[Federal Register Volume 85, Number 162 (Thursday, August 20, 2020)]
[Rules and Regulations]
[Pages 51363-51367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16557]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket Nos. 07-42 and 17-105; FCC 20-95; FRS 16954]


Leased Commercial Access; Modernization of Media Regulation 
Initiative

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission adopts a tier-based leased 
access rate calculation as part of its Modernization of Media 
Regulation Initiative. The Commission finds that a simplified tier-
specific rate calculation best reflects regulatory changes that have 
occurred in the last 20 years and will more accurately approximate the 
value of a particular channel, while alleviating burdens on cable 
operators. The Commission also finds that, although changes in the 
marketplace cast substantial doubt on the constitutionality of 
mandatory leased access, leased access requirements are contained in a 
specific statutory mandate from Congress, so the Commission does not 
eliminate its leased access rules.

DATES: Effective September 21, 2020.

FOR FURTHER INFORMATION CONTACT: For additional information on this 
proceeding, contact Diana Sokolow, [email protected], of the Policy 
Division, Media Bureau, (202) 418-2120.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second 
Report and Order, FCC 20-95, adopted on July 16, 2020 and released on 
July 17, 2020. This document will be available via ECFS at http://fjallfoss.fcc.gov/ecfs/. Documents will be available electronically in 
ASCII, Microsoft Word, and/or Adobe Acrobat. Alternative formats are 
available for people with disabilities (Braille, large print, 
electronic files, audio format), by sending an email to [email protected] 
or calling the Commission's Consumer and Governmental Affairs Bureau at 
(202) 418-0530 (voice), (202) 418-0432 (TTY).

Synopsis

    1. In this Second Report and Order, we adopt a tier-based leased 
access rate calculation as part of the Commission's Modernization of 
Media Regulation Initiative. The leased access rules, which implement 
statutory leased access requirements, direct cable operators to set 
aside channel capacity for commercial use by unaffiliated video 
programmers. In 2019, we proposed to modify the leased access rate 
formula so that rates would be calculated based on information specific 
to the tier on which the programming is carried. Today, we adopt this 
proposal, finding that a simplified tier-specific rate calculation best 
reflects regulatory changes that have occurred in the last 20 years \1\ 
and will more accurately approximate the value of a particular channel, 
while alleviating burdens on cable operators. We also find that, 
although changes in the marketplace cast substantial doubt on the 
constitutionality of mandatory leased access, leased access 
requirements are contained in a specific statutory mandate from 
Congress, so we do not eliminate our leased access rules.
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    \1\ Specifically, the current rate formula was adopted 
consistent with the ``tier neutrality'' principle, but the 
Commission has since ceased regulation of cable programming service 
tier (CPST) rates as of 1999, and that principle no longer applies.
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    2. Congress established commercial leased access as part of the 
Cable Communications Policy Act of 1984 (1984 Act). According to the 
1984 Act, codified at section 612 of the Communications Act of 1934, as 
amended (the Act), cable operators are required to set aside capacity 
for use by unaffiliated programmers. Under these statutory provisions, 
the amount of channel capacity reserved for leased access programming 
depends on the cable system's total activated channel capacity. Cable 
operators with more activated channels are required to set aside a 
greater number of leased access channels than those cable operators 
with fewer activated channels. Congress created commercial leased 
access 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.''
    3. Congress further authorized the Commission to adopt maximum 
reasonable rates for commercial leased access as part of the Cable 
Television Consumer Protection and Competition Act of 1992, and also 
provided that the price, terms, and conditions for leased access must 
be ``sufficient to assure that such use will not adversely affect the 
operation, financial condition, or market

