[Federal Register Volume 61, Number 73 (Monday, April 15, 1996)]
[Proposed Rules]
[Pages 16447-16455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9195]



-----------------------------------------------------------------------


FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76

[CS Docket No. 96-60; FCC 96-122]


Cable Television Leased Commercial Access

AGENCY: Federal Communications Commission.

ACTION: Further Notice of Proposed Rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Commission has adopted an Order on Reconsideration of the 
First Report and Order and Further Notice of Proposed Rulemaking 
regarding implementation of the leased commercial access provisions of 
the 1992 Cable Act. The Order on Reconsideration segment of this 
decision may be found elsewhere in this issue of the Federal Register. 
The Further Notice of Proposed Rulemaking (``Further Notice'') segment 
invites comment on whether the Commission should amend its commercial 
leased access rules regarding maximum reasonable rates, part-time 
rates, preferential access, tier and channel placement, operators' 
obligation to open new leased access channels and bump existing non-
leased access services, selection of leased access programmers, 
minority and educational programmers, procedures for resolution of 
disputes, and resale of leased access time. The Further Notice is 
intended to respond to certain petitions for reconsideration of the 
Commission's current leased access rules.

DATES: Comments are due on or before May 15, 1996, and reply comments 
are due on or before May 31, 1996. Written comments by the public on 
the proposed and/or modified information collections are due May 15, 
1996. Written comments must be submitted by the Office of Management 
and Budget (``OMB'') on the proposed and/or modified information 
collections on or before June 14, 1996.

ADDRESSES: Office of Secretary, Federal Communications Commission, 1919 
M Street, NW., Washington, DC 20554. In addition to filing comments 
with the Secretary, a copy of any comments on the information 
collections contained herein should be submitted to Dorothy Conway, 
Federal Communications Commission, Room 234, 1919 M Street, NW., 
Washington, DC 20554, or via the Internet to [email protected], and to 
Timothy Fain, OMB Desk Officer, 10236 NEOB, 725--17th Street, NW., 
Washington, DC 20503 or via the Internet to [email protected].

FOR FURTHER INFORMATION, CONTACT: Lynn Crakes, Cable Services Bureau, 
(202) 416-0800. For additional information concerning the information 
collections contained in this Further Notice, contact Dorothy Conway at 
(202) 418-0217, or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Further Notice of Proposed Rulemaking, CS Docket No. 96-60, adopted 
March 21, 1996, and released March 29, 1996. The full text of this 
decision is available for inspection and copying during normal business 
hours in the FCC Reference Center, Room 239, 1919 M Street, NW., 
Washington, DC 20554, and may be purchased from the Commission's copy 
contractor, International Transcription Services, Inc., (202) 857-3800, 
1919 M Street, NW., Washington, DC 20554.

Synopsis of the Further Notice of Proposed Rulemaking

I. Maximum Rate Formula

    1. The Commission believes that its goal in determining a maximum 
reasonable rate should be to promote the statutory objectives of 
competition and diversity in programming sources without financially 
burdening the operators, rather than to develop a price that will 
necessarily be lower or higher than rates derived under the current 
highest implicit fee formula. The Commission believes that, if the 
maximum rate for leased access is reasonable, the resulting demand for 
leased access channels will also be reasonable. It is in this context 
that the Commission is re-examining the highest implicit fee formula. 
The Commission believes that the highest implicit fee formula is likely 
to overcompensate

[[Page 16448]]

cable operators and does not sufficiently promote the goals underlying 
the leased access provisions. The Commission has therefore developed an 
alternative that it believes may better promote the goals of leased 
access.

A. Economic Justification for the Proposed Cost/Market Rate Formula

    2. The Commission tentatively concludes that its approach to 
setting a maximum rate should (a) encourage the use of the set-aside 
channels without giving programmers a subsidy, and (b) allocate the 
channels to the leased access programmers that value the channels most 
(i.e., are willing to pay the most) when the demand for leased access 
channels exceeds the statutory set-aside requirement. The Commission 
therefore tentatively concludes that the maximum rate for leased access 
should depend on whether a cable operator is leasing its full statutory 
set-aside requirement. The Commission requests comment on these 
tentative conclusions.
    3. The Commission also tentatively concludes that, when the set-
aside capacity is not fully leased to unaffiliated programmers (or 
minority or educational programmers pursuant to Section 612(i) of the 
Communications Act), the maximum rate should be based on the operator's 
reasonable costs (i.e., the costs of operating the cable system plus 
the additional costs related to leased access), including a reasonable 
profit. The Commission believes that a cost-based pricing scheme can 
promote leased access without providing a subsidy to programmers. The 
purpose of the cost formula is not to lower rates; it does not ensure 
that leased access programming will increase or that the maximum rate 
for leased access programmers will decrease. Programmers who cannot 
afford the cost-based rate will not and should not gain access because 
they would impose a financial burden on operators.
    4. In addition, the cost formula is not intended to guarantee that 
all operating costs will be fully recovered, but is intended to permit 
the operator to continue to recover the same proportion of operating 
costs from subscriber revenues as were recovered before the channel was 
used for leased access. Thus, under the proposed cost formula, the 
operator would not be adversely affected in terms of its ability to pay 
operating costs. The Commission asks for comment on these tentative 
conclusions.
    5. The portion of the maximum rate for leased access channels 
included in a tier of programming which the Commission proposes be paid 
by the leased access programmer (the ``programmer charge'') would be 
based on the reasonable costs (including reasonable profits) that 
leased access imposes on the operator. Operators would be allowed to 
recover only those types of opportunity costs which can reasonably be 
attributed to carriage of the leased access programming and which are 
reasonably quantifiable.
    6. On the other hand, the Commission tentatively concludes that if 
the operator satisfies its set-aside requirement, the maximum rate 
should be a market rate determined by negotiation between the operator 
and the leased access programmer. The Commission believes that market 
rates will most effectively determine which programmers should receive 
leased access on the system when the operator's set-aside is satisfied. 
Within the leased access market, those programmers who are able to pay 
the most for channel capacity would presumably be able to acquire the 
set-aside channels. The higher price which some leased access 
programmers may offer to pay for the channel capacity reflects the 
greater ability and willingness of consumers to pay for the programming 
to be carried on each of these channels. Thus, relying on market prices 
to allocate channel capacity provides consumers with an efficient 
mechanism to communicate their preferences about which leased access 
programming should be carried by the operator. The Commission seeks 
comment on these tentative conclusions.
    7. The Commission recognizes that the market rate may rise above 
the operator's costs; such prices, however, are the result of 
competition among unaffiliated programmers to use the statutory leased 
access channel capacity. The Commission believes that, so long as the 
operator is accommodating leased access to the full extent required by 
Congress and Section 612, any price increase would be reasonable. Under 
the Commission's proposal, the operator cannot charge market rates if 
the number of channels leased falls below the number designated by the 
statute. Thus, a higher rate would reflect excess demand by programmers 
for the operator's statutory channel capacity.
    8. In general, market power refers to the ability of a seller to 
restrict output below the desirable level and to set a price above 
costs (i.e., to set an unreasonable rate). In the leased access 
context, Congress has defined the appropriate level of output by 
establishing the set-aside requirement, and the operator cannot 
restrict the output below this level. Therefore, even if the market 
rate rises above the operator's costs, the Commission does not believe 
that the operator is charging unreasonable rates since Congress has 
determined the appropriate level of output. The Commission seeks 
comment on these tentative conclusions.
    9. The Commission seeks comment on the extent to which negotiated 
rates are adequate to address Congress' mandate that the Commission set 
a maximum reasonable rate and the extent to which negotiated rates 
could be used to exercise editorial control over the leased access 
channels, contrary to Congress' intent. The Commission also asks for 
comment on how operators may choose between competing programmers. For 
instance, the Commission asks if operators should be required to select 
the highest bidder. The Commission also seeks comment on any 
alternatives for setting maximum rates when an operator is leasing its 
full set-aside capacity.
    10. The Commission does not propose to maintain the programmer 
categories established under the highest implicit fee formula under the 
proposed cost formula. Our proposed cost formula is based purely on the 
operator's costs associated with its system and leased access 
programming. and does not base the maximum rate on the economics which 
the leased access programmer faces. The Commission therefore does not 
believe that treating different programmers differently is appropriate 
under the cost formula. Accordingly, the Commission tentatively 
concludes that it will not establish programmer categories for 
implementation of the cost formula, and requests comment on this 
tentative conclusion.

