SR-501-002-02 (3)
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KAISER, SCHERER & SCHLEGEL
1899 L STREET, NW #1100
WASHINGTON, D.C. 20036
TEL. (202) 466-4656
FAX. (202) 331-8342
RUSH
TELEFAX TRANSMISSION SHEET
CONTACT NAME: BILL COOK. ESQUIRE
COMPANY: ARNOLD & PORTER
TELECOPIER TELEPHONE NUMBER: 202 942 5999
FROM: ANNM. BRYAN
DATE: December 27, 2001
SANT A MONIC REVISED FINAL
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KAISER SCHERER & SCHLEGEL, PLLC
Certified Public Accountants
1899 L Street, N.W.
Suite 1100
Washington, D.C. 20036
Tel: 202-466-4656
Fax: 202-331-8342
E-mail: kss@kssacct.com
December 27, 2001
Mr. William Cook, Esquire
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004
Re: FCC Forms 1240 and 1205 filed with the City of Santa
Monica Information Technology Agency by Adelphia
Communications Corporation
Dear Mr. Cook:
Independent Accountants' Report
on APplyinq Aqreed-Upon Procedures
You have asked us to analyze the FCC Form 1240, dated February
6, 2001 setting basic service rates for the period May 1, 2001
through April 30, 2002 and FCC Form 1205, dated April 23, 2001
using data from the fiscal year ending December 3l, 2000. These
forms were filed with the City of Santa Monica, California ("Santa
Monica") by Ade1phia Communications Corporation ("Adelphia")
regarding Franchise Community Unit Identification Number CA0456.
The purpose of our analysis was to assist Santa Monica in its
determination of whether the rates proposed by Adelphia for basic
service and equipment for its Santa Monica system are reasonable
under the regulations adopted by the Federal Communications
Commission ("FCC"), as such rate regulations have been amended from
time to time.
We have performed the procedures enumerated at Exhibi t I,
which were agreed to by Santa Monica, solely to assist Santa Monica
with respect to the determination of whether the basic service
rates and equipment rates proposed by Adelphia are reasonable.
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This engagement to apply agreed-upon procedures was performed
in accordance with standards established by the American Institute
of Certified Public Accountants. The sufficiency of the procedures
is solely the responsibility of the specified users of the report.
Consequently, we make no representation regarding the sufficiency
of the procedures described at Exhibit I either for the purpose for
which this report has been requested or for any other purpose.
While our efforts involved the analysis of accounting records
and other information supplied by Adelphia, we did not perform an
audit of Adelphia's financial statements in accordance with
generally accepted auditing standards. Had we performed additional
procedures or had we made an examination in accordance with
generally accepted auditing standards, other matters might have
come to our attention that would have been reported to you.
Furthermore, our report assumes that the information provided and
representations made by Adelphia are true and accurate. Our
analysis and this report are intended solely for use by Santa
Monica for the purpose described above. This report is based on
work performed to date and the regulations adopted by the FCC.
Copies of the FCC Forms 1240 and 1205 and responses to
supplemental requests for information submitted by Adelphia have
been submitted under separate cover and are incorporated by
reference.
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ADELPHIA COMMUNICATIONS CORPORATION
FORMS 1240 AND 1205
SUMMARY OF RATES
Maximum Basic Service Rate,
exclusive of Franchise Fees
and FCC regulatory fees
Equipment and Installation Rates
Hourly Service Charge
Unwired Homes
prewired Homes
Underground Burial
Relocate Service
Trip Charge
Downgrade to Basic
Addt'l Connections (initial)
Addt'l Connections (separate)
Charge for Changing Tiers
Transfer
Non-Pay reconnect
Lease of Remote Controls
Addressable and Digital
Universal
Lease of Converter Boxes
Addressable and Digital
Non-Addressable
Lease of additional outlets
Adelphia
Computed
Rates
$29.02
44.66
44.66
33.50
78.16
33.50
29.92
44.66
22.33
33.50
2.00
.35
4.65
.97
.90
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Adelphia
Rate Card
$25.24
44.00
33.00
75.00
33.00
29.00
29.00
22.00
33.00
2.00
33.00
28.00
.25
.79
3.25
.95
nla
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SUMMARY OF FINDINGS
This section presents a summary of the results of our analysis
for those items that, based on a review of the information provided
and procedures performed, we believe should be considered by the
City of Santa Monica in its review of the FCC Forms 1240 and 1205
submitted by Adelphia and the rates proposed therein.
BASIC RATE
Based on the work performed at Exhibit I, we do not propose
any adjustments to the Adelphia computed maximum permitted rate of
$29.02 for basic service.
