O-1846-6-00ORDINANCE NO. 1046-6-00
' AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF ALLEN, COLLIN
COUNTY, TEXAS, ESTABLISHING MAXIMUM RATES THAT AT&T CABLE
SERVICES MAY CHARGE ITS ALLEN CABLE TELEVISION SUBSCRIBERS FOR
PROGRAMMING COSTS, EQUIPMENT AND INSTALLATION; FOR ORDERING
REFUNDS; PROVIDING A SEVERABILITY CLAUSE; PROVIDING A
REPEALING CLAUSE; PROVIDING A PENALTY OF FINE NOT TO EXCEED THE
SUM OF FIVE HUNDRED DOLLARS ($500.00) FOR EACH OFFENSE; AND
PROVIDING FOR AN EFFECTIVE DATE.
WHEREAS, the City of Allen, Texas, (the "City") is the Grantor of a Franchise Ordinance executed on or
about July 20, 1995, by and between the City of Allen and AT&T Cable Services ("AT&T'j; and
WHEREAS, the City pursuant to the Cable Consumer Protection and Competition Act of 1992 (the "Cable
Act") and the rules and regulations adopted thereunder by the Federal Communications Commission (the
"FCC"), is certified to regulate the rates for the basic cable service tier and related equipment; and
WHEREAS, as local regulator of rates for the basic service tier, the City may within ane year of receipt of
proposed rates make a rate Wiling on the proposed rates submitted by AT&T to be charged to subscribers of
the basic service tier; and
WHEREAS, the City has reviewed the proposed rates submitted by AT&T and desires to make a rate ruling.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF ALLEN,
COLLIN COUNTY, TEXAS:
SECTION 1. "FINDINGS: The City of Allen, Texas finds as follows:
1. The City is the Grantor of a Franchise Ordinance executed on or about July 20, 1995,
by and between the City and AT&T.
2. In accordance with the applicable provisions of the Cable Consumer Protection and
Competition Act of 1992 and the riles adopted by the FCC, the City has undertaken
all appropriate procedural steps to regulate the basic cable service tier and related
equipment.
3. On or about March 1, 2000, the City received TCI's FCC Form 1205 and Form 1240.
4. The City has engaged the services of C2 Consulting Services, hic. to provide
assistance to the City for review of AT&T's FCC Form 1205 and Form 1240.
5. On or about April 27, 2000, C2 Consulting Services, Inc. submitted a final report
regarding a review of AT&T's FCC Form 1205.
6. On or about April 29, 2000, C2 Consulting Services, Inc. submitted a final report
regarding a review of AT&T's FCC Form 1240.
7. Based upon information received from AT&T, the calculations and recommendations
from C2 Consulting Services, hic., and the deliberations and advice of the Cable TV
and Telecommunications Advisory Committee, the City makes additional £codings
regarding to FCC Form 1205 and FCC Form 1240 filed by AT&T, as set forth in the
reports of C2 Consulting Services, Inc., which are attached hereto as Exhibits "A"
and "B."
8. The City must act upon the pending rate request consistent with current FCC rate
roles and regulations."
SECTION 2. "CONCLUSIONS: The City of Allen, Texas concludes as follows:
Proerammine Rates. The City concludes that the maximum permitted rate for the
current basic service tier is $12.77. (Thus rate mcludes a Form 1240 rate of $11.58,
plus a Form 1235 rate of $1.19).
2. Installation and Eaulnment Rates (Form 1205). The City approves AT&T's
operator selected rates, and the City concludes that the permitted rate for hourly
service charges and other installation and equipment rates shall be as outlined in
Exhibit "C" attached hereto and incorporated herein for all purposes.
3. The City has an obligation to act timely upon the pending rate application consistent
with current FCC rules and regulations. However, if the FCC alters the benchmark
calculations resulting in a lower reasonable rate for Allen subscribers, the City has an
obligation to its subscribers to reconsider the pending analysis consistent with such
changes the FCC may make m its regulations.
SECTION 3. "ORDER FOR ACTION: Based upon the foregoing findings and conclusions, the City
hereby orders the following:
1. pursuant to current FCC regulations, from the date of this order and until further
order of the City, AT&T shall be permitted to charge a rate for the basic service tier,
exclusive of any franchise fee but inclusive of the FCC regulatory fee, of not more
than $12.77.