B. Calculation of the Maximum Rate Under the Proposed Cost Formula

1. Designating Channels
    11. The Commission proposes that the cost formula determine a 
maximum leased access rate based on the cost of the channels designated 
to be used for leased access by an operator. The opportunity costs 
would be derived from the programming that is actually bumped from the 
operator's programming line-up.
    12. To derive the channel cost under the proposed cost formula, an 
operator would first select the specific channels it would use for 
leased access programming, as demand arises, in order to meet its set-
aside requirement. The Commission proposes that the operator would be 
required to place these channel designations, including the channel 
numbers and the programming carried on each channel at

[[Page 16449]]

the time the operator calculates the maximum rate under the cost 
formula, in its public file. The operator would be required to 
designate enough channels to satisfy its full set-aside requirement. 
Basing the rate on the actual designated channels would be attractive 
from an economic perspective because the compensation to the operator 
would be based on its actual costs of leasing the designated channels. 
The Commission requests comment on this proposal generally. The 
Commission also requests comment on how the Commission might restrict 
an operator's ability to manipulate its designation of channels so as 
to derive a prohibitively high rate in an effort to impede leased 
access. For example, the Commission asks whether there should be a 
presumption against an operator designating only its highest valued 
channels in such a way as to inflate its maximum leased access rate. 
The Commission also asks whether operators should be permitted to base 
their maximum rate calculation on affiliated programming, if the 
operator designates channels that carry such affiliated programming.
2. Operating Costs
    13. The first component of the proposed cost formula is the 
operating costs. The Commission tentatively defines operating costs to 
include fixed and variable costs that the cable operator incurs 
regardless of what programming is carried over the channel. Commission 
data shows that, in the tier context, this component, including a 
reasonable rate of return, is substantially covered by the revenue the 
operator receives from subscribers. Using subscriber revenue as a proxy 
for the operating costs for tiered channels allows the operator to 
recover its operating costs to the same extent as it did with non-
leased access programming on the channel. The Commission therefore 
tentatively concludes that it is appropriate for purposes of the 
proposed cost formula to designate subscriber revenue as the operator's 
payment toward its operating costs. Thus, the operator would not need 
to calculate its operating costs for channels that are currently on 
programming tiers (or dark), and would instead use the amount 
representing the average subscriber revenue per channel as its 
operating costs per channel in calculating the cost formula.
    14. Similarly, the Commission proposes that operators would not 
need to calculate their operating costs for channels that are currently 
carried as premium services or on unregulated programming tiers. As 
with channels carried on regulated programming tiers, the Commission 
believes that using the subscriber revenue for an unregulated channel 
as its payment toward its operating costs will allow the operator to 
recover its operating costs to the same extent as it does with the non-
leased access programming carried on the channel. The Commission 
recognizes that unregulated subscriber revenue might recover more than 
the operator's operating costs; however, the Commission believes that 
any profit which is generated from subscriber revenue could be viewed 
as an opportunity cost imposed on the operator who forgoes these 
profits when this channel is used to carry leased access programming. 
For simplicity, the Commission proposes not to require the operator to 
deduct this lost profit from the operating cost portion of the formula 
simply to add it back to the opportunity cost portion. The Commission 
seeks comment on these tentative conclusions.
3. Net Opportunity Costs
    15. The Commission proposes that the second component of the cost 
formula, ``net opportunity costs,'' would include the reasonable costs 
(or cost savings) that the operator incurs by leasing the channel to 
the leased access programmer that it would not have incurred had it 
continued with the current use of the channel. In other words, the net 
opportunity cost portion of the cost formula would include reasonably 
quantifiable costs (or savings) associated with carrying the leased 
access programming instead of other programming. The Commission 
recognizes that our proposed formula does not incorporate all 
opportunity costs. As discussed below, some costs are not easily 
quantified; other costs the Commission does not believe are appropriate 
to include in the leased access fee. In order to provide some 
uniformity in the calculation of opportunity costs, the Commission 
proposes to identify categories of quantifiable costs which operators 
may include in calculating the cost formula.
    16. The first category of opportunity costs for which the 
Commission proposes to allow recovery is lost advertising revenues. 
This type of lost revenue would be a quantifiable opportunity cost when 
the operator is forced to bump a non-leased access programmer to 
accommodate the leased access programmer, or when the operator is 
forced to forego placing new programming on a dark channel. The 
Commission does not propose to reduce the opportunity cost for lost 
advertising revenue by the value of any advertising time the operator 
may receive from the leased access programmer. The Commission believes 
that the leased access programmer is entitled to pay no more than the 
maximum rate, regardless of whether the operator receives advertising 
time. If the leased access programmer does not want to give the 
operator advertising time, the Commission tentatively concludes that 
the programmer is not required to do so. On the other hand, if the 
programmer wishes to bargain for a lower rate in exchange for 
advertising time, the Commission believes such bargaining is fully 
permitted by our rules and is a matter to be negotiated between the 
parties. The Commission requests comment on these tentative 
conclusions.
    17. The Commission proposes that the second opportunity cost 
category should be lost commissions. If, for example, to accommodate a 
leased access channel, an operator were to bump a direct sales 
programmer from which the operator receives a percentage of the 
programmer's revenues, those commissions constitute a quantifiable 
opportunity cost which the Commission proposes be factored into the 
cost formula. The Commission requests comment on this proposal.
    18. On the other hand, the Commission also believes that any 
program license fee that the operator does not have to pay because the 
non-leased access programming is not being carried is a cost savings. 
The Commission believes that such a cost savings should be factored 
into the calculation of the operator's net opportunity cost. The 
Commission tentatively concludes that cable operators should be 
required to deduct any license or programming fees that the operator 
does not have to pay due to the carriage of the leased access 
programming. One possible concern is the extent to which either the 
operator or the programmer can influence the license fees paid for non-
leased access programming. The Commission asks how, if at all, the 
operator or programmer can influence the programming license fee and 
how that influence might affect the Commission's measurement of 
programming cost savings under the proposed cost formula.
    19. Another cost category which the Commission believes may be 
appropriate relates to technical costs (e.g., the cost of scrambling) 
incurred by the operator in offering leased access programming. If, for 
example, a programmer asks to lease channel capacity for a premium 
service, an operator may incur additional costs of