[[Page 51364]]

development of the cable system.'' The Commission accordingly adopted 
leased access rate regulations in 1993, and subsequently modified its 
leased access regulations in 1996 and 1997. The Commission's 
implementing rules, which the U.S. Court of Appeals for the District of 
Columbia Circuit (D.C. Circuit) upheld in 1998, include a formula for 
calculating maximum rates that cable operators could charge leased 
access programmers. Specifically, to permit cable operators to recover 
their costs and earn a profit, the Commission adopted a maximum 
reasonable rate formula for full-time leased access channels based on 
the ``average implicit fee'' that other programmers pay for carriage. 
Currently, for a full-time channel on a tier with a subscriber 
penetration over 50 percent, our rules require that an operator 
calculate the average implicit fee for all eligible tiers rather than 
just the individual tier where the channel will be placed. Although the 
Commission revised its commercial leased access rate rules in its 2008 
Leased Access Order, those rules never went into effect. Thus, the 
leased access rate rules adopted in the 1993 Rate Regulation Order, as 
subsequently amended, remain in effect.
    4. In the 2019 Leased Access Order, we updated the leased access 
rules based on our determination that the video marketplace had changed 
significantly since the Commission initially adopted its leased access 
rules. We explained that the marketplace has become far more 
competitive than it was when leased access was first mandated in 1984, 
at which time consumers had access only to a single pay television 
service and cable had monopoly power. In particular, we focused on the 
increased availability of media platforms, including online platforms 
that programmers can utilize at very low cost to distribute their video 
programming, as well as the low demand for commercial leased access. To 
further the Commission's media modernization efforts, we vacated the 
2008 Leased Access Order and adopted updates and improvements to the 
existing leased access rules. A Second Further Notice of Proposed 
Rulemaking (Second FNPRM) proposed a tier-specific leased access rate 
formula and sought comment on whether existing leased access 
requirements can withstand First Amendment scrutiny in light of video 
programming market changes.
    5. The Second FNPRM elicited seven comments and six replies, none 
of which opposed the proposed tier-specific rate formula. Commenters 
largely reiterated arguments that the marketplace has changed in ways 
that lessen the governmental interest in leased access regulations. For 
example, Americans for Prosperity (AFP) explains that ``great advances 
in technology allow households to readily access innumerable content 
from varied sources, as well as from internet-delivered video 
programming services and over-the-air broadcasters.'' Similarly, the 
Free State Foundation (Free State) explains that ``the video services 
landscape has been transformed dramatically by new technologies and 
other market developments, so that choice among competing providers 
offering a diverse array of content is now prevalent.'' Regarding the 
First Amendment, the record reflects a lack of consensus regarding what 
level of scrutiny should apply and whether the leased access rules 
remain constitutional.
    6. Tier-Based Fee Calculation. We adopt our unopposed proposal to 
implement a simplified tier-specific leased access fee calculation. 
This rule change will ease burdens on cable operators while also 
fulfilling our statutory obligation to establish rules for determining 
maximum reasonable leased access rates. We believe the modifications 
are warranted given the significant changes to the overall rate 
regulation regime that have occurred since our current leased access 
rate rules were adopted.\2\ The ``average implicit fee'' will continue 
to reflect the maximum rate per month that a cable operator may charge 
a leased access programmer for a full-time channel. Consistent with our 
