[Federal Register Volume 62, Number 48 (Wednesday, March 12, 1997)]
[Rules and Regulations]
[Pages 11364-11382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5897]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[CS Docket No. 96-60; FCC 97-27]


Cable Television Leased Commercial Access

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission has adopted a Second Report and Order and 
Second Order on Reconsideration of the First Report and Order 
(``Order'') regarding implementation of the leased commercial access 
provisions of the 1992 Cable Act. The Order addressed comments and 
petitions for reconsideration filed in response to the Order on 
Reconsideration of the First Report and Order and Further Notice of 
Proposed Rulemaking in CS Docket 96-60, FCC 96-122 (released March 29, 
1996) (subparts referred to separately as ``Reconsideration Order'' and 
``Further NPRM''). The Order: revised the maximum rate formulas for use 
of full-

[[Page 11365]]

time leased access channels; declined to impose a transition period for 
the implementation of the revised rate formulas; maintained the current 
rules for maximum part-time rates and adopted a rule that cable 
operators are not required to open additional leased access channels 
for part-time use until all existing part-time leased access channels 
are substantially filled or until a programmer requests a year-long 
eight-hour daily time slot that cannot otherwise be accommodated; 
allowed the resale of leased access time; granted leased access 
programmers the right to demand access to a tier with a subscriber 
penetration of more than 50%; stipulated that minority and educational 
programming does not qualify as a substitute for leased access 
programming unless it is carried on a tier with a subscriber 
penetration of more than 50%; declined to mandate preferential 
treatment for certain types of leased access programmers; required 
operators to accept leased access programmers on a non-discriminatory 
basis so long as available leased access capacity exceeds demand; 
required that an independent accountant review an operator's rate 
calculations prior to the filing of a rate complaint with the 
Commission; established a standard of reasonableness for certain 
contractual requirements; specified when leased access programmers must 
pay for technical support; and defined the term ``affiliate'' for 
purposes of leased access. The Order also addressed several issues on 
reconsideration, including the exclusion of programming revenues from 
the maximum rate calculation, the maximum rate calculation for a la 
carte channels, cable operators' obligations to provide certain 
information to potential leased access programmers and the need for 
operators to comply with those obligations, time increments, the 
calculation of the leased access set-aside requirement, and billing and 
collection services. The Order is intended to address issues and 
concerns raised in the comments and petitions for reconsideration that 
were filed with the Commission in response to the Reconsideration Order 
and Further NPRM.

DATES: This rule is effective April 11, 1997, except the amendments to 
47 CFR 76.970 (c), (d), (e), (f), (g), (h), 76.971(f)(1), and 76.975 
(b) and (c), which impose new or modified information collection 
requirements, shall become effective upon approval by the Office of 
Management and Budget (OMB), but no sooner than April 11, 1997. The 
Commission will publish a document at a later date establishing the 
effective date for the sections containing information collection 
requirements. Written comments by the public on the modified 
information collection requirements are due on or before April 11, 
1997, and written comments by OMB on the modified information 
collection requirements are due on or before May 12, 1997.

ADDRESSES: Office of the Secretary, Federal Communications Commission, 
1919 M Street, NW., Washington, DC 20554. A copy of any comments on the 
information collections contained in the Order 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: Rick Chessen, Cable Services Bureau, 
(202) 418-7200. For additional information concerning the information 
collections contained in the Order, contact Dorothy Conway at (202) 
418-0217, or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION:

Paperwork Reductions Act

    The Order contains modified information collections. The 
Commission, as part of its continuing effort to reduce paperwork 
burdens, invites the general public and OMB to comment on the 
information collections contained in the Order, as required by the 
Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency 
comments are due 30 days from the date of publication of the Order in 
the Federal Register; OMB notification of action is due 60 days from 
date of publication of the Order in the Federal Register. Comments 
should address: (a) Whether the modified 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: Commercial leased access rates, terms and conditions.
    Type of Review: Revision of existing collection.
    Respondents: Business and other for profit entities; not-for-profit 
institutions.
    Number of Respondents: 6,330 (6,270 cable systems + 30 selected 
accountant reviewers + an estimated 30 leased access programmers 
involved in the leased access rate dispute process).
    Estimated Time Per Response: 1-10 hours.
    Total Annual Burden: 94,171 hours, estimated as follows: 
Sec. 76.970 describes the manner in which cable operators are to 
calculate maximum leased access rates. Currently, there are 
approximately 11,400 cable systems, of which approximately 45% have 
channel capacities of less than 36 channels, and are therefore exempt 
from the Commission's leased access provisions. The number of cable 
system respondents is therefore 6,270 (55% of 11,400). The average 
annual burden of calculating maximum rates is estimated to be 4 hours 
per cable system.

6,270 x 4 hours=25,080 hours.

    Section 76.970(h) requires cable operators to provide the following 
information within 15 calendar days of a request regarding leased 
access (for systems subject to small system relief, cable operators are 
required to provide the following information within 30 days of a 
request regarding leased access): (a) A complete schedule of the 
operator's full-time and part-time leased access rates; (b) how much of 
the cable operator's leased access set-aside capacity is available; (c) 
rates associated with technical and studio costs; and (d) if 
specifically requested, a sample leased access contract. We estimate 
that each cable system operator will undergo an average burden of 10 
hours per year to gather and maintain this information and disclose it 
to requesting potential leased access programmers. Of the 10 hours, we 
estimate an average burden of 4 hours for each operator to gather and 
maintain the information and an average burden of 6 hours for each 
operator to furnish materials to an estimated 20 requesters per year.

6,270 x 10 hours=62,700 hours.

    Section 76.971 requires cable operators to provide billing and 
collection services to leased access programmers unless they can 
demonstrate the existence of third party billing and collection 
services which, in terms of cost and accessibility, offer leased access 
programmers an alternative substantially equivalent to that offered to 
comparable non-leased access programmers. The Commission estimates that 
identification of a third party billing and collection service rarely 
needs to occur because the vast majority of leased access programming

[[Page 11366]]

is placed on a programming services tier and is billed as part of that 
tier. Nonetheless, the Commission estimates an average burden of no 
more than 1 hour per cable system operator to identify a third party 
billing and collection service and then to make the necessary 
information available.

6,270 x 1 hour=6,270 hours.

    Section 76.975(b) requires that persons alleging that a cable 
operator's leased access rate is unreasonable must receive a 
determination of the cable operator's maximum permitted rate from an 
independent accountant prior to filing a rate complaint with the 
Commission. We estimate that operators will undergo an average burden 
of 4 hours to arrange for an independent accountant review and 
coordinate rate information with the selected accountant. This average 
burden accounts for those instances where parties that cannot agree on 
a mutually acceptable accountant must each select an independent 
accountant who in turn select a third independent accountant. 
Nationwide, we estimate a need for 30 accountant rate reviews per year.

30  x  4 hours = 120 hours.

    76.975(c) requires that petitioners attach a copy of the final 
accountant's report to their petition where the petition is based on 
allegations that a cable operator's leased access rates are 
unreasonable. We estimate that petitioners will undergo an average 
burden of 2 minutes to attach such reports. Nationwide, we estimate 
that petitioners will need to attach a total of no more than 30 
accountant's reports when filing petitions for relief.

30  x  2 minutes = 1 hour. 25,080 + 62,700 + 6,270 + 120 + 1 = 94,171 
hours.

    Estimated costs to respondents: $74,000, estimated as follows: We 
estimate the annual telephone, postage and stationery costs incurred by 
cable operators for leased access recordkeeping, sending out leased 
access information to prospective programmers, identifying third party 
billing collection services, and selecting accountants to be $50,000, 
equating to approximately $7.97 per operator. ($7.97  x  6,270 
respondents = $50,000). We estimate that accountants will undergo an 
average burden of 8 hours to review an operator's maximum rate 
calculations and to prepare the required report. Accountants are 
estimated to be paid $100 per hour for their services. (30 accountant 
reviews)  x  (8 hours per review)  x  ($100 per hour) = $24,000.

Total costs to respondents = $50,000 + $24,000 = $74,000.

    Needs and Uses: The information collected is used by prospective 
leased access programmers and the Commission to verify rate 
calculations for leased access channels and to eliminate uncertainty in 
negotiations for leased commercial access. The Commission's leased 
access requirements are designed to promote diversity of programming 
and competition in programming delivery as required by section 612 of 
the Communications Act.

Synopsis

    The following is a synopsis of the Commission's Second Report and 
Order and Second Order on Reconsideration of the First Report and Order 
in CS Docket 96-60, FCC 97-27, adopted January 31, 1997 and released 
February 4, 1997. 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.

I. Introduction

    1. The statutory framework for commercial leased access, provided 
in Section 612 of the Communications Act of 1934, as amended, 47 U.S.C. 
521 et seq. (``Communications Act''), was first established by the 
Cable Communications Policy Act of 1984, Public Law 98-549, 98 Stat. 
2779 (1984), 47 U.S.C. 521 et seq. (``1984 Cable Act'') and was amended 
by the Cable Television Consumer Protection and Competition Act of 
1992, Public Law 102-385, 106 Stat. 1460 (1992), 47 U.S.C. 521 et seq. 
(``1992 Cable Act''). Commercial leased access was created to provide 
access to the channel capacity of cable systems by parties unaffiliated 
with the cable operator that wish to distribute video programming free 
of the editorial control of the cable operator. Channel set-aside 
requirements were established in proportion to a system's total 
activated channel capacity. The statutory objectives of leased access 
are to ``promote 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 growth and development of cable systems.'' 
Each system operator subject to the leased access requirement must 
establish, consistent with the rules prescribed by the Commission, 
``the price, terms, and conditions of such use which are at least 
sufficient to assure that such use will not adversely affect the 
operation, financial condition, or market development of the cable 
system.''
    2. In the Report and Order and Further Notice of Proposed 
Rulemaking in MM Docket No. 92-266, FCC 93-177, 58 FR 29736 (May 21, 
1993) (``Rate Order''), the Commission established initial regulations 
to implement the leased access provisions of the 1992 Cable Act. The 
Commission adopted the ``highest implicit fee'' formula as the method 
for setting maximum reasonable rates, and adopted various standards 
governing access terms and conditions, tier placement, technical 
standards for use, technical support, security deposits, conditions 
based on program content, requirements for billing and collection 
services, and procedures for the expedited resolution of disputes. In 
the Reconsideration Order, the Commission addressed certain issues 
pertaining to the highest implicit fee formula, the provision of 
certain leased access rate and channel availability information to 
prospective leased access programmers, acceptable time increments and 
pricing for part-time leased access use, operator provision of billing 
and collection services for leased access programmers, security 
deposits, calculation of the leased access set-aside requirement and 
reporting requirements. In the Further NPRM, the Commission re-examined 
the highest implicit fee formula from an economic perspective and 
tentatively concluded that the highest implicit fee formula is likely 
to overcompensate cable operators and does not sufficiently promote the 
goals underlying the leased access provisions. The Commission proposed 
a cost/market rate approach to setting maximum reasonable rates and 
requested comment on the approach and its implementation. In addition, 
the Commission sought comment on: (a) Part-time rates and an operator's 
obligation to open additional leased access channels for part-time use, 
(b) the resale of leased access time, (c) tier and channel placement 
for leased access programming, (d) the placement of minority or 
educational programming when it is used as a substitute for leased 
access programming, (e) preferential treatment for certain types of 
leased access programmers, including not-for-profit programmers, (f) 
the selection of leased access programmers, and (g) streamlined leased 
access dispute resolution procedures.
    3. In the Order, the Commission amended its rules pertaining to 
cable television commercial leased access, after considering the 
comments and

[[Page 11367]]

reply comments filed in response to the Further NPRM, and addressed 
petitions for reconsideration of the leased access rules adopted in the 
Reconsideration Order.