[[Page 16450]]

limiting that programming to subscribers of the leased access service. 
Thus, under our proposed cost formula, those costs could be included in 
calculating the maximum rate. The Commission proposes to distinguish 
these technical costs from those for technical support for which the 
operator is permitted to charge separately. The Commission requests 
comment on these proposals.
    20. Another potential opportunity cost category could be any 
reduction in the tier charge that the operator charges the subscriber 
when the reduction is caused by substituting the leased access 
programming for non-leased access programming. Although the Commission 
believes that there would be no such lost subscriber revenue under the 
Commission's going forward methodology, it seeks comment on how an 
operator might be able to demonstrate that its subscriber revenue is 
quantifiably reduced on a specific designated channel because of the 
leased access programming carried on that same channel, and, if this is 
possible, whether the operator should be permitted to include this loss 
in the cost formula.
    21. The Commission tentatively concludes that the cost formula 
should not explicitly include revenue lost because of a purported loss 
in subscribership to a particular tier because particular programming 
is dropped. The Commission tentatively concludes that, in the tier 
context, any such subscriber loss is too speculative to measure 
accurately. In the premium context, however, the Commission believes 
that this subscriber loss is included by allowing the operator to 
include an amount in the proposed cost formula equal to the total 
subscriber revenue for the bumped channel. In addition, operators would 
be able to consider any potential loss of subscribership in deciding 
which channels to designate for leased access. Nonetheless, the 
Commission requests comment on how our cost formula might measure 
changes in subscriber penetration due to the addition of leased access 
programming.
    22. The Commission also recognizes that there may be opportunity 
costs associated with using a channel for leased access which does not 
currently carry programming, i.e., a dark channel. The Commission 
believes that the presence of dark channels on a system does not 
necessarily indicate a lack of available programming. As an example, an 
operator might reserve a dark channel in anticipation of more desirable 
programming becoming available in the future. The Commission proposes 
to allow operators to approximate the opportunity costs of dark 
channels by assigning dark channels the per channel opportunity cost of 
the programmed channels on the system with opportunity costs that have 
the lowest positive values, not including programmed channels that the 
operators are required to carry such as must-carry stations, public, 
educational and governmental (``PEG'') access channels, or any leased 
access channels already being carried. If one designated channel is 
dark, the operator would assign it the opportunity cost of the 
programmed channel on the system which has the opportunity cost with 
the lowest positive value; if an operator designates two dark channels 
for leased access, it would assign the opportunity cost of the two 
programmed channels on the system which have the lowest opportunity 
cost with a positive value, and so on. The Commission seeks comment on 
this proposal.
    23. The Commission believes that it is necessary to use only 
channels with positive opportunity costs as proxies for dark channels, 
because operators generally will not carry programming that has a 
negative economic benefit to them, which is what a negative opportunity 
cost value would indicate. The Commission suspects that, if a channel 
has a negative net opportunity cost, it may be because the cost formula 
does not include an approximation of the value of subscriber 
penetration. Although the Commission does not believe that it can 
accurately measure loss in subscriber penetration that may be caused by 
substituting leased access programming for non-leased access 
programming for purposes of the cost formula, the Commission 
tentatively concludes that using only those channels with a positive 
opportunity cost as proxies for dark channels will compensate for this 
limitation. As also stated above, however, the Commission requests 
comment on how it might measure changes in subscriber penetration due 
to the addition of leased access programming. The Commission asks how 
it might identify which channels should not be deemed to have the 
lowest opportunity cost for purposes of approximating the opportunity 
costs of dark channels.
4. Averaging the Per Channel Costs for All Designated Channels
    24. Because the operator may select designated channels from the 
basic service tier (``BST''), any cable programming service tier 
(``CPST''), or premium services, the Commission believes that the 
corresponding per channel costs will vary depending on the number of 
subscribers that receive each service. Consequently, the Commission 
proposes that all costs must be computed on a per channel basis rather 
than on a per subscriber basis. As discussed below, the per channel 
costs for each designated channel could then be used to determine the 
average channel costs of a designated channel.
    25. The Commission tentatively concludes that applying an average 
channel cost to leased access will promote fairness because all leased 
access programmers will be subject to the same maximum rate. The 
Commission notes that an operator's designation of leased access 
channels is made independently of the leased access programmer's 
request for access. The Commission does not believe that the operator 
should be required to bump the same type of service (i.e., a channel on 
the BST, a CPST, or a premium channel) that is requested by the leased 
access programmer. The Commission also believes that averaging the 
channel costs would mitigate against the operator's ability to 
manipulate the cost formula by designating one high cost channel and 
requiring a particular leased access programmer that the operator wants 
to keep off its system to pay the opportunity costs for that particular 
programming.
    26. Therefore, the Commission proposes that, after the operator has 
calculated the per channel opportunity costs and added the 
corresponding subscriber revenue (as a proxy for operating costs) to 
obtain a total per channel cost, the operator should average these per 
channel costs by adding them all together and dividing by the number of 
designated channels. The result would be the Commission's proposed 
cost-based maximum rate for a leased access channel if the operator has 
not fulfilled its leased access set-aside requirement. The Commission 
seeks comment on whether averaging the per channel costs is appropriate 
under the proposed cost formula.
5. Calculating the Leased Access Programmer Charge
    27. Under our proposed cost formula, once the operator determines 
the maximum rate as set forth above, the operator would determine how 
much of that maximum rate it could charge the leased access programmer. 
If the leased access programming is to be carried on a programming 
tier, the proposed cost formula would allow the operator to collect and 
retain revenue for that channel from the subscribers to the tier as 
payment for its operating costs. However, to avoid a double recovery by