This basic programming rate is comprised of a maximum permitted rate for the basic
service tier (Form 1240) of $11.58, with a maximum permitted rate for system
upgrade (Form 1235) of $1.19.
2. Pursuant to current FCC regulations from the date of the order and until further order
of the City, AT&T shall be permitted to charge (exclusive of any franchise fee) an
hourly service charge of not more than the amount set forth in Exhibit "C", and
AT&T shall be permitted to charge for installation services and leased customer
equipment in the amounts set forth in Exhibit "C", attached to this Ordinance and
incorporated as if fully set forth herein.
3. The City hereby waives, for this rate order only, the requirement for thirty (30) day
prior written notice to subscribers required by the City's Cable Communication
Ordinance.
4. AT&T shall immediately undertake all necessary steps, in accordance with applicable
FCC regulations to provide refunds to any subscribers who have been overcharged
since June 1, 2000, based upon the difference between AT&T's current equipment
and installation charges and the permitted equipment and installation charges
approved herein.
Ordinance No. 1846-6-00 Page 2
5. AT&T shall correct its computation of Form 1240, to exclude costs termed as "forced
' relocates," and further correct Worksheet 8 to comply with current FCC regulations
and orders.
6. AT&T shall provide the City evidence the order for actions "I" through "5" above
have been complied with and that all refunds have been properly made in accordance
with the Cable Act and applicable FCC regulations.
7. This Ordinance shall not he reconsidered should any further analysis pursuant to
future FCC rules and regulations result in high rates to subscribers, unless such future
FCC regulations mandates that the City order such an upward adjustment.
8. The City requests that AT&T continue to provide additional information when filing its FCC
Form 1205 that demonstrates AT&T's quality control in the data collected in its aggregation
of costs.
9. AT&T agrees to consider future FCC rulings with regard to the Sunset provision of Section
76.922(8)."
SECTION 4. In adopting this Ordinance, the City Council of the City of Allen, Texas is not approving or
acquiescing in any way whatsoever to the cost data and/or methodologies not specifically addressed in this
Ordinance. Furthermore, the City Council of the City of Allen, Texas is not waiving any rights to which it is
entitled.
' SECTION 5. That should any word, sentence, paragraph, subdivision, clause, phrase or section of this
ordinance, or of the Code of Ordinances, as amended hereby, be adjudged or held to be void or
unconstitutional, the same shall not affect the validity of the remaining portions of said ordinance or the Code
of Ordinances, as amended hereby, which shall remain in full force and effect.
SECTION 6. That all provisions of the Code of Ordinances of the City of Allen, Texas, in conflict with the
provisions of this ordinance be, and the same are hereby, repealed, and all other provisions not in conflict with
the provisions of this ordinance shall remain in full force and effect.
SECTION 7. That any person, firm or corporation violating any of the provisions of this ordinance or of the
Code of Ordinances, as amended hereby, shall be deemed guilty of a misdemeanor and, upon conviction in the
municipal court of the City of Allen, Texas, shall be subject to a fine not to exceed the sum of five hundred
dollars ($500.00) for each offense, and each and every day said violation is continued shall constitute a separate
offense.
SECTION & This ordinance shall take effect immediately from and after its passage, as the law and charter
in such case provides; and it is accordingly so ordained.
DULY PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF ALLEN, COLLIN
COUNTY, TEXAS, ON THIS THE 15m DAY OF JUNE, 2000.
APPROVED:
Stephen
Ordinance No.1x66-6-00 Page 3
APPROVED AS TO FORM ATTEST:
1YSEC
Peter G. Smith, ATTORNEY J Morr s o, CMC/AAE, CITY SECRETARY
(JCM/Id 06106/00) (34104)
L
Ordinance No. 1846-6.00 Page 4
Exhibit "A"
MONSULTING SERVICES, INC.
