Cable Television Leased Commercial Access

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

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

Cable Television Leased Commercial Access

AGENCY: Federal Communications Commission.

ACTION: Further Notice of Proposed Rulemaking.

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SUMMARY: The Commission has adopted an Order on Reconsideration of the

First Report and Order and Further Notice of Proposed Rulemaking

regarding implementation of the leased commercial access provisions of

the 1992 Cable Act. The Order on Reconsideration segment of this

decision may be found elsewhere in this issue of the Federal Register.

The Further Notice of Proposed Rulemaking (``Further Notice'') segment

invites comment on whether the Commission should amend its commercial

leased access rules regarding maximum reasonable rates, part-time

rates, preferential access, tier and channel placement, operators'

obligation to open new leased access channels and bump existing non-

leased access services, selection of leased access programmers,

minority and educational programmers, procedures for resolution of

disputes, and resale of leased access time. The Further Notice is

intended to respond to certain petitions for reconsideration of the

Commission's current leased access rules.

DATES: Comments are due on or before May 15, 1996, and reply comments

are due on or before May 31, 1996. Written comments by the public on

the proposed and/or modified information collections are due May 15,

1996. Written comments must be submitted by the Office of Management

and Budget (``OMB'') on the proposed and/or modified information

collections on or before June 14, 1996.

ADDRESSES: Office of Secretary, Federal Communications Commission, 1919

M Street, NW., Washington, DC 20554. In addition to filing comments

with the Secretary, a copy of any comments on the information

collections contained herein should be submitted to Dorothy Conway,

Federal Communications Commission, Room 234, 1919 M Street, NW.,

Washington, DC 20554, or via the Internet to [email protected], and to

Timothy Fain, OMB Desk Officer, 10236 NEOB, 725--17th Street, NW.,

Washington, DC 20503 or via the Internet to [email protected].

FOR FURTHER INFORMATION, CONTACT: Lynn Crakes, Cable Services Bureau,

(202) 416-0800. For additional information concerning the information

collections contained in this Further Notice, contact Dorothy Conway at

(202) 418-0217, or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's

Further Notice of Proposed Rulemaking, CS Docket No. 96-60, adopted

March 21, 1996, and released March 29, 1996. The full text of this

decision is available for inspection and copying during normal business

hours in the FCC Reference Center, Room 239, 1919 M Street, NW.,

Washington, DC 20554, and may be purchased from the Commission's copy

contractor, International Transcription Services, Inc., (202) 857-3800,

1919 M Street, NW., Washington, DC 20554.

Synopsis of the Further Notice of Proposed Rulemaking

I. Maximum Rate Formula

1. The Commission believes that its goal in determining a maximum

reasonable rate should be to promote the statutory objectives of

competition and diversity in programming sources without financially

burdening the operators, rather than to develop a price that will

necessarily be lower or higher than rates derived under the current

highest implicit fee formula. The Commission believes that, if the

maximum rate for leased access is reasonable, the resulting demand for

leased access channels will also be reasonable. It is in this context

that the Commission is re-examining the highest implicit fee formula.

The Commission believes that the highest implicit fee formula is likely

to overcompensate

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cable operators and does not sufficiently promote the goals underlying

the leased access provisions. The Commission has therefore developed an

alternative that it believes may better promote the goals of leased

access.

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

2. The Commission tentatively concludes that its approach to

setting a maximum rate should (a) encourage the use of the set-aside

channels without giving programmers a subsidy, and (b) allocate the

channels to the leased access programmers that value the channels most

(i.e., are willing to pay the most) when the demand for leased access

channels exceeds the statutory set-aside requirement. The Commission

therefore tentatively concludes that the maximum rate for leased access

should depend on whether a cable operator is leasing its full statutory

set-aside requirement. The Commission requests comment on these

tentative conclusions.

3. The Commission also tentatively concludes that, when the set-

aside capacity is not fully leased to unaffiliated programmers (or

minority or educational programmers pursuant to Section 612(i) of the

Communications Act), the maximum rate should be based on the operator's

reasonable costs (i.e., the costs of operating the cable system plus

the additional costs related to leased access), including a reasonable

profit. The Commission believes that a cost-based pricing scheme can

promote leased access without providing a subsidy to programmers. The

purpose of the cost formula is not to lower rates; it does not ensure

that leased access programming will increase or that the maximum rate

for leased access programmers will decrease. Programmers who cannot

afford the cost-based rate will not and should not gain access because

they would impose a financial burden on operators.

4. In addition, the cost formula is not intended to guarantee that

all operating costs will be fully recovered, but is intended to permit

the operator to continue to recover the same proportion of operating

costs from subscriber revenues as were recovered before the channel was

used for leased access. Thus, under the proposed cost formula, the

operator would not be adversely affected in terms of its ability to pay

operating costs. The Commission asks for comment on these tentative

conclusions.

5. The portion of the maximum rate for leased access channels

included in a tier of programming which the Commission proposes be paid

by the leased access programmer (the ``programmer charge'') would be

based on the reasonable costs (including reasonable profits) that

leased access imposes on the operator. Operators would be allowed to

recover only those types of opportunity costs which can reasonably be

attributed to carriage of the leased access programming and which are

reasonably quantifiable.

6. On the other hand, the Commission tentatively concludes that if

the operator satisfies its set-aside requirement, the maximum rate

should be a market rate determined by negotiation between the operator

and the leased access programmer. The Commission believes that market

rates will most effectively determine which programmers should receive

leased access on the system when the operator's set-aside is satisfied.

Within the leased access market, those programmers who are able to pay

the most for channel capacity would presumably be able to acquire the

set-aside channels. The higher price which some leased access

programmers may offer to pay for the channel capacity reflects the

greater ability and willingness of consumers to pay for the programming

to be carried on each of these channels. Thus, relying on market prices

to allocate channel capacity provides consumers with an efficient

mechanism to communicate their preferences about which leased access

programming should be carried by the operator. The Commission seeks

comment on these tentative conclusions.