proposal in the Second FNPRM, we revise our rules to provide that the 
average implicit fee will be calculated by first determining the total 
amount the operator receives in subscriber revenue per month for the 
programming on the tier on which the leased access channel will be 
placed. Next, the operator will subtract the total amount it pays in 
programming costs per month for that tier. Finally, the operator will 
divide that figure by the number of channels on that tier. The result 
of these calculations will be the maximum per channel rate that a cable 
operator can charge a leased access programmer for full-time carriage.
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    \2\ As noted above, the Commission ceased regulation of CPST 
rates as of 1999, and thus the ``tier neutrality'' principle 
pursuant to which the current rate formula was adopted no longer 
applies.
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    7. When the Commission adopted the average implicit fee 
calculation, it envisioned a simple scheme based on existing and easily 
verifiable data. Although the weighting scheme was intended to be a 
simple way to average the leased access rate across tiers, in practice 
it has proven to be confusing and time-consuming. The weighting scheme 
incorporated the concept of tier neutrality, which is a vestige of CPST 
rate regulation, which no longer exists.\3\ By now basing the average 
implicit fee solely on the programming revenue and costs for the tier 
on which a leased access programmer is offered carriage, we eliminate 
the need for a complicated weighting scheme that considers subscriber 
revenue and programming costs across all tiers with subscriber 
penetration over 50 percent. The rate formula will now be a tier-
specific calculation, thus representing a more accurate assessment of 
the channel's value on that particular tier. This is the same rate 
calculation method that previously has been in place for channels 
placed on tiers with less than 50 percent subscriber penetration.\4\ 
The revised rate formula should result in cable operators using revenue 
and cost estimates that more closely reflect the value of the channel 
sought by the leased access applicant, and thus better serve the goals 
of the statute. Rates are likely to decrease if leased access 
programmers request channel capacity on less profitable tiers, whereas 
rates are likely to rise if programmers request channel capacity on 
more profitable tiers.
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    \3\ Tier neutrality requires cable operators to charge the same 
per channel rate regardless of the programming costs incurred on a 
specific tier, and that principle has no longer applied since the 
Commission ceased regulation of CPST rates in 1999.
    \4\ A mathematical representation of the revised leased access 
rate calculation is as follows, where T = Elected Tier, C = 
Channels, R = Total Tier Monthly Subscriber Revenue, K = Total Tier 
Monthly Programming Costs, and A = Maximum Full-time Rate Per Month: 
A = (RT-KT) (1 / CT).
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    8. We find that a tier-specific implicit fee calculation will 
mitigate unnecessary burdens on cable operators by simplifying the 
leased access fee calculation while also fulfilling our statutory 
obligation to establish rules for determining maximum reasonable leased 
access rates. Although a few cable commenters suggest that the 
Commission could permit marketplace negotiations to establish the 
maximum reasonable rates, they also support the tier-specific implicit 
fee calculation that NCTA initially proposed. Considering our statutory 
obligation to ``establish rules for determining maximum reasonable 
[leased access] rates,'' we do not think Congress intended for us to 
rely on the marketplace to establish maximum reasonable leased access 
rates, even if doing so might be ``less intrusive'' on cable operators. 
We agree with NCTA that ``[t]ier-specific rates are