[[Page 16451]]

the operator, the operator would not be permitted to include these 
operating costs in computing the portion of the maximum rate that the 
operator may charge the leased access programmer. The operator would 
therefore be required to subtract the total subscriber revenue for the 
channel from the maximum rate. The difference would be the programmer 
charge, i.e., the maximum amount that the operator would be permitted 
to charge the leased access programmer directly. The Commission 
requests comment on this proposal.
    28. The Commission tentatively concludes that if a leased access 
channel is to be carried as a premium service, the full maximum rate 
derived from the cost formula could be charged to the leased access 
programmer, to the extent that all of the monthly subscriber revenue 
for the leased access channel flows to the leased access programmer. 
The Commission believes that this is appropriate because the Commission 
cannot assume that the leased access premium service will attract the 
same subscribership as the non-leased access programming. Thus, the 
operator would be allowed to charge the full maximum rate which 
recovers its costs. In return, the programmer would receive all the 
subscriber revenues from its premium service. The Commission requests 
comment on these tentative conclusions.
6. Adjustment for Part-Time Administrative Costs
    29. Regardless of whether the leased access programming is carried 
on a tier or as a premium service, the Commission recognizes that there 
may be additional costs associated with part-time leases. The 
Commission therefore tentatively concludes that operators should be 
permitted to charge a part-time leased access programmer the actual 
incurred costs of negotiating and administering the programmer's part-
time contract which exceed what normally would be spent in negotiating 
and administering a full-time leased access programming contract. The 
Commission does not believe that it is more expensive for an operator 
to negotiate and administer a full-time leased access programming 
contract than it is for them to negotiate and administer a full-time 
non-leased access programming contract. The Commission therefore 
proposes not to allow operators to charge full-time leased access 
programmers for administrative costs. Under our proposal, the 
additional costs associated with part-time leasing would be added to 
the programmer charge derived in accordance with the procedures 
described above for determining rates for leased access programming 
carried on a tier or as a premium service. The Commission asks for 
comment on these tentative conclusions.

C. Market Rate as the Maximum Rate

    30. As discussed above, the Commission believes that, once an 
operator fulfills its set-aside requirement, the maximum cost-based 
rate should be replaced by a market based rate and not capped by the 
proposed cost formula. Under this proposal, the operator would be 
allowed to charge whatever rate it could negotiate with the leased 
access programmers, as long as the operator continues to meet its 
statutory set-aside requirement. Whether the operator retains the 
subscriber revenue would be a matter negotiated between the parties. 
Leased access programmers would then be forced to compete against each 
other for limited channel space, much the same as non-leased access 
programmers do. The Commission tentatively concludes that the pressure 
on the operator to meet its set-aside requirement and the competition 
between the programmers seeking leased access will determine an 
appropriate market rate.
    31. The Commission proposes that operators would be permitted to 
renegotiate the rate charged leased access programmers upon renewal of 
each programmer's contract, as long as the operator continues to 
fulfill its set-aside requirement. Thus, if the set-aside requirement 
has been filled, a current leased access programmer who gained access 
at the cost formula rate would have an opportunity at the end of its 
contract to bid against rival leased access programmers to obtain the 
right to continue to be carried on the system. If the amount of leased 
access programming being carried drops below the set-aside requirement, 
the operator would be required to return to the cost formula to 
determine the maximum rate on new programming contracts, as well as on 
contracts that are renewed at any time while the set-aside requirement 
is not met. The Commission seeks comment on this proposal generally, 
and asks whether this proposal complies with our statutory mandate to 
establish maximum reasonable rates. The Commission also seeks comment 
on whether operators could exercise editorial control over leased 
access programmers contrary to Congress' intent, if rates for leased 
access were market based. In addition, the Commission requests comment 
on alternatives for setting maximum reasonable rates when an operator 
has satisfied its set-aside requirement.