II. Report and Order

A. Maximum Rate Formula for Leasing a Full Channel

    4. Background: Section 612 directs the Commission to determine the 
maximum reasonable rates that cable operators may charge for commercial 
leased access. In the Rate Order, the Commission adopted rules that 
established maximum rates based on the highest implicit fee paid by 
non-leased access programming services distributed on a system. In the 
non-leased access context, cable operators generally pay programmers 
(e.g., a contractual license fee or a copyright fee) for their 
programming services. Nevertheless, there is an implicit fee for 
carriage to the extent that the amount of subscriber revenue that the 
operator receives for the programming is greater than the fee that the 
operator pays to the programmer. In other words, the amount of 
subscriber revenue that the programmer forgoes to the operator 
represents an implicit payment for carriage. The Commission determined 
that the implicit fee paid by a programmer is the average price per 
channel that a subscriber pays the operator minus the amount per 
subscriber that the operator pays the programmer. The highest of the 
implicit fees charged any unaffiliated non-leased access programmer was 
the maximum rate per subscriber that a cable operator could charge a 
leased access programmer.
    5. In the Reconsideration Order and Further NPRM, we identified 
certain problems with the highest implicit fee formula and sought 
comment on a ``cost/market rate formula,'' an alternative approach that 
we believed might better promote the goals of leased access. Under this 
proposed approach, the maximum rate for leased access would depend on 
whether the cable operator is leasing its full statutory set-aside 
requirement. When the full set-aside capacity is not leased to 
unaffiliated programmers, the maximum rate would be based on the 
operator's reasonable and quantifiable costs (i.e., the costs of 
operating the cable system plus the additional costs related to leased 
access), including a reasonable profit. The operator would be allowed 
to use the subscriber revenue received from a leased access channel to 
offset the operating costs associated with the channel. In addition, 
the operator would be allowed to charge the leased access programmer 
the reasonable costs of bumping a programming service in order to 
accommodate the leased access programmer. We tentatively concluded that 
once the operator met its set-aside requirement, the cost-based maximum 
rate could be replaced by a market rate.
    6. Discussion: Our role with regard to leased access rates is to 
establish maximum reasonable rates, not a mandatory rate that must be 
charged to all leased access programmers. Operators have the discretion 
to negotiate rates below the maximum rates established by the 
Commission. For clarification purposes, we adopted a rule that 
specifically states that cable operators are permitted under our rules 
to negotiate rates below the maximum permissible rates.
i. Cost/Market Rate Formula
    7. After reviewing the record in this proceeding and after 
considering and analyzing all of the options presented, we concluded 
that the proposed cost/market rate formula does not adequately account 
for certain factors which, if excluded, would make the maximum leased 
access rates resulting from the formula unworkable in today's 
programming marketplace. Although the proposed cost/market rate formula 
accounts for lost advertising revenue and lost commissions that would 
result from bumping existing programming, it does not account for 
negative effects that leased access programming might have on 
subscriber revenue (i.e., lost subscriber revenue caused by subscribers 
dropping the tier or by requiring a lower price due to a devaluation of 
the tier). In the Further NPRM, we recognized this cost but tentatively 
concluded that the inability to quantify the specific effect on 
subscriber revenue caused by the replacement of current programming 
with leased access programming in the tiered programming services 
context made it too speculative to include as an opportunity cost 
category in the cost/market rate formula. We nevertheless sought 
comment on how our cost/market rate formula might measure changes in 
subscriber penetration due to the addition of leased access 
programming.
    8. Neither the Commission nor the commenters in this proceeding 
have been able to accurately quantify the effect that leased access 
programming carried on a programming services tier may have on 
subscribership or subscriber revenues to a degree specific enough to 
assign it a definite value in a formula. Nevertheless, we no longer 
believe that this effect is a factor that reasonably can be ignored. 
Under the cost/market rate formula, the value of a channel is measured 
by subtracting the programming or license fee the operator pays for the 
channel from the advertising revenues and commissions the operator 
receives for the channel. The formula does not include the subscriber 
revenue received for the channel because, as explained above, we 
assumed that leased access programming would have no measurable impact 
on subscriber revenue. By ignoring the effect of leased access 
programming on subscriber revenue, the cost/market rate formula assigns 
a negative value to a channel where the license fee is higher than the 
revenue collected from advertising and commissions. For example, a 
programming service such as The Disney Channel, which carries no 
commercial advertising, could have a negative value under the cost/
market rate formula and thus would yield a negative leased access rate. 
The proposed cost/market rate formula therefore must not accurately 
represent at least some important factor in assessing the value of a 
channel because a well-established channel like The Disney Channel is 
unlikely to have a negative value to the operator. The missing factor, 
we believe, is the subscriber revenue that an operator receives because 
it carries a particular channel. In the case of a channel newly added 
to a tier, this subscriber revenue includes both the additional amount 
an operator can charge its existing subscribers when it adds a channel 
and also the full tier price paid by subscribers the channel attracts 
to the tier.
    9. Because the cost/market rate formula does not adequately account 
for a significant benefit that cable operators receive from 
programming, we believe it may result in an unduly low rate that does 
not adequately capture the value of a channel. Such a rate would not 
adequately compensate the cable operator and would force cable 
operators to subsidize leased access programmers, thereby impermissibly 
affecting the cable system's operation, financial condition or market 
development. We therefore concluded that the proposed cost/market rate 
formula would not accurately establish reasonable maximum rates 
because, in its attempt to measure the opportunity costs of using a 
channel for leased access, it ignores a significant opportunity cost--
the effect on subscriber revenue. Because neither the Commission nor 
the commenters in this proceeding have been able to

[[Page 11368]]

specifically quantify this effect, we were unable to revise our 
proposed formula in a way that would allow us to adopt it as an 
appropriate method for determining maximum leased access rates.
ii. Maximum Rate for Full-Time Leased Access Programming Carried on a 
Programming Services Tier
    10. Based on our review of the comments, we no longer believe that 
the proposed cost/market rate formula is a reasonable formula for 
determining maximum leased access rates. Instead, we decided to retain 
an implicit fee formula. We did, however, modify our current formula to 
address the concerns set forth in the Further NPRM and in the comments. 
Specifically, as described below, we concluded that the maximum 
reasonable rate for leased access programming that is carried on a 
programming services tier should be the ``average implicit fee.'' We 
will, however, continue to monitor the availability of leased access 
channels and may revisit this issue if it appears that the average 
implicit fee formula no longer reflects a reasonable rate.
    11. To determine the average implicit fee for a full-time channel 
on a particular tier with a subscriber penetration over 50%, an 
operator must first calculate the total amount it receives in 
subscriber revenue per month for the programming on all such tier(s), 
and then subtract the total amount it pays in programming costs per 
month for such tier(s) (the ``total implicit fee calculation''). A 
weighting scheme that accounts for differences in the number of 
subscribers and channels on all such tier(s) must be used to determine 
how much of the total implicit fee calculation will be recovered from 
any particular tier. The weighting scheme is determined in two steps. 
First, the number of subscribers is multiplied by the number of 
channels (the result is the number of ``subscriber-channels'') on each 
tier with subscriber penetration over 50%. For instance, a tier with 10 
channels and 1,000 subscribers would have 10,000 subscriber-channels. 
Second, the number of subscriber-channels on each of these tiers is 
divided by the total number of subscriber-channels on all such tiers. 
Given the percent of subscriber-channels for the particular tier, the 
implicit fee for the tier is computed by multiplying the subscriber-
channel percentage for the tier by the total implicit fee calculation. 
Finally, to calculate the average implicit fee per channel, the 
implicit fee for the tier must be divided by the corresponding number 
of channels on the tier. The final result is the maximum rate per month 
that the operator may charge the leased access programmer for a full-
time channel on that particular tier. In the event of an agreement to 
lease capacity on a tier with less than 50% penetration, the average 
implicit fee should be determined on the basis of subscriber revenues 
and programming costs for that tier alone.
    12. In essence, the average implicit fee measures the average 
amount that full-time programmers implicitly ``pay'' the cable operator 
for carriage. In other words, the average implicit fee represents the 
average amount of subscriber revenue that full-time programmers cede to 
the operator to permit the operator to cover its costs and earn a 
profit. For instance, if subscribers pay an average of $0.50 per 
channel for a particular tier, and the average programming or license 
fee on the tier is $0.10, then, on average, programmers on the tier are 
implicitly ``paying'' the operator $0.40 for carriage. Since full-time 
lessees resemble, and will be competing with, full-time cable networks, 
it is appropriate that the maximum full-time leased access rate reflect 
the average marketplace terms and conditions under which cable networks 
are able to gain access to the cable system. From the operator's 
standpoint, the average implicit fee represents the average value of a 
channel after programming acquisition costs are paid. A formula based 
on the average value of a channel may reflect the value of channel 
capacity more accurately than a formula based on the value of the 
programming bumped for leased access, such as the proposed cost/market 
rate formula, because programming that is bumped for leased access may 
not have had sufficient opportunity to reach its full revenue-
generating potential.
    13. In addition, we adopted an average implicit fee formula because 
it is possible to determine the average value of a channel accurately, 
even when channels are sold as part of a package (i.e., a tier). A 
precise calculation of the average channel value is possible because 
the necessary components are known: in particular, what a subscriber 
pays for the tier and what the operator pays in total programming costs 
for all channels on the tier. By contrast, the proposed cost/market 
rate formula and the highest implicit fee formula cannot provide such 
accuracy because they attempt to measure the value of an individual 
channel on a tier. However, the value of an individual channel on a 
tier cannot be ascertained accurately because it is not possible to 
determine the subscriber revenue attributable to a particular channel 
that is sold collectively with other channels as a single package. The 
same problem would be presented by an attempt to determine the lowest 
implicit fee.
    14. We also believe that developments in the multichannel video 
programming marketplace are relevant to our decision to adopt the 
average implicit fee formula. The number of non-vertically integrated 
national programming services has grown in each of the past three 
years. We believe that a shift from a highest implicit fee formula to 
an average implicit fee formula may provide additional opportunities 
for diverse, unaffiliated programmers to enter the marketplace, without 
creating a maximum rate that is artificially low and putting the cable 
operator's operation, financial development or market development at 
risk.
    15. Moreover, we believe that the average implicit fee formula 
addresses the concerns with the highest implicit fee formula that we 
expressed in the Reconsideration Order. Most importantly, we do not 
believe that the average implicit fee formula permits the operator a 
``double recovery.'' In the Reconsideration Order, we noted that the 
highest implicit fee formula overcompensates the operator because it 
appears to allow the value of the channel to be recovered twice--once 
from the leased access programmer (the highest implicit fee), and once 
from subscribers (the average per channel subscriber charge). For 
example, if the subscriber revenue for a tier is an average of $0.50 
per channel and the lowest license fee for unaffiliated programming on 
that tier is $0.05, the highest implicit fee for that tier would be 
$0.45. Because we assumed that the leased access programmer would pay 
up to $0.45 (the highest implicit fee) and the subscriber would still 
pay $0.50 (the average per channel subscriber charge), we believed that 
the operator was permitted to recover the value of the channel twice.
    16. Our ``double recovery'' hypothesis was based on the assumption 
that operators would be able to charge subscribers the same amount for 
leased access programming that they charge on average for other 
programming on the same tier. Although a number of commenters in this 
proceeding supported this assumption, other commenters asserted that 
subscribers will not be willing to pay the same amount for leased 
access programming because subscribers value it less than programming 
selected by the operator. These commenters claimed that the amount of 
subscriber revenue that

[[Page 11369]]

