NOTICE
    *********************************************************
                         NOTICE
   *********************************************************
This document was originally prepared in Word Perfect.
If the original document contained--
                    *  Footnotes
                    *  Boldface & Italics
--this information  is missing in this version
The document format (spacing, margins, tabs, etc.) is changed
too.
If you need the complete document, download the Word Perfect
version.
For information about downloading documents (FTP) see file
 how2ftp.
File  how2ftp (.txt & .wp) is in directory
/pub/Bureaus/Miscellaneous/Public_Notices/
*****************************************************************
********
FOR FCC RECORD ONLY
$// Leased Commercial Access, FCC 96-122 //$
$// Amendment of Part 76, Subpart N, Cable Rate Regulation, FCC 96-122 //$
$/ 76.970  Commercial leased access rates /$
$/ 76.971  Commercial leased access terms and conditions /$
$/ 76.975  Commercial leased access dispute resolution /$
$/ 76.977  Minority and educational programming used in lieu of
                 designated commercial leased access capacity /$
                                                                 FCC 96-122
                                Before the
                    FEDERAL COMMUNICATIONS COMMISSION
                          Washington, D.C. 20554
In the Matter of                        )
                                   )
Implementation of Sections of the            )
Cable Television Consumer Protection         )    MM Docket No. 92-266
and Competition Act of 1992:            )
Rate Regulation                         )
                                   )
Leased Commercial Access                     )    CS Docket No. 96-60
                         ORDER ON RECONSIDERATION
                     OF THE FIRST REPORT AND ORDER AND
                   FURTHER NOTICE OF PROPOSED RULEMAKING
Adopted:  March 21, 1996                Released:  March 29, 1996
By the Commission:
Comment Date:  May 15, 1996
Reply Comment Date:  May 31, 1996
                             Table of Contents
                                                                  Paragraph
I.   Introduction and Background . . . . . . . . . . . . . . . . . . . . .1
II.  Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
III. Order on Reconsideration  . . . . . . . . . . . . . . . . . . . . . 14
     A.   Maximum Rate Formula . . . . . . . . . . . . . . . . . . . . . 14
     B.   Part-Time Rates. . . . . . . . . . . . . . . . . . . . . . . . 41
     C.   Time Increments  . . . . . . . . . . . . . . . . . . . . . . . 46
     D.   Billing and Collection Services  . . . . . . . . . . . . . . . 48
     E.   Security Deposits  . . . . . . . . . . . . . . . . . . . . . . 52
     F.   Calculation of Statutory Set-Aside Requirements  . . . . . . . 54
     G.   Reporting Requirements . . . . . . . . . . . . . . . . . . . . 56
IV.  Further Notice of Proposed Rulemaking . . . . . . . . . . . . . . . 61
     A.   Maximum Rate Formula . . . . . . . . . . . . . . . . . . . . . 61
     B.   Part-Time Rates. . . . . . . . . . . . . . . . . . . . . . . .102
     C.   Preferential Access. . . . . . . . . . . . . . . . . . . . . .103
     D.   Tier and Channel Placement . . . . . . . . . . . . . . . . . .116
     E.   Obligation to Open New Channels and Bump
          Existing Non-Leased Access Services. . . . . . . . . . . . . .121
     F.   Selection of Programmers . . . . . . . . . . . . . . . . . . .127
     G.   Minority and Educational Programmers . . . . . . . . . . . . .130
     H.   Procedures for Resolution of Disputes. . . . . . . . . . . . .133
     I.   Resale of Leased Access Time . . . . . . . . . . . . . . . . .141
V.   Regulatory Flexibility Analysis . . . . . . . . . . . . . . . . . .142
VI.  Initial Paperwork Reduction Act of 1995 Analysis. . . . . . . . . .154
VII. Procedural Provisions . . . . . . . . . . . . . . . . . . . . . . .155
VIII.     Ordering Clauses . . . . . . . . . . . . . . . . . . . . . . .159
Appendix A  -  Parties
Appendix B  -  Calculation of the Proposed Cost Formula
Appendix C  -  Components of the Proposed Cost/Market Rate Formula
Appendix D  -  Numerical Illustration of the Proposed Cost Formula
Appendix E  -  An Example Transition to the Proposed Cost Formula
Appendix F  -  Revised Rules
I.   INTRODUCTION AND BACKGROUND
     1.   In this Order on Reconsideration and Further Notice of Proposed Rulemaking
("Order and Further Notice"), we address ten petitions for reconsideration of the cable
television commercial leased access rules adopted in our Report and Order in MM Docket
92-266, pursuant to the provisions of the Cable Television Consumer Protection and
Competition Act of 1992 ("1992 Cable Act"), and request comment on many of the issues
involved.
     2.   The statutory framework for commercial leased access was established by the
1984 Cable Act and amended by the 1992 Cable Act.  The 1984 Cable Act established
commercial leased access to assure access to the channel capacity of cable systems by parties
unaffiliated with the cable operator who want to distribute video programming free of the
editorial control of the cable operator.  Channel set-aside requirements were established in
proportion to a system's total activated channel capacity, in order 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."  A cable system
operator was permitted to use any unused leased access channel capacity for its own purposes,
until such time as a written agreement for a leased channel use was obtained.  Each system
operator subject to this requirement was to establish "the price, terms, and conditions of such
use which are at least sufficient to assure that such use will not adversely affect the operation,
financial condition, or market development of the cable system."
     3.   The 1992 Cable Act amendments to Section 612 broadened the statutory
purpose to include "the promotion of competition in the delivery of diverse sources of video
programming," and the Commission was provided with expanded authority:  (1) to determine
the maximum reasonable rates that a cable operator may establish for leased access use,
including the rate charged for the billing of subscribers and for the collection of revenue from
subscribers by the cable operator for such use; (2) to establish reasonable terms and
conditions for leased access, including those for billing and collection; and (3) to establish
procedures for the expedited resolution of leased access disputes.  The legislative history of
the 1992 amendments expresses concern that some cable operators may have established
unreasonable terms or may have had financial incentives to refuse to lease channel capacity to
potential leased access users based on anticompetitive motives, especially if the operator had
a financial interest in the programming services it carried.