7801 Pencross Ln.
Dallas, Texas 75248
April 27, 2000
Ms. Ann Mass
Administrative Assistant
City of Allen
One Butler Circle
Allen, Texas 75013
Mr. Keith Rinehart
Communications Manager
City of Bedford
PO Box 157
Bedford, Texas 76095-0157
Ms. Dianne McWethy
Assistant City Manager
City of Colleyville
PO Box 185
Co11eyvi0e, Texas 76034
Dear City Representatives:
Tel. (972) 726-7216
Fox (972) 726-0212
Ms. Candi Terry
Assistant Town Manager
Town of Flower Mound
2121 Cross Timbers Road
Flower Mound, Texas
Ms. Debra Wallace
Assistant Finance Director
City of McKinney
222 N. Tennessee
McKimtey, Texas 75069
Ms. Lynda Humble
Managing Director — Management Services
City of DeSoto
211 E. Pleasant Run Road
DeSmo, Texas 75115-3939
C2 Consulting Services, Inc. ("C2") has completed the evaluation of the FCC Form 1205 filed by
your respective AT&T Broadband-affilined operator with the Cities on or about March 1, 2000.'
This is AT&T's fourth you to file its proposed changes in equipment monthly lease rates and
installation and maintenance charges based on its aggregation of data/costs related to all owned
and/or managed systems. The Cities continue to have original jurisdiction with respect to the
review and regulation of charges resulting from the Form 1205 computations.
This study does not constitute an examination of the financial condition of AT&T or its parent
company. As such, C2 cannot and does not express any position with regard to the
accuracy or validity of the financial information provided by AT&T during the comse of the
analyses.
BACKGROUND
In its 2000 Form 1205 filing, AT&T proposes to actually charge rates that include very little
change from the 1999 rates adopted by the Cities. The proposed converter rates show the largest
' The Form 1205 represents data related to all systems owned and/or managed by AT&T Broadband. Your
respective jurisdictions are served by either TO of North Texas or TO TKR of the Metroplex, Inc,
refereed m collectively herein as ("AT&T')
I
City Representatives
April 27, 2000
Page 2
variation, but primarily with respect to the maximum permitted rates ("MPR") and not rhe
operator selected rates C OSR").
The following table provides a comparison of the Cities' adopted 1999 rates, AT&T proposed
maximum permitted 2000 rates and AT&T's operator selected 2000 rates:
OMPARISON OF EQUIPMENT AND INSTALLATION RATES
City Ordered
AT&T Proposed
AT&T Proposed
1999
2000 MPR
2000 OSR
Service Charge
$2700
$28.14
$27.00
- Unwired home
FPr�md
$39.95
$44.99
$40.95
- Prewired home
$21.50
$25.62
$22.50
- Additional conned initial
$13.95
$15.17
$13.95
l- Add. connect separate
$18.95
$22.85
$18.95
outlet
$18.95
$20.15
$18.95
wngrade
$1.99
$1.99
$1.99
grade non -addressable
$8.95
$10.55
$8.95
de non -addressable
$13.95
$26.23
$14.95
ging Tiers
NIA
NIA
NIA
ect VCR initial
$5.95
$6.84
$5.95
Conned VCR separate
$12.95
$13.56
$12.95
Monthly Lease Rates
Remotes
$0.35
$0.40
$.35
Basic only conveners
$1.60
$3.80
$1.75
Non -basic only conveners
$3.50
$5.68
$3.85
Consistent with the 1997, 1998 and 1999 aggregated filings, the 2000 filing bas the following
components:
• The computation of the Hourly Service Charge ("HSC") based on the averaging of
calculations made for forty sample systems as applied to the total number of systems
that have the same sample characteristics (subscriber counts)
• An allocation of common AT&T costs to each of the sample systems based on the
number of subscribers
• The computation of individual installation activities based on the HSC times an
averaging of the time requirements reported by the forty sample systems
• The computation of equipment rates based on AT&T's inclusion of certain costs at
the AT&T level
• The computation of convener rate categories that are dependent on the type of
service rather than the type of equipment
City Representatives
April 27, 2000
Page 3
SUMMARY OF FINDINGS
L Due to the issues identified in the prior Form 1205s filed by AT&T, both at the system level and
as aggregated filings, and due to the limited change in the requested rates, C2's analysis of the
2000 Form 1205 was premised on the following:
]. The extent to which AT&T continued to exclude those cost categories that the
Cities had taken issue with in these prior filings; and
2. The reasons for the increase in converter costs.
Based on a cursory analysis of AT&T" forty sample systems' Form 12055, it appears that AT&T
has continued to exclude the categories of cost argued by the Cities as not being previously
unbundled from programming services rates. In fact, the Company responded to a request for
information as follows:
The costs associated with tap audits, convener retrievals, security devices, disconnect and self
insurance not previously unbundled have not been included in the sample system
calculations.2
The resulting maximum permitted Hourly Service Charge and associated installation rates appear
reasonable in light of the continued exclusion of these costs and in consideration of the reported
changes in the average time frames to conduct specific activities. The latter are based on the
averages of the forty -sample systems and will show fluctuations from year to year depending of
the sample selected.