We noted, however, that the Operator Selected Rate stated on
Line 119 of Part II, of the Form 1240 stated $24.24, whereas, the
rate card stated a rate of $25.24.
EQUIPMENT AND INSTALLATION RATES
Form 1205 is used to develop equipment and installation rates
based on an operator's actual costs, as determined according to FCC
guidelines and procedures. Pursuant to the Telecommunications Act
of 1996, the FCC has modified the rules to allow a cable operator
to prepare the Form 1205 based on the level at which it aggregates
its costs. This leads to average rates applicable throughout a
region or throughout the country, rather than rates that may differ
from system to system. Adelphia chose to file the Form 1205
setting rates as of August 1, 2001 using data from its Los Angeles
Region.
Furthermore, Adelphia has chosen to aggregate its converter
and remote equipment costs under broad categories. Ade1phia has
computed one converter rate for addressable and digital converters
and one rate for remotes and digital remotes. Adelphia has
computed a separate rate for non addressable converters that could
be used by basic-only subscribers.
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Based on the work performed at Exhibit I, we do not propose
any adjustments to the Adelphia computed Maximum Permitted Rates
outlined in the Summary of Rates above except as set forth below:
We do not recommend approving a rate for the monthly
additional outlet charge of $.90. Adelphia did not establish the
reasonableness of this rate. However, based on discussions with
Adelphia representatives and review of the rate cards, we conclude
that Adelphia is not charging subscribers for this monthly
additional outlet charge, and therefore, no further work or
discussion is necessary relating to the additional outlet charge
computed on the regional Form 1205.
Adelphia's Form 1205 also establishes a $44.66 rate for
"Downgrade to Basic." Adelphia bears the burden of establishing
the reasonableness of this rate, and Santa Monica has the right to
establish a rate based on the "best information available" where a
cable operator fails to meet its burden of proving that its
proposed rate is reasonable. The FCC rate regulations state that
"[dlowngrade charges that are the same as, or lower than, upgrade
charges are evidence of the reasonableness of such downgrade
charges," 47C.F.R. Ii 76.980. Adelphia does not have a specific
charge for the upgrade to a service, but states in its Form 1205
that it charges a "Trip Charge" for among other things, converter
installation and removal of pay service traps. (We do not propose
any adjustments to the $29.92 trip charge rate calculated on
Adelphia's Form 1205.) Based on the best information available, it
would not be unreasonable for Santa Monica to conclude that the
$29.92 is a reasonable rate for a downgrade to basic that requires
a trip. Additionally, we note that Adelphia states on its rate card
that it charges subscribers $29.00 for both the trip charge and the
downgrade to basic charge.
We also noted that Adelphia's rate card listed two
installation rates that were not computed on the Form 1205: charges
for Transfer of $33.00 and Non-Pay Reconnect of $28.00. The FCC
rules require that all rates for installations charged to basic
subscribers be computed on the Form 1205. Adelphia did not provide
time studies or other documentation demonstrating the actual
average time it takes to complete such installations with its Form
1205. However, Adelphia did state in subsequent documentation the
following:
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You are correct that Adelphia does not identify the
'Transfer' and 'Non-Pay Reconnect' as separate
installation types on FCC Form 1205. However, it has
been Adelphia's practice to include these installation
types in the calculation for the installation of a
prewired home. .. As noted on this schedule, the transfer
and non-pay reconnect installations are included in the
prewired home calculation. These installations are
aggregated in this manner because the average hours per
installation for each of these services is the same .75
hours.
Based on further review of the aforementioned schedule and
Adelphia's explanation, we recommend a maximum permitted rate of
$33.50 for the transfer and non-pay reconnect installations.
We were also unable to determine the reasonableness of the
universal remote rate of $.79 as Adelphia did not compute the rate
on the Form 1205 and did not provide any supporting documentation
for this equipment rate. As stated above, the FCC rules allow a
franchising authority to establish rates based on the best
available information. Since Adelphia prepared its Form 1205 filing
combining all remotes in one computed rate of $.35, we recommend
that the rate for the universal remote should also be $.35.
Adelphia representatives and subsequent supporting documentation
provided by Adelphia illustrated that Adelphia had made an error on
the rate card, and instead, Adelphia was charging $.25 for this
universal remote, We recommend that Santa Monica determine the
accuracy of Adelphia's representations.
We have no responsibility to update this report for events and
circumstances occurring after the date of this report.