     4.   In the Rate Order in this docket, the Commission established initial regulations
to implement the leased access provisions of the 1992 Cable Act.  The Commission adopted
the highest implicit fee formula as the method to set maximum reasonable rates, and adopted
various standards governing access terms and conditions, tier placement, technical standards
for use, technical support, security deposits, conditions based on program content, and
requirements for billing and collection service.  Each of these is discussed in the appropriate
sections below.  Procedures for the expedited resolution of disputes were also established.  In
the Rate Order, the Commission also determined that leased access requirements were
intended to apply to all systems regardless of the "effective competition" test that governs
basic service tier ("BST") and cable programming service tier ("CPST") rate regulation.
     5.   In the Rate Order, the Commission stated, however, that, given the small
number of comments received relating to leased access, "the rules we adopt should be
understood as a starting point that will need refinement both through the rulemaking process
and as we address issues on a case-by-case basis."  The Commission stated that it was
aware that leasing issues may need to be addressed in quite different fashions depending upon
the nature of the service involved -- whether the lease is for a pay channel, an advertiser-
supported channel intended for wide distribution, a channel for a narrow commercial purpose
not relevant to the wide body of cable subscribers, or for a single program or series of
programs.  Thus, the Commission stated that it was not at that time attempting to resolve
comprehensively all the issues potentially involved, many of which could better be resolved
in a more specific concrete factual setting.
II.  SUMMARY
     6.   Cable operators and leased access programmers agree that relatively little
leased access capacity is being used by unaffiliated programmers.  They disagree on the
reason for the lack of leased access programming.  Programmers claim that the Commission's
current maximum rate-setting mechanism, the highest implicit fee formula, results in rates
which are prohibitively high, which makes leased access unaffordable to most programmers.
In contrast, operators claim that the demand for leased access is weak regardless of the leased
access rate, because, at least in part, programming production costs are high.  Given these
opposing views, we are re-examining the highest implicit fee formula from an economic
perspective.  The Commission believes that if the maximum rate for leased access is
reasonable, the corresponding amount of leased access demand will also be reasonable.
     7.   The Commission tentatively concludes that the highest implicit fee formula is
likely to overcompensate cable operators and does not sufficiently promote the goals
underlying the leased access provisions.  First, we believe that the highest implicit fee allows
double recovery of subscriber revenues by the operator.  These revenues may be recovered
once from the subscriber (included in the tier charge) and again from the programmer
(included in the implicit fee).
     8.   Second, we are concerned that the highest implicit fee allows an operator to
charge a leased access programmer a fee based on the channel with the highest markup over
programming costs (i.e, the highest implicit fee).  Because the implicit fee for many, if not
most, non-leased channels is by definition less than the highest implicit fee, the operator is
willing to accept less than the highest implicit fee from non-leased access programmers.
Charging the leased access programmer the highest implicit fee therefore allows the operator
to set a higher rate than it accepts on non-leased access channels.  Third, the Commission
believes that the highest implicit fee is not based on the reasonable costs that leased access
programming imposes on operators.
     9.   Given these limitations of the highest implicit fee, the Commission is
proposing an alternative that we believe may better promote the goals of leased access.
Under our proposed approach, the maximum rate for leased access would depend on whether
or not the cable operator is leasing its full statutory set-aside requirement.  When the full set-
aside capacity is not leased to unaffiliated programmers, the maximum rate would be based
on the operator's reasonable and quantifiable costs (i.e, the costs of operating the cable
system plus the additional costs related to leased access), including a reasonable profit.  The
operator would be allowed to continue to use subscriber revenues (including the subscriber
revenues associated with leased access channels) to offset the costs of the cable system.  In
addition, the operator would be allowed to charge the leased access programmer to cover the
reasonable costs of bumping channels to accommodate leased access programmers.  The
operator would also be permitted to charge part-time leased access programmers any
additional costs associated with negotiating and administering part-time leased access
programming contracts.  In our view, this approach would result in a rate that would better
promote the statutory objective of diversity by encouraging unaffiliated programmers to lease
the channel capacity.  The purpose of the cost formula is not, however, to lower leased access
rates.
     10.  On the other hand, we tentatively conclude that once the operator has met its
set-aside requirement, the cost-based maximum rate could be replaced by a market rate.
(Because the cost-based maximum rate may be replaced with a market rate, we refer to this
proposed approach as the cost/market rate formula.)  The operator could negotiate higher rates
as long as its set-aside requirement continues to be met.  We believe 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 that 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.
     11.  We recognize that market rates may rise above operators' costs; such prices,
however, are the result of competition among unaffiliated programmers to use the statutory
leased access channel capacity.  We believe 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.  After all, under our 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.
     12.  We tentatively conclude that this cost/market rate formula represents a pricing
scheme that would establish a maximum reasonable rate without placing an unreasonable
financial burden on operators.  It would not guarantee that leased access programming would
increase.  If the cost formula is adopted and does not increase the demand for leased access,
we do not believe at this time that further modification of the cost formula would be
appropriate.  With the possible exception of a rate for not-for-profit programmers, any
maximum reasonable rate formula that we adopt, including the proposed cost formula, will
not provide a subsidy for leased access programmers.
     13.  Because our proposed cost/market rate formula is fundamentally different from
our current implicit fee formula, we do not adopt the cost/market rate formula at this time.
Instead, we seek comment on the issues raised by our proposal.  Given our concerns about
the current highest implicit fee formula, we expect to act on the comments received in
response to this Further Notice as expeditiously as possible.  In addition to proposing to
modify the maximum rate formula, the Commission:  (a) solicits comment on whether to
provide preferential treatment for not-for-profit programmers requesting leased access; (b)
tentatively concludes that leased access programmers have a right to be placed on a tier that
most subscribers actually use; and (c) proposes to streamline its dispute resolution procedures.
