[Federal Register Volume 59, Number 233 (Tuesday, December 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29442]


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[Federal Register: December 6, 1994]


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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76

[MM Docket Nos. 92-266 and 93-215, FCC 94-286]

 

Cable Television Act of 1992

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission has adopted a Sixth Order on Reconsideration 
and Fifth Report and Order to provide cable operators with additional 
incentives to expand their facilities and services in a way that both 
ensures that cable rates are reasonable and expands the opportunities 
for cable programmers to reach viewers. These incentives will: allow 
cable operators to offer new product tiers (``NPTs'') to be priced as 
operators elect, provided certain limited conditions are met; permit 
cable operators to add new channels to existing cable programming 
services tiers (``CPSTs'') subject to certain price caps; and create an 
additional option pursuant to which small cable operators may recover 
headend costs expended plus programming costs when they add channels to 
CPSTs. In addition, the Commission determined that a la carte packages 
are CPSTs and therefore subject to rate regulation. The Commission also 
confirmed that cable operators do not have to obtain the affirmative 
consent of subscribers before making rate adjustments so long as the 
changes are permitted under our rules and the fundamental nature of the 
affected tier is unaltered. Finally, the Commission decided not to 
adopt its proposal modifying restrictions on transactions between cable 
operators and their affiliates; instead it will retain its existing 
cable affiliate transaction rule.
    The Commission also has adopted a Seventh Notice of Proposed 
Rulemaking, which is being printed separately in the Federal Register.

EFFECTIVE DATE: January 1, 1995, with the exception of Sec. 76.922(e) 
(1), (2), and (7) and Sec. 76.987(g) which contain new reporting 
requirements which will be effective on that date or as soon thereafter 
as they may be approved by the Office of Management and Budget. At a 
later date, the Commission will publish a document specifying the 
effective date.

FOR FURTHER INFORMATION CONTACT:
Paul D'Ari or Joel Kaufman, (202) 416-0800.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Sixth Order on 
Reconsideration and Fifth Report and Order in MM Docket No. 92-266 and 
MM Docket No. 93-215, FCC 94-286, adopted November 10, 1994 and 
released November 18, 1994.
    The complete text of this Sixth Order on Reconsideration and Fifth 
Report and Order is available for inspection and copying during normal 
business hours in the FCC Reference Center (room 239), 1919 M Street, 
NW., Washington, DC, and also may be purchased from the Commission's 
copy contractor, International Transcription Services, Inc. (``ITS, 
Inc.'') at (202) 857-3800, 2100 M Street, NW., Suite 140, Washington, 
DC 20037.

Synopsis of the Sixth Order on Reconsideration and Fifth Report and 
Order

A. Introduction

    In this order, the Commission modifies its rules in light of 
comments, filed, in response to petitions for reconsideration, and on 
its own motion.
    In this Report and Order, unless indicated otherwise, the 
Commission uses ``CPSTs'' to mean cable programming service tiers that 
are rate regulated under Sec. 76.922 of its rules. Although new product 
tiers are CPSTs within the meaning of the Communications Act of 1934, 
as amended, 47 U.S.C. 543(l)(2), in this Report and Order, they are 
separately referred to as new product tiers or NPTs.

B. New Product Tiers

1. Background
    The Cable Television Consumer Protection Act of 1992 (``1992 Cable 
Act''), 47 U.S.C. 543(c), requires the Commission to ensure that CPST 
rates are not unreasonable upon the receipt of a specific complaint. 
The Act requires the Commission to establish criteria for determining 
whether a rate is unreasonable after considering a number of factors, 
such as the rates of similar systems, the rates charged by cable 
operators that face competition, and the operator's costs and revenues. 
The 1992 Cable Act also permits the Commission to consider other 
relevant factors for determining what constitutes unreasonable rates 
for CPSTs. In the Report and Order and Further Notice of Proposed 
Rulemaking in MM Docket No. 92-266 (``Rate Order''), 58 FR 29736 (May 
21, 1993), the Commission adopted benchmark and cost-of-service rules 
which reflect a reasonable balancing of the statutory factors. The 
Commission has also adopted rules which allow cable operators to 
increase rates for their Basic Service Tiers (``BSTs'') and CPSTs to 
reflect inflation, increases in external costs, and the addition of new 
channels. The current formula for channel additions permits operators 
to collect a sliding per channel adjustment for adding new programming 
channels to CPSTs and to recover all programming expenses associated 
with adding channels, plus a 7.5% mark-up on new programming expenses. 
47 CFR 76.922 (d), (e).
    A number of programmers have expressed the view that the cable 
industry's ability to create new programming networks that can benefit 
consumers depends on operators' being able to offer new services in 
packages of programming. These programmers urge the Commission to 
provide increased incentives to cable operators to offer such packages 
of new programming services. Other commenters suggest that a 
marketplace system is preferable to regulation in certain programming 
and tiering decisions. In addition, as reflected in the record, many ex 
parte comments support the adoption of rules allowing operators to 
establish tiers of new services priced at market rates.
2. Discussion
    The Commission is concerned, based on the comments filed by 
operators and programmers, that the current rules may not provide 
sufficient incentives for operators to expand capacity and provide new 
services to consumers. Accordingly, the Commission is establishing a 
new category of CPST--an NPT--that will provide additional incentives 
for operators to provide new services to consumers because operators 
will be permitted to price these tiers as they choose. The new rules 
also will help programmers by encouraging operators to add new 
attractive programming to NPTs in order to induce customers to 
subscribe to the NPTs. NPTs are, by definition. ``cable programming 
services'' under the 1992 Cable Act, because NPTs are composed of video 
programming provided over cable systems that are not carried on the BST 
and are offered in a package rather than exclusively on a per channel 
or per program basis.\1\ 47 U.S.C. 543(1)(2). The Commission therefore 
has a duty under the 1992 Cable Act to ensure that NPTs are not 
unreasonably priced.
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    \1\For purposes of the FCC Forms 1200 and 1210, however, 
channels that are on an operator's NPT will not be considered 
regulated channels.
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    The Commission finds that, so long as the conditions set forth 
below are met, the rates for NPTs will not be unreasonable. The 
conditions set forth below will ensure that subscribers may choose to 
subscribe to BSTs, NPTs, or CPSTs or combinations of those tiers and, 
that as a result, NPTs will face competition from BSTs and CPSTs.
    First, operators offering NPTs are prohibited from making 
fundamental changes to what they offer on their BSTs and CPSTs on 
September 30, 1994. This requirement is necessary to ensure that cable 
subscribers continue to receive basically the same cable service they 
now receive at prices the Commission has set pursuant to its rate 
regulations. This requirement, however, is not intended to freeze BSTs 
and CPSTs. Operators remain free to move channels from the existing 
tier to a single channel offering or drop channels entirely, so long as 
the aggregation of such changes does not constitute a fundamental 
change of their BSTs or CPSTs.
    Second, operators may not drop channels from BSTs and CPSTs and 
move them to NPTs (including time-shifted, slightly altered or renamed 
versions of channels offered on other tiers), if the channels were 
offered on their BSTs or CPSTs on September 30, 1994. This will protect 
consumers by ensuring that operators electing to provide NPTs do not 
dilute the BSTs and CPSTs that are currently available to consumers. 
This will also help ensure that BSTs and CPSTs provide a competitive 
option to NPTs. A channel that occupied a BST or a CPST part-time may 
be offered full-time on an NPT, as long as it continues to be offered 
on the BST or CPST under substantially the same conditions as it was 
offered on September 30, 1994. If a channel occupies a BST or CPST 
full-time, however, and is subsequently reduced to part-time on the BST 
and CPST, that channel may not be offered on an NPT full-time.
    Third, BSTs and CPSTs must continue to be cognizable services. That 
is, the operator must continue to market its BSTs and CPSTs so that 
customers are reasonably aware of: (1) The availability of those tiers 
to the public; (2) the names of the channels available on those tiers; 
and (3) the price of the tiers. Within 30 days of the offering of an 
NPT, operators shall file with the Commission a copy of the new rate 
card that contains the following information on their BSTs, CPSTs, and 
NPTs: (1) The names of the programming services contained on each tier, 
and (2) the price of each tier. Operators also must file with the 
Commission copies of notifications that were sent to subscribers 
regarding the initial offering of NPTs. After this initial filing, 
cable operators must file updated rate cards and copies of customer 
notifications with the Commission within 30 days of rate or service 
changes affecting the NPT. This information will help the Commission 
ensure that operators are complying with our conditions for NPTs. No 
prior regulatory approval, however, is required to offer an NPT.
    Furthermore, in accordance with the 1992 Cable Act's prohibition on 
negative option billing, an operator may not charge any subscriber for 
an NPT unless the subscriber has requested the NPT by name. Moreover, 
fundamental changes to an NPT must be approved by subscribers in 
accordance with the negative option billing rules. Channel changes 
involving relatively few channels generally will not change the 
fundamental nature of a tier and thus will not implicate the negative 
option billing rule.
    Operators may not require the subscription to any tier, other than 
a BST, as a condition for subscribing to an NPT. Further, operators may 
not require subscription to an NPT as a condition to subscribing to a 
CPST. We believe that restricting the ability of operators to link the 
purchase of NPTs and other CPSTs will maximize subscriber choice and 
foster competition between NPTs and CPSTs. These buy-through 
restrictions will not apply, however, to cable operators that, prior to 
October 5, 2002, lack the capacity to offer BSTs and NPTs without also 
providing other intermediate tiers of service. See 47 CFR 76.921.
    Apart from the foregoing limited, specific requirements, operators 
will have complete flexibility to offer programming services on an NPT. 
Thus, the Commission's NPT rules provide that operators may offer the 
same programming services on NPTs as are on one or more BSTs and CPSTs 
so long as they do not state or imply that any such channel is 
available only on an NPT.
    Operators may add any channel to an NPT that was previously on a 
BST or CPST if the channel was dropped from the BST or CPST before 
September 30, 1994. If a channel was offered on a system on a BST or 
CPST on September 30, 1994, however, the channel may not be moved to an 
NPT unless the operator waits at least two years from the date the 
channel is dropped from the BST or CPST. However, operators may offer 
new channels (i.e., channels first offered on a system after September 
30, 1994) on CPSTs before moving them to NPTs, subject to the 
conditions outlined in this Report and Order. The flexibility to move 
new channels to NPTs will keep the prices for CPSTs from becoming 
unreasonable and will create additional capacity for new services on 
CPSTs. This capacity should help create opportunities for programmers 
to establish an audience for their new channels.
    If after initially electing to offer an NPT, a cable operator 
decides that offering an NPT is no longer desirable, the cable operator 
is free to drop the tier upon proper notice to subscribers. An operator 
that drops an NPT may reestablish that tier at a later time by 
complying with the conditions outlined above.
    The Commission's conclusion that the rates at which cable operators 
choose to offer NPTs will not be unreasonable reflects its 
consideration of the statutory factors that it must consider in 
establishing criteria for determining whether a rate for a CPST is 
unreasonable. As explained above, the Commission believes that the 
rates charged for NPTs will be constrained by the rates charged for 
BSTs and CPSTs. The rate standards for BSTs and CPSTs were set directly 
by analysis of the factors the 1992 Cable Act instructs the Commission 
to consider. The Commission believes that the rates charged for NPTs 
must be competitive with the rates charged for CPSTs or consumers will 
decline to subscribe to NPTs. Therefore, the rates charged for NPTs 
will reflect the Commission's analysis of the statutory factors because 
cable operators will have to offer NPTs at prices that are attractive 
in comparison to services subject to benchmark or cost-of-service 
regulation.