[[Page 51365]]

the fairest approximation of the maximum reasonable rate,'' given that 
such rates will be based on the actual programming revenue and costs 
associated with the tier on which the leased access programmer will be 
carried. We note that no commenter disagrees. In addition, we expect 
that the tier-specific calculation will be much simpler than the 
current weighting scheme because it is focused solely on a specific 
tier, and not all tiers with subscriber penetration over 50 percent.
    9. At this time, we decline to adopt any other changes to the 
leased access rate formula. ACA Connects is the only party that makes 
additional proposals in response to the Second FNPRM, asserting that 
``additional steps should be taken to reduce administrative burdens, 
particularly for smaller entities.'' As explained further in the Final 
Regulatory Flexibility Analysis, we note that simplifying the rate 
formula to be based on the specific tier will benefit small cable 
operators, as well as other cable operators. Accordingly, no additional 
relief for small cable operators is necessary at this time. More 
specifically, ACA Connects proposes that the Commission establish a 
universal per channel minimum leased access rate that is presumptively 
reasonable or modify the rate formula to make sure that the least 
profitable cable operators are not forced to offer leased access at 
extremely low rates or even for free, thus diverting capacity that 
would be better used for broadband. Despite these arguments, the record 
does not contain any evidence to demonstrate the frequency with which 
the leased access rate might be extremely low or even free. With regard 
to a universal rate, we find that the average implicit fee is a more 
accurate representation of the actual value of the channel to the 
operator because it is based on the operator's own data.\5\ Indeed, the 
leased access rate calculation merely reflects each cable operator's 
existing market conditions, it does not dictate them. Nevertheless, we 
note that our rules provide for waivers in unusual cases. Consistent 
with our current approach, we will consider the need for special relief 
on an individual basis in instances where significant hardship has 
``adversely affect[ed] the operation, financial condition, or market 
development of the cable system.'' \6\
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    \5\ The fact that the Commission previously adopted an interim 
safe harbor percentage to be used in the unrelated context of 
calculating universal service contributions does not alter our 
analysis. Universal service is an entirely separate regulatory 
regime with unrelated factual considerations.
    \6\ See 47 U.S.C. 532(c)(1).
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    10. ACA Connects also requests that the Commission ease 
administrative burdens by permitting cable operators to use a single 
set of data to respond to leased access requests for a set period of 
time, such as three years, rather than having to obtain data and 
recalculate the formula for each request. We find that using a single 
data set for three years would be less likely to result in calculations 
that accurately represent the current value of carriage. Accordingly, 
we do not adopt this proposal. We do, however, take the opportunity to 
codify the determination set forth in the 1993 Rate Regulation Order 
that the average implicit fee shall be calculated annually based on 
contracts in effect in the previous calendar year. The Commission has 
previously stated that under its rules, cable operators are required to 
calculate the maximum rates annually based on the contracts in effect 
in the previous calendar year, rather than at the time of each request. 
Thus, in response to the request from ACA Connects, we find it is in 
the public interest to codify in our rules \7\ the Commission's 
longstanding determination on this issue that the average implicit fee 
shall be calculated annually based on contracts in effect in the 
previous calendar year.\8\
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    \7\ Because this revision conforms our rules to the language set 
forth in the 1993 Rate Regulation Order, we find this change to be 
editorial and non-substantive. As such, we find good cause to 
conclude that notice and comment are unnecessary for this revision.
    \8\ We assume, in response to ACA Connects, that the annual 
calculation is performed in conjunction with an actual request.
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    11. The First Amendment. We agree with commenters that the 
constitutional foundation for the leased access regime is in 
substantial doubt; nonetheless, leased access rules are required 
pursuant to a specific statutory mandate from Congress. For example, 
section 612(b) of the Act specifically states that a ``cable operator 
shall designate channel capacity for commercial use by persons 
unaffiliated with the operator in accordance with the following 
requirements. . . .'' The Commission has long recognized that decisions 
about the constitutionality of Congressional enactments are generally 
outside the purview of administrative agencies. As a result, we decline 
to eliminate our leased access requirements and leave it to the courts 
to address the current constitutional status of the leased access 
statute, particularly given that the D.C. Circuit has previously upheld 
the constitutionality of the leased access statute, albeit under 
different marketplace conditions.
    12. The Second FNPRM sought comment on application of the First 
Amendment to the Commission's rules and statutory provisions concerning 
full-time leased access, including in particular whether the leased 
access rules can continue to withstand First Amendment scrutiny in 
light of marketplace changes. Commenters disagree as to whether strict 
scrutiny or intermediate scrutiny should apply, and they also disagree 
as to whether the leased access rules would pass muster under the 
applicable level of scrutiny.\9\ Strict scrutiny applies to content-
based speech restrictions and requires that a statute be narrowly 
tailored to serve a compelling governmental interest. When the D.C. 
Circuit previously upheld the constitutionality of the leased access 
statute, it determined that the statute is content-neutral and thus 
subject to intermediate scrutiny, which it passes if ``it furthers an 
important or substantial governmental interest; if the governmental 
interest is unrelated to the suppression of free expression; and if the 
incidental restriction on alleged First Amendment freedoms is no 
greater than is essential to the furtherance of that interest.'' \10\
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    \9\ Some commenters contend that leased access no longer passes 
muster under intermediate scrutiny. Other commenters argue that 
leased access may continue to pass muster under intermediate 
scrutiny. Still other commenters maintain that strict scrutiny 
should apply, and leased access would not pass muster under it. NAB 
also states that the Commission ``should avoid reaching 
constitutional questions unnecessarily.''
    \10\ NCTA contends that the D.C. Circuit's rationale in Time 
Warner v. FCC has since been disavowed by the Supreme Court. NAB 
disagrees with this argument.
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    13. We agree with numerous commenters who argue that marketplace 
changes--such as increased internet usage and availability, and 
competition from other multichannel video programming distributors 
(MVPDs) as well as online video distributors--appear to have eroded the 
original justification for the leased access rules: To safeguard 
competition and diversity in the face of cable operators' monopoly 
power. Free State explains that, whereas in the late 1980s and early 
1990s consumers generally ``had little choice for pay-TV services other 
than their local cable operator,'' today ``choice among competing 
providers offering a diverse array of content is now prevalent'' thanks 
to the availability of direct broadcast satellite (DBS) providers, 
telephone companies providing video services, and the availability of 
online video providers. Commenters highlight the fact that