The Commission has also reconsidered several other issues relating to leased access, and,
where appropriate, this Order sets forth rules regarding these issues.  For example, we amend
our rules to clarify that operators must provide certain leased access rate and channel
availability information to prospective leased access programmers within seven business days
of such programmers' request.
III. ORDER ON RECONSIDERATION
     A.   Maximum Rate Formula
          1.   Background
     14.  As indicated above, Section 612 of the Communications Act directs the
Commission to determine the maximum reasonable rates that a cable operator may impose for
leased commercial access.  Previously, the Commission adopted rules that base the
maximum rate on an "implicit" fee paid by non-leased access program services that are being
distributed.  In the non-leased access context, cable system operators generally receive a
payment from subscribers and pay contractual license fees to programmers for the channels
the operators distribute.  The differences between these dollar amounts may be thought of as
the implicit fees that the programmers pay to have their services distributed to subscribers.
The Commission determined that the implicit fee is the price per channel each subscriber pays
the operator minus the amount per subscriber the operator pays the programmer.  Section
76.970(c) of the Commission's rules provides that this difference is multiplied by the
percentage of subscribers able to receive the unaffiliated programmer's service.  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).
Section 76.970(d) of the rules states that maximum rates for shorter periods of time can be
calculated by prorating the monthly maximum rate.
     15.  This formula for the maximum rate was intended to avoid a burdensome "rate
base, rate-of-return" type of rate calculation.  A rate could be derived based on a simple
calculation using as inputs only subscriber rates and programming contract prices.  The
highest implicit fee calculation was intended to avoid existing programming services
migrating to leased access channels in a way that would not benefit subscribers or "diverse"
entities seeking leased access.
     16.  Under our current rules, the maximum rate is the highest of the implicit fees
charged any unaffiliated programmer within the same programmer category.  Cable
operators are required to calculate the highest implicit fee for each of the following
programmer categories:  (a) those charging subscribers directly on a per-event or per-channel
basis; (b) those using a channel for more than 50 percent of the time to sell products directly
to customers (e.g., home shopping networks, infomercials, etc.); and (c) all others.  These
three categories were intended to recognize that leasing issues may need to be addressed in
quite different ways depending on the nature of the service involved.  Under the rules, cable
operators are required to calculate annually the maximum rates for each programmer category
based on the contracts with unaffiliated programmers in effect in the previous calendar year.
Operators are further required to provide rate schedules to prospective programmers upon
request.
     17.  The implicit fee was intended to recover only the value of the channel capacity
and not any fees paid by or to the operator for other services, such as billing and collection,
marketing, or studio services.  The Rate Order further concluded that the resulting rates
"will not adversely affect the operation, financial condition or market development" of cable
systems and will enable commercial leased access to become the source of program diversity
and competition to the cable operators that Congress intended it to be.
          2.   Petitions
     18.  The majority of cable operators that filed pleadings in this reconsideration
proceeding assert that the highest implicit fee approach is fair when it is applied to full-time
channel leasing, although some operators challenge adoption of the highest implicit fee
formula on the grounds that the resulting rates may not allow operators to recover all of their
costs and do not account for the value of services to subscribers.
     19.  The programming interests and those representing existing and potential leased
access channel users seeking reconsideration, however, generally contend that the highest
implicit fee produces rates that are prohibitively high.  The Center for Media Education, et al.
("CME"), states that application of the highest implicit fee formula defeats the statutory
purpose of promoting diversity and competition.  According to CME, the highest implicit fee
instead simply mirrors the cable industry's current monopsony rates.  CME contends that
there is no evidence that cable operators need such rates in order to maintain financial health.
Leased access programming will, according to CME, add value to the operator's system, thus
producing revenues for the operator through increased penetration in addition to the payments
received from leased access channel lessees.  CME urges the Commission to establish
maximum rates below the average implicit fee.  Similarly, Videomaker Magazine
("Videomaker") asks that the Commission consider setting maximum rates at the average
implicit fee.  Videomaker asserts that such a methodology "has a better chance of fostering
the new programmers Congress sought to encourage."  Videomaker also states that "[s]ome
would even argue that the [rate] ceiling should be set with the production of the lowest
implicit value in the category to give new producers the greatest competitive opportunity."
     20.  Paradise Television Network, Inc. ("Paradise"), a leased access programmer,
states that application of the highest implicit fee formula to a full-time channel lease produces
a maximum rate that does not allow a programmer to compete for advertising revenues.
According to Paradise, the high lease rate requires advertiser-supported programmers to
charge higher advertising rates to cover the cost of the lease, which turns advertisers away
from the leased access programming.  Paradise proposes that the Commission mandate a fixed
maximum rate of $.30 per subscriber per month, at least for advertiser-supported
programmers.  Paradise estimates that this figure is approximately the "break-even" point for
a leased access user and that it would not adversely affect cable operators who, according to
Paradise, have little if any overhead associated with carrying the leased access signal.  A
Spanish language leased access programmer, SUR Corporation ("SUR"), states that deriving
leased access rates from the most commercially appealing programming is not likely to result
in diverse programming.  SUR also questions whether the Commission's current formula
recognizes that SUR's audience is only 15 percent of the general audience.  SUR believes it
should not have to pay the same rates as other premium services because its potential
audience is much smaller.  Community Broadcasters Association ("CBA"), filing on behalf
of the low power television station industry, submits that cost should be the fundamental basis
for establishing rates for commercial leased access.  To the extent that cost cannot be
established, CBA proposes to derive the leased access rate by use of the arithmetic mean of
all the implicit charges made to unaffiliated program suppliers for a given programming
category, plus a five percent incremental charge.
     21.  A home shopping programmer, ValueVision International, Inc. ("ValueVision"),
believes that the implicit fee formula is unnecessary for home shopping channels because an
explicit pattern of charges for home shopping programming already exists on non-leased
access channels.  ValueVision asserts that the existing market rate for non-leased access home
shopping programming is the appropriate fee, and that this fee should not be added to the
implicit fee for a total charge.  ValueVision further contends that use of the market rate
alone will, as Congress intended, encourage the widest possible diversity of programming
sources and competition in the delivery of video programming.