Very truly yours,
~/1{~
Ann M. Bryan \J
SDl1202. rpt
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ADELPHIA COMMUNICATIONS CORPORATION
FORMS 1240 AND 1205
EXHIBIT I
PROCEDURES
The procedures we performed included, but were not limited to,
the following:
1. We received a copy of the FCC Form 1240, setting rates as of
May I, 2001, dated February 6, 2001 filed with the City of
Santa Monica by Adelphia. We also received the Form 1205,
dated April 23, 2001.
2. We assisted Santa Monica in preparing a supplemental request
for information in June 2001.
3. We reviewed Adelphia's response to the supplemental request
for information received in July 2001. We received further
information in December 2001.
4. We recomputed the FCC Forms 1240 and 1205.
5. We developed an understanding of the assumptions and
computations used by Adelphia in completing the FCC Forms 1240
and 1205 and analyzed the proposed rate in relation to the
explanations and information provided by Adelphia.
6. We developed an understanding of the computations required in
the Form 1240 as stated briefly below:
The Form 1240 is used to evaluate regulated cable rates on or
after September 15, 1995 by giving regulated cable operators
the option of filing for rate adjustments on an annual basis
instead of on the existing quarterly system.
The maximum permitted rates for this period are computed by
using seven segments:
Headend Upgrade Segment;
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External Costs segment--six external costs are allowed to be
passed through directly to subscribers: programming fees
associated with channels added prior to May 15, 1994 or added
after May 15, 1994 using the Markup Method, retransmission
consent fees, copyright fees, cable specific taxes, franchise
related costs, and FCC regulatory fees;
Caps Method Segment;
Markup Method Segment;
Channel Residual Segment;
True-Up Segment--contains the compensation for overcharges and
undercharges which have occurred during the True-Up
periods; and
Inflation Segment--allowances for the effects of inflation on
the operator's costs of doing business.
PART I: PRELIMINARY INFORMATION
Module A: Maximum Permitted Rate From Previous Filing
Al. We agreed the current maximum permitted rate input by Adelphia
to the previous FCC Form 1240.
Module C: Inflation Information
C3-C5.We recomputed the inflation percentage after agreeing the
monthly rates to the appropriate FCC Public Notices.
Module D: Calculating the Base Rate
D2.
We compared the
the previously
discrepancies.
current external costs stated on Line D2 to
submitted FCC Form 1240, noting any
D8. We recalculated the base rate on Line D8 and agreed this
amount to Line I4 from the previously adjusted Form 1240.
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PART II: TRUE-UP PERIOD
Module F: Maximum Permitted Rate for True-Up period 1
F4. We recalculated the True-Up period rate eligible for inflation
on Line F4.
F5. We recalculated the inflation segment for True-Up period on
Line F5.
Module H: True-Up Adjustment
H14. We recomputed the True-Up adjustment.
PART III: PROJECTED PERIOD
14. We recalculated the projected period rate eligible for
inflation on Line 14.
IS. We recalculated the inflation segment for projected period on
Line IS.
I7. We agreed the external costs segment for projected period to
the amount on Worksheet 7.
I9. We recalculated the maximum permitted rate for the Projected
period.
WORKSHEET 7: EXTERNAL COSTS TRUE-UP AND PROJECTED PERIODS
Ql-3.We agreed the information in Questions 1 through 3 to the
applicable information on the front page of the filing.
701. We compared the amount stated for current cost of programming
to amounts stated in prior FCC 1240 for reasonableness. We
agreed the cost per subscriber to the attached documentation.
703. We compared the amount stated for copyright fees to supporting
documentation.
707. We agreed the calculations for Franchise Related Costs For
Period relating to Franchise Fee computation adjustment to the
supporting documentation.
710. We recomputed the monthly per-sub external costs on Line 710.
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FORM 1205
1. We agreed the amounts for the assets listed on Schedule A:
Capital Costs of Service Installation and Maintenance of
Equipment and Plant to various supporting documents provided
by Adelphia.
2. We recomputed the depreciation expense percentage for
reasonableness.
3.
We agreed the amounts for Schedule B: Annual
Expenses for Service Installation and Maintenance of
to supporting documentation provided by Adelphia.
Operating
Equipment
4.
We agreed the amounts for the assets listed on
Capital Costs of Leased Customer Equipment
supporting documents provided by Adelphia.
Schedule C:
to various
5. We compared the computed rates to the published rate card and
noted that two charges for Transfer of $33.00 and Non-Pay
reconnect of $28.00 were not computed on the form. We also
noted that a Universal remote charge of $.79 was not computed
on the Form 1205 We noted that a monthly charge of $.90 for
addi tional outlets was computed, but this amount is not
charged to subscribers.
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