[[Page 51366]]

MVPD subscribership losses are related to increased subscribership to 
online streaming services. For example, NCTA explains that the internet 
now ``supports a broad array of platforms through which program 
networks and other content providers may distribute their content to 
viewers,'' including both streaming services and on-demand platforms.
    14. Commenters assert that as a result of video marketplace 
changes, leased access is no longer needed to promote diversity or 
competition in the marketplace. These marketplace changes may alter the 
evaluation of the relevant governmental interest, regardless of whether 
strict scrutiny or intermediate scrutiny applies. Although some 
commenters maintain that ``cable operators do indeed still occupy a 
dominant position in the pay-TV marketplace,'' the record also 
indicates that the utility of cable leased access as a means of 
promoting diversity or competition in the marketplace has changed. With 
respect to the burden placed on cable operators by leased access 
requirements, NCTA argues that leased access continues to place burdens 
on cable operators ``by interfering with their speech; consuming 
capacity and resources that could be used for other purposes, content, 
and services that are much more highly valued by consumers; and placing 
cable operators at a competitive disadvantage.'' On the other hand, NAB 
maintains that the changes in the video marketplace have actually 
reduced the burdens of leased access on cable operators, for example, 
because their channel capacity has increased.\11\
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    \11\ We need not make a conclusive determination on this issue 
given our finding that the question of the constitutionality of 
leased access is a matter generally outside the purview of the 
Commission.
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    15. We agree with those commenters that maintain that it is not the 
role of the Commission to adjudicate in the first instance the 
constitutionality of leased access requirements that have been mandated 
by Congress.\12\ We have no need to opine on the appropriate level of 
constitutional scrutiny for a First Amendment analysis as is debated in 
the record or to decide whether leased access requirements survive any 
particular level of scrutiny. Finally, although the constitutionality 
of the leased access regime is in doubt, we express no opinion 
whatsoever as to the constitutionality of other carriage-related 
obligations placed on cable operators under the Act. We are mindful 
that each carriage-related provision presents unique circumstances, and 
that those other provisions are not at issue in the instant proceeding.
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    \12\ We thus disagree with commenters asserting that the 
Commission should decline to enforce the leased access rules because 
they would be found unconstitutional today.
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    16. Final Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act of 1980, as amended (RFA), the Commission 
has prepared a Final Regulatory Flexibility Analysis (FRFA) relating to 
the Second Report and Order. In summary, the Second Report and Order 
adopts a tier-based leased access rate calculation. It also finds that, 
although changes in the marketplace cast substantial doubt on the 
constitutionality of mandatory leased access, leased access 
requirements are contained in a specific statutory mandate from 
Congress, so the Commission does not eliminate its leased access rules. 
The action is authorized pursuant to sections 4(i), 303, and 612 of the 
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303, and 532. 
The types of small entities that may be affected by the action fall 
within the following categories: Cable Television Distribution 
Services, Cable Companies and Systems (Rate Regulation), Cable System 
Operators (Telecom Act Standard), Cable and Other Subscription 
Programming, Motion Picture and Video Production, and Motion Picture 
and Video Distribution. The projected reporting, recordkeeping, and 
other compliance requirements include the modification of the leased 
access formula so that rates will be specific to the tier on which the 
programming is carried. The First Amendment discussion in the Second 
Report and Order would not affect any reporting, recordkeeping, or 
other compliance requirements. The SBA did not file comments. In 
considering the impact on small entities, the Commission explains that 
the simplified, tier-based calculation for the average implicit fee 
will mitigate unnecessary burdens on cable operators, including small 
cable operators, while also fulfilling the Commission's statutory 
obligation to establish rules for determining maximum reasonable leased 
access rates. The Commission also believes the modifications are 
warranted given the significant changes to the overall rate regulation 
regime that have occurred since our current leased access rate rules 
were adopted. Although a few cable commenters suggest that the 
Commission could permit marketplace negotiations to establish the 
maximum reasonable rates, they also support a tier-specific implicit 
fee calculation. Considering the Commission's statutory obligation to 
establish rules for determining maximum reasonable leased access rates, 
we conclude that adopting a tier-specific rate calculation is the best 
approach. The Second Report and Order also considers alternate 
proposals from ACA Connects, but it concludes that ACA's proposals are 
unsupported by the record and would be less accurate than the adopted 
approach. The Second Report and Order additionally responds to a 
request from ACA by modifying the leased access rules to include the 
Commission's prior statements that the average implicit fee shall be 
calculated annually based on contracts in effect in the previous 
calendar year.
    17. Paperwork Reduction Act. This Second Report and Order does not 
contain new or modified information collection requirements subject to 
the Paperwork Reduction Act of 1995 (PRA). In addition, therefore, it 
does not contain any new or modified information collection burden for 
small business concerns with fewer than 25 employees, pursuant to the 
Small Business Paperwork Relief Act of 2002.
    18. Ordering Clauses. Accordingly, it is ordered that, pursuant to 
the authority found in sections 4(i), 303, and 612 of the 
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303, and 532, 
this Second Report and Order is hereby adopted.
    19. It is further ordered that part 76 of the Commission's rules, 
47 CFR part 76, is amended as set forth below, and such rule amendments 
shall be effective thirty (30) days after the date of publication in 
the Federal Register.
    20. It is further ordered that, should no petitions for 
reconsideration or petitions for judicial review be timely filed, MB 
Docket No. 07-42 shall be terminated, and its docket closed.
    21. It is further ordered that the Commission shall send a copy of 
this Second Report and Order in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act, see 5 U.S.C. 801(a)(1)(A).