     22.  With regard to the programmer categories adopted by the Commission, certain
cable operators believe that categories are unnecessary.  For example, Time Warner
Entertainment Company, L.P. ("Time Warner"), supports elimination of the existing three
categories on the grounds that differences in programming do not justify different rates.  Time
Warner believes that the value of each leased access channel "is the opportunity cost imposed
on the operator from the lost chance to program these channels."  Therefore, Time Warner
argues, the operator should be able to charge the highest implicit fee for all of its non-leased
access programming.  Cablevision Industries Corporation, et al. ("CVI"), states that, with the
possible exception of per-event and per-channel programming, there is no compelling reason
or legal basis for establishing classes of programmers.  According to CVI, the distinctions
only serve to subsidize underfunded programmers.
     23.  On the other hand, programming interests assert that further refinement of the
programmer categories is necessary.  CME, for instance, supports establishment of still more
categories.  CME states that combining per-event and per-channel programming leads to
absurd results, and that the "all other" category will not result in affordable rates for most
programmers because it lumps programmers together that face different economics.  This is
especially true, CME asserts, with regard to advertiser-supported and non-advertiser supported
programming.  SUR argues that further refinement of the categories is "absolutely essential"
if leased access is to succeed in improving diversity and competition in cable programming.
Paradise asks the Commission to establish a separate category for advertiser-supported
programmers.  Two home shopping programmers take opposite positions on this issue:  the
Home Shopping Network, Inc. ("HSN"), supports elimination of the separate category for
direct sales programming, while ValueVision opposes its elimination based on the
fundamentally different economics of the home shopping market.
          3.   Discussion
               a.   Statutory Objectives
     24.  Many of the parties seeking reconsideration of the Commission's maximum
rate formula generally contend that the existing rate formula results in rates that are too high.
Their contention appears to be partially based on a belief that if channels are not in fact being
leased up to the statutory requirement, or if the resulting rates render certain leased access
services unprofitable or nonviable, then the rates are not reasonable and should be lowered
until such time as more leasing occurs.  This understanding of Congress' objectives in
establishing the leased access channel requirement is, we think, incorrect.  To the contrary, as
long as the maximum leased access rate is reasonable, we believe that minimal use of leased
access channels would not indicate that the rate should be lowered.
     25.  The original objective of the leased access requirement as established by the
1984 Cable Act was not to deprive the system operator of the economic value it might
otherwise extract from the channel, but to divorce the cable operator from editorial control
over the content of the channel.  By amending the leased access requirement in the 1992
Cable Act, Congress added another objective:  "to promote competition in the delivery of
diverse sources of video programming."  The Senate Report on the 1992 Cable Act states
that, in addition to the First Amendment rationale behind the original leased access provision,
the 1992 amendments were designed "to remedy market power in the cable industry" and to
act as "an important safety valve for anticompetitive practices" by the cable operator.  The
1992 amendments did not, however, eliminate the purposes established by the 1984 Cable Act
(i.e., to promote diversity of programming sources "in a manner consistent with growth and
development of cable systems.")  The Commission must therefore seek to promote
competition and diversity of programming sources on the one hand, as well as to further the
growth and development of cable systems on the other.
     26.  These disparate policy goals are described further in the legislative history of
the 1992 Cable Act.  The 1992 House Report states that the Commission should set maximum
reasonable rates in order to "make leased access a more desirable alternative for
programmers" and indicates that the Committee believed that the principal reason for leased
access not being effective was that the original provisions empowered cable operators to
control the price and conditions for use of leased access channels.  The 1992 Senate Report
also indicates that rates are one reason that leased access has hardly been used, but states that
"[t]he cable industry has a sound argument in claiming that the economics of leased access
are not conducive to its use."  These sections of the legislative history would seem to
indicate that the goal for the Commission in setting maximum rates should be to lower rates.
Yet, when Congress amended Section 612, it retained the provisions which state that the cable
operator shall establish the price, terms and conditions for use of leased access channel
capacity which are "at least sufficient to assure that such use will not adversely affect the
operation, financial condition, or market development of the cable system" and such price,
terms and conditions shall be presumed reasonable.  Therefore, the Commission is faced
with balancing the needs of programmers with the needs of cable operators.  As explained
below, we believe that the cost/market rate formula described herein, appropriately balances
those interests.
     27.  We do not believe that Congress intended that cable operators subsidize
programmers who seek access to their system through the provisions of Section 612.  Other
provisions of law mandate that system operators provide access to channels for the
distribution of communications without charge or at reduced rates, including channels for the
distribution of local broadcast signals under the mandatory broadcast signal carriage rules and
for public, educational, and governmental ("PEG") access.  Leased access, however, was
established as a separate requirement to promote competition between and diversity of
programming sources.  We believe that, by setting a maximum rate which covers the
operator's quantifiable costs associated with leased access and allows the operator to recover
a reasonable profit, our proposed cost/market rate formula, described below, would not require
operators to subsidize leased access.
               b.   Problems with the Highest Implicit Fee Formula
     28.  We believe that our 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 the highest implicit fee.  We believe 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.
     29.  We believe that the highest implicit fee formula is likely to overcompensate
cable operators and does not sufficiently promote the goals underlying the leased access
provisions.  First, the highest implicit fee appears to allow double recovery of subscriber
revenues (or "double billing") by the operator.  The implicit fee is based on the average per
channel revenue for the tier on which the leased access programming will be carried.  Thus, if
the subscriber tier charge for a tier with 20 channels is $10, the average per channel revenue
is $.50 (=$10/20).  The channel with the highest implicit fee is the channel with the lowest
programming charge (i.e., the lowest license fee).  Continuing our example, if the
programming charge is zero on one of these 20 channels, that channel would have the highest
implicit fee equal to $.50.  Allowing the operator to charge the leased access programmer the
highest implicit fee of $.50 and then collect the $.50 again from the subscriber in the $10 tier
charge is what is commonly referred to as "double billing."  The highest implicit fee formula
therefore permits the operator to recover revenues for carrying the programming once from
the subscriber (included in the tier charge) and again from the programmer (included in the
implicit fee).