B. A La Carte Package Offerings

1. Background
    Under the 1992 Cable Act, video programming offered on a per 
channel or per program (a la carte) basis is not subject to rate 
regulation. 47 U.S.C. 543(l)(2). In the April 1993 Rate Order, 58 FR 
29736 (May 21, 1993), the Commission held that it would not regulate 
packages of otherwise exempt per channel or per program services so 
long as: (1) The price for the combined package does not exceed the sum 
of the individual charges for each component of service, and (2) the 
cable operator continues to provide the component parts of the package 
to subscribers separately. The Commission stated that the second 
condition would be met only when the per channel offering provides 
subscribers with a realistic service choice. Id at 29746.
    In the Second Reconsideration Order, 59 FR 17943 (April 15, 1994), 
in order to address concerns that some packages established by 
operators in response to rate regulation were not consistent with the 
1992 Cable Act and Commission regulations, and the fact that other 
offerings raising similar concerns could be initiated in the future, 
the Commission provided 15 interpretive guidelines for determining 
whether an operator's collective offering of a la carte channels should 
be accorded regulated or unregulated treatment. The Commission also 
determined that packages of a la carte channels offered prior to April 
1, 1993, (the date it adopted the Rate Order) would be accorded 
unregulated treatment. This limited ``grandfathering'' of packages 
available on April 1, 1993, was intended to avoid elimination of 
discounts that were available to consumers and clearly were not offered 
to evade rate regulation. Id. at 17951-17952.
    Also, on November 17, 1993, the Commission issued 16 letters of 
inquiry to various cable operators, and on December 13, 1993, it issued 
another 35 letters of inquiry, most of which addressed the issue of 
removal and repackaging of channels. On February 22, 1994, the 
Commission issued 11 letters of inquiry to cable operators that, among 
other things, asked operators to justify a la carte offerings that may 
be inconsistent with the Commission's rate regulations.
    The Commission has received numerous comments with respect to a la 
carte issues. Most of the commenters requested greater clarification of 
the Commission's a la carte rules and guidelines. Commenters also made 
suggestions concerning the treatment of a la carte offerings that are 
found not to meet Commission guidelines. Some suggest that cable 
operators should not be penalized for failing to satisfy the 
Commission's test for a la carte packages because it is unclear.
2. Discussion
    The evidence obtained in response to the letters of inquiry issued 
to cable operators offering a la carte packages and the comments we 
received from cable operators convinced the Commission that it should 
reconsider its approach. It seems clear that some cable operators have 
evaded rate regulation by purporting to offer channels a la carte, when 
in fact the individual offerings were not a realistic service 
alternative. On the other hand, there is merit to the industry's claim 
that neither the Commission's original two-part test nor its 
interpretative guidelines provides a clear answer with respect to the 
permissibility of some a la carte packages that have been offered. 
Indeed, it is perhaps inevitable that the test would not be capable of 
precise application in many instances because it is not clear how 
various factors should be weighed and applied.
    The Commission's analysis leads it to conclude, contrary to its 
prior decisions, that a la carte packages are CPSTs within the meaning 
of the 1992 Cable Act. The conclusion that all packages are ``cable 
programming services'' is supported by the language of the statute, the 
legislative history, and practical considerations as well.
    Section 3(l)(2) of the 1992 Cable Act defines CPSTs as ``any video 
programming provided over a cable system, regardless of service tier, 
including installation or rental of equipment used for the receipt of 
such video programming, other than (A) video programming carried on the 
basic service tier, and (B) video programming offered on a per channel 
or per program basis.'' 47 U.S.C. 543(l)(2). A package of channels, 
whether or not the channels also are offered a la carte, plainly is 
``video programming provided over a cable system,'' and hence is a 
``cable programming service.'' The package is not ``video programming 
offered on a per channel or per program basis;'' the individual 
channels are. Accordingly, it is apparent from the statutory language 
that a la carte packages are cable programming services. The conclusion 
that a package of a la carte channels is a CPST is further supported by 
the legislative history, which focused on the fact that bundled 
offerings of cable programming would be subject to rate regulation.
    A conclusion that rate regulation does not apply at all to video 
programming packages if the channels are offered individually would 
fatally undermine the rate regulations rules Congress enacted. If a 
package of a la carte channels is not a CPST, any cable operator may 
avoid rate regulation simply by announcing the offering of channels on 
an a la carte basis even if very few subscribers would choose the a la 
carte offerings rather than the package.
    However, as the Commission recognized in the Rate Order, there are 
sound policy reasons to treat as reasonable any price offered for a 
package of channels that traditionally have been offered on a per-
channel basis. Indeed, the Commission can not envision circumstances in 
which any price of a collective offering such as the commonly offered 
``HBO/Showtime'' package would be found to be unreasonable. For the 
future, the new rules authorizing ``new product tiers'' should provide 
cable operators with sufficient flexibility to offer such packages at 
whatever price they choose. Although cable operators may not remove 
channels from regulated tiers and offer them on NPTs, they are free to 
create packages of a la carte channels under the new rules governing 
NPTs. Moreover, as stated above, the Commission previously 
``grandfathered'' packages available on April 1, 1993. The difficult 
question concerns the treatment of a la carte packages created between 
April 1, 1993, and September 30, 1994. In some cases, the Commission 
thinks it is clear that the package at issue was not a permissible 
package under a fair reading of its test. In other cases, however, it 
is not clear how the test should be applied to the package at issue. In 
those cases, the Commission thinks it is fair, in light of the 
uncertainty created by its test, to allow cable operators to treat 
existing packages as NPTs even though it would not qualify under the 
new rules, provided that such packages involve only a small number of 
migrated channels.\2\ The Commission sees little reason to require an 
operator to ``reverse migrate'' a package that was not clearly 
ineligible for unregulated treatment under our a la carte policy. The 
Commission intends to address whether specific operator packages should 
be treated as NPTs in rulings on individual cases in the near future.
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    \2\As noted above, competition between an NPT and a BST and/or 
CPST is the primary reason that we conclude rates for NPTs will not 
be unreasonable.
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C. Adjustments to Capped Rates for Addition, Deletion and Substitution 
of Channels on CPSTs