List of Subjects in 47 CFR Part 76

    Administrative practice and procedure, Cable television.

Federal Communications Commission.
Marlene Dortch,
Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 76 as follows:

[[Page 51367]]

PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

0
1. The authority citation for part 76 continues to read as follows:

    Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 302a, 303, 
303a, 307, 308, 309, 312, 315, 317, 325, 338, 339, 340, 341, 503, 
521, 522, 531, 532, 534, 535, 536, 537, 543, 544, 544a, 545, 548, 
549, 552, 554, 556, 558, 560, 561, 571, 572, 573.


0
2. Amend Sec.  76.970 by revising paragraphs (d) and (e) to read as 
follows:


Sec.  76.970   Commercial leased access rates.

* * * * *
    (d) The maximum commercial leased access rate that a cable operator 
may charge for full-time channel placement on any tier is the average 
implicit fee for full-time channel placement on that tier.
    (e) The average implicit fee identified in paragraph (d) of this 
section shall be calculated by first calculating the total amount the 
operator receives in subscriber revenue per month for the programming 
on the tier on which the channel will be placed, and then subtracting 
the total amount it pays in programming costs per month for that tier 
(the ``total implicit fee calculation''). Next, the total implicit fee 
is divided by the number of channels on that tier (the ``average 
implicit fee calculation''). The result, the average implicit fee, is 
the maximum rate per month that the operator may charge the leased 
access programmer for a full-time channel on that tier. 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 calculated annually 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).
* * * * *
[FR Doc. 2020-16557 Filed 8-19-20; 8:45 am]
BILLING CODE 6712-01-P