     30.  Second, we are concerned that the highest implicit fee allows an operator to
charge a leased access programmer a fee based on the channel with the highest markup over
programming costs (i.e, the highest implicit fee).  Because the implicit fee for many, if not
most, non-leased channels is by definition less than the highest implicit fee, the operator is
accepting less than the highest implicit fee from many non-leased access programmers.
Charging the leased access programmer the highest implicit fee therefore is likely to
overcompensate the operator compared to the amount the operator is willing to accept.
     31.  Third, we believe that the highest implicit fee formula is not based on the
reasonable costs that leased access programming imposes on operators.  When the set-aside
requirement is not met, the rate should be high enough to recover all reasonable costs of
leasing and a reasonable profit, but no higher.  In this way, leased access is promoted without
placing a financial burden on the operator.  A higher rate unnecessarily discourages leased
access and rewards operators who do not meet the set-aside requirement.
     32.  Given these limitations of the highest implicit fee, the Commission has
developed an alternative proposal (which we refer to as the cost/market rate formula), that it
believes may better promote the goals of leased access.  However, because our proposed
cost/market rate formula is a significant departure from the highest implicit fee formula, and
to avoid any unintended consequences, we are not adopting the cost/market rate formula at
this time and are instead seeking comment on our proposal in the Further Notice below.
Because the cost/market rate formula is not being adopted at this time, the highest implicit fee
will remain in effect in the interim period until our rules are revised.
               c.   Clarifications for Calculating the Highest Implicit Fee
     33.  Through the Commission's complaint process as well as this reconsideration
proceeding, it has come to the Commission's attention that the highest implicit fee formula
may be unclear in some respects.  Because the highest implicit fee formula will continue to
be in effect on an interim basis until new rules developed in response to the Further Notice
become effective, we will clarify certain issues regarding the application of the highest
implicit fee formula.  We do not, however, believe that these clarifications will in any way
solve the conceptual problems we perceive to be present with the highest implicit fee.
     34.  As a preliminary matter, we will modify Section 76.970(c) to correct certain
errors contained therein so that the calculation of the implicit fee is clear and easy to follow.
Specifically, the rule states that the subscriber revenue is deducted from the program license
fee when, in fact, the program license fee is supposed to be deducted from the average
subscriber revenue.  We will therefore correct the language in the rule accordingly.  We will
also correct the title of Section 76.977 of the Commission's rules.
     35.  In addition, we believe that the highest implicit fee calculation should not
include the implicit fee for non-retransmission consent broadcast signal and PEG access
channels in determining which channel has the highest implicit fee.  For the carriage of local
"must carry" broadcast signals, cable operators typically collect a fee from subscribers, but
pay no direct charge for the programming.  Because there is no sharing of subscriber revenues
between the system operator and the programmer, the channel appears to be the most highly
valued, i.e., the programmer is willing to permit the cable operator to retain the entire value
of the channel and so these channels are often the basis for the highest implicit fee
calculation.  Because of the mandatory carriage rules and the compulsory copyright licensing
system, this does not now seem to be a calculation that reflects a marketplace decision as to
the value of the channel.  Similarly, where an operator is required by the local franchising
authority to carry PEG channels, the cable operator has not made a marketplace decision to
carry the channels.  Accordingly, we conclude that the implicit fee for each must carry
broadcast signal channel and PEG access channel should not be considered for purposes of
determining which implicit fee is the highest.  These channels should, however, be used to
determine the monthly average subscriber revenue per channel for all the channels on the tier.
     36.  Furthermore, we believe that operators should calculate the highest implicit fees
on a tier-by-tier basis; that is, if the leased access channel is to be on the BST, the calculation
of the highest implicit fee should be based on the BST channels, and, if the leased access
channel is to be on a CPST, the implicit fees should be determined for the channels on that
CPST.
     37.  We also clarify that programming revenues received by the operator from an
unaffiliated programmer, as opposed to programming costs paid by the operator to the
unaffiliated programmer, should not be included in the highest implicit fee calculation.  In
certain circumstances, such as with direct sales or "home shopping" channels, the programmer
pays the cable operator a percentage of its revenues, rather than the operator paying the
programmer a license fee.  We did not address in the Rate Order whether these payments
from the programmer to the operator should be added into the implicit fee calculation.  We
conclude that these payments should not be included because the highest implicit fee is
intended to recover only the value of channel capacity and therefore should not include the
value of services, such as marketing, other than the provision of channel capacity.
     38.  We have also been asked to clarify how to compute the implicit fee on a per
channel basis.  The issue relates to whether the number of subscribers used in the calculation
should be the current number of subscribers before a premium channel is leased or the
number of subscribers on the premium channel who take the new leased access programming.
We have been asked to permit leased access programmers who offer their programming on a
per-channel or per-event basis to be allowed to multiply the per-subscriber rate by the number
of subscribers who will receive their new service, rather than the number of subscribers that
currently receive the non-leased access service.  Conversely, we have been asked to clarify
that the per-subscriber fee in the highest implicit fee formula should be multiplied by the
number of subscribers currently on the system, not the number of subscribers who will
receive the new leased access service.