1. Background
    Pursuant to Section 623 of Communications Act, 47 U.S.C. 543, the 
Commission adopted a comprehensive framework governing the rates for 
BSTs and CPSTs. Under this framework, once initial rates are set 
pursuant either to the benchmark or cost-of-service approaches set 
forth in the rules, rates are governed by a price cap designed to 
assure that rates for regulated cable services remain reasonable. Under 
the cap, operators may adjust rates annually for inflation as measured 
by the gross national product price index (``GNP-PI'') and for certain 
categories of external costs. 47 CFR 76.922(b),(c),(d).
    The Commission's price cap rules were amended in March, 1994 to 
specify a ``going forward'' mechanism under which capped rates are 
adjusted for changes in the number of channels offered on BSTs and 
CPSTs. Fourth Report and Order 59 FR 17943, 17955-17956 (April 15, 
1994). Under these provisions, operators first remove all external 
costs from the tier charge and then adjust the residual component of 
the tier charge by a specified per channel adjustment amount when the 
total number of regulated channels changes. The methodology for 
adjusting capped rates when channels are added or deleted from a 
regulated tier is set forth in detail in Sec. 76.922(e) of the 
Commission's rules and in FCC Form 1210.
    The March, 1994 rule amendments also permitted operators to include 
a mark-up of 7.5% on new programming expense related to programming 
added on or after May 15, 1994. Form 1210 allows the 7.5% mark-up on 
all programming cost increases occurring after March 31, 1994, no 
matter when the channel was first offered.
    Parties filing petitions for reconsideration and many commenters 
filing in response to the Fifth Notice of Proposed Rulemaking ask the 
Commission to revise the existing going forward rules substantially. 
Many criticize the existing per channel adjustment on the grounds that 
it fails to provide sufficient incentives to add channels. Some cable 
operators, programmers, and networks state that the percentage-based 
approach to the programming mark-up results in disincentives for 
operators to add low or no-cost services to BSTs and CPSTs (noting that 
7.5% of zero is zero).
    Most of the alternatives on going forward issues proposed by the 
industry involve a flat per channel charge. Two Commenters submitted 
economic studies to support a flat per channel adjustment of at least 
25 to 30 cents. Some propose a flat-fee mark-up subject to an annual 
cap.
2. Discussion
    As noted, the Commission previously adopted a machanism by which 
cable operators may adjust rates when adding channels to BSTs and 
CPSTs. The Commission is supplementing its existing going forward rules 
by creating an alternative channel adjustment methodology. Cable 
operators adding channels to CPSTs under the new, supplemental rules 
may receive (1) a flat per channel mark-up, subject to a cap through 
December 31, 1997, and (2) recovery of programming costs, subject to a 
cap through December 31, 1996, and pursuant to the Commission's 
existing rules on permitted programming costs through December 31, 
1997, modified to remove the 7.5% mark-up. In so doing, the Commission 
seeks to permit operators to provide new services on CPSTs, while 
assuring that rates for CPSTs are not unreasonable.
    Operators may adjust rates for CPSTs pursuant to the new going 
forward rules beginning January 1, 1995, the effective date of the new 
rules, for channel changes, if any, made to these tiers on or after May 
15, 1994, the effective date of the existing going forward rules. 
Operators adding channels to CPSTs on and after May 15, 1994, may use 
either the new rules or the existing rules for adjusting rates. Thus, 
the permitted charge for a CPST will consist of two elements. The first 
element is the permitted rate for channels offered on CPSTs on May 14, 
1994, determined under current rules. The second element is the 
permitted rates for channels added to, or dropped from, CPSTs on or 
after May 15, 1994, determined under the new rules, or, if the operator 
so elects with respect to channel additions, the current rules as 
modified to remove the 7.5% mark-up on increases in programming costs 
under certain circumstances described below.
    Operators must elect to apply either the new rules or the current 
rules the first time they adjust rates after December 31, 1994, to 
reflect a channel addition to a CPST that occurred on or after May 15, 
1994, and must use the elected methodology for all rate adjustments 
through December 31, 1997. The Commission is allowing operators to 
choose to continue using the current rules because the current rules 
provide greater channel addition incentives than the new rules in 
certain limited circumstances and some operators may have relied on the 
current rules in deciding to add channels. While the Commission is 
requiring that operators use either the existing or the new going 
forward rules consistently for channel additions to CPSTs after 
December 31, 1994, an operator that chooses to use the new rules after 
that date may, but is not required to, adjust rates to reflect the new 
rules for channel additions made between May 15, 1994 and December 31, 
1994. Rates for the BST will continue to be governed exclusively by the 
current rules, except that where a system offered only one tier on May 
14, 1994, the cable operator will be allowed to use the revised rules 
for channel additions to the BST, as if the tier was a CPST.
    a. ``Going Forward'' price cap structure. Operators electing to use 
the new rules may adjust their rates between January 1, 1995 and 
December 31, 1997, by up to 20 cents, exclusive of license fees, for 
each new channel added to CPSTs on or after May 15, 1994, subject to 
the Operator's Cap and the reserve for license fees, described below. 
Operators are not required to raise rates, but rather are permitted to 
do so. Operators may add channels under the new rules at any time from 
May 15, 1994, to December 31, 1997. They may not, however, raise their 
prices as a result of channel additions by more than $1.20 per 
subscriber per month between January 1, 1995, and December 31, 1996, 
and by more than $1.40 between January 1, 1995, and December 31, 1997 
(``Operator's Cap'').
    Operators may use may portion of the Operator's Cap to pay for 
license fees between January 1, 1995, and December 31, 1996, for 
channels added between May 15, 1994, and December 31, 1996. Moreover, 
operators may recover an additional amount of not more than 30 cents 
per subscriber per month for license fees (the ``License Fee Reserve'') 
between January 1, 1995, and December 31, 1996, for channels added 
between May 15, 1994, and December 31, 1996. After December 31, 1996, 
license fees may be passed through to subscribers pursuant to the 
existing rules, except that, as described below, operators will not be 
allowed the current 7.5% mark-up on programming costs for channels on 
or after May 15, 1994. The Operator's Cap and License Fee Reserve only 
apply to costs associated with new channels on CPSTs and do not affect 
the ability of operators to obtain rate adjustments for inflation or 
changes in external costs other than increases in programming costs of 
channel added under the new going forward rules. See 47 CFR 
76.922(d)(2), (3). The new going-forward rules for channel additions 
should benefit consumers by increasing their viewing options on 
existing CPSTs, while avoiding unreasonable price increases for those 
tiers.
    b. Per channel adjustment factor. As indicated, the Commission 
establishes a ``per channel adjustment factor'' of up to 20 cents per 
channel for channels added to CPSTs. Operators may increase rates by up 
to 20 cents, exclusive of programming costs, for each channel added to 
a CPST on and after May 15, 1994, subject to the Operator's Cap of 
$1.20 on rate increases attributable to channel additions through 
December 31, 1996, and $1.40 through December 31, 1996, and $1.40 
through December 31, 1997. An operator may choose a lower per channel 
adjustment, if that would further its business plan by, for example, 
allowing it to devote a portion of the Operator's Cap to license fees. 
An operator that added a channel on or after May 15, 1994, and raised 
pursuant to the existing rules, may revise its rates after December 31, 
1994, using the new channel addition rules. As noted, an operator must 
use either the existing or the revised rules consistently for all 
channel additions on and after January 1, 1995.
    The per channel adjustment factor will compensate the operator for 
its costs of adding the channel plus a reasonable profit. Twenty cents 
falls within the historical range of 15-22 cents by which operators in 
a competitive environment would adjust rates for the addition of a new 
programming channel, exclusive of programming costs. The methodology 
the Commission used in deriving the 15-22 cent range is set forth in 
the Technical Appendix to the full text of this Report and Order.
    The Commission's rules provide that any revenues received from a 
programmer, or shared by a programmer and an operator, must be netted 
against costs for purposes of calculating whether there has been an 
increase or decrease in external costs. 47 CFR 76.922(d)(3)(x). We 
extend this requirement for offsetting revenues against costs to the 
per channel adjustment factor for channels added to CPSTs pursuant to 
our revised channel adjustment rules. The revenues must be deducted 
from programming costs and then, to the extent revenues are remaining, 
from the per channel adjustment. Offsetting will apply on a channel-by-
channel basis. Commissions received by an operator from programmers 
will be treated as revenues received from programmers.
    The per channel adjustment factor permitted by this Report and 
Order will apply only to net increases in channels from the highest 
number of channels offered on all CPSTs (excluding NPTs) on May 15, 
1994, or any date thereafter.\3\ If an operator substitutes a new 
channel for an existing channel, no per channel adjustment may be made 
under the revised channel adjustment rules. Rather, the operator should 
continue to charge the residual associated with the channel that was 
dropped. To permit an operator to receive a per channel adjustment in 
these situations would encourage operators to evade the purpose of the 
revised going forward incentives by substituting new for existing 
channels simply to get an additional per channel adjustment.
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    \3\An operator may receive a per channel adjustment for channel 
X if it substitutes channel Y for channel X and then adds channel X 
back to the system, so long as the addition of channel X represents 
the required net increase in the number of CPST channels. In 
contrast, an operator that had 20 channels on its CPSTs on May 15, 
1994, 22 channels on its CPSTs on May 15, 1995, and 21 channels on 
its CPSTs on January 1, 1996, may not obtain a per channel 
adjustment for adding the 22nd channel back to its system on May 15, 
1996. Rather, the 22nd channel is treated as a channel substitution.
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    c. Operator's cap. For the addition of new channels to CPSTs on or 
after May 15, 1994, the Commission establishes a per subscriber cap on 
the amount by which monthly cable rates may increase between January 1, 
1995, and December 31, 1997. Operators may not make rate adjustments to 
monthly rates totalling more than $1.20 per subscriber over the first 
two years of the three-year period or more than $1.40 over the full 
three-year period. Rate changes prior to January 1, 1997, resulting 
from programming costs of new channels must fall within the Operator's 
Cap unless they are covered by the License Fee Reserve. Price increases 
will be counted against the Operator's Cap when rates are increased as 
a result of channel additions, not when the addition occurs. Any rate 
increases pursuant to the revised rules shall be subject to the notice 
and prior approval requirements of the Commission's regulations. See 47 
CFR 76.932, 76.933, 76.958, 76.964. In addition, operators will be 
required to send the Commission copies of the notices sent to 
subscribers. The Operator's Cap will apply only to operators using the 
20 cent per channel adjustment in our new rules. It will not apply to 
operators that elect to use the existing rules to adjust rates for 
channel additions occurring on and after May 15, 1994.
    The Operator's Cap on the rate increase attributable to the 
addition of new channels to CPSTs is based on historical increases in 
numbers of channels offered. It is necessary because without such a 
cap, the per channel mark-up could create an incentive for operators to 
add large numbers of channels to CPSTs so as to increase the aggregate 
mark-up received. This result would undermine the 17% competitive rate 
reduction previously ordered by the Commission and could raise overall 
rates toward monopoly levels that would have occurred in the absence of 
the 1992 Cable Act. An unreasonable CPST rate also would cause the CPST 
to be an unattractive choice for subscribers, thereby removing it as a 
viable competitor to an NPT.
    In addition, the Commission adopts the Operator's Cap because there 
is no evidence that consumers want to pay for an unlimited number of 
channels in CPSTs. The cap will also provide operators with incentives 
to choose which new services offered on CPSTs would be most demanded by 
subscribers. Finally, because the per channel adjustment of up to 20 
cents reflects an average based on historical data, adjusted for the 
lack of effective competition, it may provide some operators with a 
greater incentive to add channels than would exist in a competitive 
market.
    d. License fee reserve. The Commission also establishes a License 
Fee Reserve of 30 cents which operators may use, between January 1, 
1995, and December 31, 1996, to recover programming costs for new 
channels. The License Fee Reserve may be applied against the initial 
license fee or any increase in the license fee for channels added 
during the first two years that the Operator's Cap is in effect. During 
this period, operators also may use all or any portion of the amount 
permitted as a per channel adjustment under the Operator's Cap to pay 
for license fees in excess of the License Fee Reserve. License fees 
incurred in the third year the Operator's Cap is in effect may be 
passed through to subscribers as external costs without counting 
against either the License Fee Reserve or the Operator's Cap.
    The 30 cents License Fee Reserve would allow 6 channels to be added 
at an average license fee of 5 cents per channel. The 5-cents average, 
per channel license fee falls within the range which the Commission 
observed.
    The Commission has adopted a License Fee Reserve in response to 
programmers' concerns that a cap on total rate increases attributable 
to new channels, without a reserve for license fees, might give rate-
regulated cable operators incentives to increase profits by adding only 
no cost or low cost channels.
    e. Programming cost increase mark-up. The Commission has decided 
not to allow operators using the per channel adjustment under the new 
rules to take the 7.5% mark-up on programming cost increases, including 
retransmission consent fees and copyright fees incurred for coverage of 
broadcast signals, for channels for which the per channel mark-up of up 
to 20 cents was taken. The Commission's analysis indicates that the per 
channel adjustment of up to 20 cents for additional channels, in 
addition to the License Fee Reserve, will provide full and fair 
compensation to operators adding channels to CPSTs. Operators who have 
added channels prior to the effective date of the new rules will not be 
harmed by this change since the operators may elect to add channels to 
CPSTs under the old or the new rules.
    f. Deletion and substitution of channels. The new regulations also 
specify how operators shall adjust rates for BSTs and CPSTs when 
channels are dropped from, or moved between, BSTs and CPSTs. In 
general, when dropping a channel from a BST or CPST, operators will be 
required to make their rates reflect the net reduction in external 
costs as is required under the existing rules. See 47 CFR 76.922(d)(3) 
(i) and (ii). Operators also will be required to reduce the price of 
that tier by the ``residual'' associated with that channel. For 
channels that were on a BST or CPST on or before May 14, 1994 or 
channels added after that date pursuant to the current rules, the per 
channel residual is the charge for the tier, minus the external costs 
for the tier, and any per channel adjustments made after that date, 
divided by the number of channels on the tier. For channels added to a 
CPST on or after May 15, 1994, pursuant to the new channel addition 
rules, the residuals shall be the actual per channel adjustment taken 
for that channel when it was added to the tier plus any inflation 
adjustment since that time. The residual and programming cost shall be 
calculated as of the date the channel is dropped.
    As noted above, when an operator substitutes a new channel for an 
existing channel on a CPST, no per channel adjustment may be taken. The 
residual for the new channel is that of the channel it replaced. 
Operators substituting channels will be required to adjust their rates 
for changes in license fees as provided by the current rules. To 
preserve the overall effectiveness of the Operator's Cap and the 
License Fee Reserve, if the license fee for the new service is greater 
than the license fee for the replaced service, and the operator chooses 
to pass that increase through to subscribers, the excess shall count 
against the aggregate of the Operator's Cap and the License Fee 
Reserve. If the license fee for the new channel is less than the 
license fee for the replaced channel, no credit shall be given against 
the cap or the reserve, so as not to create an artificial incentive to 
replace higher license fee channels with lower license fee channels. 
With respect to channels to which the 7.5% markup on new programming 
costs applies, the operator shall treat the mark-up as part of its 
programming costs and subtract the mark-up from its external costs when 
a channel is dropped. When such a channel is substituted, the operator 
may retain in its rates the 7.5% mark-up on the license fee of the 
dropped channel, so long as that amount is not more than 7.5% of the 
license fee of the new channel.
    When a channel is shifted between a BST and a CPST or between 
CPSTs, it shall be treated as if it was dropped from one tier and the 
residual and programming cost associated with the shifted channel shall 
be shifted to the other tier. The residuals associated with the shifted 
channel shall be adjusted by reference to the number of subscribers on 
each tier to ensure aggregate revenues remain the same.\4\ Revenue 
neutrality protects consumers by ensuring that the Commission's 
requirements do not create incentives for operators to move channels to 
tiers with more subscribers solely to increase revenues. And because 
the per channel adjustment of up to 20 cents applies only to the CPSTs, 
an operator may not move a channel for which it received a per channel 
adjustment under the new rules from a CPST to the BST.
---------------------------------------------------------------------------