operators will be able to collect for most leased access channels will 
be close to or equal to zero, and leased access programming may in fact 
diminish the value of a tier because subscribers will find it so 
unappealing that viewership of the other programming on the tier will 
be adversely impacted.
    17. Based on the record before us, we could not conclude that 
operators, in general, will be able to charge the same amount for a 
tier once leased access programming is added, especially since most 
leased access programming will be new and will not have an established 
audience. We could not, however, predict with any certainty what the 
relative value of the leased access programming will be. It is possible 
that some leased access programming will be as profitable, if not more 
so, than some of the operator's selected programming and that the 
effect on the tier charge will be neutral or positive. On the other 
hand, it is also possible that some leased access programming will be 
less valuable than the operator's current programming, leading either 
to a loss of subscribers or to a loss of subscriber revenue if the 
operator lowers the tier price.
    18. We therefore found that the assumption underlying our ``double 
recovery'' hypothesis--that leased access programming will always be 
equally valuable to the operator as its non-leased access programming--
was not supported by the record. Neither the Commission nor the 
commenters, however, have been able to develop a reliable method for 
predicting what value, if any, subscribers will place on leased access 
programming. Since the current record did not permit us to accurately 
assess the impact of leased access programming on the value of the 
tier, we could not find that leased access programming will necessarily 
result in an excess recovery (let alone a ``double'' recovery) for the 
operator.
    19. Moreover, we believe that any potential excess recovery 
generally will be minimal. Based on what cable operators in a 
competitive environment are able to charge subscribers for the addition 
of a new channel, our ``going forward'' order allows operators to 
charge a subscriber $0.20 a month for an additional channel. We expect, 
however, that operators will recover less than $0.20 for a new leased 
access channel because we believe that, on average, subscribers will 
not be willing to pay as much for new leased access programming as they 
do for new programming selected by the cable operator. In selecting its 
own programming, a cable operator is able to take into account the 
particular mix of programming already on its system and the particular 
interests and demands of its subscribership. Thus, unlike with leased 
access, the operator can select programming that will maximize net 
subscriber revenue.
    20. Additional factors are likely to further reduce any potential 
excess recovery. For one, the ``going forward'' rate is based on what 
operators can charge subscribers when new channels are added without 
displacing existing programming. Therefore, if leased access 
programming displaces existing programming, any amount of subscriber 
revenue that an operator gains from a leased access channel may be 
offset by subscriber revenue lost from the displaced channel. In 
addition, we believe that subscriber revenue from a leased access 
channel will be further offset by lost advertising revenues since 
leased access programmers, unlike other programmers, generally will not 
provide advertising slots to the cable operator. Subscriber revenue 
will also be offset by additional administrative costs imposed by 
leasing, which are not recovered through the average implicit fee 
formula. For all of the above reasons, we believe that any excess 
recovery for a leased access channel will be significantly less than 
the $0.20 that an operator is allowed to charge subscribers for a new 
channel.
    21. Although we no longer believe that our ``double recovery'' 
concern was a valid reason for rejecting the highest implicit fee 
formula, we nonetheless believe that the average implicit fee formula 
is a more appropriate method for determining the maximum leased access 
rate. First, as discussed above, the average implicit fee is based on a 
more logical calculation than the highest implicit fee, because it is 
derived from values that can be measured--subscriber revenue for the 
tier(s) and programming costs for the tier(s)--to arrive at an average 
amount of subscriber revenue that programmers cede to the operator in 
exchange for carriage. The highest implicit fee formula, by contrast, 
attempts to measure the implicit fee of a particular channel by using 
one verifiable figure (the actual programming cost) and one proxy (the 
average per channel subscriber revenue), since the actual amount that 
subscribers pay for any particular channel on a tier cannot be 
determined. Second, the average implicit fee mitigates our previous 
concern that the highest implicit fee may overcompensate operators by 
permitting them to charge the highest mark-up over programming costs 
(i.e., the highest of the implicit fees). While the average implicit 
fee formula does not allow the operator to recover its highest mark-up 
over programming costs, it also does not restrict the operator to 
charging the lowest mark-up over programming costs. Although we stated 
in the Rate Order that using the highest market value of channel 
capacity is fair, we believe that basing the maximum rate on the 
average mark-up over programming costs more appropriately balances the 
interests of cable operators and leased access programmers.
    22. Third, we also expressed concern in the Reconsideration Order 
that an implicit fee formula is not based on the operator's reasonable 
costs. We now believe, however, that an implicit fee formula may better 
reflect the value of the channel capacity, since a formula based 
strictly on quantifiable costs cannot account for lost subscriber 
revenue and therefore may not adequately compensate the operator. Given 
that the maximum rate should not adversely affect the operation, 
financial condition or market development of the cable system, it is 
entirely appropriate to consider these non-quantifiable costs, such as 
any negative effects leased access programming may have on the value of 
the tier, in establishing the market value of a channel.
    23. We also made a few other changes to the manner in which the 
maximum leased access rate is calculated for tiered channels. First, we 
departed from the current rule requiring rate calculations to be made 
on a tier-by-tier basis. As described below, we have determined that 
leased access programmers have the right to demand access to a tier 
with more than 50% subscriber penetration. We believe that subscribers 
generally perceive these highly penetrated tiers as a single 
programming package, not as separate products. Consistent with this 
view, we believe that operators should calculate the average implicit 
fee using all channels carried on any tier with more than 50% 
subscriber penetration. In addition, our rate regulation rules 
generally are based on the principle of tier neutrality, which requires 
cable operators to charge the same per channel rate regardless of the 
programming costs incurred on a particular tier. Prior to rate 
regulation, we believe that tier prices did not necessarily follow this 
tier neutrality principle. Similarly, because the Communications Act 
requires cable operators to transmit must-carry and public, 
educational, and governmental (``PEG'') access channels on the basic 
service tier, the average programming cost on that tier will tend to be 
lower than it would be absent such a carriage requirement. Since, as a 
result of

[[Page 11370]]

regulation, individual tier prices may not be directly correlated with 
their underlying programming costs, we believe that it is appropriate 
to permit cable operators to assess these costs more accurately by 
averaging across highly penetrated tiers.
    24. Second, we believe that the maximum rate calculation should no 
longer exclude channels devoted to must-carry broadcast signals or PEG 
access programming. In the Reconsideration Order, we stated that must-
carry and PEG access channels should be excluded from consideration 
because the lack of program license fees for those channels does not 
represent a marketplace decision, but is the result of statutory 
mandates. Under the highest implicit fee approach, the inclusion of 
channels with zero license fees, such as must-carry and PEG access 
channels, would virtually ensure that every cable system had a 
commensurately high leased access rate. Now, with the average implicit 
fee formula, because all of the programming costs are averaged 
together, it is appropriate to include must-carry and PEG access 
channels in calculating the maximum leased access rate. Although the 
lack of programming costs for these channels makes it inappropriate to 
use them as the sole determinant of maximum rates, these channels are 
relevant to a calculation that is based on the value of the relevant 
tier(s). Since the average implicit fee is derived from the total value 
of the tier(s) being considered, it is appropriate to account for the 
effect of all of the channels on the tier(s). Moreover, as with all 
individual channels on a tier, it would not be possible to ascertain 
how much the total subscriber revenue for the tier should be reduced if 
must-carry and PEG access channels were excluded.
    25. For the same reason we also concluded that the maximum rate 
calculation should no longer exclude channels devoted to affiliated 
programming. In the Rate Order, we determined that affiliated 
programming should not be considered in determining the highest 
implicit fee because to do so could affect the operator's right to 
charge affiliated and unaffiliated programmers different rates. 
However, in addition to the necessity of including all channels on the 
relevant tier(s) in an average implicit fee calculation, we believe 
that requiring cable operators to base an implicit fee calculation only 
on unaffiliated programming may inappropriately result in different 
maximum leased access rates for systems that are identical but for 
their affiliation with certain programmers. We believe that adopting a 
standard similar to that adopted with regard to our affiliate 
transaction rules will resolve this disparity without interfering with 
the operator's right to establish different rates for affiliated and 
unaffiliated programmers. We therefore modified our rules to require 
that, in calculating the average implicit fee, operators must use 
programming costs for affiliated programming that reflect the 
prevailing company prices offered in the marketplace to third parties. 
If a prevailing company price does not exist, the programming should be 
priced at the lower of the programmer's cost or the fair market value. 
Because these objective measurements are based on factors outside 
affiliated transactions, the requirement to use them as proxies for the 
actual programming costs does not conflict with our conclusion in the 
Rate Order that the Commission is precluded from establishing rates 
based on transactions with affiliates.
    26. Finally, we eliminated our current programmer categories for 
determining maximum rates for leased access programming that is carried 
on a tier. In the Rate Order, the Commission stated that the programmer 
categories were intended to reflect the different economies faced by 
the different types of programmers. We now believe, however, that 
basing maximum rates on the average value of the channel capacity is a 
more appropriate approach to implementing section 612 than making 
distinctions based on the different economies among leased access 
programmers. For this reason, and also because an average implicit fee 
calculation must include all channels on the relevant tier(s), we 
abolished the mandatory distinction between the rate charged to direct 
sales programmers and ``all others.'' Therefore, all leased access 
programmers carried on a cable system's tier will be subject to the 
same maximum rate, which will be derived using all channels on the 
relevant tier(s), including channels devoted to direct sales 
programming (e.g., home shopping networks and infomercials). As 
described below, cable operators will still be required to calculate 
different rates for programming services sold on a per-channel, or a la 
carte, basis. We will maintain the distinction between leased access 
programming carried on a tier and leased access programming offered as 
an a la carte service, not because of their ``different economies,'' 
but because of the practical differences involved in implementing a 
maximum leased access rate for a la carte services.
iii. Maximum Rate for Full-Time Leased Access Programming Carried as an 
A La Carte Service
    27. Despite our conclusion that the average implicit fee formula is 
the appropriate method for setting maximum reasonable rates for leased 
access programming carried on a tier, we concluded that the highest 
implicit fee formula remains the best approach for setting maximum 
reasonable rates for leased access programming offered to subscribers 
as an a la carte service. Because the subscriber revenue for an a la 
carte service is known, an a la carte programmer can readily determine 
how much it is implicitly paying the operator for carriage. If an 
unaffiliated a la carte programmer is implicitly paying more than the 
maximum leased access rate for carriage, the a la carte programmer 
could obtain a larger share of the subscriber revenue simply by 
demanding a lease. This potential disruption to operators' negotiated 
relationships with unaffiliated a la carte programmers could adversely 
impact the operation, financial condition, and market development of 
cable systems. The highest implicit fee for a la carte services 
protects operators from this potential adverse effect because, unlike 
the average implicit fee, it represents the maximum amount that any a 
la carte programmer is implicitly paying for carriage. The average 
implicit fee does not pose such a risk for tiered services because the 
actual subscriber revenue for individual channels is not known. Even if 
the actual subscriber revenue for a particular tiered service could be 
determined, a non-leased access programmer implicitly paying more than 
the average implicit fee would have little reason to switch to leased 
access because subscriber revenue is not passed through to leased 
access programmers that are carried on a tier. Non-leased access 
programmers that are carried on a tier are unlikely to switch from an 
arrangement where they receive a license fee to an arrangement where 
they pay the cable operator but receive no subscriber revenue.
    28. In addition, because in the a la carte context we are able to 
determine the actual subscriber revenue derived from particular 
programming services, we do not need to use the average implicit fee 
formula. Moreover, there can be no ``double recovery'' in the a la 
carte context because any subscriber revenues for a leased access 
channel carried as an a la carte service are readily ascertainable and 
can be passed through to the leased access programmer. In order to 
protect against any over recovery, we modified our

[[Page 11371]]

rules to clarify that any subscriber revenue from an a la carte leased 
access service must be passed through to the leased access programmer. 
As with the average implicit fee, we require operators to include 
affiliated a la carte services in their highest implicit fee 
calculation using the rules described above for determining programming 
costs for affiliated programming. As discussed below, we also made one 
modification regarding the calculation of the highest implicit fee for 
a la carte programming services.
iv. Transition Period
    29. We did not establish a transition period for implementing our 
revised rate formulas. In the Rate Order, the Commission clearly stated 
that ``the rules we adopt should be understood as a starting point that 
will need refinement both through the rulemaking process and as we 
address issues on a case-by-case basis.'' Thus, cable operators and 
non-leased access programmers have had ample notice that the rate 
formula was subject to change. Both operators and programmers alike 
understand that a reduction in the maximum rate could increase the 
demand for leased access, thereby increasing the possibility that 
bumping might occur. We believe that operators and programmers that 
negotiate to place non-leased access programming on a channel 
designated for leased access assume the risk that the programming might 
have to be bumped for a leased access programmer. Section 612 
explicitly provides that operators may no longer use unused leased 
access capacity once a written agreement is obtained by a leased access 
programmer.

B. Part-Time Leased Access Programming and Maximum Part-Time Rates

    30. Under the Commission's rules, cable operators are required to 
accommodate part-time leased access requests, but need not accommodate 
requests of less than one half hour. With respect to rates for part-
time leased access programming, the Commission's rules permit cable 
operators to charge different time-of-day rates, provided that: (a) The 
total of the rates for a day's schedule (i.e., a 24-hour block) does 
not exceed the maximum rate for one day of a full-time leased access 
channel prorated evenly from the monthly rate; (b) the overall pattern 
of time-of-day rates is otherwise reasonable; and (c) the time-of-day 
rates are not intended to unreasonably limit leased access use. The 
Further NPRM sought comment on a cable operator's obligation to 
accommodate a part-time leased access programmer by opening a new 
channel for leased access use, and on the calculation of maximum rates 
for part-time use.
i. Accommodation of Requests for Part-Time Leased Access
    31. As an initial matter, we affirmed our current rule requiring 
cable operators to lease time in half-hour increments. We recognize 
that part-time leasing is not expressly required by the statute, that 
it may impose additional administrative and other costs on cable 
operators, and that it may pose the risk of capacity being under-used. 
As noted above, if cable operators are not adequately compensated for 
their capacity, it may constitute a violation of Section 612. We also 
recognize, however, that the statute does not restrict leased access to 
full-time programming and that part-time programming currently 
represents a significant share of the leased access marketplace, 
thereby providing much of the competition and diversity of programming 
sources that Section 612 was intended to promote. Therefore, rather 
than permit cable operators to exclude part-time leased access 
programming, we permit cable operators to set reasonable limits on when 
and how part-time programming must be accommodated, as set forth below.
    32. First, we affirmed the holding in TV-24 Sarasota, Inc. v. 
Comcast, 10 FCC Rcd 3512, 3518 (Cable Serv. Bur., Dec. 27, 1994) that a 
cable operator is not required to open an additional leased access 
channel if a programmer's request can be accommodated in a comparable 
time slot on an existing leased access channel. We believe that the 
comparability of time slots can be determined by a number of objective 
factors, such as day of the week, time of day, and audience share. We 
also adopted our tentative conclusion in the Further NPRM that a cable 
operator should not be required to make even a dark channel available 
for leased access, so long as the programmer's request can be 
accommodated in a comparable time slot on a programmed channel. In 
addition, we extended TV-24 Sarasota to permit a cable operator to 
accommodate a part-time leased access request by offering the 
programmer a comparable time slot on a channel otherwise carrying non-
leased access programming.
    33. Furthermore, we concluded that cable operators should not be 
required to open an additional channel for use by part-time leased 
access programmers until existing part-time leased access channels are 
substantially filled with leased access programming. For these 
purposes, we will consider a channel to be ``substantially filled'' 
with leased access programming if leased access programming occupies 
75% or more of its programming day. In other words, cable operators do 
not have to open a second channel for part-time use until the first 
part-time channel has at least 18 hours of programming every day. 
Likewise, a third channel for part-time use does not have to be made 
available until the second channel has at least 18 hours of programming 
every day, and so on.
    34. Consistent with our tentative conclusion in the Further NPRM, 
we provide an exception to this rule and require operators to open an 
additional channel for part-time leased access use if a programmer (or 
collective) agrees to provide programming for a minimum of eight 
contiguous hours every day for at least one year. The programmer may 
select any eight-hour time period during the day, but the same eight 
hours must be used every day. Therefore, even if an operator has an 
existing part-time leased access channel that is not substantially 
filled with leased access programming, the operator must open an 
additional part-time leased access channel if it cannot otherwise 
accommodate a programmer's request for a year-long eight-hour daily 
time slot. Once an operator has opened a vacant channel to accommodate 
such a request, our other leased access rules apply. If, however, the 
operator has accommodated such a request on a channel already carrying 
an existing full-time non-leased access programmer, the operator does 
not have to accommodate other part-time requests of less than eight 
hours on that channel until all other existing part-time leased access 
channels are substantially filled with leased access programming.
    35. Part-time programmers are permitted to seek access on a 
collective basis. If part-time programmers request an entire channel on 
a collective basis, the operator must provide the channel regardless of 
any unused capacity on part-time leased access channels because we 
would not consider that a request for part-time programming. Similarly, 
part-time programmers that individually cannot meet the year-long 
eight-hour daily time commitment may demand access as a group in order 
to satisfy the requirement. Allowing collective requests will not 
impose any further burden on cable operators since the same request 
could have been made by an individual programmer.
    36. To summarize, we modified our rules regarding part-time leased 
access programming as follows. Cable operators may accommodate part-
time

