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11 <br />-8- <br />Warner responded by stating that the 13.22% is the grossed-up rate of return, <br />which takes into account income tax allowances not included elsewhere on the <br />FCC 1235 form. Thus, in Time Warner FCC 1235 filings that use the lower <br />11.25% rate of return, a separate income tax allowance is included in Part H <br />(3a - 3h) of the form. But where Part II income tax allowances are omitted, <br />Time Warner grossed-up the rate of return to 13.22%, compensating for the <br />omission. Time Warner's treatment of the income tax allowances appears to <br />be substantiated and allowable under FCC rules. <br />6. Effects of Competition <br />a. In 1999, the FCC Cable Services Bureau examined a number of communities <br />where the incumbent cable operator faced head-to-head competition from a.single <br />video program provider. Incumbent cable operators responded to the competitive <br />challenge in a number of ways: lowering cable rates, providing additional channels <br />at the same monthly rate, improving customer service, or adding new services, <br />including high speed Internet and telephone services. <br />b. In the sampled communities, the incumbent cable operator was declared by the <br />FCC to be facing "effective competition," or a petition requesting such a <br />declaration was pending.' Cable competition offers great benefits to subscribers. <br />In competitive situations, the incumbent cable operator usually responds by <br />improving customer service, offering promotional discounts, lowering or <br />stabilizing cable rates, adding channels and Internet services, and in some cases, <br />offering new digital services, <br />C. Recommendation <br />1. The consultant recommends that the County find the FCC 1240 maximum permitted <br />BST rates, the FCC 1235 "add-on" razes, and the FCC 1205 equipment and <br />installation rate, submitted by Time Warner Cable, to be reasonable and be approved. <br />2. It is requested that Time Warner submit amended 2001 FCC 1240 forms in September <br />2001, when it submits FCC 1240 forms for 2002. The amended FCC 1240. forms will <br />utilize updated FCC inflation figures from the 2000 true up period, and the projected <br />period. The resulting rates derived from the amended filings will carry forward into <br />!Tn the Matter of Annual Assessment the Status of Co ' 'on in Markets for the <br />PeIhM of x <br />1 Law- pp. VJ <br />(January 14, 2000). <br />Action Audits, LLC Franchise Fee U-Tax & tin & Telecommunication Administration <br />101 Pocono Lane, Cary, North Caroliua 27513-5316 Voice # 919.467.5392 Fax # 919.460.6868