    \4\An operator may use the equivalent billing (``EBU'') 
methodology in calculating the number of subscribers on a tier, 
provided it does so for both the tier from which the channel is 
shifted and the tier to which the channel is shifted and provided 
that the operator otherwise meets the conditions for using EBU 
methodology. See Public Notice: Question and Answer on Cable 
Television Rate Regulation (July 27, 1994) Question and Answer 1.
---------------------------------------------------------------------------

    g. Headend upgrades for small systems. The Commission decided to 
adopt a special streamlined cost-of-service procedure for independent 
small systems and small systems owned by small MSOs that upgrade their 
headend equipment to add new channels to CPSTs. Small systems may find 
it difficult to recover the fixed costs of the headend equipment 
required for adding channels, since the cost must be recovered over a 
small subscriber base. The Commission limits this relief to independent 
small systems and small systems owned by small MSOs because (1) systems 
with more than 1,000 subscribers can spread the fixed costs of headend 
equipment over a larger customer base and (2) small systems owned by 
larger operators should have adequate financial resources to add 
channels under our generally applicable rules. Qualified small systems 
that add channels to their CPSTs, therefore, have the option of either 
using this special procedure or using the existing or revised going 
forward rules applicable to all operators.
    Under this streamlined cost-of-service procedure for upgrading 
headend equipment, independent small systems and small systems owned by 
small MSOs may increase rates to recover the costs associated with new 
headend equipment that is used to add channels to CPSTs. In order to 
recover costs for headend equipment, qualified small systems will be 
required to certify to the Commission the level of costs they have 
actually incurred for adding headend equipment.
    The Commission also decided to limit the amount small systems may 
recover under this special allowance to prevent unreasonably sharp rate 
increases to small system subscribers. The amount a small system may 
recover for each channel added shall be limited to programming costs 
incurred plus the lesser of the actual cost of the headend equipment or 
$5,000, which is consistent with comments that the addition of a 
satellite channel can cost between $2,500 and $5,000.
    Headend costs that are to be recovered through increased rates must 
be depreciated over the useful life of the equipment. While the 
Commission has not prescribed depreciation rates, cable operators are 
required to follow reasonable depreciation practices. Depreciation and 
useful life of the equipment are to be submitted to the Commission with 
the cost certification. In addition, the rate of return the small 
system may earn on this investment may not exceed 11.25%.
    Small systems may apply this streamlined cost-of-service procedure 
for channels added after May 14, 1994, but may not use this methodology 
to increase rates to reflect channel additions until January 1, 1995. 
Moreover, small systems that increase rates as a result of any channel 
additions pursuant to either this methodology may add a maximum of 
seven channels to CPSTs over the next three years. This is equal to the 
number of channels that a system taking the maximum 20 cent per channel 
adjustment may add under the Operator's Cap.
    h. Systems with more than 100 channels. In the Fifth Notice of 
Proposed Rulemaking, the Commission noted that the Fourth Report and 
Order 59 FR 17943, 17955-17956 (April 15, 1994), established per 
channel adjustments for systems with total channels on regulated tiers 
of 100 channels or fewer. It did not establish per channel rates for 
systems that provide more than 100 channels. The Commission solicited 
comment on whether it should establish a method for adjusting capped 
rates in situations where there are more than 100 regulated channels 
and, if so, what that method should be. The Commission additionally 
asked whether the going forward methodology should be modified to 
provide greater or lesser compensation to operators for adjustments to 
capped rates when channels are added or deleted from BSTs and CPSTs, 
and whether this would better meet the goals of encouraging 
infrastructure development and growth of programming.
    The existing going forward regulations use a declining per channel 
adjustment as the number of channels on a system increase. In contrast, 
in this Report and Order the Commission has decided to allow (1) a flat 
per channel adjustment for the addition of new channels to CPSTs, 
subject to an Operator's Cap, and the License Fee Reserve, and (2) NPTs 
for which cable operators set the price. Because the revised 
regulations allow operators to set the price for an unlimited number of 
channels on NPTs, the Commission does not believe it is necessary to 
adopt any other rules that are based on a specific number of channels. 
Cable operators continuing to add channels under the current rules may 
receive a per channel incentive only for the first 100 channels on BSTs 
and CPSTs.
    i. Term of the revised channel addition rules. A. The new rule for 
adjusting rates when channels are added, deleted or substituted on 
CPSTs will be in place through December 31, 1997, and will be reviewed 
prior to the end of that period to determine if there is any reason to 
continue to provide incentives to increase the number of channels on 
any CPST. The new rule will expire on that date and will be replaced by 
the existing rule unless the new rule is reinstated by the Commission. 
The special streamlined cost-of-service procedure for headend equipment 
costs for small systems also will expire on December 31, 1997, unless 
it is reinstated by the Commission.