[[Page 11372]]

leased access requests by providing comparable time slots on non-leased 
access channels or on channels already being used for leased access on 
a part-time basis. Cable operators will not be required to make an 
additional channel available for part-time leased access use until all 
other part-time leased access channels have at least 18 hours of leased 
access programming every day. So long as an operator has at least one 
channel designated for part-time leased access use that is not 
substantially filled by part-time programmers, the operator will not be 
required to open another part-time channel even if comparable time 
slots are no longer available on the part-time channel that is only 
partially programmed. However, if a leased access programmer (or 
collective) agrees, at a minimum, to provide programming during the 
same eight-hour time slot every day for at least one year, an operator 
will be required to accommodate the request even if an existing part-
time leased access channel is not substantially filled with leased 
access programming. We believe that this approach achieves the 
statutory objectives of competition and diversity of programming 
sources, while doing so in a manner consistent with the growth and 
development of cable systems.
ii. Maximum Part-Time Rates
    37. Because we did not adopt the proposed cost/market rate formula, 
and because the formulas for tiered and a la carte full-time services 
that we adopted are similar in kind to the existing approach for 
setting the maximum full-time leased access rate, we affirmed our 
decision to require that cable operators prorate their maximum full-
time rate when determining their maximum permitted part-time rate, and 
to allow operators to adjust part-time rates according to time-of-day 
pricing. As we stated in the Reconsideration Order, we believe that 
this approach accounts for marketplace realities by recognizing that 
different time slots have different values, furthers the statutory goal 
of promoting a diversity of programming sources, and promotes the full 
use of leased access channels by making non-prime time slots less 
expensive than prime-time slots, and therefore more attractive, to 
programmers. Cable operators are permitted to recover any additional 
technical costs that are attributable to part-time leased access 
programming in accordance with the rules described below.

C. Resale of Leased Access Time

    38. In the Further NPRM, we asked whether persons unaffiliated with 
the operator should be allowed to lease programming time from the 
operator and then sell it for a profit to other unaffiliated persons. 
In the Order, we concluded that resale of leased access capacity to 
persons unaffiliated with the operator should be permitted, subject to 
certain contractual conditions described below that a cable operator 
may reasonably impose, because we believe that resale can provide 
substantial benefits to leased access programmers without an adverse 
impact on cable operators. In particular, we believe that small and 
part-time programmers could benefit from resale. For instance, a 
reseller could bring together various part-time programmers to form a 
programming package for an entire channel. This service would not only 
relieve operators of much of the cost and burden of dealing with a 
large number of small programmers, but would be more efficient, since a 
reseller's business would be devoted to this goal while cable operators 
typically devote little or no staff to promoting leased access. We 
believe that resale may prove to be a crucial mechanism by which part-
time programmers are able to obtain carriage.
    39. To avoid discouraging cable operators from providing carriage 
to not-for-profit entities and others at reduced rates, we found that 
it would be a reasonable term or condition of carriage for a cable 
operator to provide that if the lessee resells its capacity, the lessee 
must start paying the operator at a rate which may be up to and 
including the maximum permissible rate. In addition, cable operators 
may provide in their leased access contracts that any sublessees are 
subject to the non-price terms and conditions that apply to the initial 
lessee. Finally, we noted that the cable operator's right to refuse to 
transmit programming containing obscenity or indecency applies to any 
leased access program or portion of a leased access program, regardless 
of whether the programmer purchased leased access capacity directly 
from the cable operator or through a reseller.

D. Tier and Channel Placement

    40. Background: According to the legislative history of the 1992 
amendments to Section 612, the purpose of leased access would be 
defeated if leased access programmers were placed on tiers that few 
subscribers access. The 1992 Senate Report states that ``[t]he FCC 
should ensure that [leased access] programmers are carried on channel 
locations that most subscribers actually use.'' It further states that 
``it is vital that the FCC use its authority to ensure that these 
channels are a genuine outlet for programmers.'' In the Further NPRM, 
the Commission tentatively concluded that leased access programmers are 
entitled to placement either on the basic service tier (``BST'') or on 
the cable programming services tier (``CPST'') with the highest 
subscriber penetration, unless technical or other compelling reasons 
weigh against such placement. We reasoned that the BST and the CPST 
with the highest subscriber penetration qualify as ``genuine outlets'' 
because ``most subscribers actually use'' them. We sought comment on 
whether the term ``most subscribers'' should be interpreted to mean 
that any CPST that has a subscriber penetration of more than 50% should 
also qualify as a ``genuine outlet.''
    41. Discussion: As stated in the Further NPRM, we believe that we 
must ensure a ``genuine outlet'' for leased access programming in order 
to further the statutory goals of competition in the delivery of video 
programming sources and diversity of programming sources. To that end, 
we affirmed our tentative conclusion that, absent a technical or other 
compelling reason, leased access programmers have the right to demand 
access to a tier that most subscribers actually use. Leased access 
programmers would not be assured access to most subscribers if cable 
operators were permitted to require leased access channels to be sold 
on an individual, or a la carte, basis.
    42. Although we continue to believe that the BST and the CPST with 
the highest subscriber penetration qualify as genuine outlets, we do 
not think it is necessary to restrict the placement of leased access 
programming to only those tiers. We believe that any tier with a 
subscriber penetration over 50% should also qualify as a genuine outlet 
because it consists of channel locations that ``most subscribers 
actually use.'' Therefore, if a leased access programmer requests 
placement on a tier, we will allow the cable operator the flexibility 
to place the programming on any tier that has a subscriber penetration 
of more than 50%. We believe that this approach takes into account the 
``legitimate need of the cable operator to market its product'' because 
it allows the operator to consider the marketing mix of different 
tiers. The record reflected that some commenters would favor placing 
leased access channels on a separate tier comprised primarily, if not 
exclusively, of leased access programming. We concluded that so long as 
such a tier has a subscriber penetration of more than 50%, the cable 
operator is not precluded from developing a tier that predominantly 
features leased access programming.

[[Page 11373]]

    43. With regard to specific channel placement, we believe that the 
cable operator should have the discretion to select the channel 
location of a leased access channel, so long as the operator's choice 
is reasonable. Because a determination of reasonable channel placement 
will depend on the particular circumstances of a situation, we will 
evaluate these types of disputes on a case-by-case basis. We will take 
into consideration evidence that the operator deliberately interfered 
with potential viewership of the leased access programming in an effort 
to discourage continued carriage (e.g., by intentionally surrounding a 
leased access channel with dark channels or by frequently shifting its 
channel location without sufficient justification). Once a cable 
operator has provided leased access programmers with a genuine outlet, 
we do not believe it is necessary to interfere with that operator's 
ability to structure channel line-ups. Therefore, although a leased 
access programmer may demand access to a tier that has a subscribership 
of more than 50%, the cable operator is entitled to place the leased 
access programming on any reasonable channel location on any qualifying 
tier.

E. Minority and Educational Programmers

    44. Background: Pursuant to section 612(i), a cable operator may 
substitute programming from a qualified minority or educational 
programming source for up to 33% of its designated leased access 
channels. In the Further NPRM, the Commission sought comment on whether 
leased access requirements regarding tier and channel placement should 
also apply to minority or educational programming that is used as a 
substitute for leased access programming. The Commission tentatively 
concluded that minority or educational programming should not qualify 
as a substitute for leased access programming unless it is carried on 
the BST or on a CPST that qualifies as a genuine outlet.
    45. Discussion: Applying the same tier placement standard we 
adopted for leased access, we concluded that minority or educational 
programming will not qualify as a substitute for leased access 
programming unless it is carried on a tier that has a subscriber 
penetration of more than 50%. The cable operator may select which 
qualifying tier to use for the substituted programming. As we noted in 
the Further NPRM, neither the statute nor the legislative history 
specifically requires that most subscribers receive the substituted 
minority or educational programming. However, as we previously stated, 
the language of Section 612(i)(1) strongly suggests that Congress 
envisioned that any substituted minority or educational programming 
would be placed on the same channels that would have been used for 
leased access. Specifically, section 612(i)(1) states that ``a cable 
operator required by this section to designate channel capacity for 
commercial use may use any such channel capacity'' to provide minority 
or educational programming. Furthermore, to allow a more lenient 
standard for minority or educational programming could potentially 
diminish its value as a substitute for leased access programming. We 
therefore imposed the same tier and channel placement requirements on 
substitute minority or educational programming as we did on leased 
access programming.

F. Preferential Access

    46. Background: In the Further NPRM, we asked whether preferential 
treatment for not-for-profit leased access programmers should be 
required to promote a diversity of programming sources. We sought 
comment on how to calculate preferential rates, if found to be 
necessary, and we asked whether cable operators should be required to 
give preferential access to not-for-profit programmers by setting aside 
a certain percentage of their leased access capacity for such use 
(e.g., 25%). Commenters were also invited to demonstrate with specific 
evidence why preferential treatment might be appropriate for certain 
types of for-profit programmers, such as low power television 
(``LPTV'') stations and minority and educational programmers.
    47. Discussion: We do not believe that mandating preferential 
access or preferential rates for not-for-profit programmers, or any 
other class of programmers, is necessary or appropriate under Section 
612. First, leased access is intended for ``commercial use,'' which the 
Communications Act defines as ``the provision of video programming, 
whether or not for profit.'' The fact that not-for-profit leased access 
programmers are defined as commercial users for purposes of leased 
access indicates that they should compete on equal terms with for-
profit leased access programmers.
    48. Second, we do not believe that requiring cable operators to 
offer preferential treatment to not-for-profit programmers is necessary 
to serve the statutory purposes of Section 612. Mandatory preferential 
treatment would not necessarily promote diversity since unaffiliated 
not-for-profit programming sources are not inherently more diverse than 
unaffiliated for-profit programming sources. In fact, mandatory 
preferential treatment could potentially conflict with the statutory 
directive that leased access rates not ``adversely affect the 
operation, financial condition, or market development of the cable 
system'' because a mandatory preferential rate below what the 
Commission has determined to be the maximum reasonable rate may be 
insufficient to compensate operators for leased access use. Third, not-
for-profit status does not necessarily indicate a lack of financial 
resources. While we noted that Congress gave cable operators the 
flexibility to negotiate lower rates, we do not believe that operators' 
right to negotiate lower rates should be transformed into an obligation 
to provide affordable rates to not-for-profit leased access 
programmers.
    49. We also declined to mandate preferential treatment for not-for-
profit programmers that qualify as minority or educational programmers 
under Section 612(i)(2) or (3). Congress chose to encourage minority 
and educational programming by allowing it to be used as a substitute 
for leased access, regardless of its profit status. There is no 
evidence that Congress intended the Commission to create an additional 
mechanism to promote not-for-profit minority or educational programming 
through preferential rates and set-asides. Furthermore, we did not 
require cable operators to provide preferential treatment for LPTV 
stations or for educational and community programming services that 
public television stations may wish to offer in addition to their 
primary over-the-air signals. Congress provided public television 
stations and LPTV stations the preferences it deemed necessary.