     39.  The Rate Order specifies that the difference between the rate per month that
the cable operator pays the programmer and the rate that the subscriber pays per month for
the programming should be multiplied by the percentage of subscribers able to receive that
channel or programming.  Neither the Rate Order nor our current rule explicitly states that
this number must then be multiplied by the number of subscribers on the system.  We will
modify our rule to clarify that, for leased access programming on either the BST or a CPST,
the highest per-subscriber implicit fee should be multiplied by the number of current
subscribers who actually subscribe to the tier on which the leased access channel will be
placed.  However, for leased access programming in the per-channel/per-event program
category, the highest per-subscriber implicit fee should be multiplied by the average number
of subscribers that subscribe to the operator's premium services.  Requiring the highest per-
subscriber implicit fee to be multiplied by the actual number of subscribers to a leased access
premium service would unfairly penalize the operator for low subscribership to the leased
access programming.  Using the average number of subscribers that subscribe to the
operator's premium services derives an approximation that is equally fair for both the operator
and the leased access programmer.
               d.   Provision of Rate Information
     40.  Section 76.970(e) of the Commission's rules provides that a schedule of
commercial leased access rates shall be provided to prospective leased access programmers
upon request.  Our leased access complaint process has revealed that rate information is
often not provided in a timely manner.  In an effort to facilitate the provision of leased
access information to potential leased access programmers, we clarify that our intent in
establishing this rule was to insure that the initial information a potential programmer might
need to decide whether to pursue leased access be provided as soon as practicable.  We will
therefore modify our rule to require an operator to provide to a prospective leased access
programmer within seven business days of such programmer's request:  (a) a complete
schedule of the operator's full and part time leased access rates; (b) how much of its set-aside
capacity is available; (c) rates associated with technical and studio costs; and (d) if
specifically requested, a sample leased access contract.  We believe that operators should have
this information readily available and therefore providing it to prospective programmers
within seven business days will impose no hardship on operators.  Requests can be made by
any reasonable means (in person, by telephone, by facsimile, or by mail), and the information
will be deemed provided when the operator sends or gives the information to the programmer.
Because this information must be provided within seven business days of the request,
operators may not require that prospective programmers first provide any information (e.g.,
fill out an application) before the information listed above is provided.  In this context, we
affirm that, as stated in the Rate Order, the Commission has the authority to, among other
things, issue forfeitures for violations of the leased access statute and rules.  Failure to
provide the above information within the seven business day period will constitute a violation
of our rules.
     B.   Part-Time Rates
          1.   Background and Petitions
     41.  The Rate Order stated that maximum rates for leasing less than a full-time
channel could be calculated by prorating the monthly maximum rate.  The Rate Order did
not, however, address whether operators would be permitted to charge higher rates for part-
time use during more desirable "prime time" viewing hours.  In TV-24 Sarasota, Inc. v.
Comcast Cablevision of West Florida, Inc., for example, the Cable Services Bureau stated that
such time of day pricing is permitted.
     42.  While the majority of cable operators that filed in this reconsideration
proceeding assert that the highest implicit fee approach is fair when it is applied to full-time
channel leasing, some operators challenge adoption of the highest implicit fee formula on the
grounds that the resulting rates may not allow operators to recover all of their costs and do
not account for the value of services to subscribers.  Several cable operators complain that
the highest implicit fee results in part-time rates that are too low.  For example, Bend Cable
Communications, Inc., et al. ("Bend"), and Continental Cablevision, Inc. ("Continental"),
argue that the highest implicit fee approach is fair, but that part-time leases invite abuse due
to unusually low cost hourly rates that do not reflect the value of certain time slots or the
additional administrative, technical and lost-opportunity costs of part-time leases.  Others
agree that a straight proration for part-time use produces artificially low rates and that such
proration will not cover costs.  Bend recommends that the implicit fee be used for part-time
leases only if no "market" rate exists, while Cablevision Systems Corporation ("CSC")
proposes that the uniform maximum part-time leased access rate should be one cent per
subscriber per hour.  Other operators contend that a straight proration of the maximum rate
for leased access ignores the different values that different day-parts have and that part-time
rates would be appropriate if operators were allowed to charge different rates for different
times of day.  CME states that it does not oppose "de-averaging" lease rates to account for
the value of prime time.
          2.   Discussion
     43.  Although the statute does not specifically address the question of rates for part-
time use, our initial rules permit prorating the maximum monthly rate as one method of
deriving rates for shorter periods.  The only restriction on cable operators' rates under the
current rules is that they may not exceed the maximum monthly rate as calculated on a
monthly basis from the highest implicit fee.  We also recognize that the media industry places
different values on the different hours of the day in recognition of the different values that
different hours of the day have in the television marketplace (i.e., "prime time" and "non-
prime time").
     44.  We therefore affirm the Cable Services Bureau's rulings in the TV-24 Sarasota
cases referenced above and will not construe our rule as requiring a cable operator to adhere
to a rigid formula for determining its hourly leased access rate by prorating its maximum rate
for a full-time channel into equal hourly amounts.  We conclude that cable operators may
charge different time-of-day rates, provided that the total of the rates for a day's schedule
(i.e., a 24 hour block) does not exceed the maximum rate for one day of a full-time leased
channel (prorated from the monthly rate) and provided that the overall pattern of time of day
rates is otherwise reasonable and not intended to unreasonably limit leased access use.  A
reasonable time-of-day rate structure that is appropriately related to time-of-day pricing in the
media industry and does not frustrate leased access channel use would not conflict with our
rules.  We believe that this approach will recognize the generally different values for different
time slots, and will further the statutory goal of promoting diverse programming sources,
because programmers that could not afford rates based on uniform pro rata pricing may be
able to afford lower non-prime time rates.  In addition, allowing time-of-day part-time pricing
may help promote full use of a designated channel by making non-prime time slots more
attractive to programmers (i.e., less expensive), thus alleviating some of the need for operators
to open new channels before current channels are fully utilized.
     45.  Accordingly, the rules we adopt on reconsideration provide that operators may
establish reasonable time-of-day pricing schedules.  In order to ensure that operators' part-
time rates do not exceed the maximum rate, we will require operators to 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
Section 76.970 of our rules.  The Further Notice below requests comment on whether
proration generally and time of day pricing specifically are appropriate methods for
determining part-time rates under the proposed cost formula.
     C.   Time Increments
     46.  In the Rate Order, we concluded that cable operators should be required to
accommodate leases of any time increment (e.g., leasing an hour on a regular leased channel,
leasing a whole channel, or leasing for use a subscription service) in a reasonable manner
because neither Section 612, its legislative history nor the record indicated any reason to
prevent part-time leased access.  Some cable operators have requested that we require leased
access on a full-time, full-channel basis only.  Comcast Cable Communications, Inc.