D. Transition Period

    32. The Commission tentatively concludes that, on the effective 
date of the maximum rate-setting rules which the Commission will adopt 
in response to this Further Notice, operators should be required to 
implement the adopted formula, whatever it may be, for (a) programmers 
that are currently leasing channel capacity from an operator and (b) 
programmers demanding leased access on a system that has unused (or 
dark) channel capacity. The Commission requests comment on this 
tentative conclusion. The Commission believes, however, that transition 
relief may be appropriate in the case of new leased access requests 
with respect to systems that do not have any dark channels, where 
operators would be forced to bump existing programming in order to 
accommodate a leased access request. The Commission recognizes that, 
when an operator places non-leased access programming on a channel 
designated for leased access, the operator and programmer generally 
assume the risk that the programming may have to be bumped for a leased 
access programmer. The risk of having to bump, however, may increase 
with the introduction of whatever formula the Commission adopts, 
depending on the extent to which rates using the adopted formula affect 
the utilization of leased access. A transition to the new formula might 
(a) avoid unduly penalizing operators and programmers for decisions to 
use designated channels for non-leased access programming that were 
reasonably based on circumstances created by the Commission's previous 
rules, and (b) mitigate against the sudden disruption to subscribers' 
programming line-ups. The Commission therefore requests comment on 
whether it should phase in the proposed cost formula, or any other rate 
setting formula which the Commission may adopt, for those leased access 
requests that can only be accommodated by bumping existing non-leased 
access programming. The Commission also asks whether such transition 
relief should be applied to dark channels for which the operator has 
programming contracts in place. The Commission asks for comment on how 
a transition might be accomplished and the specific mechanism the 
Commission should employ. In this context, commenters should explain 
how any proposed transition period would be consistent with the 
Commission's obligation to establish maximum reasonable rates for 
leased access.

[[Page 16452]]

E. Adjusting Leased Access Rates Over Time

    33. As described above, the proposed cost formula would require 
operators to designate the specific channels they will use to satisfy 
their set-aside requirement. The Commission proposes that an operator's 
selections are binding and the designated channels must be the ones 
that are in fact used to accommodate leased access requests. The 
Commission does not believe, however, that operators should be required 
to adhere to their initial designations indefinitely, since the 
popularity and profitability of a designated channel could unexpectedly 
increase and the operator might no longer want to use it for leased 
access. The Commission tentatively concludes that, in order to account 
for change, operators should be allowed to redesignate their unused 
leased access channel capacity on an annual basis. The Commission 
requests comment on these tentative conclusions, and asks how an 
operator's maximum leased access rates should be adjusted over time. 
Our presumption in allowing operators this flexibility is that 
operators generally will want to use their least profitable channels 
for leased access, and so will redesignate a channel that is less 
profitable than the one that is being replaced. If an operator 
redesignates a channel that is significantly more profitable than the 
previously selected channel, and the redesignation would raise the 
operator's maximum rate, the Commission tentatively concludes that the 
redesignation would be evidence of an attempt to inflate the maximum 
rate in contravention of the purposes of our rules and the statute.
    34. In addition to permitting redesignation of leased access 
channels, the Commission tentatively concludes that operators should be 
permitted to recalculate their maximum rates annually, in order to 
account for changes in the allowable opportunity costs of designated 
channels that currently are not being used for leased access. The 
Commission requests comment on whether this annual recalculation is 
appropriate, and on whether it should occur on the anniversary of the 
effective date of our modified rules, each calendar year, or on some 
anniversary which is most appropriate for an individual operator (to 
coincide with its annual audits, for example). The Commission believes 
that allowing an operator to update its rates will better approximate 
the operator's changing costs of satisfying its leased access 
requirement. The Commission requests comment on whether our maximum 
rate should be cumulative over the life of the leased access contract 
so that an operator and a leased access programmer have the option, if 
mutually agreed upon, to establish a rate below the maximum rate during 
the first part of the contract term and a rate above the maximum rate 
during a subsequent part of the contract term, and asks whether such an 
option would provide operators with the opportunity to evade the 
maximum rate.

II. Part-Time Rates

    35. The Commission's current rules permit prorating the maximum 
monthly rate as one method of deriving rates for shorter periods. The 
rules the Commission adopted on reconsideration provide that operators 
may establish a schedule of rates, or rate card, for different times of 
day, pursuant to which, if all times were used, the sum of the part-
time charges for any single leased access channel within a 24-hour 
period would not exceed its maximum rate for the leased access channel 
if the daily rate were prorated evenly from the monthly maximum rate 
and were calculated in accordance with the Commission's rules. The 
Commission requests comment, however, on whether such proration is 
appropriate under our proposed cost formula, and, more specifically, if 
it is, whether the restriction that the part-time rates for a 24 hour 
time period total no more than the maximum rate is appropriate under 
the proposed cost formula. The Commission seeks comment on whether, if 
the cost/market rate formula were to be adopted for full-time leased 
access use, an entirely different method of calculating the maximum 
reasonable rate for part-time use would be more appropriate. If so, the 
Commission requests comment on how to define part-time leased access 
use, e.g., leases for less than a 24 hour channel, for 12 hours, for 
eight hours, or fewer.