With respect to the increases in proposed converter lease rates, C2's analysis identified the
following:
• Fifty-six percent (56%) increase in the total net book value of converter 2 capital
costs due to significant acquisition of digital conveners in 1999 (converter 2);
• Fifteen percent (15%) increase in the total number of subscribers with a converter
who receive just the basic service tier (converter 1);
• What appears to be a reasonable six percent (6%) inventory in the number of
conveners included in the capital costs to be recovered (converter 1 and 2); and
• An approximate ten percent (10%) decline in the total number of hours devoted to
equipment repair and maintenance (remotes and converters).'
Based on these findings, it appears that the proposed increases in the operator selected rates for
the two convener types are reasonable.
2 Response to First Request for information, dated April 5, 2000.
3 This is based on AT&T response as to the inventory to the Mmerial Service Center. AT&T stales that
additional inventory is at the individual systems, but no information is available as to the total amount.
However, C2 notes that in the 1999 filing, the inventory costs included from just the Material Service
Center were estimated to be in excess of fourteen percent (14%).
° As you recall, C2 took issue with the total number of hours devoted to converter maintenance and repair
in the 1999 filing due to lack of justification for such a significant increase.
City Representatives
April 27, 2000
Page 4
SUMMARY OF RECOMMENDATIONS
' Based on the above findings and conclusions, the Cities should consider taking the following
actions:
1. Approve the operator selected rates proposed by AT&T for installation and equipment
rates as being reasonable.
2. Provide that the Cities do not acquiesce to specific computations given the brevity of the
review in light of the level of rate change being requested.
C2 appreciates having this opportunity to work with the Cities in review of the Four 1205 rates.
If you have any questions regarding this report or need clarifications as to the recommendations,
Please contact Ms. Comue Cannady at (972) 726-7216.
Very truly yours,
C') l (rl s In �yru (01 v✓t �Rr �t�l r.c•
C2 Consulting Services, Inc.
1
11
MONSULTING SERVICES, INC.
7801 Pencross Ln.
Dallas, Texas 75248
April 29, 2000
Ms. Debra Wallace
Ms. Ann Mass
Assistant Finance Director
Administrative Assistant
City of McKinney
City of Allen
222 N. Tennessee
One Butler Circle
McKinney, Texas 75069
Allen, Texas 75013
Dear City Representatives:
Exhibit "B"
Tel. (972) 726-7216
Fax (972) 726-0212
C2 Consulting Services, Inc. ("C2") has completed its review of the FCC Form 1240 for beadend
B073 IA submitted to the Cities of Allen and McKinney, Texas (the "Cities") by TCI Cablevision
of Texas, Inc. ("TCP' or the "Company') on or about March 1, 2000! Contained herein is a
summary of the findings and preliminary recommendations.
This study does not constitute an examination of the financial condition of TCl or its parent
company. Therefore, C2 cannot and does not express any position with regard to the accuracy or
validity of the financial information provided by TCI during the course of the analyses.
LOVERVIEW OF THE FILING
According to the information provided by TCI, the number of basic service channels was reduced
from twenty-nine (29) to twenty-eight (28) during the true -up period With respect to the
projected period, no changes in the total number of basic service channels are proposed through
May, 2001.
TCl proposes to increase the basic service rate from a monthly rate of $12.54 to a rate of $12.76.
This proposed rate is for the rate year June 1, 2000 through May 31, 2001. The Moposed rate is
an operator selected rate based on a proposed maximum permitted rate of $12.82.2
There are two major factors that explain TCFs proposed change in the maximum permitted basic
service rate:
1. The reduction of one channel during the true -up period and the associated reduction in
residual costs (decrease effect); and
m This Form 1240 filing also relates to the rates charged at Stonebridge Ranch.