("Comcast"), expressed concern that trying to accommodate one hour leases will leave
channels underutilized and will be burdensome to negotiate.
     47.  On reconsideration, we reaffirm our conclusion that cable operators should be
required to accommodate both full and part-time leases.  This conclusion is consistent with
Congress' intent that leased access provide programmers a "genuine outlet" for their product.
We recognize the legitimate concern of cable operators that negotiating contracts for
numerous small time intervals may be an administrative and financial burden, which the
proposed cost formula takes into account.  As a practical matter, however, the most common
programming time increment is typically one half to one hour.  Imposing a full-time only
requirement could effectively preclude most leased access programmers from obtaining
access.  Thus, in order to balance these competing interests, we will not require operators to
accept leases which are for less than a one-half hour interval.  This requirement will allow
programmers to lease time in relatively small increments, but will avoid the administrative
burden of providing leased access in very small increments, such as one or two minutes.
Although not required to do so, operators may accept requests for less than one-half hour.
     D.   Billing and Collection Services
          1.   Background
     48.  Section 612(c)(4)(A)(ii) of the statute requires the Commission to establish
reasonable terms and conditions for billing of rates to subscribers and for the collection of
revenue from subscribers for leased access channels.  The subscriber revenue at issue here
does not include revenue generated from the sale of products promoted on leased access
programs (e.g., home shopping programs or infomercials).  In the Rate Order, we required
cable operators to provide billing and collection services to leased access programmers unless
operators could demonstrate the existence of third party billing and collection services which,
in terms of cost and accessibility, offer leased access programmers an alternative substantially
equivalent to that offered to comparable non-leased access programmers.  We did not adopt
rules governing the rates for billing and/or collection services.  We stated that competition,
where it exists in the provision of these services, will set an upper limit on charges by cable
operators.  If a dispute arises, however, we stated that we will address what constitutes a
maximum rate for billing and collection on a case-by-case basis, bearing in mind the statutory
objectives and individual circumstances, such as the number of subscribers to be billed,
implicit charges to non-leased access services for comparable billing and collection, and
prices charged by competitive billing and collection providers.
          2.   Petitions
     49.  Cable operators argue that there is no statutory obligation to provide billing and
collection services to leased access programmers.  They maintain that the statute only
requires that those operators who choose to provide such services must do so at rates
consistent with the maximum rates established by the Commission.  They also argue that
there are many third party providers of billing and collection services in the marketplace, such
as credit card companies.  Other petitioners argue that the Commission must require operators
to provide billing and collection services in order to ensure the viability of leased access
programming.  CME also argues that the Commission should regulate the rates for these
services because if no competition exists for billing and collection services, the cable operator
has no incentive to charge competitive rates and may charge higher rates if it views the lessee
as a competitor or it would otherwise prefer not to put the lessee on its system.
          3.   Discussion
     50.  We find that the arguments raised by petitioners on this issue were fully
considered and rejected in the Rate Order and need not be analyzed again.  The record
before us now, as in the Rate Order, contains little specific data on the existence of, or
information about, competitive providers of billing and collection services, except to state that
there are credit card companies in the marketplace that provide such services.  We note that
the mere existence of third party billing and collection providers does not relieve the operator
of its obligation to provide these services.  Rather, the critical issue is whether, in terms of
cost and accessibility, these alternatives are substantially equivalent, to what the operator
offers non-leased access programmers.  Operators have not demonstrated to us that such
alternatives exist to such an extent that we should change our requirements adopted in the
Rate Order.  We remain convinced, therefore, that pursuant to Section 612(c)(4)(A)(ii), we
have the authority to require cable operators to provide billing and collection services for
leased access cable programmers and that there is a need for cable operators to provide such
services.
     51.  In the Rate Order, we did not adopt specific rules relating to the rates that
might be charged for billing and/or collection services.  We stated that competition, where it
exists, in the provision of services of this type will set an upper limit on charges by cable
operators.  On reconsideration, we do not believe that the adoption of specific rate rules at
this time is warranted.  Cable operators should have the incentive to quote reasonable and
competitive rates in order to obtain the additional revenues that billing and collection services
could generate for them.  As we stated in the Rate Order, if a dispute arises, we will address
what constitutes a maximum rate for billing and collection services on a case-by-case basis.
     E.   Security Deposits
     52.  In the Rate Order, we agreed with cable operators that they should have
discretion to require reasonable security deposits or other assurances from programmers that
are unable to prepay in full for leased access channel capacity.   We agreed that it would be
unfair to require operators to bear the financial risk of carrying leased access programming
without the provision of suitable guarantees.  We further stated that our rules would strive to
preserve the financial integrity of the operator by allowing for flexible negotiations between
the parties.  CME states in its petition for reconsideration that, while we have held that
cable operators should have the discretion to require reasonable security deposits, we have
failed to define the term "reasonable."  CME maintains that defining this term is particularly
important because, if the security deposit is too high, it can create a barrier to entry onto a
system and defeat the purpose of the leased access provisions.
     53.  On reconsideration, we decline to set specific monetary guidelines in this area
and believe that it is sufficient to state that the term "reasonable" should be interpreted in
relation to the objective of such a deposit.  That is, it should be sufficient to insure the
payment of lease rates, without discouraging leased access.  As we indicated in the Rate
Order, this approach will allow for flexible negotiations between the parties.  We will,
however, clarify that operators may not demand a security deposit for channel time from a
programmer that pays the full rate in advance.  If carriage is not purchased for discreet or
individual time spots, but is leased on a full-time or periodic basis, the full rate will be
considered the full monthly rate (or whatever period of time is relevant if the programming is
periodic).  Determinations of what is a "reasonable" security deposit will be made on a case-
by-case basis, taking into consideration the past relationship between the operator and the
programmer, the amount of time to be leased, the credit history of the leased access
programmer, the operator's practices with respect to security deposits in other, similar
contexts, and any other relevant factors.