III. Preferential Access

    36. The Commission is concerned that not-for-profit programmers are 
being excluded from leased access, but the record lacks sufficient 
evidence to make a determination of whether the goal of diversity is 
being achieved and, if it is not being achieved, whether one of the 
reasons is that rates are unaffordable for not-for-profit entities. The 
Commission therefore invites interested parties to demonstrate, with 
specific examples, whether current leased access programming sources 
are sufficiently diverse and whether preferential treatment for not-
for-profit programmers would significantly affect the diversity of 
current programming sources. The Commission requests commenters to 
provide precise data indicating whether or not rates charged to leased 
access programmers are affordable for not-for-profit entities. 
Commenters in support of preferential treatment for not-for-profit 
programmers should explain their position within the context of our 
previously stated belief that operators should not have to subsidize 
leased access programmers and the statutory requirement that leased 
access use should not adversely affect the operation, financial 
condition, or market development of the cable system. Those commenters 
should also address the extent to which preferential treatment is 
necessary given that public access is already provided for under 
current PEG requirements.
    37. The Commission seeks comment on whether, if the Commission 
concludes that some form of preferential treatment is appropriate, a 
lower maximum rate should apply to not-for-profit leased access 
programmers, and if so, what rate should apply and why. Alternatively, 
if the proposed cost formula is adopted, the Commission seeks comment 
on whether operators should be required to exclude lost advertising 
revenues or lost commissions from maximum rates charged to not-for-
profit leased access programmers. In addition, the Commission solicits 
comment on whether not-for-profit leased access programmers should be 
entitled to preferential rates during any transition period that might 
be adopted for the cost formula.
    38. Preferential rates, if adopted, would provide no relief if not-
for-profit leased access programmers are denied access to a system 
because the operator has met its set-aside requirement. The Commission 
seeks comment on whether the statute would permit us to consider a set-
aside requirement for not-for-profit programmers. If so, the Commission 
asks whether the public interest would be served by such a set-aside 
requirement and how it should be structured. For example, would a 
reservation of 25% of leased access capacity be appropriate? Should a 
set-aside requirement be temporary or permanent, and if temporary, what 
length of time would be appropriate? Furthermore, if the proposed cost 
formula were adopted, how would the need for a set-aside requirement be 
affected, given that the formula allows market rates to prevail when 
demand for leased access exceeds an operator's set-aside requirement? 
If a such a set-aside requirement were imposed, the Commission would 
stipulate that until a

[[Page 16453]]

not-for-profit leased access programmer demanded access to a not-for-
profit set-aside channel, the operator must use the channel for for-
profit leased access programming, unless no demand exists, in which 
case it may use it for its own programming.
    39. The Commission also seeks comment on whether preferential 
treatment should be limited to not-for-profit programmers or whether 
certain types of for-profit programmers should also receive 
preferential treatment. The Commission believes that there is 
insufficient evidence on the record for us to indicate that LPTV 
stations and minority and educational programmers should receive 
preferential treatment, but the Commission invites commenters to 
demonstrate with specific evidence why a preference for certain types 
of for-profit programmers may be appropriate. The Commission also seeks 
comment on whether a ``not-for-profit programmer'' should be defined as 
a programmer with Section 501(c)(3) tax-exempt status or whether 
another classification should apply.

IV. Tier and Channel Placement

    40. The statutory commercial leased access provisions are intended 
to provide programmers with a ``genuine outlet'' for their programming. 
According to the legislative history of the 1992 amendments to Section 
612, the Commission should ensure that programmers are carried on 
channel locations that ``most subscribers actually use,'' a guideline 
that should be interpreted in light of the statutory provision that 
leased access use should not adversely affect the market development of 
a cable system. The Commission tentatively concludes that, absent some 
compelling reason (such as technical considerations), leased access 
programmers have the right to be placed on a tier, as opposed to being 
carried as a premium service. The Commission believes that, if an 
operator were permitted to force leased access programming to be 
offered as a premium service, the programmer would not be assured 
access to most subscribers.
    41. Our 1995 Competition Report states that a large percentage of 
subscribers (more than 90%) receive CPSTs. The Commission tentatively 
concludes that both the BST and the CPST with the highest subscriber 
penetration qualify as genuine outlets because most subscribers 
actually use them. However, the Commission seeks comment on whether a 
CPST that does not boast the highest subscriber penetration could 
qualify as a genuine outlet, and under what circumstances. For example, 
should the Commission interpret the term ``most subscribers'' as 
greater than 50%? In order to permit flexibility in the market 
development of an operator's cable system, the Commission would allow 
the operator to decide whether it is appropriate for its particular 
system to carry the leased access channel on the BST or on a CPST that 
qualifies as a genuine outlet. To ease technical burdens on operators, 
the Commission proposes to permit operators to place leased access 
programming that it must scramble or trap out with other programming 
that is also scrambled or trapped out. The Commission also proposes to 
allow operators to consider these technical concerns when deciding 
whether to place leased access programming on either the BST or a CPST 
that qualifies as a genuine outlet. The Commission seeks comment on 
these tentative conclusions.

V. Obligation to Open New Channels and Bump Existing Non-Leased Access 
Services

    42. Although cable operators that have not fulfilled their 
statutory leased access set-aside requirement are generally required to 
accommodate requests for leased access time, the Commission recognizes 
that there may be circumstances in which substantially greater harm to 
the subscribers, the operator, and the non-leased access programmer may 
result if the leased access request is accommodated than would result 
for the leased access programmer if the leased access request is not 
accommodated. The Commission seeks comment on whether, when a specific 
time slot requested by a part-time leased access programmer is already 
leased, an operator should be required to open up another leased access 
channel, if the operator can otherwise reasonably accommodate the 
leased access request in a comparable time slot. The Commission 
believes that the possible disruption of existing programming or the 
preclusion of future programming in order to accommodate only a few 
hours of leased access demand, where adequate and comparable capacity 
is available on an existing leased access channel, will not advance the 
goal of assuring that the widest possible diversity of information 
sources are made available to the public from cable systems in a manner 
consistent with the growth and development of cable systems. However, 
the Commission solicits comment on whether it is sufficient to require 
a ``reasonable accommodation in a comparable time slot'' or whether the 
standard should be further defined. The Commission also seeks comment 
on whether the operator should be required to remove an existing full-
channel programmer if the leased access programmer agrees to a minimum 
time increment. The Commission tentatively concludes that the guarantee 
of a minimum time increment of eight hours within a 24-hour period 
would be a reasonable pre-condition for requiring an operator to open 
up an additional channel for leased access.