7. The Commission recognizes that the market rate may rise above

the operator's costs; such prices, however, are the result of

competition among unaffiliated programmers to use the statutory leased

access channel capacity. The Commission believes that, so long as the

operator is accommodating leased access to the full extent required by

Congress and Section 612, any price increase would be reasonable. Under

the Commission's proposal, the operator cannot charge market rates if

the number of channels leased falls below the number designated by the

statute. Thus, a higher rate would reflect excess demand by programmers

for the operator's statutory channel capacity.

8. In general, market power refers to the ability of a seller to

restrict output below the desirable level and to set a price above

costs (i.e., to set an unreasonable rate). In the leased access

context, Congress has defined the appropriate level of output by

establishing the set-aside requirement, and the operator cannot

restrict the output below this level. Therefore, even if the market

rate rises above the operator's costs, the Commission does not believe

that the operator is charging unreasonable rates since Congress has

determined the appropriate level of output. The Commission seeks

comment on these tentative conclusions.

9. The Commission seeks comment on the extent to which negotiated

rates are adequate to address Congress' mandate that the Commission set

a maximum reasonable rate and the extent to which negotiated rates

could be used to exercise editorial control over the leased access

channels, contrary to Congress' intent. The Commission also asks for

comment on how operators may choose between competing programmers. For

instance, the Commission asks if operators should be required to select

the highest bidder. The Commission also seeks comment on any

alternatives for setting maximum rates when an operator is leasing its

full set-aside capacity.

10. The Commission does not propose to maintain the programmer

categories established under the highest implicit fee formula under the

proposed cost formula. Our proposed cost formula is based purely on the

operator's costs associated with its system and leased access

programming. and does not base the maximum rate on the economics which

the leased access programmer faces. The Commission therefore does not

believe that treating different programmers differently is appropriate

under the cost formula. Accordingly, the Commission tentatively

concludes that it will not establish programmer categories for

implementation of the cost formula, and requests comment on this

tentative conclusion.

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

1. Designating Channels

11. The Commission proposes that the cost formula determine a

maximum leased access rate based on the cost of the channels designated

to be used for leased access by an operator. The opportunity costs

would be derived from the programming that is actually bumped from the

operator's programming line-up.

12. To derive the channel cost under the proposed cost formula, an

operator would first select the specific channels it would use for

leased access programming, as demand arises, in order to meet its set-

aside requirement. The Commission proposes that the operator would be

required to place these channel designations, including the channel

numbers and the programming carried on each channel at

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the time the operator calculates the maximum rate under the cost

formula, in its public file. The operator would be required to

designate enough channels to satisfy its full set-aside requirement.

Basing the rate on the actual designated channels would be attractive

from an economic perspective because the compensation to the operator

would be based on its actual costs of leasing the designated channels.

The Commission requests comment on this proposal generally. The

Commission also requests comment on how the Commission might restrict

an operator's ability to manipulate its designation of channels so as

to derive a prohibitively high rate in an effort to impede leased

access. For example, the Commission asks whether there should be a

presumption against an operator designating only its highest valued

channels in such a way as to inflate its maximum leased access rate.

The Commission also asks whether operators should be permitted to base

their maximum rate calculation on affiliated programming, if the

operator designates channels that carry such affiliated programming.

2. Operating Costs

13. The first component of the proposed cost formula is the

operating costs. The Commission tentatively defines operating costs to

include fixed and variable costs that the cable operator incurs

regardless of what programming is carried over the channel. Commission

data shows that, in the tier context, this component, including a

reasonable rate of return, is substantially covered by the revenue the

operator receives from subscribers. Using subscriber revenue as a proxy

for the operating costs for tiered channels allows the operator to

recover its operating costs to the same extent as it did with non-

leased access programming on the channel. The Commission therefore

tentatively concludes that it is appropriate for purposes of the

proposed cost formula to designate subscriber revenue as the operator's

payment toward its operating costs. Thus, the operator would not need

to calculate its operating costs for channels that are currently on

programming tiers (or dark), and would instead use the amount

representing the average subscriber revenue per channel as its

operating costs per channel in calculating the cost formula.

14. Similarly, the Commission proposes that operators would not

need to calculate their operating costs for channels that are currently

carried as premium services or on unregulated programming tiers. As

with channels carried on regulated programming tiers, the Commission

believes that using the subscriber revenue for an unregulated channel

as its payment toward its operating costs will allow the operator to

recover its operating costs to the same extent as it does with the non-

leased access programming carried on the channel. The Commission

recognizes that unregulated subscriber revenue might recover more than

the operator's operating costs; however, the Commission believes that

any profit which is generated from subscriber revenue could be viewed

as an opportunity cost imposed on the operator who forgoes these

profits when this channel is used to carry leased access programming.

For simplicity, the Commission proposes not to require the operator to

deduct this lost profit from the operating cost portion of the formula

simply to add it back to the opportunity cost portion. The Commission

seeks comment on these tentative conclusions.

3. Net Opportunity Costs

15. The Commission proposes that the second component of the cost

formula, ``net opportunity costs,'' would include the reasonable costs

(or cost savings) that the operator incurs by leasing the channel to

the leased access programmer that it would not have incurred had it

continued with the current use of the channel. In other words, the net

opportunity cost portion of the cost formula would include reasonably

quantifiable costs (or savings) associated with carrying the leased

access programming instead of other programming. The Commission

recognizes that our proposed formula does not incorporate all

opportunity costs. As discussed below, some costs are not easily

quantified; other costs the Commission does not believe are appropriate

to include in the leased access fee. In order to provide some

uniformity in the calculation of opportunity costs, the Commission

proposes to identify categories of quantifiable costs which operators

may include in calculating the cost formula.