D. Negative Option Billing

1. Background
    Section 3(f) of the 1992 Cable Act, 47 U.S.C. 543(f), prohibits 
negative option billing, which occurs when a cable operator charges a 
subscriber for any service or equipment that the subscriber has not 
affirmatively requested by name. A subscriber's failure to refuse a 
cable operator's proposal to provide such service or equipment may not 
be deemed to be an affirmative request for such service or equipment. 
The Rate Order, 58 FR 29736, 29748 (May 21, 1993), provided that 
changes in the mix of programming in a tier, including additions or 
deletions of channels, will not be subject to the negative option 
billing provision unless they change the fundamental nature of the 
tier. The Commission believed that, on balance, the benefits to 
subscribers from giving operators the ability to diversify, improve or 
otherwise modify their offerings in a tier outweigh the slight 
reduction in subscriber choice that results from exempting such changes 
from the negative option billing prohibition.
    In the Third Reconsideration Order, 59 FR 17961, 17969-17970 (May 
21, 1993), the Commission concluded that the Commission concluded that 
the Commission and state and local governments have concurrent 
jurisdiction to regulate negative option billing. The rationale for 
this conclusion was that regulation of negative option billing, while 
discussed in the section of the 1992 Cable Act governing rate 
regulation, is more in the nature of a consumer protection measure than 
rate regulation per se. Section (8)(c)(1) of the 1992 Cable Act, 
codified in Section 632(c)(1) of the Communications Act, 47 U.S.C. 
552(c)(1), provides that nothing in the ``Consumer Protection Laws'' 
title of the Communications Act may ``be construed to prohibit any 
State or any franchise authority from enacting or enforcing any 
consumer protection law, to the extent not specifically preempted by 
this title.''
    Commenters request that the Commission clarify what channel 
additions to a tier will not require affirmative marketing under 
Section 3(f) of the 1992 Cable Act. They also ask the Commission to 
declare that local authorities may not require affirmative marketing 
for channel additions under state or local laws. More specifically, 
NCTA asks the Commission to clarify that three specific ``scenarios'' 
do not trigger the federal negative option billing rule and that state 
or local authorities are preempted from enacting or enforcing their own 
negative option billing laws.
2. Discussion
    In determining whether any of the scenarios involve negative option 
billing, the Commission is guided by the language of the negative 
option billing provision, its legislative history, and our prior 
interpretations. In light of that guidance, the Commission reaffirms 
that a change in the mix of channels in a tier, including additions or 
deletions of channels, will not be subject to the negative option 
billing provision, unless they change the fundamental nature of the 
tier. With respect to NCTA's first scenario, which involved passing 
through external costs or inflation adjustments, the Commission holds 
that these types of rate changes do not in and of themselves invoke the 
federal negative option billing rule. As an initial matter, they do not 
constitute ``service or equipment'' within the meaning of Section 3(f). 
Moreover, under our rate regulations, operators are specifically 
permitted to pass through to subscribers increases in external costs 
and inflation adjustments. 47 CFR 76.922(d). These types of rate 
changes do not constitute a change in the fundamental nature of a tier, 
and, therefore, do not implicate the federal negative option billing 
prohibition for that reason as well.
    With regard to the second and third scenarios identified in NCTA's 
letter, the Commission stated in the Rate Order, 58 FR 29748 (May 21, 
1993), that ``a change in the mix of channels in a tier, including 
additions or deletions of channels, will not be subject to the negative 
option billing provision, unless they change the fundamental nature of 
the tier.'' Determinations as to what constitutes a change in the 
fundamental nature of a tier will generally depend on the individual 
circumstances of each case. Channel changes involving relatively few 
channels generally will not change the fundamental nature of that tier, 
and thus will not implicate the federal negative option billing rule. 
Consistent with this approach, additions of channels and rate 
adjustments within the Operator's Cap and License Fee Reserve of the 
revised going forward rules generally will not change the fundamental 
nature of a tier. Affirmative marketing also is not required when an 
operator moves channels pursuant to our conditions for establishment of 
NPTs, so long as the movements do not change the fundamental nature of 
the tier. Because the Commission's rules require operators to give 
subscribers 30-days' advance notice of any changes in rates, 
programming or channel positions, the Commission does not believe 
subscribers need the additional protection of the negative option 
billing provision for relatively modest changes. See 47 CFR 
76.309(c)(3)(i)(B); 76.964(b).
    Section 632(c)(1) of the Communications Act makes clear that state 
and local authorities generally may apply statutes proscribing fraud or 
misleading advertising practices to cable operators. However, Section 
3(a)(1) of the 1992 Cable Act makes clear that regulation of ``the 
rates for the provision of cable service'' is governed exclusively by 
the federal statute and Commission regulations. The scenarios NCTA 
presents require the Commission to consider again the relationship 
between Section 632(c)(1) of the Communications Act and Section 3(a)(1) 
of the 1992 Cable Act.
    The Commission concludes that a two-step approach is warranted. 
First, is the state or local negative option rule consistent with the 
federal rule? If it is, then the state or local rule may be enforced. 
If the state or local rule is inconsistent with the federal rule, then 
it is necessary to consider whether its enforcement ``approaches, 
actual regulation of `rates for the provision of cable service.'' In 
elaborating on that inquiry, the Commission now concludes that state or 
local consumer protection laws may not be enforced in a manner that 
conflicts with or undermines our rate regulation rules established 
pursuant to Section 3 of the 1992 Cable Act. If there is an actual 
conflict between federal and state law or where state law stands as an 
obstacle to the accomplishment and execution of the full objectives of 
Congress, the state law is preempted. See, e.g., Free v. Bland, 369 
U.S. 663 (1962); Hines v. Davidowitz, 312 U.S. 52 (1941).
    The scenarios NCTA presents involve situations where enforcement of 
state and local negative option billing rules would be inconsistent 
with the federal rule and enforcement might undermine implementation of 
the cable rate rules promulgated pursuant to Congress's instruction. 
With respect to the first scenario, the federal negative option billing 
rule plainly would not require cable operators to obtain affirmative 
consent from subscribers before passing through external costs and 
inflation adjustments as permitted by the Commission's rules, as 
explained above. In addition, enforcement of a state or local negative 
option billing rule requiring affirmative consent prior to the pass-
through of external costs and cost-of-service increases, as permitted 
by the Commission's rate rules, would undermine the federal regime 
governing cable rates. The Commission has issued detailed rate rules 
implementing Section 3 of the 1992 Cable Act. Under the Commission's 
rules, most cable operators must reduce their rates from pre-1992 
levels, many by as much as 17%, to ensure that cable rates are 
reasonable. However, as the first scenario presented by NCTA 
recognizes, the rules also allow cable operators to increase their 
rates to reflect increases in the cost-of-living or other external 
costs, most of which are beyond cable operators' control. The 17% rate 
reduction and the rules authorizing the pass-through of external costs 
and inflation adjustments are of a piece; the rate cut would not be 
fair to cable operators if they were prohibited from raising rates to 
reflect increased costs that are beyond their control.
    The other two scenarios presented by NCTA involve the addition, 
deletion and replacement of channels. The negative option billing 
regulation makes clear that the requirement that cable operators obtain 
affirmative consent before charging for a new service ``shall not 
preclude the addition or deletion of a specific program from a service 
offering, the addition or deletion of specific channels from an 
existing tier of service, or the restructuring or division of existing 
tiers of service that do not result in a fundamental change in the 
nature of an existing service, or tier of service.'' 47 CFR 76.981. 
Accordingly, the replacement of a single channel, NCTA's third 
scenario, would not be prohibited by the federal negative option 
billing provision, because that would not result in a ``fundamental 
change'' unless the tier was very small. With respect to NCTA's second 
scenario, involving the addition or deletion of channels, the answer 
would depend on how many channels were added or deleted and other 
factors relevant to determining whether a ``fundamental change'' had 
occurred. As stated above, however, changes that are permitted under 
the ``Operator's Cap'' generally would not constitute ``fundamental 
changes.''
    If the addition, deletion, or replacement of channels did not 
constitute a fundamental change in a tier, so that the federal negative 
option billing rule was not triggered, preemption of enforcement of a 
stricter state or local negative option billing rule would depend on 
whether enforcement would conflict with or undermine the rate 
regulation rules established pursuant to Section 3 of the 1992 Cable 
Act. It is not possible to provide a blanket response to NCTA's second 
and third scenarios in the absence of a specific set of facts to 
evaluate. However, it bears emphasis that the rate rules governing the 
addition, deletion, and replacement of channels are designed to ensure 
reasonable rates without impeding the provision of new services. 
Indeed, the rate rules are designed to encourage the provision of new 
services that subscribers desire at the reasonable rates mandated by 
Congress. Therefore, an interpretation of state or local law that 
required a cable operator to obtain the affirmative consent of every 
subscriber before making a change that did not fundamentally alter the 
affected tier would, in most cases, interfere with the accomplishment 
of Congress's objectives. In relatively few cases, in the Commission's 
view, would state or local officials be likely to seek to enforce 
negative option billing rules that conflict with or undermine federal 
rate regulation provisions. But in any event, on further consideration 
the Commission is convinced that, however numerous such cases are 
likely to be, state and local officials may not enforce negative option 
billing rules that obstruct the accomplishment of the objectives of 
Congress's cable rate provisions.