VI. Selection of Programmers

    43. The Commission has not specifically addressed the manner in 
which lessees are to be selected for placement on leased access 
channels. The Commission tentatively concludes that a first-come, 
first-served approach is preferable so long as available leased access 
channel capacity is sufficient to accommodate incoming leased access 
requests. However, if an operator's available leased access channel 
capacity is insufficient to accommodate all pending leased access 
requests, the Commission seeks comment on whether operators should be 
allowed to accept leased access programmers on a basis other than 
first-come, first-served. The Commission believes that allowing cable 
operators limited ability to make content-neutral selections from among 
leased access programmers may be appropriate in order to enable them to 
avoid certain situations that might ``adversely affect the operation, 
financial condition, or market development of the cable system.''
    44. For example, operators may wish to give priority to leased 
access programmers that request a full-time lease over a programmer 
seeking to lease only part-time, thus minimizing the disruption to the 
subscriber, as well as easing the administrative burdens on the 
operator. The Commission is not suggesting that an operator would be 
allowed to completely refuse part-time requests for leased access, but 
is asking whether, when the operator cannot accommodate all leased 
access requests within its set-aside requirement, the operator should 
be allowed to select a full-time applicant over a part-time applicant. 
At the same time, the Commission is concerned that allowing a 
preference for full-time programmers may not further the statutory goal 
of promoting the widest possible diversity of programming sources, 
since encouraging part-time use could result in a wider variety of 
programmers. To that end, the Commission seeks comment on whether 
certain circumstances favor shifting the preference to the competing 
part-time applicant, for example if the part-time applicant is a not-
for-profit entity.

[[Page 16454]]

Alternatively, instead of allowing a preference for the last available 
leased access channel, the Commission seeks comment on whether it 
should require one or two leased access channels to be used exclusively 
for part-time use. The Commission further seeks comment on whether it 
should allow operators to base their selections on any content-neutral 
criteria other than the full-time/part-time distinction.

VII. Minority and Educational Programmers

    45. Section 612(i) of the Communications Act permits a cable 
operator to place programming from a qualified minority or educational 
programming source on up to 33% of the cable system's designated leased 
access channels. The Commission seeks comment on whether the 
requirements for tier and channel placement, as proposed above, should 
apply to minority and educational programming that is carried as a 
substitute for leased access programming. Specifically, should 
operators be required to carry minority and educational programming on 
the BST or a CPST that qualifies as a genuine outlet, if they are 
claiming it as a substitute for leased access? There is no explicit 
language in the statute or legislative history stipulating that 
minority and educational programming should be received by most 
subscribers. However, Section 612(i)(1) provides that ``a cable 
operator required by this section to designate channel capacity for 
commercial use may use any such channel capacity'' for minority and 
educational programming (emphasis added), suggesting that Congress 
envisioned that the same channels that would have been used for leased 
access should be used for any substituted minority and educational 
programming. Moreover, to allow a less stringent standard for minority 
and educational programming would seem to defeat the use of such 
programming as a substitute for leased access. Therefore, the 
Commission tentatively concludes that minority and educational 
programming should not qualify as a replacement for leased access 
programming unless it is carried on the BST or a CPST that qualifies as 
a genuine outlet. As with leased access, the operator could choose on 
which qualifying tier to carry the programming.

VIII. Procedures for Resolution of Disputes

    46. In order to streamline the Commission's complaint process, the 
Commission proposes to stipulate that a leased access programmer may 
not file a complaint alleging that an operator's maximum rate was 
calculated incorrectly unless an independent certified public 
accountant has first reviewed the operator's calculations and made an 
independent determination of the maximum rate. If the operator and 
leased access programmer cannot agree on a mutually acceptable 
accountant, the operator may select any independent certified public 
accountant. The review must be conducted within 60 days of the leased 
access programmer's request to the operator for a review. The operator 
would be expected to provide the accountant with all information 
necessary to support its rate calculation, including an explanation of 
how the rate was calculated. The findings of the accountant would be 
certified in a final report and provided to both parties. The 
Commission seeks comment on whether, in the absence of any evidence to 
the contrary, the Commission should consider a determination by the 
accountant that the operator's rate exceeds the permissible rate to 
constitute clear and convincing evidence that the rate is unreasonable.
    47. The Commission tentatively concludes that, in order to provide 
notice to other potential leased access programmers, the accountant's 
final report should be filed in the cable system's local public file. 
The Commission seeks comment on this proposal. Alternatively, the 
Commission seeks comment on whether operators should be required to 
provide the report upon request to potential leased access programmers. 
The Commission seeks comment on what type of information should be 
contained in the accountant's final report and what type of information 
would be proprietary and thus kept confidential. The Commission also 
seeks comment on how the accountant's expenses should be paid. For 
example, should the parties share the expenses equally or should the 
full amount be paid by the party that the accountant's report proved 
was incorrect?
    48. In light of the streamlining proposed above, the Commission 
does not believe that it is necessary for the Commission to set a time 
limit within which complaints will be decided by the Commission. Each 
leased access complaint proceeding differs in complexity and requires 
varying amounts of Commission time and resources. In addition, the 
Commission believes that shortening the operator's response period 
would be unfair to the operator.

IX. Resale of Leased Access Time

    49. The Commission seeks comment on whether the Commission should 
permit leased access time to be resold by the lessee. Leased access 
programmers are of course entitled to sell time to advertisers. The 
question here is whether the Commission should allow persons 
unaffiliated with the operator to lease time from the operator and then 
sell it as programming time to other unaffiliated persons for a profit. 
The Commission seeks comment on the advisability of allowing the resale 
of leased access time. If the Commission were to prohibit resale, the 
Commission asks whether an exception should apply for not-for-profit 
leased access programmers.

X. Initial Regulatory Flexibility Act Analysis

    50. Pursuant to Section 603 of the Regulatory Flexibility Act, the 
Commission has prepared the following initial regulatory flexibility 
analysis (``IRFA'') of the expected impact of these proposed policies 
and rules on small entities. Written public comments are requested on 
the IRFA. These comments must be filed in accordance with the same 
filing deadlines as comments on the rest of the Further Notice, but 
they must have a separate and distinct heading designating them as 
responses to the regulatory flexibility analysis. The Secretary shall 
send a copy of the Further Notice, including the IRFA, to the Chief 
Counsel for Advocacy of the Small Business Administration in accordance 
with Section 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-
354, 94 Stat. 1164, 5 U.S.C. Sec. 601 et seq. (1981).
    51. Reason for Action. Section 612 of the Communications Act of 
1934, as amended, 47 U.S.C. Sec. 532, requires the Commission to 
prescribe rules and regulations regarding commercial use of channel 
capacity for unaffiliated persons. The Commission is using this Further 
Notice to seek comment on various issues concerning implementation of 
this statute.
    52. Objectives. To propose rules which implement Section 612 of the 
Communications Act of 1934, as amended, 47 U.S.C. Sec. 532, and further 
its goals of promoting competition in the delivery of diverse sources 
of video programming and to assure that the widest possible diversity 
of information sources are made available to the public from cable 
systems in a manner consistent with the growth and development of cable 
systems.
    53. Legal Basis. Action as proposed for this rulemaking is 
contained in