G. Selection of Leased Access Programmers

    50. In the Further NPRM, the Commission proposed rules to govern a 
cable operator's selection of leased access programmers. In the Order, 
we concluded that, so long as an operator's available leased access 
capacity is sufficient to satisfy the current demand for leased access, 
all leased access requests must be accommodated as expeditiously as 
possible, unless the operator refuses to transmit the programming 
because it contains obscenity or indecency. We believe that such an 
approach is the most appropriate method of assuring that cable 
operators comply with section 612(c)(2), which explicitly restricts 
operators' exercise of editorial control

[[Page 11374]]

over leased access programming. Section 612(c)(2) provides that ``a 
cable operator shall not exercise any editorial control over any video 
programming provided pursuant to this section, or in any other way 
consider the content of such programming,'' except in the case of 
programming containing obscenity or indecency, or to the minimum extent 
necessary to set a reasonable price. We believe that requiring 
operators to accommodate all leased access requests when the 
programming does not contain obscenity or indecency, so long as there 
is available capacity, will most effectively restrict operators' 
exercise of editorial control, without impinging upon their discretion 
with regard to price and sexually-oriented programming. We also believe 
that such an approach will further the statutory objective to promote 
competition because it will reduce an operator's ability to select 
leased access programming based on anti-competitive motives.
    51. We believe, however, that an operator should be allowed to make 
objective, content-neutral selections from among leased access 
programmers when the operator's available leased access channel 
capacity is insufficient to accommodate all pending leased access 
requests. In the full-time channel context, this situation would arise 
if two or more leased access programmers requested the remaining 
available leased access space; in the part-time context, this situation 
could arise, for example, if two or more programmers requested the 8:00 
p.m. to 9:00 p.m. time slot on the system's part-time leased access 
channel. In such situations, we believe that the cable operator should 
be allowed to make an objective, content-neutral selection among the 
competing programmers. For example, the operator could hold a lottery. 
Or, the operator could base its decision on other objective, content-
neutral criteria such as a programmer's non-profit status, the amount 
of time a programmer is willing to lease, or a programmer's willingness 
to pay the highest reasonable price for the capacity at issue. Allowing 
flexibility within this limited context will better enable operators to 
assure the growth and development of their cable systems.
    H. Procedures for Resolution of Disputes
    52. We affirmed our proposal in the Further NPRM to streamline the 
complaint process by requiring that an independent accountant make a 
determination of the cable operator's maximum permitted rate prior to 
the filing of any complaint alleging that the operator's rate is 
unreasonable. We believe that such a requirement will preserve 
Commission resources by reducing the likelihood that unsubstantiated 
claims will be filed with the Commission. In the event that a complaint 
is filed with the Commission because the dispute remains unresolved 
despite the accountant's final report, there will be a rebuttable 
presumption that the accountant's findings are correct.
    53. We did not adopt our proposal in the Further NPRM to allow the 
cable operator to select an independent accountant in the event that 
the operator and leased access programmer fail to agree on a mutually 
acceptable accountant. Such an approach may be unfair to the leased 
access programmer because it does not encourage the operator to find a 
mutually acceptable accountant. Instead, we required that if the 
parties cannot agree on a mutually acceptable accountant within five 
business days of the programmer's request for a review, they must each 
select an independent accountant on the sixth business day. These two 
accountants will then have five business days to select a third 
independent accountant to perform the review. To account for their more 
limited resources, operators of systems entitled to small system relief 
will have 14 business days to select an independent accountant when no 
agreement can be reached. A cable system is entitled to small system 
relief if it either: (a) serves 15,000 or fewer subscribers and is 
owned by a small cable company serving a total of 400,000 or fewer 
subscribers over all of its systems, or (b) has been granted special 
relief as provided for in the Sixth Report and Order and Eleventh Order 
on Reconsideration in MM Docket Nos. 92-266 and 93-215, 60 FR 35854 
(July 12, 1995) (``Small System Order''). The final accountant report 
must be completed within 60 days of when the final accountant is 
selected to perform the review. The Order amended the Commission's 
current rule requiring complaints to be filed within 60 days of the 
alleged violation to provide instead that complaints must be filed 
within 60 days of the completion of the final accountant report.
    54. The operator must pay the full cost of the review if the final 
accountant report shows that the operator's rate exceeds the maximum 
permitted rate by more than a de minimis amount. Otherwise, each party 
will pay their own expenses incurred in making the review and will 
split the cost of the final accountant's review. We believe that this 
approach is appropriate because, unlike the leased access programmer, 
the cable operator possesses all the information necessary to calculate 
its rates accurately and knows, or should know, whether its rates are 
excessive.
    55. The final accountant report should be filed in the cable 
system's local public file. In order for the information to serve as 
adequate notice to other potential leased access programmers, the final 
accountant report must, at a minimum, state the maximum permitted rate 
and explain, as fully as possible without revealing proprietary 
information, how it was determined. The report must be signed, dated, 
and certified by the accountant.
    56. We strongly encourage parties to use ADR to settle disputes 
that are not resolved by the final accountant report. If parties 
attempt, but fail, to settle their dispute through ADR, we will make an 
exception to our requirement that complaints must be filed within 60 
days of the completion of the final accountant report, provided that 
the leased access programmer certifies that its complaint was filed 
within 60 days of the termination of the ADR proceedings. The cable 
operator may rebut such a certification.

I. Contractual Issues

i. Minimum Contract Length
    57. In response to the request of a few commenters that we address 
certain contractual issues that arise in the negotiation of leased 
access contracts, we found that the record before us was insufficient 
to determine what a reasonable minimum contract length would be. We 
recognize that the lack of long-term security could create difficulties 
for leased access programmers that need to obtain financing or to make 
long-term investments in leases and equipment. However, our rule that 
operators must accommodate all leased access requests so long as 
capacity exceeds demand guarantees that a leased access programmer will 
be assured of continued access at least until the operator's set-aside 
requirement is met. Operators are not allowed to terminate leased 
access contracts for simply any reason asserted by the cable operator. 
Termination provisions of leased access contracts must be commercially 
reasonable. Because we believe that this requirement affords leased 
access programmers adequate security, we declined to establish a 
minimum contract length.
    58. Operators may not, however, unreasonably limit the length of a 
contract with a leased access programmer. In assessing reasonableness 
in this context, we will

[[Page 11375]]

weigh heavily the contract lengths that the operator enters into with 
the non-leased access programming services on its system.
ii. Insurance Requirements
    59. At the outset, we noted that operators have the right to 
require reasonable liability insurance coverage for leased access 
programming. We declined to adopt specific conditions or limits 
regarding the amount of coverage or the type of insurance policy that 
operators may require because we believe that a specific restriction 
might not be appropriate for all situations. Instead, we adopted a 
standard comparable to the standard that applies in the context of 
security deposits for leased access programming. That is, insurance 
requirements must be reasonable in relation to the objective of the 
requirement. Cable operators will bear the burden of proof in 
establishing reasonableness. Similar to the rule for security deposits, 
insurance requirements may be sufficient to insure adequate coverage. 
Determinations of what is a ``reasonable'' insurance requirement will 
be based on the operator's practices with respect to insurance 
requirements imposed on non-leased access programmers, the likelihood 
that the nature of the leased access programming will pose a liability 
risk for the operator, previous instances of litigation arising from 
the leased access programming, and any other relevant factors.

J. Technical Equipment Costs

    60. The Commission's rules provide that cable operators must 
provide ``the minimal level of technical support necessary for [leased 
access] users to present their material on the air * * * provided 
however, that leased access providers must reimburse operators for the 
reasonable cost of any technical support that operators actually 
provide.'' We clarified that this provision entitles cable operators to 
charge an additional fee only for the reasonable cost of providing 
technical support to a leased access programmer that is not also 
provided to non-leased access programmers on the system. Cable 
operators may not impose a separate charge for the same kind of 
technical support that they already provide to non-leased access 
programmers because the maximum leased access rate represents what non-
leased access programmers implicitly pay for carriage, including their 
technical costs. In other words, the maximum leased access rate already 
includes technical costs common to all programmers. Similarly, the 
operator cannot impose an additional charge on the leased access 
programmer to purchase additional equipment (e.g., when the current 
equipment is fully utilized) if the same type of equipment is used to 
serve non-leased access programmers. For example, the operator cannot 
add a charge for the costs of providing a satellite dish if it provides 
that type of technical support to non-leased access programmers at no 
additional charge. In contrast, the operator is entitled to add a 
charge to recover the costs of providing, for instance, a tape recorder 
or a camera if such technical equipment would be provided to non-leased 
access programmers for the same additional charge. The operator may 
also charge the leased access programmer for the use of technical 
equipment that is provided at no charge for PEG access programming, 
provided that the franchise agreement requires the operator to provide 
the equipment, the equipment is not being used for any other non-leased 
access programming, and the operator's franchise agreement does not 
preclude such use.
    61. If, in order to accommodate a leased access programmer, a cable 
operator must purchase technical equipment that is not of a type used 
by non-leased access programmers on the system, we believe that the 
operator should have the option of requiring the leased access 
programmer to pay the full purchase price of the equipment. Should the 
cable operator exercise this option, the leased access programmer will 
have all rights of ownership associated with the equipment under 
applicable state and local law. If, on the other hand, the operator 
prefers to own the technical equipment, it may purchase the equipment 
for itself and lease it to leased access programmers at a reasonable 
rate. We believe that this approach will protect leased access 
programmers, while assuring that the cable system's operation, 
financial condition or market development are not adversely affected.

K. Definition of Affiliate

    62. For purposes of section 612, we adopted the definition of 
affiliate that applies in the context of our program access rules under 
section 628 and our open video system rules under section 653. As we do 
in those contexts, we apply the definitions contained in the notes to 
47 CFR 76.501 (which reflect the broadcast attribution rules contained 
in the notes to 47 CFR 73.3555), with certain modifications. 
Specifically, in contrast to the broadcast attribution rules reflected 
in Sec. 76.501: (a) An entity is considered a cable operator's 
affiliate if the cable operator holds 5% or more of the entity's stock, 
whether voting or non-voting; (b) there is no single majority 
shareholder exception; and (c) all limited partnership interests of 5% 
or greater qualify, regardless of insulation. In addition, actual 
working control, in whatever manner exercised, is also deemed a 
cognizable interest.
    63. Section 612 is designed to promote diversity of programming 
sources and to reduce the ability of cable operators to discriminate 
against unaffiliated programming services for anti-competitive reasons. 
Because these dual objectives are analogous to the objectives of the 
program access and open video system rules, adoption of a similar 
affiliation standard is warranted. Moreover, by adopting a definition 
of affiliate for leased access that is consistent with the program 
access standard, we avoided the possibility that a programmer will be 
considered a cable operator's affiliate for one purpose but not for 
another.
    64. We also clarified that leased access programmers are required 
to be unaffiliated only with the operator of the cable system on which 
they seek carriage. Section 612(b)(1) provides that leased access 
channel capacity shall be designated for use by programmers 
``unaffiliated with the cable operator.'' We believe that use of the 
term ``the'' to modify ``cable operator'' clearly indicates that 
Congress was referring only to the cable operator of the particular 
system in question. We believe that if Congress feared that affiliated 
programmers have an advantage in acquiring carriage from even rival 
cable operators, it would have disqualified all affiliated programmers 
by using ``a'' or ``any'' to modify ``cable operator.'' Furthermore, 
allowing a broader category of programmers to use leased access will 
advance the statutory purposes of promoting competition and diversity.

III. Order on Reconsideration

A. Maximum Rate Formula

i. Exclusion of Programming Revenues
    65. We declined to modify our current rule that programming 
revenues received by the operator from non-leased access programmers, 
such as sales commissions from home shopping networks, should be 
excluded from the maximum rate calculation. We found that the effect of 
excluding sales commissions on future maximum leased access rates will 
be minimal given that the Order: (a) Adopted the average implicit fee 
for tiered services which, unlike the highest implicit fee, is derived 
using all channels on the

[[Page 11376]]

relevant tier(s), and (b) eliminated direct sales programming as a 
separate category for setting rates. We therefore do not believe that 
excluding sales commissions will result in the migration of home 
shopping networks to leased access.
ii. Averaging Subscriber Penetration for A La Carte Channels
    66. The Reconsideration Order clarified that in order to calculate 
the maximum rate when leased access programming is offered as an a la 
carte service, the highest per-subscriber implicit fee should be 
multiplied by the average number of subscribers that subscribe to the 
operator's a la carte services. As discussed above, we continue to 
permit cable operators to use the highest implicit fee formula to set 
maximum reasonable rates for leased access programming that is carried 
as an a la carte service. We believe, however, that it is most 
appropriate to require operators to determine on an aggregate basis for 
a single channel which of their a la carte services has the highest 
implicit fee. For example, if Channel A on a given cable system has a 
per-subscriber implicit fee of $1.00 and has 2000 subscribers, its 
aggregate implicit fee is $2000. If Channel B has a per-subscriber 
implicit fee of $1.50 and 1000 subscribers, its aggregate implicit fee 
is $1500. Of these channels, Channel A has the highest aggregate 
implicit fee even though it has a lower per-subscriber implicit fee 
than Channel B. Therefore, assuming these two channels are the only 
channels offered on an a la carte basis, the amount that is implicitly 
paid for Channel A would be the maximum rate that the operator may 
charge a leased access programmer that wishes to be carried as an a la 
carte service.
    67. We believe that this formulation accurately represents the 
highest amount that a non-leased access programmer has agreed to 
implicitly pay the operator for carriage as an a la carte service. 
Thus, it will discourage existing a la carte services from migrating to 
leased access. Accordingly, on reconsideration, we concluded that 
operators should not be required to multiply the highest per-subscriber 
implicit fee by the average number of subscribers that subscribe to the 
operator's a la carte services. Instead, operators must determine which 
a la carte service has the highest implicit fee by comparing their 
implicit fees on an aggregate basis.

