchise property, i.e., the cable company, and not on the subscriber directly. As such, it is simply a component of doing business similar to other non -sales taxes and business costs. 2 Section 626 of the Real Property Tax Law ("RPTL") provides as follows: "1. (a) When a tax levied on a special franchise is due in any assessing unit, if the special franchise owner has paid such assessing unit for its exclusive use during the past year under any agreement or statute requiring the same, a sum based upon a percentage of gross earnings or other income, a license fee or other sum of money on account of such special franchise possessed by such special franchise owner, which payment was in the nature of a tax, all amounts so paid for the exclusive use of such assessing unit, except money paid or expended for paving or repairing the pavement of a street, highway or public place, and except in a city having a population of one hundred seventy-five thousand or more according to the latest federal census, car license fees or tolls paid for the privilege of crossing a bridge owned by the city, shall be deducted from the tax based 011 the assessment made by the state board for purposes of the assessing unit, but not otherwise, and the remainder shall be the tax on such special franchise payable for such propose." 4 In sum, it is our determination that franchise fees cannot be stated as a separate line item on subscriber bills as direct charges on subscribers. This policy does not prevent cable companies from informing subscribers on bills, or otherwise, of the fact that franchise fees are paid to government, including the specific amount of the fee attributable to an individual bill. It is consistent with the Cable Act because companies may include a statement on the bill which identifies the franchise fee without imposing a separate and direct charge for the fee itself. Pass Through Provisions We also take this opportunity to express our policy with respect to the so-called "pass through" provisions in the Cable Act. Section 622(c) of the Cable Act (47 USC 542(c)) provides that "[a] cable operator may pass through to subscribers the amount of any increase in a franchise fee unless the franchising authority demonstrates that the rate structure specified in the franchise reflects all costs of franchise fees and so notifies the cable operator in writing." Section 622(c) provides that "[a]ny cable operator shall pass through to subscribers the amount of any decrease in a franchise fee." The issue here is whether these provisions have meaning in a deregulated cable community. We note, initially, that for many years prior to the enactment of the Cable Act the rates for premium cable television services had been deregulated by the Federal Communications Commission ("FCC"). See Brookhaven v. Kelly, (428 F.Supp. 1216 N.D. New York (1977); 573 F.2d 765, 2d Cir. (1978)) We also note that in many, if not all, cable television franchise agreements in New York State a franchise fee is required to be paid based on revenues derived by the cable television franchisee from premium services or some portion thereof. In fact, at the time the Cable Act became law, cable companies could unilaterally price premium services to account for all costs including franchise fees and increases therein. As a practical matter, the Cable Act did not alter the regulatory status of premium services. Section 623 of the statute provides that "[a]ny franchising authority may regulate the rates for the provision of cable service.. .provided over a cable system to cable subscribers, but only to the extent provided under this section." Section 623(b)(1) required the Federal Communications Commission to "prescribe and make effective regulations which authorize a franchising authority to regulate rates for the provision of basic cable service in circumstances in which a cable system is not subject to effective competition." Under Section 623, only basic cable service can be subject to rate regulation.3 Cable companies remain free 3 Although basic cable service is defined in such a way as it is theoretically possible that single channel premium services could be marketed as part of basic service, we are not aware of any such circumstances and it is unlikely that a cable company which is not subject to effective competition would choose to submit rates for premium service to regulation by such mgrlrntincy nrslrtire 5 to price "premium" services without the need for governmental review and approval --a right which transcends the more limited language in Section 622(c) which merely permits a rate increase in the event of an increase in franchise fees. We note, as well, that historically, "pass-through" is used in utility ratemaking to permit a cost or change in cost to be included in the regulated rate borne by ratepayers. It fully appears, therefore, that the pass-through provisions in Section 622(c) of the Cable Act are intended to enable cable television companies to increase regulated rates by an amount equal to any current increase in the franchise fee attributable to the regulated rate.4 Similarly, the obligation imposed by Section 622(e) to decrease rates by any reduction in the franchise fee is only sensible in an environment where rates are regulated. Otherwise, there is no real benefit to subscribers. In sum, the pass-through provisions are redundant in rate deregulated communities. Granting to a cable company the unilateral ability to charge to subscribers whatever rate it wants --as the Cable Act does --transcends and makes meaningless cost pass-throughs which are reflective of a rate regulated environment. SO ORDERED. Commissioners Participating: William B. Finneran, Chairman; Theodore E. Mulford, John A. Passidomo, Barbara T. Rochman, Commissioners. 4 It is important to note here (1) that Congress sanctioned basic rate regulation for a minimum of two years following the effective date of the Cable Act for all cable systems irrespective of the existence of effective competition, and (2) that FCC regulations rather than statutory mandates caused most cable systems to be rate deregulated.