16. The first category of opportunity costs for which the

Commission proposes to allow recovery is lost advertising revenues.

This type of lost revenue would be a quantifiable opportunity cost when

the operator is forced to bump a non-leased access programmer to

accommodate the leased access programmer, or when the operator is

forced to forego placing new programming on a dark channel. The

Commission does not propose to reduce the opportunity cost for lost

advertising revenue by the value of any advertising time the operator

may receive from the leased access programmer. The Commission believes

that the leased access programmer is entitled to pay no more than the

maximum rate, regardless of whether the operator receives advertising

time. If the leased access programmer does not want to give the

operator advertising time, the Commission tentatively concludes that

the programmer is not required to do so. On the other hand, if the

programmer wishes to bargain for a lower rate in exchange for

advertising time, the Commission believes such bargaining is fully

permitted by our rules and is a matter to be negotiated between the

parties. The Commission requests comment on these tentative

conclusions.

17. The Commission proposes that the second opportunity cost

category should be lost commissions. If, for example, to accommodate a

leased access channel, an operator were to bump a direct sales

programmer from which the operator receives a percentage of the

programmer's revenues, those commissions constitute a quantifiable

opportunity cost which the Commission proposes be factored into the

cost formula. The Commission requests comment on this proposal.

18. On the other hand, the Commission also believes that any

program license fee that the operator does not have to pay because the

non-leased access programming is not being carried is a cost savings.

The Commission believes that such a cost savings should be factored

into the calculation of the operator's net opportunity cost. The

Commission tentatively concludes that cable operators should be

required to deduct any license or programming fees that the operator

does not have to pay due to the carriage of the leased access

programming. One possible concern is the extent to which either the

operator or the programmer can influence the license fees paid for non-

leased access programming. The Commission asks how, if at all, the

operator or programmer can influence the programming license fee and

how that influence might affect the Commission's measurement of

programming cost savings under the proposed cost formula.

19. Another cost category which the Commission believes may be

appropriate relates to technical costs (e.g., the cost of scrambling)

incurred by the operator in offering leased access programming. If, for

example, a programmer asks to lease channel capacity for a premium

service, an operator may incur additional costs of

[[Page 16450]]

limiting that programming to subscribers of the leased access service.

Thus, under our proposed cost formula, those costs could be included in

calculating the maximum rate. The Commission proposes to distinguish

these technical costs from those for technical support for which the

operator is permitted to charge separately. The Commission requests

comment on these proposals.

20. Another potential opportunity cost category could be any

reduction in the tier charge that the operator charges the subscriber

when the reduction is caused by substituting the leased access

programming for non-leased access programming. Although the Commission

believes that there would be no such lost subscriber revenue under the

Commission's going forward methodology, it seeks comment on how an

operator might be able to demonstrate that its subscriber revenue is

quantifiably reduced on a specific designated channel because of the

leased access programming carried on that same channel, and, if this is

possible, whether the operator should be permitted to include this loss

in the cost formula.

21. The Commission tentatively concludes that the cost formula

should not explicitly include revenue lost because of a purported loss

in subscribership to a particular tier because particular programming

is dropped. The Commission tentatively concludes that, in the tier

context, any such subscriber loss is too speculative to measure

accurately. In the premium context, however, the Commission believes

that this subscriber loss is included by allowing the operator to

include an amount in the proposed cost formula equal to the total

subscriber revenue for the bumped channel. In addition, operators would

be able to consider any potential loss of subscribership in deciding

which channels to designate for leased access. Nonetheless, the

Commission requests comment on how our cost formula might measure

changes in subscriber penetration due to the addition of leased access

programming.

22. The Commission also recognizes that there may be opportunity

costs associated with using a channel for leased access which does not

currently carry programming, i.e., a dark channel. The Commission

believes that the presence of dark channels on a system does not

necessarily indicate a lack of available programming. As an example, an

operator might reserve a dark channel in anticipation of more desirable

programming becoming available in the future. The Commission proposes

to allow operators to approximate the opportunity costs of dark

channels by assigning dark channels the per channel opportunity cost of

the programmed channels on the system with opportunity costs that have

the lowest positive values, not including programmed channels that the

operators are required to carry such as must-carry stations, public,

educational and governmental (``PEG'') access channels, or any leased

access channels already being carried. If one designated channel is

dark, the operator would assign it the opportunity cost of the

programmed channel on the system which has the opportunity cost with

the lowest positive value; if an operator designates two dark channels

for leased access, it would assign the opportunity cost of the two

programmed channels on the system which have the lowest opportunity

cost with a positive value, and so on. The Commission seeks comment on

this proposal.

23. The Commission believes that it is necessary to use only

channels with positive opportunity costs as proxies for dark channels,

because operators generally will not carry programming that has a

negative economic benefit to them, which is what a negative opportunity

cost value would indicate. The Commission suspects that, if a channel

has a negative net opportunity cost, it may be because the cost formula

does not include an approximation of the value of subscriber

penetration. Although the Commission does not believe that it can

accurately measure loss in subscriber penetration that may be caused by

substituting leased access programming for non-leased access

programming for purposes of the cost formula, the Commission

tentatively concludes that using only those channels with a positive

opportunity cost as proxies for dark channels will compensate for this

limitation. As also stated above, however, the Commission requests

comment on how it might measure changes in subscriber penetration due

to the addition of leased access programming. The Commission asks how

it might identify which channels should not be deemed to have the

lowest opportunity cost for purposes of approximating the opportunity

costs of dark channels.