B. Provision of Initial Leased Access Information

i. Response Period
    68. In the Reconsideration Order, we stated that our leased access 
complaint process had revealed that cable operators often did not 
provide rate information in a timely manner, despite our rule requiring 
a schedule of rates to be provided to prospective leased access 
programmers upon request. In order to facilitate the provision of such 
information to potential leased access programmers, we required an 
operator to provide the following information within seven business 
days of a request regarding leased access: (a) A complete schedule of 
the operator's full-time and part-time leased access rates; (b) how 
much of the cable operator's leased access set-aside capacity is 
available; (c) rates associated with technical and studio costs; and 
(d) if specifically requested, a sample leased access contract.
    69. In the Order, we stressed our expectation that cable operators 
will respond to all leased access requests in a complete and timely 
manner. While we recognized the importance of prompt disclosure of the 
required information by cable operators, we nevertheless modified our 
rule to require operators to respond to a leased access request within 
15 calendar days of the date the leased access programmer makes the 
request. Such an extension should insure that operators have a 
reasonable length of time to process leased access requests even when 
those requests are received through the mail. In order to provide more 
certainty regarding the date of a request, we also modified our rule to 
require that all requests for leased access be made in writing and 
specify the date they are sent to the operator. In addition, we allowed 
operators of systems subject to small system relief 30 calendar days 
from the date of a leased access request to provide the required 
information, rather than the 15 calendar days in which other operators 
must respond.
ii. Preconditions To Providing Initial Leased Access Information
    70. Because we remain concerned that requests for programmer 
information will be used by operators to discourage leased access use, 
operators may not ask for any information before responding to a leased 
access request unless the information is necessary to prepare the 
required response. For instance, if a leased access request does not 
specify for which cable system access is sought, the cable operator may 
ask the programmer for this information because maximum rates are 
calculated on a per-system basis. On the other hand, information from 
the programmer regarding its tier preference is not necessary for the 
operator to provide the required information, since the operator may 
place a programmer demanding access to a tier on any tier with more 
than 50% subscriber penetration. In addition, operators are not 
entitled to inquire about the content of the programming before 
responding to a request because such information is not relevant to the 
required rate and capacity information.
    71. We did, however, make an exception for systems subject to small 
system relief because their initial costs of providing this information 
may be higher than other systems. Therefore, we found that operators of 
systems subject to small system relief do not have to provide the 
required information until the leased access programmer supplies the 
following information: (a) Desired length of contract term, (b) time 
slot desired, (c) anticipated commencement date for carriage, and (d) 
the nature of the programming.
iii. Obligation To Provide Information Regarding the Amount of 
Available Leased Access Capacity
    72. We declined to reconsider our requirement that cable operators 
provide potential leased access users with information about how much 
set-aside capacity is available on their systems. We believe that 
information concerning overall available channel capacity may be of use 
to a potential leased access programmer in deciding which cable system 
best meets its needs, particularly if the programmer wishes to lease 
more than one channel. Moreover, we do not believe that calculating a 
system's available leased access capacity is difficult, particularly 
with the clarifications of our rules regarding the methodology for 
calculating set-aside requirements. Finally, the additional time we 
granted cable operators to supply the information should make supplying 
the information less burdensome.

C. Time Increments

    73. We declined to alter our current rule that operators are not 
required to accept leases that are for less than half-hour intervals. 
As noted above, part-time leased access programming provides much of 
the competition and diversity of programming sources that Section 612 
was intended to promote. As we stated in the Reconsideration Order, the 
most common programming time increment is typically one-half to

[[Page 11377]]

one hour. We therefore continue to believe that permitting operators to 
exclude leased access programming seeking half-hour increments would 
unfairly deny access to a substantial number of potential programmers. 
Moreover, we believe that the rules we adopted regarding part-time use 
address any concerns that a half-hour minimum will cause excessive 
migration of current infomercial programming to leased access channels 
and will lead to excessive displacement of existing non-leased access 
programmers. We clarified that the leased access rate for a half-hour 
program must be prorated to reflect the length of the program (i.e., 
hourly rates cannot be charged for half-hour programs).

D. Calculation of Statutory Set-Aside Requirement

    74. Section 612 requires a cable system to set aside up to 15% of 
its activated channels for leased access. For operators with 100 or 
fewer activated channels, the statutory set-aside requirements for 
leased access channels are expressed as a percentage of ``channels not 
otherwise required for use by federal law or regulation.'' We continue 
to believe that, when calculating its set-aside requirement, an 
operator must include channels carrying retransmission consent stations 
because such channels are not ``required by federal law or 
regulation.'' We clarified that channels which cannot be used due to 
technical and safety regulations of the federal government, such as 
aeronautical channels, should be excluded when calculating the set-
aside requirement for cable systems that have 100 channels or less.

E. Billing and Collection Services

    75. Section 612(c)(4)(A)(ii) grants the Commission the authority to 
establish reasonable terms and conditions for the billing of rates to 
subscribers and for the collection of revenue from subscribers for 
leased access channels. In the Rate Order, we required cable operators 
to provide billing and collection services to leased access programmers 
unless operators could demonstrate the existence of third-party billing 
and collection services which, in terms of cost and accessibility, 
offer leased access programmers an alternative substantially equivalent 
to that offered to comparable non-leased access programmers. In both 
the Rate Order and the Reconsideration Order, we did not adopt specific 
rules regarding rates for such services. In the Order, we declined to 
modify our current rule or to establish specific rules relating to the 
rates that cable operators can charge for billing and collection 
services.

IV. Market Entry Analysis

    76. We noted that section 257 of the Communications Act requires 
the Commission to complete a proceeding to identify and eliminate 
market entry barriers for entrepreneurs and other small businesses in 
the telecommunications industry. The Commission is directed to promote 
a diversity of media voices and vigorous economic competition, among 
other things. We believe that the Order is consistent with the 
objectives of section 257 in that it establishes rates, terms, and 
conditions for leased access that are intended to promote diversity and 
competition. We also believe that our provisions for part-time leased 
access are especially suited to allow small or entrepreneurial leased 
access programmers to enter the telecommunications programming 
marketplace.

V. Final Regulatory Flexibility Analysis

    77. As required by section 603 of the Regulatory Flexibility Act, 5 
U.S.C. 603, (``RFA''), an Initial Regulatory Flexibility Analysis 
(``IRFA'') was incorporated in the Further NPRM. The Commission sought 
written public comments on the proposals in the Further NPRM, including 
comments on the IRFA. This Final Regulatory Flexibility Analysis 
(``FRFA'') conforms to the RFA, as amended.

A. Need for Action and Objectives of the Rule

    78. Section 612 of the Communications Act requires the Commission 
to establish reasonable terms and conditions, including maximum 
reasonable rates, for leased access on cable systems. The purpose of 
the Order is to amend the Commission's rules regarding leased access, 
including the rules for calculating maximum reasonable rates. The 
statutory objectives of the leased access provisions are to promote 
competition in the delivery of diverse programming sources and to 
assure the widest possible diversity of programming sources in a manner 
that is consistent with the growth and development of cable systems.

B. Summary of Issues Raised by the Public Comments in Response to the 
Initial Regulatory Flexibility Analysis

    79. In response to the IRFA, the Small Cable Business Association 
(``SCBA'') filed comments criticizing the Commission for failing to 
estimate the number of small cable systems and small cable operators 
that would be affected by the regulations proposed in the Further NPRM. 
SCBA argued that, as reflected in the Small System Order, the 
Commission has extensive data regarding the existence of small cable 
entities. SCBA also claimed the Commission neither sought specific 
comment regarding the impact of its proposals on small cable entities 
nor asked for alternatives. SCBA urged the Commission to adopt the 
alternatives for small cable systems that it has proposed in this 
proceeding. In its filings, SCBA raised the following issues and 
alternatives.
    80. Information Collection Issues. SCBA argued that the 
Commission's seven business-day response time for providing leased 
access information imposes significant burdens on small cable systems. 
SCBA recommended that the Commission allow small system operators 30 
days to provide a written response stating whether unused leased access 
capacity is available and 60 days to provide the remaining required 
information. SCBA also requested that the Commission allow small system 
operators to respond only to ``bona fide'' leased access requests.
    81. Rate Issues. SCBA argued that the Commission's proposed cost/
market rate formula would not adequately compensate small system 
operators for the following reasons:
    (a) Full-Time Rates. SCBA contended that because small system 
operators often receive no advertising revenues, the Commission's cost/
market rate formula could result in leased access rates of zero or 
less. Among other things, SCBA suggested that the Commission revise the 
proposed formula to allow small system operators to recover all 
operating costs reflected on FCC Form 1230, instead of using subscriber 
revenue as a surrogate for such costs. Alternatively, SCBA proposed 
allowing operators of small systems to charge market rates for all 
leased access programmers regardless of demand, particularly if the 
party requesting access is affiliated with the provider of a competing 
multi-channel video programming service.
    (b) Part-Time Rates. SCBA argued that if the full-time rate under 
the proposed cost/market rate formula is prorated, the per hour or 
half-hour rates for small systems would be lower than advertising 
rates, which would create a flood of requests for part-time leased 
access.
    (c) Transaction Costs. SCBA contended that leased access contracts 
create higher transaction costs than other programming contracts 
because leased access agreements are negotiated

[[Page 11378]]

more frequently and must be negotiated on a system-by-system basis. 
SCBA proposed that the Commission remedy this problem for small system 
operators by allowing them to include an additional amount of at least 
$1,000 in their leased access rate calculations.
    (d) Technical Costs. SCBA argued that additional headend equipment 
used to add leased access channels will result in high per-subscriber 
costs for small systems. SCBA proposed that the Commission allow small 
system operators to charge leased access programmers for all technology 
costs related to leased access.
    (e) Transition Period. SCBA argued that the Commission should phase 
in leased access obligations for small cable systems to avoid the 
disruption to current programming line-ups that the proposed cost/
market rate formula would create.
    (f) Advance Channel Designations. The Further NPRM proposed that a 
cable operator must place in its public file a list of the specific 
channels it intends to use for leased access programming. SCBA argued 
that small system operators should only be required to provide the 
required leased access information following receipt of a ``bona fide'' 
request.
    82. In reviewing the record before us, we identified issues that 
may impact small leased access programmers, such as maximum rate 
calculations, part-time use of leased access, resale, tier and channel 
placement, preferential access, dispute resolution procedures, certain 
contractual issues, technical equipment costs, and the definition of 
affiliate. The Order addressed comments from leased access programmers 
regarding these issues.