As you recall, the total maximum permined basic service rate consists of the Form 1240 computation for
the basic service rate ($12.15), plus a maximum permitted upgrade rate of $1.19 (as adopted by the Cities
in 1999). TCFs proposed Form 1240 maximum permitted rate is $11.63. With the addition of the $L19,
the total proposed maximum permitted rate equals $12.82.
City Representatives
April 29, 2000
Page 2
2. TCI charged a higher rate during the first six months of the tme-up period than adopted
' by the Cities based on the last rate filing (decrease effect).'
ANALYSIS OF THE FILING
Summary of Findings
]n reviewing the Form 1240 filing, C2 focused on the following:
• TCI's treatment of "mark-up" costs for channel additions and residual war for channel
movement due to the issue raised in the 1999 Form 1240 analysis;
• TCI's treatment of forced relocates due to the issue raised prior to the 1999 filing; and
• TCI's treatment of the true -up of actual Form 1240 revenue since the basic service rate is
inclusive of both Form 1240 rates and Form 1235 upgrade rates.
1. `Mark-Up" and Residual Costa
During the 1999 review, C2 noted that TCI has included a $.06 additional mark-up for channels
that had been added subsequent to the "Wasetting" of this rate provision in the FCC regulations.
The Cities agreed to allow the additional mark-up for 1999 based m:
• An agreement for a fmal $1.19 Form 1235 rate; and
• Indication from the FCC that the issue of continued use of the "mark-up" provisions
would be further studied.
' The FCC has not issued any ruling with respect to the treatment of "mark-up" adjustments on the
basic service tier, but has issued at least me order that disallowed additional mark-up on the
CPST tier of service.' In the instant filing, TCI has included the "mark-up" agreed to by the
Cities in the 1999 filing, and has not added any additional "mark-up" costs.
With respect to the treatment of residual costs for channel movement, TCl has reduced the basic
service rate for the movement of one channel from the tier that occurred in December 1998. As
with the "mark-up" costs, the FCC regulations providing for channel movement adjustment were
also sunset for any changes made subsequent to January, 1998.
C2 continues to take the position that any adjustment fm mark-up and/or charnel movements is
not in compliance with the FCC regulations. However, the Cities could reasonably decide to
continue to allow inclusion of TCI's proposed channel movement adjustment in the computation
of basic service rates until the FCC makes a final decision with respect to the sumetting of the
mark-up and channel movement regulations.
' There exists a six month lag between the end of the wo-up period and the starting date of the new rate
period. Because of this lag, the fust six mumbs of the true -up period in this filing relate to the last six
months of the projected period from the 1998 filing. 1n 1998, the basic service rate charged by TCI was
$11.95. With the use of such higher rate during the first six months of this tme-up period to compare with
' a true -up rate of $11.78 (Module F), the formula automatically calculates a refund adjustment to be built
into the new rare.
4 See Order, Century Communications Corporation, released March 5, 1999 (DA 99-421).
City Representatives
April 29, 2000
Page 3
C2 recommends that the Cities provide for a retroactive computation in the event that channel
movement adjustments are found by the FCC to have been sunset since 1998. Such a finding
could either be with the issuance of an Order specifically addressing the sunset issue in general or
an order that finds in favor of a franchising authority that has challenged this adjustment.
2. Inclusion of Costs Classified as "Forced Relocatea^
As you recall, C2 raised the issue in prim filings that TCI was unable to justify the inclusion of
costs it had termed as "forced relocates." Although TCI did not concede that it had
inappropriately included such costs, it did commit to the Cities that such costs would not continue
to be included in the rate computations. In the 1999 filing, TCl did not include the amortization
of these costs in its projected period.
C2 inquired as to the rationale for again including these costs in the 2000 filing. Based m a
conversation with a TCI representative, TCI inadvertently made this adjustment. Therefore, C2
bas removed the costs noted as "forced relocates" from the calculation. The impact on the basic
service rate is less than $.Ol.
3. True -Up Computation of Revenue Received
Pursuant to the Form 1240 formulae, a cable operator "trues -up" its revenue received from basic
service by multiplying its average subscribership during the period times the actual monthly rates
charged for the service. This computation takes place on Worksheet 8 of the Form.