E. Affiliate Transactions

1. Background
    In the Cost Order in MM Docket No. 93-215, 59 FR 17975 (April 15, 
1994), the Commission promulgated a rule for valuing transactions 
between cable operators and affiliated companies. The Commission found 
that it would be inconsistent with Congressional intent to allow rates 
for regulated cable service to reflect the prices affiliates charge 
each other for transactions that occur at other than arm's length. The 
Commission found that allowing cable companies to pass increases in 
their costs through to rate payers could motivate those companies to 
pay excessive amounts for assets and services obtained from unregulated 
affiliates. The Commission therefore adopted a rule for affiliate 
transactions that applies to cable operators who elect cost-of-service 
regulation or seek to adjust benchmark/price cap rates for affiliated 
programming costs.
    In the Cost Further Notice, 59 FR 18066, 18067-18068 (April 15, 
1994), the Commission tentatively concluded that the general changes it 
proposed for affiliate transactions involving telephone companies 
should be applied to cable operators. The Commission tentatively 
concluded that the use of prevailing company pricing as a valuation 
method for transactions between cable operators and their affiliates 
should only be permitted where the predominant purpose of the 
transaction is to serve non-affiliates. To that end, the Commission 
proposed that any affiliate that sells less than 75 percent of its 
output to non-affiliates has too large a volume of affiliate 
transactions to be deemed to have a predominant purpose of serving non-
affiliates. The Commission therefore proposed to continue to allow 
prevailing company pricing as a valuation method for affiliate 
transactions only where at least 75 percent of the cable operators 
output is sold to non-affiliates.
    The cable industry generally opposes the proposed rule arguing that 
the proposal would require operators and programmers to adopt costly, 
inefficient and unnecessary methodologies to document the estimated 
fair market value of the assets or services exchanged. Some operators 
argue that the 75% bright-line test would impose administrative burdens 
that would be excessive and outweigh the speculative benefits that 
might result. Several other parties oppose the proposed rules on the 
grounds that these requirements would discourage vertical integration 
and would result in decreased investment in quality cable programming. 
Others also oppose the proposal and state that the only rationale for 
the rules comes from an incorrect premise that the application of such 
rules in the telephone context necessitates similar rules in the cable 
industry.
2. Discussion
    The Commission declines to adopt the proposal to prevent cable 
operators from valuing assets or services at the operators' prevailing 
company prices unless the providing affiliates sell more than 75% of 
their output to non-affiliates. The Commission finds that this proposal 
would prevent, in many cases, cable operators from establishing a 
prevailing company price for programming services that have achieved 
wide distribution among cable operators. In addition, the Commission is 
concerned that by preventing cable operators from valuing programming 
at the prevailing company price, it may discourage major MSOs with 
substantial resources from investing in cable programming and related 
services that could benefit subscribers.
    The Commission will, therefore, retain the existing cable affiliate 
transaction rule which provides that a cable operator may value an 
asset or service at the prevailing company price if the provider has 
sold the same kind of service or asset to a substantial number of third 
parties at a generally available price. For cable affiliate 
transactions, the sale of an asset to a substantial number of third 
parties will ensure that cable operators will not have an incentive to 
pay excessive prices when they obtain services and assets from 
affiliates because in such cases the primary purpose of the transaction 
would not be to provide services and assets to the affiliated 
programmer. However, the Commission will continue to examine our test 
for the establishment of a prevailing company price in MM Docket No. 
93-215 and as the Commission gains experience with our current cable 
affiliate transaction rule, it may seek further comment in order to 
refine the rule.
    Finally, the Cost Further Notice sought comment on (1) the proposal 
to require cable operators that do not meet the prevailing company 
price test to value services at the higher of cost and fair market 
value when the cable operator is the seller and the lower of cost and 
fair market value when the cable operator is the buyer; (2) whether the 
current definition of an affiliate should be retained; (3) whether the 
interim cable affiliate transaction rules should be adopted as our 
final rules; and (4) whether our final cable affiliate transaction rule 
should be included in the uniform system of accounts that we adopted 
for cable operators. The Commission will address these issues in 
conjunction with our general consideration of final cost rules in MM 
Docket No. 93-215 at a later time.

Administrative Matters

Regulatory Flexibility Act Analysis

    Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 601-
12, the Commission's final analysis with respect to the Sixth Order on 
Reconsideration and Fifth Report and Order is as follows:
    Need and purpose of this action. The Commission, in compliance with 
section 3(i) of the Cable Television Consumer Protection and 
Competition Act of 1992 pertaining to rate regulation, adopts rules and 
procedures intended to ensure cable subscribers reasonable rates for 
cable services with minimum regulatory and administrative burden on 
cable entities.
    Summary of issues raised by the public comments in response to the 
Initial Regulatory Flexibility Analysis. There were no comments 
submitted in response to the Initial Regulatory Flexibility Analysis. 
The Chief Counsel for Advocacy of the United States Small Business 
Administration (SBA) filed comments in the original rulemaking order. 
The Commission addressed the concerns raised by the Office of Advocacy 
in the Rate Order. The SBA also filed reply comments in response to the 
Fifth Notice.
    Significant alternatives considered and rejected. Petitioners 
representing cable interests and franchising authorities submitted 
several alternatives aimed at minimizing administrative burdens. In the 
course of this proceeding, the Commission has attempted to accommodate 
the concerns expressed by these parties. For example, the revised going 
forward mechanisms are designed to enhance incentives to add new 
channels to regulated tiers without creating new regulatory burdens and 
to provide additional options tailored to the concerns of small 
systems. In addition, the New Products Tier is designed to ensure that 
regulated cable service rates are reasonable while reducing 
administrative burdens.

Paperwork Reduction Act

    The requirements adopted herein have been analyzed with respect to 
the Paperwork Reduction Act of 1980 and are found to impose a new or 
modified information collection requirement on the public. 
Implementation of any new or modified requirement will be subject to 
approval by the Office of Management and Budget as prescribed by the 
Act.

Ordering Clauses

    Accordingly, it is ordered, That, pursuant to Sections 4(i), 4(j), 
303(r), 612, 622(c) and 623 of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 154(j), 303(r), 532, 542(c) and 543, the 
rules, requirements and policies discussed in this Sixth Order on 
Reconsideration and Fifth Report and Order, are adopted and Part 76 of 
the Commission's rules, 47 CFR Part 76, is amended as set forth in 
below.
    It is further ordered, That the Secretary shall send a copy of this 
Report and Order, including the Initial Regulatory Flexibility 
Analysis, to the Chief Counsel for Advocacy of the Small Business 
Administration in accordance with paragraph 603(a) of the Regulatory 
Flexibility Act. Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. 601 et 
seq. (1981).
    It is further ordered, That the requirements and regulations 
established in this decision shall become effective January 1, 1995,\5\ 
with the exception of new reporting requirements which will become 
effective on that date or as soon thereafter as they may be approved by 
the Office of Management and Budget.
---------------------------------------------------------------------------

    \5\Good cause exists to make these requirements effective on 
less than 30 days notice in the Federal Register. See 5 U.S.C. 
section 553(d)(3). Good cause exists to make the requirements 
effective January 1, 1995 because this Order provides additional 
opportunities and incentives to cable operators and many of the 
Commission's rate regulations apply on a calendar quarter system.
---------------------------------------------------------------------------

List of Subjects in 47 CFR Part 76

    Cable television.

Federal Communications Commission.
LaVera F. Marshall,
Acting Secretary.

Amendatory Text

    Part 76 of Chapter I of Title 47 of the Code of Federal Regulations 
is amended as follows:

PART 76--CABLE TELEVISION SERVICE

    1. The authority citation for Part 76 continues to read as follows:

    Authority: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat. as 
amended, 1064, 1065, 1066, 1081, 1082,1083, 1084, 1085, 1101; 47 
U.S.C. Secs. 152, 153, 154, 301, 303, 307, 308, 309, 532, 535, 542, 
543, 552 as amended, 106 Stat. 1460.

    2. Section 76.901 is amended by adding paragraph (d) to read as 
follows:


Sec. 76.901  Definitions

* * * * *
    (d) New Product Tier. A new product tier (``NPT'') is a cable 
programming service tier meeting the conditions set forth in 
Sec. 76.987.
    3. Section 76.922 is amended by revising paragraphs (d)(3)(x), 
(d)(3)(xi) and (e) to read as follows:


Sec. 76.922  Rates for the basic service tier and cable programming 
services tiers.