4. Averaging the Per Channel Costs for All Designated Channels

24. Because the operator may select designated channels from the

basic service tier (``BST''), any cable programming service tier

(``CPST''), or premium services, the Commission believes that the

corresponding per channel costs will vary depending on the number of

subscribers that receive each service. Consequently, the Commission

proposes that all costs must be computed on a per channel basis rather

than on a per subscriber basis. As discussed below, the per channel

costs for each designated channel could then be used to determine the

average channel costs of a designated channel.

25. The Commission tentatively concludes that applying an average

channel cost to leased access will promote fairness because all leased

access programmers will be subject to the same maximum rate. The

Commission notes that an operator's designation of leased access

channels is made independently of the leased access programmer's

request for access. The Commission does not believe that the operator

should be required to bump the same type of service (i.e., a channel on

the BST, a CPST, or a premium channel) that is requested by the leased

access programmer. The Commission also believes that averaging the

channel costs would mitigate against the operator's ability to

manipulate the cost formula by designating one high cost channel and

requiring a particular leased access programmer that the operator wants

to keep off its system to pay the opportunity costs for that particular

programming.

26. Therefore, the Commission proposes that, after the operator has

calculated the per channel opportunity costs and added the

corresponding subscriber revenue (as a proxy for operating costs) to

obtain a total per channel cost, the operator should average these per

channel costs by adding them all together and dividing by the number of

designated channels. The result would be the Commission's proposed

cost-based maximum rate for a leased access channel if the operator has

not fulfilled its leased access set-aside requirement. The Commission

seeks comment on whether averaging the per channel costs is appropriate

under the proposed cost formula.

5. Calculating the Leased Access Programmer Charge

27. Under our proposed cost formula, once the operator determines

the maximum rate as set forth above, the operator would determine how

much of that maximum rate it could charge the leased access programmer.

If the leased access programming is to be carried on a programming

tier, the proposed cost formula would allow the operator to collect and

retain revenue for that channel from the subscribers to the tier as

payment for its operating costs. However, to avoid a double recovery by

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the operator, the operator would not be permitted to include these

operating costs in computing the portion of the maximum rate that the

operator may charge the leased access programmer. The operator would

therefore be required to subtract the total subscriber revenue for the

channel from the maximum rate. The difference would be the programmer

charge, i.e., the maximum amount that the operator would be permitted

to charge the leased access programmer directly. The Commission

requests comment on this proposal.

28. The Commission tentatively concludes that if a leased access

channel is to be carried as a premium service, the full maximum rate

derived from the cost formula could be charged to the leased access

programmer, to the extent that all of the monthly subscriber revenue

for the leased access channel flows to the leased access programmer.

The Commission believes that this is appropriate because the Commission

cannot assume that the leased access premium service will attract the

same subscribership as the non-leased access programming. Thus, the

operator would be allowed to charge the full maximum rate which

recovers its costs. In return, the programmer would receive all the

subscriber revenues from its premium service. The Commission requests

comment on these tentative conclusions.

6. Adjustment for Part-Time Administrative Costs

29. Regardless of whether the leased access programming is carried

on a tier or as a premium service, the Commission recognizes that there

may be additional costs associated with part-time leases. The

Commission therefore tentatively concludes that operators should be

permitted to charge a part-time leased access programmer the actual

incurred costs of negotiating and administering the programmer's part-

time contract which exceed what normally would be spent in negotiating

and administering a full-time leased access programming contract. The

Commission does not believe that it is more expensive for an operator

to negotiate and administer a full-time leased access programming

contract than it is for them to negotiate and administer a full-time

non-leased access programming contract. The Commission therefore

proposes not to allow operators to charge full-time leased access

programmers for administrative costs. Under our proposal, the

additional costs associated with part-time leasing would be added to

the programmer charge derived in accordance with the procedures

described above for determining rates for leased access programming

carried on a tier or as a premium service. The Commission asks for

comment on these tentative conclusions.

C. Market Rate as the Maximum Rate

30. As discussed above, the Commission believes that, once an

operator fulfills its set-aside requirement, the maximum cost-based

rate should be replaced by a market based rate and not capped by the

proposed cost formula. Under this proposal, the operator would be

allowed to charge whatever rate it could negotiate with the leased

access programmers, as long as the operator continues to meet its

statutory set-aside requirement. Whether the operator retains the

subscriber revenue would be a matter negotiated between the parties.

Leased access programmers would then be forced to compete against each

other for limited channel space, much the same as non-leased access

programmers do. The Commission tentatively concludes that the pressure

on the operator to meet its set-aside requirement and the competition

between the programmers seeking leased access will determine an

appropriate market rate.

31. The Commission proposes that operators would be permitted to

renegotiate the rate charged leased access programmers upon renewal of

each programmer's contract, as long as the operator continues to

fulfill its set-aside requirement. Thus, if the set-aside requirement

has been filled, a current leased access programmer who gained access

at the cost formula rate would have an opportunity at the end of its

contract to bid against rival leased access programmers to obtain the

right to continue to be carried on the system. If the amount of leased

access programming being carried drops below the set-aside requirement,

the operator would be required to return to the cost formula to

determine the maximum rate on new programming contracts, as well as on

contracts that are renewed at any time while the set-aside requirement

is not met. The Commission seeks comment on this proposal generally,

and asks whether this proposal complies with our statutory mandate to

establish maximum reasonable rates. The Commission also seeks comment

on whether operators could exercise editorial control over leased

access programmers contrary to Congress' intent, if rates for leased

access were market based. In addition, the Commission requests comment

on alternatives for setting maximum reasonable rates when an operator

has satisfied its set-aside requirement.