[[Page 16455]]

Sections 1, 4(i), 4(j) and 612 of the Communications Act of 1934, as 
amended, 47 U.S.C. Secs. 151, 154(i), 154(j) and 532.
    54. Description, Potential Impact and Number of Small Entities 
Affected. The Commission anticipates a possible impact on small 
entities, as defined in Section 601(3) of the Regulatory Flexibility 
Act, including cable operators and leased access programmers, but the 
Commission does not currently have information pertaining to the extent 
of such impact or the number of small entities that may be affected.
    55. Reporting, Recordkeeping and Other Compliance Requirements. 
Action as proposed in this rulemaking may impose new reporting 
requirements on cable operators.
    56. Federal Rules which Overlap, Duplicate or Conflict with these 
Rules. None.
    57. Any Significant Alternatives Minimizing Impact on Small 
Entities and Consistent with Stated Objectives. The Further Notice 
solicits comments on alternatives.

XI. Ex Parte

    58. This is a non-restricted notice and comment rulemaking 
proceeding. Ex parte presentations are permitted, except during the 
Sunshine Agenda period, provided that they are disclosed as provided in 
Commission's rules. See generally 47 CFR 1.1202, 1.1203, and 1.1206(a).

XII. Comment Dates

    59. Pursuant to applicable procedures set forth in Sections 1.415 
and 1.419 of the Commission's Rules, 47 CFR 1.415 and 1.419, interested 
parties may file comments on or before May 15, 1996 and reply comments 
on or before May 31, 1996. All relevant and timely comments will be 
considered before final action is taken in this proceeding. To file 
formally in this proceeding, participants must file an original plus 
six copies of all comments, reply comments, and supporting comments. If 
participants want each Commissioner to receive a personal copy of your 
comments and reply comments, you must file an original plus eleven 
copies. Comments and reply comments should be sent to Office of the 
Secretary, Federal Communications Commission, 1919 M Street, NW., 
Washington, DC 20554. Comments and reply comments will be available for 
public inspection during regular business hours in the FCC Reference 
Center, Room 239, Federal Communications Commission, 1919 M Street, 
NW., Washington DC 20554.
    60. Written comments by the public on the proposed and/or modified 
information collections are due on or before May 15, 1996. Written 
comments must be submitted by OMB on the proposed and/or modified 
information collections on or before 60 days after publication of the 
Order and Further Notice in the Federal Register. In addition to filing 
comments with the Secretary, a copy of any comments on the information 
collections contained herein should be submitted to Dorothy Conway, 
Federal Communications Commission, Room 234, 1919 M Street, NW., 
Washington, DC 20054, or via the Internet to [email protected], and to 
Timothy Fain, OMB Desk Officer, 10236 NEOB, 725-17th Street, NW., 
Washington, DC 20503 or via the Internet to [email protected].
    61. Accordingly, pursuant to Sections 4(i), 4(j) and 612 of the 
Communications Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 154(j) 
and 532, comment is sought regarding such proposals, discussion, and 
statement of issues.

Paperwork Reduction Act

    62. This Further Notice contains either a proposed or modified 
information collection. The Commission, as part of its continuing 
effort to reduce paperwork burdens, invites the general public and the 
Office of Management and Budget (``OMB'') to comment on the information 
collections contained in this Further Notice, as required by the 
Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency 
comments are due at the same time as other comments on this Further 
Notice; OMB notification of action is due 60 days from date of 
publication of this Further Notice in the Federal Register. Comments 
should address: (a) Whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility, and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents, including the use of automated 
collection techniques or other forms of information technology.
    OMB Approval Number: 3060-0568.
    Title: Section 76.970 Commercial leased access rates; 76.971 
Commercial leased access terms and conditions.
    Type of Review: Revision of existing collection.
    Respondents: Business and other for profit.
    Number of Respondents: 6,270 cable systems.
    Estimated Time Per Response: 1 hour per respondent for 
recordkeeping and sending the leased access schedule and other 
information to prospective leased access programmers. 1 hour per 
respondent to implement 76.971 third party disclosure requirements. 12 
hours per respondent for completing the proposed ``cost schedule'', 
instead of the existing ``maximum rate schedule''. If the proposed 
``cost schedule'' is not adopted by the Commission, the burden for 
completing the ``maximum rate schedule'' is 4 hours per respondent.
    Total Annual Burden: 87,780 hours. If the proposed ``cost 
schedule'' is not adopted, the Commission will further adjust the 
burden for this collection from 12 hours per respondent in completing 
the ``cost schedule'' to 4 hours per respondent to continue to use the 
existing ``maximum rate schedule''. This would result in an adjustment 
reduction of 50,160 hours (6,270  x  8 hours), leaving a total burden 
of 87,780-50,160=37,620 hours.
    Estimated costs per respondent: We estimate the postage and 
stationery costs incurred by cable operators for record keeping 
activities and for sending out leased access information to prospective 
programmers, as required, to be roughly $4.00 per respondent. We 
therefore report a total annual cost of $25,000 for all respondents.
    Needs and Uses: The information collected is used by the 
prospective leased access programmers and the Commission to verify rate 
calculations for leased access channels. The Commission's leased access 
requirements were designed to promote diversity of programming sources 
and competition in programming delivery as required by Section 612 of 
the Communications Act, and serve to eliminate uncertainty in 
negotiations for leased commercial access.

List of Subjects in 47 CFR Part 76

    Cable television.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-9195 Filed 4-12-96; 8:45 am]
BILLING CODE 6712-01-P