In completing Worksheet 8 for the 2000 £ding, TCI developed a "reconciliation" methodology,
' which appears to be an attempt to separate the actual revenue into Form 1240 revenue and Form
1235 revenue. It appears that TCI has proposed this computation due, in part, to the fact that the
total basic service rate charged in many jurisdictions during the period in question was an
operator selected rate and not the maximum permitted rate -5
C2 notes that TCI "reconciles" the Form 1240 portion of the rate based m the trued -up
calculation that occurs in Module F. Based on the Form 1240 formulae, this is clearly incorrect.
TCI could not have known what the trued -up portion of the Form 1240 rate was when it set the
$12.54 rate in 1999. What it did know was that the maximum permitted Form 1240 rate was
$12.15 and the maximum permitted rate fm the Form 1235 was $1.19.
Because TCl charged a rate that is greater than the maximum permitted Form 1240 rate, it stands
to reason that the rate charged for the Form 1240 was the approved $12.15. In fact, the FCC has
ruled on a similar issue in the matter of Bresnan Communications Company, Order on
Reconsideration, released September 7,1999:
[tjhe FCC Form 1235 add-on is a yearly amount based on Operator's actual costs for
upgrading its system. It is not a projected amount and is therefore not subject to tme-up
through the FCC Farm 1240. Opemtm cannot increase its yearly FCC Form 1235 add-on
thrmgb the true -up process, nor is Operator required to reduce its FCC Form 1235 add-
on through the true -up process. Therefore, we require Operator to use all of its FCC
Form 1240 MPR for purposes of determining Operator's actual CPST rate on
r
TO charged an operator selected rate of $12.54 instead of the maximum permitted rate adopted by the
Cities of $13.34.
City Representatives
April 29, 2000
Page 4
Worksheet 8, even if Operator has not fully implemented its combined MPR from
' both its FCC Form 1240 and FCC Form 1235. This allows the FCC Form 1235 add-
on to have a neutral effect on Operator's FCC form 1240 calculations. (emphasis addedlb
Clearly, based on this ruling, the appropriate rate to be used on Worksheet 8 for the period June
1999 through November 1999 is the 1999 adopted Form 1240 rate of $12.15. Adjusting
Worksheet 8 to include the maximum permitted Form 1240 rate of $12.15 reduces TCl's
proposed rate by approximately $0.18 (all other components being equal).
However, with any adjustment made to a filing, the FCC has stated that the inflation factors
should also be "refreshed" to incorporate the latest information available. After the inflation
factors are "refresbW' the rate is reduced to $11.58; 5.05 less than TCI's proposed maximum
permitted Form 1240 rate of $11.63.
SUMMARY OF RECOMMENDATIONS
In summary, the proposed operator selected rate as filed by TCI appears reasonable. However,
C2 makes the following recommendations with respect to the computation of the Form 1240:
• The Cities should include in their writer decisions a provision that allows for a
retroactive adjustment in the event the FCC finds channel movement adjustments to have
been sunset since 1998
• The Cities should exclude all costs termed as "forced relocates;" and
•The Cities should require TCI to correct Worksheet 8 to comply with the FCC's order.
C2 greatly appreciates this opportunity to assist the Cities of Allen and McKinney in their review
of the Form 1240 filing. If you have any questions, please contact Ms. Connie Cannady at 972-
726-7216.
Very truly yours,
C2 Consulting Services, Inc.
1
6 DA 99-1779, released September 7, 1999, paragraph 5.
EXHIBIT "C"
SERVICE
RATES
Hourly Service Charge
$27.00
Install - Unwired Home
$40.95
Install - Prewired Home
$22.50
Install - Additional
Connection Initial
$13.95
Install - Additional
Connection Separate
$18.95
Move Outlet
$18.95
Up/Downgrade
$1.99
Downgrade Non -
Addressable
$8.95
Upgrade Non -Addressable
$14.95
Changing Tiers
N/A
Connect VCR Initial
$5.95
Connect VCR Separate
$12.95
Monthly Leare Rater:
Remotes
$0.35
Basic Only Convener
$1.75
Non -Basic Convener
$3.85