D. Transition Period

32. The Commission tentatively concludes that, on the effective

date of the maximum rate-setting rules which the Commission will adopt

in response to this Further Notice, operators should be required to

implement the adopted formula, whatever it may be, for (a) programmers

that are currently leasing channel capacity from an operator and (b)

programmers demanding leased access on a system that has unused (or

dark) channel capacity. The Commission requests comment on this

tentative conclusion. The Commission believes, however, that transition

relief may be appropriate in the case of new leased access requests

with respect to systems that do not have any dark channels, where

operators would be forced to bump existing programming in order to

accommodate a leased access request. The Commission recognizes that,

when an operator places non-leased access programming on a channel

designated for leased access, the operator and programmer generally

assume the risk that the programming may have to be bumped for a leased

access programmer. The risk of having to bump, however, may increase

with the introduction of whatever formula the Commission adopts,

depending on the extent to which rates using the adopted formula affect

the utilization of leased access. A transition to the new formula might

(a) avoid unduly penalizing operators and programmers for decisions to

use designated channels for non-leased access programming that were

reasonably based on circumstances created by the Commission's previous

rules, and (b) mitigate against the sudden disruption to subscribers'

programming line-ups. The Commission therefore requests comment on

whether it should phase in the proposed cost formula, or any other rate

setting formula which the Commission may adopt, for those leased access

requests that can only be accommodated by bumping existing non-leased

access programming. The Commission also asks whether such transition

relief should be applied to dark channels for which the operator has

programming contracts in place. The Commission asks for comment on how

a transition might be accomplished and the specific mechanism the

Commission should employ. In this context, commenters should explain

how any proposed transition period would be consistent with the

Commission's obligation to establish maximum reasonable rates for

leased access.

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E. Adjusting Leased Access Rates Over Time

33. As described above, the proposed cost formula would require

operators to designate the specific channels they will use to satisfy

their set-aside requirement. The Commission proposes that an operator's

selections are binding and the designated channels must be the ones

that are in fact used to accommodate leased access requests. The

Commission does not believe, however, that operators should be required

to adhere to their initial designations indefinitely, since the

popularity and profitability of a designated channel could unexpectedly

increase and the operator might no longer want to use it for leased

access. The Commission tentatively concludes that, in order to account

for change, operators should be allowed to redesignate their unused

leased access channel capacity on an annual basis. The Commission

requests comment on these tentative conclusions, and asks how an

operator's maximum leased access rates should be adjusted over time.

Our presumption in allowing operators this flexibility is that

operators generally will want to use their least profitable channels

for leased access, and so will redesignate a channel that is less

profitable than the one that is being replaced. If an operator

redesignates a channel that is significantly more profitable than the

previously selected channel, and the redesignation would raise the

operator's maximum rate, the Commission tentatively concludes that the

redesignation would be evidence of an attempt to inflate the maximum

rate in contravention of the purposes of our rules and the statute.

34. In addition to permitting redesignation of leased access

channels, the Commission tentatively concludes that operators should be

permitted to recalculate their maximum rates annually, in order to

account for changes in the allowable opportunity costs of designated

channels that currently are not being used for leased access. The

Commission requests comment on whether this annual recalculation is

appropriate, and on whether it should occur on the anniversary of the

effective date of our modified rules, each calendar year, or on some

anniversary which is most appropriate for an individual operator (to

coincide with its annual audits, for example). The Commission believes

that allowing an operator to update its rates will better approximate

the operator's changing costs of satisfying its leased access

requirement. The Commission requests comment on whether our maximum

rate should be cumulative over the life of the leased access contract

so that an operator and a leased access programmer have the option, if

mutually agreed upon, to establish a rate below the maximum rate during

the first part of the contract term and a rate above the maximum rate

during a subsequent part of the contract term, and asks whether such an

option would provide operators with the opportunity to evade the

maximum rate.

II. Part-Time Rates

35. The Commission's current rules permit prorating the maximum

monthly rate as one method of deriving rates for shorter periods. The

rules the Commission adopted on reconsideration provide that operators

may establish a schedule of rates, or rate card, for different times of

day, pursuant to which, if all times were used, the sum of the part-

time charges for any single leased access channel within a 24-hour

period would not exceed its maximum rate for the leased access channel

if the daily rate were prorated evenly from the monthly maximum rate

and were calculated in accordance with the Commission's rules. The

Commission requests comment, however, on whether such proration is

appropriate under our proposed cost formula, and, more specifically, if

it is, whether the restriction that the part-time rates for a 24 hour

time period total no more than the maximum rate is appropriate under

the proposed cost formula. The Commission seeks comment on whether, if

the cost/market rate formula were to be adopted for full-time leased

access use, an entirely different method of calculating the maximum

reasonable rate for part-time use would be more appropriate. If so, the

Commission requests comment on how to define part-time leased access

use, e.g., leases for less than a 24 hour channel, for 12 hours, for

eight hours, or fewer.

III. Preferential Access

36. The Commission is concerned that not-for-profit programmers are

being excluded from leased access, but the record lacks sufficient

evidence to make a determination of whether the goal of diversity is

being achieved and, if it is not being achieved, whether one of the

reasons is that rates are unaffordable for not-for-profit entities. The

Commission therefore invites interested parties to demonstrate, with

specific examples, whether current leased access programming sources

are sufficiently diverse and whether preferential treatment for not-

for-profit programmers would significantly affect the diversity of

current programming sources. The Commission requests commenters to

provide precise data indicating whether or not rates charged to leased

access programmers are affordable for not-for-profit entities.

Commenters in support of preferential treatment for not-for-profit

programmers should explain their position within the context of our

previously stated belief that operators should not have to subsidize

leased access programmers and the statutory requirement that leased

access use should not adversely affect the operation, financial

condition, or market development of the cable system. Those commenters

should also address the extent to which preferential treatment is

necessary given that public access is already provided for under

current PEG requirements.

37. The Commission seeks comment on whether, if the Commission

concludes that some form of preferential treatment is appropriate, a

lower maximum rate should apply to not-for-profit leased access

programmers, and if so, what rate should apply and why. Alternatively,

if the proposed cost formula is adopted, the Commission seeks comment

on whether operators should be required to exclude lost advertising

revenues or lost commissions from maximum rates charged to not-for-

profit leased access programmers. In addition, the Commission solicits

comment on whether not-for-profit leased access programmers should be

entitled to preferential rates during any transition period that might

be adopted for the cost formula.