C. Description and Estimate of the Number of Small Entities Impacted

    83. The RFA directs the Commission to provide a description of and, 
where feasible, an estimate of the number of small entities that will 
be affected by the proposed rules. The RFA defines the term ``small 
entity'' as having the same meaning as the terms ``small business,'' 
``small organization,'' and ``small governmental jurisdiction,'' and 
the same meaning as the term ``small business concern'' under section 3 
of the Small Business Act. Under the Small Business Act, a ``small 
business concern'' is one which: (a) Is independently owned and 
operated; (b) is not dominant in its field of operation; and (c) 
satisfies any additional criteria established by the Small Business 
Administration (``SBA''). The rules we adopted in the Order will affect 
cable systems and cable programmers.
    84. Cable Systems: The SBA has developed a definition of small 
entities for cable and other pay television services, which includes 
all such companies generating $11 million or less in revenue annually. 
While this definition includes small cable entities, it also includes 
closed circuit television services, direct broadcast satellite 
services, multipoint distribution systems, satellite master antenna 
systems and subscription television services. Thus, the definition 
includes many small entities that will not be directly impacted by our 
leased access rules. According to the Census Bureau, there were 1,423 
such cable and other pay television services generating less than $11 
million in revenue that were in operation for at least one year at the 
end of 1992. We noted that not only does this estimate include small 
entities other than small cable entities, but the majority of the small 
cable systems included within this estimate have less than 36 channels 
and therefore are not subject to the Commission's leased access 
regulations. We therefore estimated that, based on the SBA definition, 
the number of small cable entities likely to be impacted by our rules 
will be significantly less than 1,423 entities.
    85. The Commission has developed its own definition of a small 
cable system for purposes of rate regulation. Under the Commission's 
rules, cable systems serving fewer than 15,000 subscribers are 
considered small systems, and small systems owned by small cable 
companies serving fewer than 400,000 subscribers nationwide are 
entitled to small system relief. This definition is both broader and 
narrower than that of the SBA. The definition is broader in that it 
includes larger cable systems than the SBA definition. It is narrower 
in that, unlike the SBA definition, it does not include closed circuit 
television services, direct broadcast satellite services, multipoint 
distribution systems, satellite master antenna systems, or subscription 
television services. Our most recent information indicates that, under 
the Commission's definition, there were 1,439 systems entitled to small 
system relief at the end of 1995. Of these systems, we estimated that 
approximately 614 systems offer more than 36 channels, and thus are 
subject to our leased access rules.
    86. Section 623(m)(2) of the Communications Act defines a small 
cable system operator as ``a cable operator that, directly or through 
an affiliate, serves in the aggregate fewer than 1 percent of all 
subscribers in the United States and is not affiliated with any entity 
or entities whose gross annual revenues in the aggregate exceed 
$250,000,000.'' The Commission has determined that there are 61,700,000 
subscribers in the United States. Therefore, we found that an operator 
serving fewer than 617,000 subscribers shall be deemed a small operator 
if its annual revenues, when combined with the total annual revenues of 
all of its affiliates, do not exceed $250 million in the aggregate. 
Based on available data, we found that the number of cable operators 
serving 617,000 subscribers or less totals 1,450. Although it seems 
certain that some of these cable system operators are affiliated with 
entities whose gross annual revenues exceed $250 million, we were 
unable to estimate with greater precision the number of cable system 
operators that would qualify as small cable operators under the 
definition in the Communications Act.
    87. Cable Programmers: We anticipate that both small leased access 
programmers and small non-leased access programmers may be impacted by 
our leased access rules. The Commission has not developed a definition 
of small entities applicable to producers or distributors of cable 
television programs. Therefore, we utilized the SBA classifications of 
Motion Picture and Video Tape Production (SIC 7812), and Theatrical 
Producers (Except Motion Pictures) and Miscellaneous Theatrical 
Services (SIC 7922). These SBA definitions provide that a small entity 
in the cable television programming industry is an entity with $21.5 
million or less in annual receipts for SIC 7812, and $5 million or less 
in annual receipts for SIC 7922. Census Bureau data indicate the 
following: (a) There were 7,265 firms in the United States classified 
as Motion Picture and Video Production (SIC 7812), and that 6,987 of 
these firms had $16.999 million or less in annual receipts and 7,002 of 
these firms had $24.999 million or less in annual receipts; and (b) 
there were 5,671 firms in the United States classified as Theatrical 
Producers and Services (SIC 7922), and that 5,627 of these firms had 
$4.999 million or less in annual receipts.
    88. Each of these SIC categories is very broad and includes firms 
that may be engaged in various industries, including cable programming. 
Specific figures are not available regarding how many of these firms 
exclusively produce and/or distribute programming for cable television 
or how many are independently owned and operated. Thus, we estimated 
that our rules may affect approximately 6,987 small entities that 
produce and distribute taped cable

[[Page 11379]]

television programs and 5,627 small producers of live programs. In 
addition, as of May 31, 1996, there were 1,880 LPTV stations that may 
also be affected by our rules.

D. Reporting, Recordkeeping, and Other Compliance Requirements

    This section specifies the reporting, recordkeeping and other 
related requirements of the regulations adopted, amended, modified, or 
clarified in the Order.
    89. Maximum Rate Calculations: Operators of cable systems subject 
to leased access requirements must calculate their maximum leased 
access rates in accordance with the rate formulas we have established. 
We do not believe that operators will need additional professional 
skills to perform these calculations.
    90. Accountant Reports: A final accountant report that is completed 
as a result of a dispute concerning an operator's rate calculations 
must be filed in the operator's local public file.
    91. Provision of Initial Leased Access Information: Within 15 
calendar days of a leased access request, cable operators are required 
to provide the following types of information: (a) A complete schedule 
of the operator's full-time and part-time leased access rates, (b) how 
much of the cable operator's leased access set-aside capacity is 
available, (c) rates associated with technical and studio costs, and 
(d) if specifically requested, a sample leased access contract. An 
exception is provided for operators of systems entitled to small system 
relief, which are allowed 30 calendar days to provide the required 
information. In addition, these operators are not required to respond 
to a leased access request if the programmer does not provide the 
following information: (a) Desired length of contract term, (b) time 
slot desired, (c) anticipated commencement date for carriage, and (d) 
the nature of the programming.
    92. Requirements for Leased Access Requests: Leased access requests 
must be made in writing and must specify the date the request was sent 
to the operator.

E. Significant Alternatives and Steps Taken to Minimize the Significant 
Economic Impact on a Substantial Number of Small Entities Consistent 
With the Stated Objectives

    This section analyzes the impact on small entities of the 
regulations adopted, amended, modified, or clarified in the Order.
    93. Information Collection Issues. We allow operators of systems 
entitled to small system relief to respond to leased access requests 
within 30 calendar days, instead of the 15 calendar days required of 
other operators. In addition, we do not require these operators to 
respond to leased access requests unless the programmer provides the 
following information: (a) Desired length of contract term, (b) time 
slot desired, (c) anticipated commencement date for carriage, and (d) 
the nature of the programming. These modifications to the Commission's 
rules should mitigate any disproportionate burdens that responding to a 
leased access request may create for small system operators.
    94. Rate Issues. We do not believe that either full-time or part-
time rates under our maximum rate formula will impose disproportionate 
burdens on small system operators. When calculated for a particular 
cable system, both the average implicit fee (for tiered services) and 
the highest implicit fee (for a la carte services) represent what 
current non-leased access programmers are implicitly paying for 
carriage on that system. Because the maximum rates under an implicit 
fee formula are tailored to each individual system, we disagreed with 
SCBA that small system operators should be allowed to charge market 
prices. For the following reasons, we also disagreed with SCBA's 
various other proposals to modify the maximum rate formula for small 
systems.
    (a) Transaction Costs. We did not agree with SCBA that small system 
operators should be allowed to include in their rates an additional sum 
of at least $1,000 as compensation for transaction costs imposed by 
leased access because, as discussed above, we believe that the recovery 
that operators may gain from subscriber revenue for leased access 
programming will sufficiently offset any additional transaction costs.
    (b) Technical Costs. We declined to adopt modified rules for small 
system operators regarding the recovery of technical costs associated 
with leased access. We do not believe that there will be a 
disproportionate impact on small system operators because our rules 
enable them to recover technical costs that are specific to leasing.
    (c) Transition Period. SCBA argued that the Commission should phase 
in leased access obligations for small cable systems in order to 
minimize the displacement of existing programming services. In light of 
our adoption of the average implicit fee methodology and our 
accommodations of the special needs of small systems, we concluded that 
a transition period was unnecessary.
    (d) Advance Channel Designations. SCBA argued that the Commission 
should not require small system operators to publicly file a list of 
their designated leased access channels. The Commission did not adopt 
such a requirement for any cable systems.
    95. Dispute Resolution Procedures. To account for their more 
limited resources, we allow operators of systems entitled to small 
system relief 14 business days to select an independent accountant when 
an operator and a leased access programmer fail to agree on a mutually 
acceptable accountant to review the operator's rate calculations in the 
case of a dispute. The general rule is that the parties must each 
select an independent accountant on the sixth business day if they 
cannot agree on a mutually acceptable accountant within five business 
days of the programmer's request for a review.
    96. Impact on Cable Programmers. Leased access may impact existing 
programmers to the extent that operators displace them in order to 
accommodate leased access requests. However, we believe that 
displacement of existing programmers is inherent in section 612(b)(4), 
which provides that a cable operator may no longer use unused leased 
access capacity once a written agreement is obtained by a leased access 
programmer. In addition, since it is within an operator's discretion to 
select which non-leased access programmers to carry (aside from must-
carry and PEG access channels), our rules do not create a 
disproportionate impact on small non-leased access programmers. With 
respect to small leased access programmers, we believe that the impact 
of our revised rules generally will be positive, particularly since our 
rules will result in lower maximum rates for tiered services, permit 
resale, grant access to highly penetrated tiers, and require part-time 
rates to be prorated without a surcharge. Although permissible costs 
for insurance policies, technical equipment, and accountant reviews of 
rate calculations may impose a burden on small leased access 
programmers, we believe that such impacts are the normal costs of being 
a leased access programmer, and that no modifications are warranted.

F. Report to Congress

    97. The Commission will send a copy of this Final Regulatory 
Flexibility Analysis, along with the Order, in a report to Congress 
pursuant to the Small Business Regulatory Enforcement Fairness Act of 
1996, 5 U.S.C. 801(a)(1)(A).

[[Page 11380]]

VI. Ordering Clauses

    98. Accordingly, it is ordered that, pursuant to the authority 
granted in sections 4(i), 4(j), and 612 of the Communications Act of 
1934, as amended, 47 U.S.C. 154(i), 154(j) and 532, the Petitions for 
Reconsideration in CS Docket No. 96-60 are Granted in part and denied 
in part, as provided herein.
    99. It is further ordered that, pursuant to the authority granted 
in Sections 4(i), 4(j), and 612 of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 154(j) and 532, Part 76 of the Commission's 
rules is hereby amended as indicated below. The amendments to 47 CFR 
76.970 (a), (b), (i), 76.971 (a), (c), (d), (g), (h), and 76.977(a) 
shall become effective April 11, 1997. The amendments to 47 CFR 76.970 
(c), (d), (e), (f), (g), (h), 76.971(f)(1), and 76.975 (b) and (c), 
which impose information collection requirements, shall become 
effective upon approval by the Office of Management and Budget (OMB), 
but no sooner than April 11, 1997. The Commission will publish a 
document at a later date establishing the effective date for the 
sections containing information collection requirements.
    100. It is further ordered that the Secretary shall send a copy of 
this Order, including the Final 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, 
Public Law 96-354, 94 Stat. 1164, 5 U.S.C. 601 et seq. (1981).

List of Subjects in 47 CFR Part 76

    Administrative practice and procedure, Cable television, Reporting 
and recordkeeping requirements.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

    Part 76 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: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a, 
307, 308, 309, 312, 315, 317, 325, 503, 521, 522, 531, 532, 533, 
534, 535, 536, 537, 543, 544, 544a, 545, 548, 552, 554, 556, 558, 
560, 561, 571, 572, 573.

    2. Section 76.970 is amended by adding a last sentence to paragraph 
(a), revising paragraphs (b), (c), (d), (e) and (f), and adding new 
paragraphs (g), (h) and (i) to read as follows:


Sec. 76.970  Commercial leased access rates.

    (a) * * * For cable systems with 100 or fewer channels, channels 
that cannot be used due to technical and safety regulations of the 
Federal Government (e.g., aeronautical channels) shall be excluded when 
calculating the set-aside requirement.
    (b) In determining whether a party is an ``affiliate'' for purposes 
of commercial leased access, the definitions contained in the notes to 
Sec. 76.501 shall be used, provided, however, that the single majority 
shareholder provision of Note 2(b) to Sec. 76.501 and the limited 
partner insulation provisions of Note 2(g) to Sec. 76.501 shall not 
apply, and the provisions of Note 2(a) to Sec. 76.501 regarding five 
(5) percent interest shall include all voting or nonvoting stock or 
limited partnership equity interest of five (5) percent or more. Actual 
working control, in whatever manner exercised, shall also be deemed a 
cognizable interest.
    (c) The maximum commercial leased access rate that a cable operator 
may charge for full-time channel placement on a tier exceeding a 
subscriber penetration of 50 percent is the average implicit fee for 
full-time channel placement on all such tier(s).
    (d) The average implicit fee identified in paragraph (c) of this 
section for a full-time channel on a tier with a subscriber penetration 
over 50 percent shall be calculated by first calculating the total 
amount the operator receives in subscriber revenue per month for the 
programming on all such tier(s), and then subtracting the total amount 
it pays in programming costs per month for such tier(s) (the ``total 
implicit fee calculation''). A weighting scheme that accounts for 
differences in the number of subscribers and channels on all such 
tier(s) must be used to determine how much of the total implicit fee 
calculation will be recovered from any particular tier. The weighting 
scheme is determined in two steps. First, the number of subscribers is 
multiplied by the number of channels (the result is the number of 
``subscriber-channels'') on each tier with subscriber penetration over 
50 percent. For instance, a tier with 10 channels and 1,000 subscribers 
would have a total of 10,000 subscriber-channels. Second, the 
subscriber-channels on each of these tiers is divided by the total 
subscriber-channels on all such tiers. Given the percent of subscriber-
channels for the particular tier, the implicit fee for the tier is 
computed by multiplying the subscriber-channel percentage for the tier 
by the total implicit fee calculation. Finally, to calculate the 
average implicit fee per channel, the implicit fee for the tier must be 
divided by the corresponding number of channels on the tier. The final 
result is the maximum rate per month that the operator may charge the 
leased access programmer for a full-time channel on that particular 
tier. The average implicit fee shall be calculated by using all 
channels carried on any tier exceeding 50 percent subscriber 
penetration (including channels devoted to affiliated programming, 
must-carry and public, educational and government access channels). In 
the event of an agreement to lease capacity on a tier with less than 50 
percent penetration, the average implicit fee should be determined on 
the basis of subscriber revenues and programming costs for that tier 
alone. The license fees for affiliated channels used in determining the 
average implicit fee shall reflect the prevailing company prices 
offered in the marketplace to third parties. If a prevailing company 
price does not exist, the license fee for that programming shall be 
priced at the programmer's cost or the fair market value, whichever is 
lower. The average implicit fee shall be based on contracts in effect 
in the previous calendar year. The implicit fee for a contracted 
service may not include fees, stated or implied, for services other 
than the provision of channel capacity (e.g., billing and collection, 
marketing, or studio services).
    (e) The maximum commercial leased access rate that a cable operator 
may charge for full-time channel placement as an a la carte service is 
the highest implicit fee on an aggregate basis for full-time channel 
placement as an a la carte service.
    (f) The highest implicit fee on an aggregate basis for full-time 
channel placement as an a la carte service shall be calculated by first 
determining the total amount received by the operator in subscriber 
revenue per month for each non-leased access a la carte channel on its 
system (including affiliated a la carte channels) and deducting the 
total amount paid by the operator in programming costs (including 
license and copyright fees) per month for programming on such 
individual channels. This calculation will result in implicit fees 
determined on an aggregate basis, and the highest of these implicit 
fees shall be the maximum rate per month that the operator may charge 
the leased access programmer for placement as a full-time a la carte 
channel. The license fees for affiliated channels used in determining 
the highest implicit fee shall reflect the prevailing company prices 
offered in the marketplace to third parties. If a prevailing company