* * * * *
    (d) * * *
    (3) * * *
    (x) Adjustments to permitted charges on account of increase in 
costs of programming shall be further adjusted to reflect any revenues 
received by the operator from the programmer. Such adjustments shall 
apply on a channel-by-channel basis.
    (xi) In calculating programming expense, operators may add a mark-
up of 7.5% for increases in programming costs occurring after March 31, 
1994, except that operators may not file for or take the 7.5% mark-up 
on programming costs for new channels added on or after May 15, 1994 
for which the operator has used the methodology set forth in paragraph 
(e)(3) of this section for adjusting rates for channels added to cable 
programming service tiers. Operators shall reduce rates by decreases in 
programming expense plus an additional 7.5% for decreases occurring 
after May 15, 1994 except with respect to programming cost decreases on 
channels added after May 15, 1994 for which the rate adjustment 
methodology in paragraph (e)(3) of this section was used.
    (e) Changes in the number of channels on regulated tiers--(1) 
Generally. A system may adjust the residual component of its permitted 
rate for a tier to reflect changes in the number of channels offered on 
the tier on a quarterly basis. Cable systems shall use FCC Form 1210 
(or FCC Form 1211, where applicable) to justify rate changes made on 
account on changes in the number of channels on a basic service tier 
(``BST'') or a cable programming service tier (``CPST''). Such rate 
adjustments shall be based on any changes in the number of regulated 
channels that occurred from the end of the last quarter for which an 
adjustment was previously made through the end of the quarter that has 
most recently closed preceding the filing of the FCC Form 1210 (or FCC 
Form 1211, where applicable). However, when a system deletes channels 
in a calendar quarter, the system must adjust the residual component of 
the tier charge in the next calendar quarter to reflect that deletion. 
Operators must elect between the channel addition rules in paragraphs 
(e)(2) and (e)(3) of this section the first time they adjust rates 
after December 31, 1994, to reflect a channel addition to a CPST that 
occurred on or after May 15, 1994, and must use the elected methodology 
for all rate adjustments through December 31, 1997. A system that 
adjusted rates after May 15, 1994, but before January 1, 1995 on 
account of a change in the number of channels on a CPST that occurred 
after May 15, 1994, may elect to revise its rates to charge the rates 
permitted by paragraph (e)(3) of this section on or after January 1, 
1995, but is not required to do so as a condition for using the 
methodology in paragraph (e)(3) of this section for rate adjustments 
after January 1, 1995. Rates for the BST will be governed exclusively 
by paragraph (e)(2) of this section, except that where a system offered 
only one tier on May 14, 1994, the cable operator will be allowed to 
elect between paragraphs (e)(2) and (e)(3) of this section as if the 
tier was a CPST.
    (2) Adjusting Rates for increases in the number of channels offered 
between May 15, 1994, and December 31, 1997, on a basic service tier 
and at the election of the operator on a cable programming service 
tier. The following table shall be used to adjust permitted rates for 
increases in the number of channels offered between May 15, 1994, and 
December 31, 1997, on a basic service tier and subject to the 
conditions in paragraph (e)(1) of this section at the election of the 
operator on a CPST. The entries in the table provide the cents per 
channel per subscriber per month by which cable operators will adjust 
the residual component using FCC Form 1210 (or FCC Form 1211, where 
applicable).

------------------------------------------------------------------------
                                      Per-                       Per-   
                                     channel    Average No.     channel 
Average No. of regulated channels  adjustment   of regulated  adjustment
                                     factor       channels      factor  
------------------------------------------------------------------------
7................................       $0.52  14...........        0.14
7.5..............................        0.45  14.5.........        0.13
8................................        0.40  15-15.5......        0.12
8.5..............................        0.36  16...........        0.11
9................................        0.33  16.5-17......        0.10
9.5..............................        0.29  17.5-18......        0.09
10...............................        0.27  18.5-19......        0.08
10.5.............................        0.24  19.5-21.5....        0.07
11...............................        0.22  22-23.5......        0.06
11.5.............................        0.20  24-26........        0.05
12...............................        0.19  26.5-29.5....        0.04
12.5.............................        0.17  30-35.5......        0.03
13...............................        0.16  34-46........        0.02
13.5.............................        0.15  46.5-99.5....        0.01
------------------------------------------------------------------------

    In order to adjust the residual component of the tier charge when 
there is an increase in the number of channels on a tier, the operator 
shall perform the following calculations:
    (i) Take the sum of the old total number of channels on tiers 
subject to regulation (i.e., tiers that are, or could be, regulated but 
excluding New Product Tiers) and the new total number of channels and 
divide the resulting number by two;
    (ii) Consult the above table to find the applicable per channel 
adjustment factor for the number of channels produced by the 
calculations in paragraph (e)(2)(i) of this section. For each tier for 
which there has been an increase in the number of channels, multiply 
the per-channel adjustment factor times the change in the number of 
channels on that tier. The result is the total adjustment for that 
tier.
    (3) Alternative methodology for adjusting rates for changes in the 
number of channels offered on a cable programming service tier or a 
single tier system between May 15, 1994, and December 31, 1997. This 
paragraph at the Operator's discretion as set forth in paragraph (e)(1) 
of this section shall be used to adjust permitted rates for a CPST 
after December 31, 1994, for changes in the number of channels offered 
on a CPST between May 15, 1994, and December 31, 1997. For purposes of 
this paragraph (e)(3) of this section, a single tier system may be 
treated as if it were a CPST.
    (i) Operators cap attributable to new channels on all CPSTs through 
December 31, 1997. Operators electing to use the methodology set forth 
in this paragraph may increase their rates between January 1, 1995, and 
December 31, 1997, by up to 20 cents per channel, exclusive of 
programming costs, for new channels added to CPSTs on or after May 15, 
1994, except that they may not make rate adjustments totalling more 
than $1.20 per month, per subscriber through December 31, 1996, and by 
more than $1.40 per month, per subscriber through December 31, 1997 
(the ``Operator's Cap''). Except to the extent that the programming 
costs of such channels are covered by the License Fee Reserve provided 
for in paragraph (e)(3)(iii) of this section, programming costs 
associated with channels for which a rate adjustment is made pursuant 
to this paragraph (e)(3) of this section must fall within the 
Operator's Cap if the programming costs (including any increases 
therein) are reflected in rates before January 1, 1997. Inflation 
adjustments pursuant to Sec. 76.922(d)(2) are not counted against the 
Operator's Cap.
    (ii) Per channel adjustment. Operators may increase rates by a per 
channel adjustment of up to 20 cents per subscriber per month, 
exclusive of programming costs, for each channel added to a CPST 
between May 15, 1994, and December 31, 1997, except that an operator 
may take the per channel adjustment only for channel additions that 
result in an increase in the highest number of channels offered on all 
CPSTs as compared to May 14, 1994, and each date thereafter. Any 
revenues received from a programmer, or shared by a programmer and an 
operator in connection with the addition of a channel to a CPST shall 
first be deducted from programming costs for that channel pursuant to 
paragraph (d)(3)(x) of this section and then, to the extent revenues 
received from the programmer are greater than the programming costs, 
shall be deducted from the per channel adjustment. This deduction will 
apply on a channel by channel basis.
    (iii) License fee reserve. In addition to the rate adjustments 
permitted in paragraphs (e)(3)(i) and (e)(3)(ii) of this section 
operators that make channel additions on or after May 15, 1994 may 
increase their rates by a total of 30 cents per month, per subscriber 
between January 1, 1995, and December 31, 1996, for license fees 
associated with such channels (the ``License Fee Reserve''). The 
License Fee Reserve may be applied against the initial license fee and 
any increase in the license fee for such channels during this period. 
An operator may pass-through to subscribers more than the 30 cents 
between January 1, 1995, and December 31, 1996, for license fees 
associated with channels added after May 15, 1994, provided that the 
total amount recovered from subscribers for such channels, including 
the License Fee Reserve, does not exceed $1.50 per subscriber, per 
month. After December 31, 1996, license fees may be passed through to 
subscribers pursuant to paragraph (d) of this section, except that 
license fees associated with channels added pursuant to this paragraph 
(d)(3) of this section will not be eligible for the 7.5% mark-up on 
increases in programming costs.
    (iv) Timing. For purposes of determining whether a rate increase 
counts against the maximum rate increases specified in paragraphs 
(e)(3)(i) through (e)(3)(iii) of this section, the relevant date shall 
be when rates are increased as a result of channel additions, not when 
the addition occurs.
    (4) Deletion of Channels. When dropping a channel from a BST or 
CPST, operators shall reflect the net reduction in external costs in 
their rates pursuant to paragraphs (d)(3) (i) and (ii) of this section. 
With respect to channels to which the 7.5% mark-up on programming costs 
applied pursuant to paragraph (d)(3)(xi) of this section, the operator 
shall treat the mark-up as part of its programming costs and subtract 
the mark-up from its external costs. Operators shall also reduce the 
price of that tier by the ``residual'' associated with that channel. 
For channels that were on a BST or CPST on May 14, 1994, or channels 
added after that date pursuant to paragraph (e)(2) of this section, the 
per channel residual is the charge for the tier, minus the external 
costs for the tier, and any per channel adjustments made after that 
date, divided by the total number of channels on the tier minus the 
number of channels on the tier that received the per channel adjustment 
specified in paragraph (e)(3) of this section. For channels added to a 
CPST after May 14, 1994, pursuant to paragraph (e)(3) of this section, 
the residuals shall be the actual per channel adjustment taken for that 
channel when it was added to the tier.
    (5) Movement of channels between tiers. When a channel is moved 
from a CPST or a BST to another CPST or BST, the price of the tier from 
which the channel is dropped shall be reduced to reflect the decrease 
in programming costs and residual as described in paragraph (e)(4) of 
this section. The residual associated with the shifted channel shall 
then be converted from per subscriber to aggregate numbers to ensure 
aggregate revenues from the channel remain the same when the channel is 
moved. The aggregate residual associated with the shifted channel may 
be shifted to the tier to which the channel is being moved. The 
residual shall then be converted to per subscriber figures on the new 
tier, plus any subsequent inflation adjustment. The price of the tier 
to which the channel is shifted may then be increased to reflect this 
amount. The price of that tier may also be increased to reflect any 
increase in programming cost. An operator may not shift a channel for 
which it received a per channel adjustment pursuant to paragraph (e)(3) 
of this section from a CPST to a BST.
    (6) Substitution of channels on a BST or CPST. If an operator 
substitutes a new channel for an existing channel on a CPST or a BST, 
no per channel adjustment may be made. Operators substituting channels 
on a CPST or a BST shall be required to reflect any reduction in 
programming costs in their rates and may reflect any increase in 
programming costs pursuant to paragraphs (d)(3)(i) and (d)(3)(ii) of 
this section. If the programming cost for the new channel is greater 
than the programming cost for the replaced channel, and the operator 
chooses to pass that increase through to subscribers, the excess shall 
count against the License Fee Reserve or the Operator Cap when the 
increased cost is passed through to subscribers. Where an operator 
substitutes a new channel for a channel on which a 7.5% mark-up on 
programming costs was taken pursuant to paragraph (d)(3)(xi) of this 
section, the operator may retain the 7.5% mark-up on the license fee of 
the dropped channel to the extent that it is no greater than 7.5% of 
programming cost of the new service.
    (7) Headend upgrades for small systems. When adding channels to 
CPSTs, independent small systems, as defined in Sec. 76.901(c), and 
small systems owned by small multiple system operators, as defined in 
Sec. 76.922(b)(5), may choose among the methodologies set forth in this 
paragraph and in paragraphs (e)(2) and (e)(3) of this section. 
Operators choosing the methodology of this paragraph may increase rates 
to recover the actual cost of the headend equipment required to add up 
to seven channels to CPSTs, not to exceed $5,000 per additional 
channel, plus any applicable programming costs. Rate increases pursuant 
to this paragraph may occur between January 1, 1995, and December 31, 
1997, as a result of additional channels offered on those tiers after 
May 14, 1994. Headend costs shall be depreciated over the useful life 
of the headend equipment. The rate of return on this investment shall 
not exceed 11.25 percent. In order to recover costs for headend 
equipment pursuant to this paragraph, small systems must certify to the 
Commission their eligibility to use this paragraph, the level of costs 
they have actually incurred for adding the headend equipment and the 
depreciation schedule for the equipment.
    (8) Sunset provision. Paragraph (e) of this section shall cease to 
be effective on January 1, 1998 unless renewed by the Commission.
* * * * *
    4. Section 76.964 is amended by revising the section heading to 
read as follows:


Sec. 76.964  Written notification of changes in rates and services.

* * * * *
    5. Section 76.981 is revised to read as follows:


Sec. 76.981  Negative option billing.

    (a) A cable operator shall not charge a subscriber for any service 
or equipment that the subscriber has not affirmatively requested by 
name. A subscriber's failure to refuse a cable operator's proposal to 
provide such service or equipment is not an affirmative request for 
service or equipment. A subscriber's affirmative request for service or 
equipment may be made orally or in writing.
    (b) The requirements of paragraph (a) of this section shall not 
preclude the adjustment of rates to reflect inflation, cost of living 
and other external costs, the addition or deletion of a specific 
program from a service offering, the addition or deletion of specific 
channels from an existing tier or service, the restructuring or 
division of existing tiers of service, or the adjustment of rates as a 
result of the addition, deletion or substitution of channels pursuant 
to Sec. 76.922, provided that such changes do not constitute a 
fundamental change in the nature of an existing service or tier of 
service and are otherwise consistent with applicable regulations.
    (c) State and local governments may not enforce state and local 
consumer protection laws that conflict with or undermine paragraph (a) 
or (b) of this section or any other sections of this Subpart that were 
established pursuant to Section 3 of the 1992 Cable Act, 47 U.S.C. 543.
    6. Section 76.986 is revised to read as follows:


Sec. 76.986  ``A la carte'' offerings.

    (a) Collective offerings of unregulated per-channel or per-program 
(``a la carte'') video programming shall be regulated as CPSTs pursuant 
to Sec. 76.922. For purposes of this section, ``multiplexed'' channels 
shall be treated as one channel.
    (b) A discounted package price offered by a cable system is not 
unreasonable with respect to any collective offering of channels if the 
component channels' collective offering also have been continuously 
available on the system on a per channel basis since April 1, 1993.
    (c) A collective offering of per channel offerings may be treated 
as New Product Tier if:
    (1) The collective offering meets the conditions set forth in 
Sec. 76.987; or
    (2) The operator had reasonable grounds to believe the collective 
offering involving only a small number of migrated channels complied 
with the Commission's requirements as of the date it was first offered.
    (d) In reviewing a basic service rate filing, local franchising 
authorities may make an initial decision addressing whether a 
collective offering of ``a la carte'' channels will be treated as a 
cable programming service tier that is an NPT under Sec. 76.987 or a 
CPST that is regulated under Sec. 76.922. The franchising authority 
must make this initial decision within the 30 day period established 
for review of basic cable rates and equipment costs in Sec. 76.933(a), 
or within the first 60 days of an extended 120 day period (if the 
franchise authority has requested an additional 90 days) pursuant to 
Sec. 76.933(b). The franchising authority shall provide notice of its 
decision to the cable system and shall provide public notice of its 
initial decision within seven days pursuant to local procedural rules 
for public notice. Operators or consumers may make an interlocutory 
appeal of the initial decision to the Commission within 14 days of the 
initial decision. Operators shall provide notice to franchise 
authorities of their decision whether or not to appeal to the 
Commission within this period. Consumers shall provide notice to 
franchise authorities of their decision to appeal to the Commission 
within this period.
    (e) A limited initial decision under paragraph (b) of this section 
shall toll the time periods under Sec. 76.933 within which local 
authorities must decide local rate cases. The time period shall resume 
running seven days after the Commission decides the interlocutory 
appeal, or seven days following the expiration of the period in which 
an interlocutory appeal pursuant to paragraph (b) of this section may 
be filed.
    (f) A local franchising authority alternatively may decide whether 
a collective offering of ``a la carte'' channels will be treated as an 
NPT as a part of its final decision setting rates for the basic service 
tier. That decision may then be appealed to the Commission as provided 
for under Sec. 76.945.
    7. Section 76.987 is added to read as follows:


Sec. 76.987  New product tiers.

    (a) Operators may establish a category of CPSTs, referred to as 
``new product tiers'' (``NPTs''), and offer these tiers to subscribers 
at prices they elect.
    (b) In order to be eligible to offer NPTs, cable operators must 
meet the following conditions:
    (1) Operators offering NPTs are prohibited from making fundamental 
changes to what they offer on their BSTs and CPSTs offerings on 
September 30, 1994. Operators may drop channels or move channels 
between BSTs and/or CPSTs or to an a la carte offering so long as the 
aggregation of such changes do not constitute a fundamental change in 
their BST or CPSTs.
    (2) Operators may not drop channels that were offered on their BSTs 
or CPSTs on September 30, 1994 and move them to NPTs unless they wait 
at least two years from the date the channels were dropped from the 
BSTs or CPSTs. Time shifted versions, slightly altered versions or 
renamed versions of channels offered on BSTs and CPSTs on September 30, 
1994 shall not be exempt from this restriction.
    (3) Operators must market their BSTs and CPSTs so that customers 
should be reasonably aware that:
    (i) Those tiers are being offered to the public;
    (ii) The names of the channels available on those tiers; and
    (iii) The price of the tiers. A subscriber may not be charged for 
an NPT unless the cable operator has obtained the subscriber's 
affirmative consent. Changes to the fundamental nature of an NPT must 
be approved by subscribers in accordance with Sec. 76.981.
    (4) Operators may not require the subscription to any tier, other 
than a BST, as a condition for subscribing to an NPT and operators may 
not require subscription to an NPT as a condition for subscribing to a 
CPST. These restrictions will not apply to cable operators prior to 
October 5, 2002, if such operators lack the capacity to offer BSTs and 
NPTs without also providing other intermediate tiers of service as 
provided in Sec. 76.900(c).
    (c) Operators may offer the same service on NPTs as are on one or 
more BSTs or CPSTs. A channel that occupied a CPST or BST part-time on 
September 30, 1994 also may be offered full-time on an NPT as long as 
it continues to be offered at least part-time on CPST or BST, under 
substantially the same conditions as before it was offered on the NPT. 
If a channel occupies a BST or CPST (regulated pursuant to Sec. 76.922) 
full-time on September 30, 1994, and is subsequently reduced to part-
time on the BST or CPST, that channel may not be offered on an NPT 
full-time. Operators that offer a channel both on an NPT and a BST or 
CPST will have a continuing obligation to ensure that subscribers are 
aware that the channels are available on the CPST or BST.
    (d) Operators may temporarily place new channels on CPSTs for 
marketing purposes and then move them to NPTs. In order for an operator 
to move a channel from a CPST to an NPT pursuant to this paragraph, the 
channel must not have been offered on a BST or CPST prior to October 1, 
1994.
    (e) After initially electing to offer an NPT, a cable operator may 
cease to provide the NPT, upon proper notice to subscribers pursuant to 
Sec. 76.964. If an operator drops an NPT and subsequently determines to 
reestablish that tier, at the time of the reestablishment it must 
comply with the conditions for offering NPTs set forth in paragraph (b) 
of this section.
    (f) If the Commission receives a complaint about an NPT, the 
operator need not file the rate justification provided in Sec. 76.956, 
but shall within the time period provided by that rule file 
documentation that the NPT meets all the conditions set forth in this 
section.
    (g) Within 30 days of the offering of an NPT, operators shall file 
with the Commission, a copy of the new rate card that contains the 
following information on their BSTs, CPSTs and NPTs:
    (1) The names of the programming services contained on each tier; 
and
    (2) The price of each tier. Operators also must file with the 
Commission, copies of notifications that were sent to subscribers 
regarding the initial offering of NPTs. After this initial filing, 
cable operators must file updated rate cards and copies of customer 
notifications with the Commission within 30 days of rate or service 
changes affecting the NPT.

[FR Doc. 94-29442 Filed 12-5-94; 8:45 am]
BILLING CODE 6712-01-M