38. Preferential rates, if adopted, would provide no relief if not-

for-profit leased access programmers are denied access to a system

because the operator has met its set-aside requirement. The Commission

seeks comment on whether the statute would permit us to consider a set-

aside requirement for not-for-profit programmers. If so, the Commission

asks whether the public interest would be served by such a set-aside

requirement and how it should be structured. For example, would a

reservation of 25% of leased access capacity be appropriate? Should a

set-aside requirement be temporary or permanent, and if temporary, what

length of time would be appropriate? Furthermore, if the proposed cost

formula were adopted, how would the need for a set-aside requirement be

affected, given that the formula allows market rates to prevail when

demand for leased access exceeds an operator's set-aside requirement?

If a such a set-aside requirement were imposed, the Commission would

stipulate that until a

[[Page 16453]]

not-for-profit leased access programmer demanded access to a not-for-

profit set-aside channel, the operator must use the channel for for-

profit leased access programming, unless no demand exists, in which

case it may use it for its own programming.

39. The Commission also seeks comment on whether preferential

treatment should be limited to not-for-profit programmers or whether

certain types of for-profit programmers should also receive

preferential treatment. The Commission believes that there is

insufficient evidence on the record for us to indicate that LPTV

stations and minority and educational programmers should receive

preferential treatment, but the Commission invites commenters to

demonstrate with specific evidence why a preference for certain types

of for-profit programmers may be appropriate. The Commission also seeks

comment on whether a ``not-for-profit programmer'' should be defined as

a programmer with Section 501(c)(3) tax-exempt status or whether

another classification should apply.

IV. Tier and Channel Placement

40. The statutory commercial leased access provisions are intended

to provide programmers with a ``genuine outlet'' for their programming.

According to the legislative history of the 1992 amendments to Section

612, the Commission should ensure that programmers are carried on

channel locations that ``most subscribers actually use,'' a guideline

that should be interpreted in light of the statutory provision that

leased access use should not adversely affect the market development of

a cable system. The Commission tentatively concludes that, absent some

compelling reason (such as technical considerations), leased access

programmers have the right to be placed on a tier, as opposed to being

carried as a premium service. The Commission believes that, if an

operator were permitted to force leased access programming to be

offered as a premium service, the programmer would not be assured

access to most subscribers.

41. Our 1995 Competition Report states that a large percentage of

subscribers (more than 90%) receive CPSTs. The Commission tentatively

concludes that both the BST and the CPST with the highest subscriber

penetration qualify as genuine outlets because most subscribers

actually use them. However, the Commission seeks comment on whether a

CPST that does not boast the highest subscriber penetration could

qualify as a genuine outlet, and under what circumstances. For example,

should the Commission interpret the term ``most subscribers'' as

greater than 50%? In order to permit flexibility in the market

development of an operator's cable system, the Commission would allow

the operator to decide whether it is appropriate for its particular

system to carry the leased access channel on the BST or on a CPST that

qualifies as a genuine outlet. To ease technical burdens on operators,

the Commission proposes to permit operators to place leased access

programming that it must scramble or trap out with other programming

that is also scrambled or trapped out. The Commission also proposes to

allow operators to consider these technical concerns when deciding

whether to place leased access programming on either the BST or a CPST

that qualifies as a genuine outlet. The Commission seeks comment on

these tentative conclusions.

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

Services

42. Although cable operators that have not fulfilled their

statutory leased access set-aside requirement are generally required to

accommodate requests for leased access time, the Commission recognizes

that there may be circumstances in which substantially greater harm to

the subscribers, the operator, and the non-leased access programmer may

result if the leased access request is accommodated than would result

for the leased access programmer if the leased access request is not

accommodated. The Commission seeks comment on whether, when a specific

time slot requested by a part-time leased access programmer is already

leased, an operator should be required to open up another leased access

channel, if the operator can otherwise reasonably accommodate the

leased access request in a comparable time slot. The Commission

believes that the possible disruption of existing programming or the

preclusion of future programming in order to accommodate only a few

hours of leased access demand, where adequate and comparable capacity

is available on an existing leased access channel, will not advance the

goal of assuring that the widest possible diversity of information

sources are made available to the public from cable systems in a manner

consistent with the growth and development of cable systems. However,

the Commission solicits comment on whether it is sufficient to require

a ``reasonable accommodation in a comparable time slot'' or whether the

standard should be further defined. The Commission also seeks comment

on whether the operator should be required to remove an existing full-

channel programmer if the leased access programmer agrees to a minimum

time increment. The Commission tentatively concludes that the guarantee

of a minimum time increment of eight hours within a 24-hour period

would be a reasonable pre-condition for requiring an operator to open

up an additional channel for leased access.

VI. Selection of Programmers

43. The Commission has not specifically addressed the manner in

which lessees are to be selected for placement on leased access

channels. The Commission tentatively concludes that a first-come,

first-served approach is preferable so long as available leased access

channel capacity is sufficient to accommodate incoming leased access

requests. However, if an operator's available leased access channel

capacity is insufficient to accommodate all pending leased access

requests, the Commission seeks comment on whether operators should be

allowed to accept leased access programmers on a basis other than

first-come, first-served. The Commission believes that allowing cable

operators limited ability to make content-neutral selections from among

leased access programmers may be appropriate in order to enable them to

avoid certain situations that might ``adversely affect the operation,

financial condition, or market development of the cable system.''