[[Page 11381]]

price does not exist, the license fee for that programming shall be 
priced at the programmer's cost or the fair market value, whichever is 
lower. The highest implicit fee shall be based on contracts in effect 
in the previous calendar year. The implicit fee for a contracted 
service may not include fees, stated or implied, for services other 
than the provision of channel capacity (e.g., billing and collection, 
marketing, or studio services). Any subscriber revenue received by a 
cable operator for an a la carte leased access service shall be passed 
through to the leased access programmer.
    (g) The maximum commercial leased access rate that a cable operator 
may charge for part-time channel placement shall be determined by 
either prorating the maximum full-time rate uniformly, or by developing 
a schedule of and applying different rates for different times of the 
day, provided that the total of the rates for a 24-hour period does not 
exceed the maximum daily leased access rate.
    (h)(1) Cable system operators shall provide prospective leased 
access programmers with the following information within 15 calendar 
days of the date on which a request for leased access information is 
made:
    (i) How much of the operator's leased access set-aside capacity is 
available;
    (ii) A complete schedule of the operator's full-time and part-time 
leased access rates;
    (iii) Rates associated with technical and studio costs; and
    (iv) If specifically requested, a sample leased access contract.
     (2) Operators of systems subject to small system relief shall 
provide the information required in paragraph (h)(1) of this section 
within 30 calendar days of a bona fide request from a prospective 
leased access programmer. For these purposes, systems subject to small 
system relief are systems that either:
    (i) Qualify as small systems under Sec. 76.901(c) and are owned by 
a small cable company as defined under Sec. 76.901(e); or
    (ii) Have been granted special relief.
    (3) Bona fide requests, as used in this section, are defined as 
requests from potential leased access programmers that have provided 
the following information:
    (i) The desired length of a contract term;
    (ii) The time slot desired;
    (iii) The anticipated commencement date for carriage; and
    (iv) The nature of the programming.
    (4) All requests for leased access must be made in writing and must 
specify the date on which the request was sent to the operator.
    (5) Operators shall maintain, for Commission inspection, sufficient 
supporting documentation to justify the scheduled rates, including 
supporting contracts, calculations of the implicit fees, and 
justifications for all adjustments.
    (i) Cable operators are permitted to negotiate rates below the 
maximum rates permitted in paragraphs (c) through (g) of this section.
    3. Section 76.971 is amended by revising paragraphs (a), (c), 
(f)(1) and (g), adding two sentences to the end of paragraph (d), and 
adding new paragraph (h) to read as follows:


Sec. 76.971  Commercial leased access terms and conditions.

    (a) (1) Cable operators shall place leased access programmers that 
request access to a tier actually used by most subscribers on any tier 
that has a subscriber penetration of more than 50 percent, unless there 
are technical or other compelling reasons for denying access to such 
tiers.
    (2) Cable operators shall be permitted to make reasonable 
selections when placing leased access channels at specific channel 
locations. The Commission will evaluate disputes involving channel 
placement on a case-by-case basis and will consider any evidence that 
an operator has acted unreasonably in this regard.
    (3) On systems with available leased access capacity sufficient to 
satisfy current leased access demand, cable operators shall be required 
to accommodate as expeditiously as possible all leased access requests 
for programming that is not obscene or indecent. On systems with 
insufficient available leased access capacity to satisfy current leased 
access demand, cable operators shall be permitted to select from among 
leased access programmers using objective, content-neutral criteria.
    (4) Cable operators that have not satisfied their statutory leased 
access requirements shall accommodate part-time leased access requests 
as set forth in this paragraph. Cable operators shall not be required 
to accept leases for less than one half-hour of programming. Cable 
operators may accommodate part-time leased access requests by opening 
additional channels for part-time use or providing comparable time 
slots on channels currently carrying leased or non-leased access 
programming. The comparability of time slots shall be determined by 
objective factors such as day of the week, time of day, and audience 
share. A cable operator that is unable to provide a comparable time 
slot to accommodate a part-time programming request shall be required 
to open an additional channel for part-time use unless such operator 
has at least one channel designated for part-time leased access use 
that is programmed with less than 18 hours of part-time leased access 
programming every day. However, regardless of the availability of 
partially programmed part-time leased access channels, a cable operator 
shall be required to open an additional channel to accommodate any 
request for part-time leased access for at least eight contiguous 
hours, for the same time period every day, for at least a year. Once an 
operator has opened a vacant channel to accommodate such a request, our 
other leased access rules apply. If, however, the operator has 
accommodated such a request on a channel already carrying an existing 
full-time non-leased access programmer, the operator does not have to 
accommodate other part-time requests of less than eight hours on that 
channel until all other existing part-time leased access channels are 
substantially filled with leased access programming.
* * * * *
    (c) Cable operators are required to provide unaffiliated leased 
access users the minimal level of technical support necessary for users 
to present their material on the air, and may not unreasonably refuse 
to cooperate with a leased access user in order to prevent that user 
from obtaining channel capacity. Leased access users must reimburse 
operators for the reasonable cost of any technical support actually 
provided by the operator that is beyond that provided for non-leased 
access programmers on the system. A cable operator may charge leased 
access programmers for the use of technical equipment that is provided 
at no charge for public, educational and governmental access 
programming, provided that the operator's franchise agreement requires 
it to provide the equipment and does not preclude such use, and the 
equipment is not being used for any other non-leased access 
programming. Cable operators that are required to purchase technical 
equipment in order to accommodate a leased access programmer shall have 
the option of either requiring the leased access programmer to pay the 
full purchase price of the equipment, or purchasing the equipment and 
leasing it to the leased access programmer at a reasonable rate. Leased 
access programmers that are required to pay the full purchase price of 
additional equipment shall have all rights of

[[Page 11382]]

ownership associated with the equipment under applicable state and 
local law.
    (d) * * * Cable operators may impose reasonable insurance 
requirements on leased access programmers. Cable operators shall bear 
the burden of proof in establishing reasonableness.
* * * * *
    (f) (1) A cable operator shall provide billing and collection 
services for commercial leased access cable programmers, unless the 
operator demonstrates the existence of third party billing and 
collection services which in terms of cost and accessibility, offer 
leased access programmers an alternative substantially equivalent to 
that offered to comparable non-leased access programmers.
* * * * *
    (g) Cable operators shall not unreasonably limit the length of 
leased access contracts. The termination provisions of leased access 
contracts shall be commercially reasonable and may not allow operators 
to terminate leased access contracts without a reasonable basis.
    (h) Cable operators may not prohibit the resale of leased access 
capacity to persons unaffiliated with the operator, but may provide in 
their leased access contracts that any sublessees will be subject to 
the non-price terms and conditions that apply to the initial lessee, 
and that, if the capacity is resold, the rate for the capacity shall be 
the maximum permissible rate.
    4. Section 76.975 is amended by revising paragraphs (b), (c), (d) 
and (e) to read as follows:


Sec. 76.975  Commercial leased access dispute resolution.

* * * * *
    (b) (1) Any person aggrieved by the failure or refusal of a cable 
operator to make commercial channel capacity available or to charge 
rates for such capacity in accordance with the provisions of Title VI 
of the Communications Act, or our implementing regulations, 
Secs. 76.970 and 76.971, may file a petition for relief with the 
Commission. Persons alleging that a cable operator's leased access rate 
is unreasonable must receive a determination of the cable operator's 
maximum permitted rate from an independent accountant prior to filing a 
petition for relief with the Commission.
    (2) Parties to a dispute over leased access rates shall have five 
business days to agree on a mutually acceptable accountant from the 
date on which the programmer provides the cable operator with a written 
request for a review of its leased access rates. Parties that fail to 
agree on a mutually acceptable accountant within five business days of 
the programmer's request for a review shall each be required to select 
an independent accountant on the sixth business day. The two 
accountants selected shall have five business days to select a third 
independent accountant to perform the review. Operators of systems 
subject to small system relief shall have 14 business days to select an 
independent accountant when an agreement cannot be reached. For these 
purposes, systems subject to small system relief are systems that 
either:
    (i) Qualify as small systems under Sec. 76.901(c) and are owned by 
a small cable company as defined under Sec. 76.901(e); or
    (ii) Have been granted special relief.
    (3) The final accountant's report must be completed within 60 days 
of the date on which the final accountant is selected to perform the 
review. The final accountant's report must, at a minimum, state the 
maximum permitted rate, and explain how it was determined without 
revealing proprietary information. The report must be signed, dated and 
certified by the accountant. The report shall be filed in the cable 
system's local public file.
    (4) If the accountant's report indicates that the cable operator's 
leased access rate exceeds the maximum permitted rate by more than a de 
minimis amount, the cable operator shall be required to pay the full 
cost of the review. If the final accountant's report does not indicate 
that the cable operator's leased access rate exceeds the maximum 
permitted rate by more than a de minimis amount, each party shall be 
required to split the cost of the final accountant's review, and to pay 
its own expenses incurred in making the review.
    (5) Parties may use alternative dispute resolution (ADR) processes 
to settle disputes that are not resolved by the final accountant's 
report.
    (c) A petition must contain a concise statement of the facts 
constituting a violation of the statute or the Commission's Rules, the 
specific statute(s) or rule(s) violated, and certify that the petition 
was served on the cable operator. Where a petition is based on 
allegations that a cable operator's leased access rates are 
unreasonable, the petitioner must attach a copy of the final 
accountant's report. In proceedings before the Commission, there will 
be a rebuttable presumption that the final accountant's report is 
correct.
    (d) Where a petition is not based on allegations that a cable 
operator's leased access rates are unreasonable, the petition must be 
filed within 60 days of the alleged violation. Where a petition is 
based on allegations that the cable operator's leased access rates are 
unreasonable, the petition must be filed within 60 days of the final 
accountant's report, or within 60 days of the termination of ADR 
proceedings. Aggrieved parties must certify that their petition was 
filed within 60 days of the termination of ADR proceedings in order to 
file a petition later than 60 days after completion of the final 
accountant's report. Cable operators may rebut such certifications.
    (e) The cable operator or other respondent will have 30 days from 
the filing of the petition to file a response. If a leased access rate 
is disputed, the response must show that the rate charged is not higher 
than the maximum permitted rate for such leased access, and must be 
supported by the affidavit of a responsible company official. If, after 
a response is submitted, the staff finds a prima facie violation of our 
rules, the staff may require a respondent to produce additional 
information, or specify other procedures necessary for resolution of 
the proceeding.
* * * * *
    5. Section 76.977 is amended by revising the last sentence of 
paragraph (a) to read as follows:


Sec. 76.977  Minority and educational programming used in lieu of 
designated commercial leased access capacity.

    (a) * * * The channel capacity used to provide programming from a 
qualified minority programming source or from any qualified educational 
programming source pursuant to this section may not exceed 33 percent 
of the channel capacity designated pursuant to 47 U.S.C. 532 and must 
be located on a tier with more than 50 percent subscriber penetration.
* * * * *
[FR Doc. 97-5897 Filed 3-11-97; 8:45 am]
BILLING CODE 6712-01-P