44. For example, operators may wish to give priority to leased

access programmers that request a full-time lease over a programmer

seeking to lease only part-time, thus minimizing the disruption to the

subscriber, as well as easing the administrative burdens on the

operator. The Commission is not suggesting that an operator would be

allowed to completely refuse part-time requests for leased access, but

is asking whether, when the operator cannot accommodate all leased

access requests within its set-aside requirement, the operator should

be allowed to select a full-time applicant over a part-time applicant.

At the same time, the Commission is concerned that allowing a

preference for full-time programmers may not further the statutory goal

of promoting the widest possible diversity of programming sources,

since encouraging part-time use could result in a wider variety of

programmers. To that end, the Commission seeks comment on whether

certain circumstances favor shifting the preference to the competing

part-time applicant, for example if the part-time applicant is a not-

for-profit entity.

[[Page 16454]]

Alternatively, instead of allowing a preference for the last available

leased access channel, the Commission seeks comment on whether it

should require one or two leased access channels to be used exclusively

for part-time use. The Commission further seeks comment on whether it

should allow operators to base their selections on any content-neutral

criteria other than the full-time/part-time distinction.

VII. Minority and Educational Programmers

45. Section 612(i) of the Communications Act permits a cable

operator to place programming from a qualified minority or educational

programming source on up to 33% of the cable system's designated leased

access channels. The Commission seeks comment on whether the

requirements for tier and channel placement, as proposed above, should

apply to minority and educational programming that is carried as a

substitute for leased access programming. Specifically, should

operators be required to carry minority and educational programming on

the BST or a CPST that qualifies as a genuine outlet, if they are

claiming it as a substitute for leased access? There is no explicit

language in the statute or legislative history stipulating that

minority and educational programming should be received by most

subscribers. However, Section 612(i)(1) provides that ``a cable

operator required by this section to designate channel capacity for

commercial use may use any such channel capacity'' for minority and

educational programming (emphasis added), suggesting that Congress

envisioned that the same channels that would have been used for leased

access should be used for any substituted minority and educational

programming. Moreover, to allow a less stringent standard for minority

and educational programming would seem to defeat the use of such

programming as a substitute for leased access. Therefore, the

Commission tentatively concludes that minority and educational

programming should not qualify as a replacement for leased access

programming unless it is carried on the BST or a CPST that qualifies as

a genuine outlet. As with leased access, the operator could choose on

which qualifying tier to carry the programming.

VIII. Procedures for Resolution of Disputes

46. In order to streamline the Commission's complaint process, the

Commission proposes to stipulate that a leased access programmer may

not file a complaint alleging that an operator's maximum rate was

calculated incorrectly unless an independent certified public

accountant has first reviewed the operator's calculations and made an

independent determination of the maximum rate. If the operator and

leased access programmer cannot agree on a mutually acceptable

accountant, the operator may select any independent certified public

accountant. The review must be conducted within 60 days of the leased

access programmer's request to the operator for a review. The operator

would be expected to provide the accountant with all information

necessary to support its rate calculation, including an explanation of

how the rate was calculated. The findings of the accountant would be

certified in a final report and provided to both parties. The

Commission seeks comment on whether, in the absence of any evidence to

the contrary, the Commission should consider a determination by the

accountant that the operator's rate exceeds the permissible rate to

constitute clear and convincing evidence that the rate is unreasonable.

47. The Commission tentatively concludes that, in order to provide

notice to other potential leased access programmers, the accountant's

final report should be filed in the cable system's local public file.

The Commission seeks comment on this proposal. Alternatively, the

Commission seeks comment on whether operators should be required to

provide the report upon request to potential leased access programmers.

The Commission seeks comment on what type of information should be

contained in the accountant's final report and what type of information

would be proprietary and thus kept confidential. The Commission also

seeks comment on how the accountant's expenses should be paid. For

example, should the parties share the expenses equally or should the

full amount be paid by the party that the accountant's report proved

was incorrect?

48. In light of the streamlining proposed above, the Commission

does not believe that it is necessary for the Commission to set a time

limit within which complaints will be decided by the Commission. Each

leased access complaint proceeding differs in complexity and requires

varying amounts of Commission time and resources. In addition, the

Commission believes that shortening the operator's response period

would be unfair to the operator.

IX. Resale of Leased Access Time

49. The Commission seeks comment on whether the Commission should

permit leased access time to be resold by the lessee. Leased access

programmers are of course entitled to sell time to advertisers. The

question here is whether the Commission should allow persons

unaffiliated with the operator to lease time from the operator and then

sell it as programming time to other unaffiliated persons for a profit.

The Commission seeks comment on the advisability of allowing the resale

of leased access time. If the Commission were to prohibit resale, the

Commission asks whether an exception should apply for not-for-profit

leased access programmers.

X. Initial Regulatory Flexibility Act Analysis

50. Pursuant to Section 603 of the Regulatory Flexibility Act, the

Commission has prepared the following initial regulatory flexibility

analysis (``IRFA'') of the expected impact of these proposed policies

and rules on small entities. Written public comments are requested on

the IRFA. These comments must be filed in accordance with the same

filing deadlines as comments on the rest of the Further Notice, but

they must have a separate and distinct heading designating them as

responses to the regulatory flexibility analysis. The Secretary shall

send a copy of the Further Notice, including the IRFA, to the Chief

Counsel for Advocacy of the Small Business Administration in accordance

with Section 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-

354, 94 Stat. 1164, 5 U.S.C. Sec. 601 et seq. (1981).

51. Reason for Action. Section 612 of the Communications Act of

1934, as amended, 47 U.S.C. Sec. 532, requires the Commission to

prescribe rules and regulations regarding commercial use of channel

capacity for unaffiliated persons. The Commission is using this Further

Notice to seek comment on various issues concerning implementation of

this statute.

52. Objectives. To propose rules which implement Section 612 of the

Communications Act of 1934, as amended, 47 U.S.C. Sec. 532, and further

its goals of promoting competition in the delivery of diverse sources

of video programming and to assure that the widest possible diversity

of information sources are made available to the public from cable

systems in a manner consistent with the growth and development of cable

systems.

53. Legal Basis. Action as proposed for this rulemaking is

contained in

[[Page 16455]]

Sections 1, 4(i), 4(j) and 612 of the Communications Act of 1934, as

amended, 47 U.S.C. Secs. 151, 154(i), 154(j) and 532.

54. Description, Potential Impact and Number of Small Entities

Affected. The Commission anticipates a possible impact on small

entities, as defined in Section 601(3) of the Regulatory Flexibility

Act, including cable operators and leased access programmers, but the

Commission does not currently have information pertaining to the extent

of such impact or the number of small entities that may be affected.

55. Reporting, Recordkeeping and Other Compliance Requirements.

Action as proposed in this rulemaking may impose new reporting

requirements on cable operators.

56. Federal Rules which Overlap, Duplicate or Conflict with these

Rules. None.

57. Any Significant Alternatives Minimizing Impact on Small

Entities and Consistent with Stated Objectives. The Further Notice

solicits comments on alternatives.

XI. Ex Parte

58. This is a non-restricted notice and comment rulemaking

proceeding. Ex parte presentations are permitted, except during the

Sunshine Agenda period, provided that they are disclosed as provided in

Commission's rules. See generally 47 CFR 1.1202, 1.1203, and 1.1206(a).

XII. Comment Dates

59. Pursuant to applicable procedures set forth in Sections 1.415

and 1.419 of the Commission's Rules, 47 CFR 1.415 and 1.419, interested

parties may file comments on or before May 15, 1996 and reply comments

on or before May 31, 1996. All relevant and timely comments will be

considered before final action is taken in this proceeding. To file

formally in this proceeding, participants must file an original plus

six copies of all comments, reply comments, and supporting comments. If

participants want each Commissioner to receive a personal copy of your

comments and reply comments, you must file an original plus eleven

copies. Comments and reply comments should be sent to Office of the

Secretary, Federal Communications Commission, 1919 M Street, NW.,

Washington, DC 20554. Comments and reply comments will be available for

public inspection during regular business hours in the FCC Reference

Center, Room 239, Federal Communications Commission, 1919 M Street,

NW., Washington DC 20554.

60. Written comments by the public on the proposed and/or modified

information collections are due on or before May 15, 1996. Written

comments must be submitted by OMB on the proposed and/or modified

information collections on or before 60 days after publication of the

Order and Further Notice in the Federal Register. In addition to filing

comments with the Secretary, a copy of any comments on the information

collections contained herein should be submitted to Dorothy Conway,

Federal Communications Commission, Room 234, 1919 M Street, NW.,

Washington, DC 20054, or via the Internet to [email protected], and to

Timothy Fain, OMB Desk Officer, 10236 NEOB, 725-17th Street, NW.,

Washington, DC 20503 or via the Internet to [email protected].

61. Accordingly, pursuant to Sections 4(i), 4(j) and 612 of the

Communications Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 154(j)

and 532, comment is sought regarding such proposals, discussion, and

statement of issues.

Paperwork Reduction Act

62. This Further Notice contains either a proposed or modified

information collection. The Commission, as part of its continuing

effort to reduce paperwork burdens, invites the general public and the

Office of Management and Budget (``OMB'') to comment on the information

collections contained in this Further Notice, as required by the

Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency

comments are due at the same time as other comments on this Further

Notice; OMB notification of action is due 60 days from date of

publication of this Further Notice in the Federal Register. Comments

should address: (a) Whether the proposed collection of information is

necessary for the proper performance of the functions of the

Commission, including whether the information shall have practical

utility; (b) the accuracy of the Commission's burden estimates; (c)

ways to enhance the quality, utility, and clarity of the information

collected; and (d) ways to minimize the burden of the collection of

information on the respondents, including the use of automated

collection techniques or other forms of information technology.

OMB Approval Number: 3060-0568.

Title: Section 76.970 Commercial leased access rates; 76.971

Commercial leased access terms and conditions.

Type of Review: Revision of existing collection.

Respondents: Business and other for profit.

Number of Respondents: 6,270 cable systems.

Estimated Time Per Response: 1 hour per respondent for

recordkeeping and sending the leased access schedule and other

information to prospective leased access programmers. 1 hour per

respondent to implement 76.971 third party disclosure requirements. 12

hours per respondent for completing the proposed ``cost schedule'',

instead of the existing ``maximum rate schedule''. If the proposed

``cost schedule'' is not adopted by the Commission, the burden for

completing the ``maximum rate schedule'' is 4 hours per respondent.

Total Annual Burden: 87,780 hours. If the proposed ``cost

schedule'' is not adopted, the Commission will further adjust the

burden for this collection from 12 hours per respondent in completing

the ``cost schedule'' to 4 hours per respondent to continue to use the

existing ``maximum rate schedule''. This would result in an adjustment

reduction of 50,160 hours (6,270 x 8 hours), leaving a total burden

of 87,780-50,160=37,620 hours.

Estimated costs per respondent: We estimate the postage and

stationery costs incurred by cable operators for record keeping

activities and for sending out leased access information to prospective

programmers, as required, to be roughly $4.00 per respondent. We

therefore report a total annual cost of $25,000 for all respondents.

Needs and Uses: The information collected is used by the

prospective leased access programmers and the Commission to verify rate

calculations for leased access channels. The Commission's leased access

requirements were designed to promote diversity of programming sources

and competition in programming delivery as required by Section 612 of

the Communications Act, and serve to eliminate uncertainty in

negotiations for leased commercial access.

List of Subjects in 47 CFR Part 76

Cable television.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 96-9195 Filed 4-12-96; 8:45 am]

BILLING CODE 6712-01-P