     F.   Calculation of Statutory Set-Aside Requirements
     54.  As indicated, Section 612 of the Communications Act requires a cable system
to set aside up to 15 percent of its activated channels for leased commercial access.  The
statutory set-aside requirements for leased commercial access channels are expressed as a
percentage of "channels not otherwise required for use by federal law or regulation."  The
Rate Order did not specify what channels are considered as required for use by federal law or
regulation.
     55.  We clarify that, for purposes of calculating the set-aside requirements, only
must-carry channels are excluded, as these channels are required for use by federal law.
Retransmission consent and PEG channels, on the other hand, are not required by federal law,
although federal statutory provisions permit local authorities to require operators to provide
PEG channels and also require operators to obtain retransmission consent in some cases.
Our conclusion is directly supported by the legislative history of the 1984 Cable Act, which
specifically addresses this point, stating that
     [PEG] channels, since they are not expressly required by federal law, are not
     subtracted from the total system's channel capacity in determining to what number the
     mandated percentage is applied.
This same rationale applies to retransmission consent channels, in that they also are not
expressly required by federal law.  Therefore, we determine that retransmission consent and
PEG channels will be included among activated channels for purposes of determining a
systems' leased access set-aside requirements.
     G.   Reporting Requirements
          1.   Background
     56.  In the Rate Order, we observed that, because few programmers had exercised
their option to lease access since 1984, it is important to monitor the leased access market
and to make timely adjustments to the rules if necessary.  We noted, however, that the
reporting requirements outlined in our initial Notice of Proposed Rulemaking (Notice) drew
little comment.  These proposed requirements included collecting information on the
following:  channel capacity required to be designated for leased use; percentage of set-aside
capacity used; percentage used by not-for-profit programmers; and actual rates charged leased
access users.  Instead of adopting these specific reporting requirements, we stated that we
would incorporate mechanisms for obtaining specific leased access information into our
general reporting and monitoring process.  Currently, the only official source for leased
access information is the Annual Report of Cable Television Systems (FCC Form 325), which
asks operators whether they are leasing any channels.
          2.   Petitions
     57.  In general, we received little comment from petitioners regarding leased access
reporting requirements.  CME advocates that the Commission adopt specific reporting
requirements to ensure that Congress' goals for leased access are fulfilled.  Specifically,
CME urges the Commission to reconsider implementing the kind of data collection suggested
in the Notice.  CME also urges the Commission to require operators to file a rate schedule,
along with supporting materials, on an annual basis.
     58.  CME's proposal, particularly its suggestion that operators file materials
supporting calculation of their rates, is opposed by cable operators.  Time Warner argues
that a requirement that all information supporting the calculation of an operators' highest
implicit rates be made public would cause the cable industry to suffer by giving competitors
the ability to gain access to proprietary information and thereby decrease competition.  It
states that the Commission has recognized that this type of information should be maintained
as confidential when submitted to the Commission pursuant to Sections 0.457, 0.459 of the
Commission's Rules.  CVI argues that a reporting requirement would violate the
confidentiality provisions of many programming agreements, force cable operators to disclose
extremely sensitive price information and wreak havoc in the programming marketplace.
     59.  Programmers note that operators have not been responsive to their requests for
information about leasing capacity.  United Broadcasting Corporation ("UBC") states that it
has been unable to obtain documents and calculations substantiating proposed rates from
TCI.  Videomaker states that a lack of information about implicit fee rates makes it
"virtually impossible" to make a clear and convincing case against an operator.  CME states
that, in addition to supporting a claim that a quoted rate is higher than the highest implicit
fee, access to the data upon which the cable operator based its rate would enable a
programmer to decide whether to file a complaint.
          3.   Discussion
     60.  We decline to adopt on reconsideration CME's suggestion that we require cable
operators to make the contracts underlying their leased access rates public.  We believe that
this could be unnecessarily intrusive on business relationships between operators and non-
leased access programmers.  However, we note that upon request from the Commission in the
context of a leased access complaint, operators are required to justify fully their leased access
rates, including by presentation of underlying contracts if necessary, subject to the operators'
right under our rules to request confidentiality of this information.
IV.  FURTHER NOTICE OF PROPOSED RULEMAKING
     A.   Maximum Rate Formula
          1.   The Cost Formula
     61.  Given the limitations of the highest implicit fee described above in the Order,
the Commission has developed an alternative proposal that it believes may better promote the
goals of leased access.  We generally agree with Time Warner that the value of leased access
channels "is the opportunity cost imposed on the operator from the lost chance to program
these channels."  We also agree with CBA when it asserts that cost should be the
fundamental basis for establishing maximum leased access rates.  In addition, we agree with
UBC that the maximum rate could become a market rate when the statutory set-aside
requirement is met.  We tentatively conclude that we should base our maximum rate
formula, which we call the cost/market rate formula, on these principles.
     62.  We do not agree, however, with ValueVision's argument that home shopping
commissions, or what it calls the "explicit fee," should be the maximum rate for home
shopping leased access channels.  While we agree that home shopping commissions should
be excluded from the implicit fee calculation, as discussed below, we do not accept
ValueVision's "explicit fee" proposal.  We do not believe that home shopping programmers
should be treated differently from other programmers.  We therefore reject ValueVision's
proposal.
     63.  Our proposed cost/market rate formula, which is described below, would allow
the operator to continue to recover its operating costs to the same extent it would without
leasing, and to recover additional reasonable costs, including a reasonable profit, associated
with leased access.  We believe that the rate that would result from this proposed approach
would provide both operators and programmers with sound economic incentives to use leased
access.  A cost-based formula is not an attempt to influence demand or supply in any
particular way.  To the contrary, it is an economically sound mechanism for determining the
appropriate level of leased access demand.
     64.  Because our proposed cost/market rate formula is a significant departure from
the highest implicit fee formula, and to avoid any unintended consequences, we are not
adopting the cost/market rate formula at this time and are instead seeking comment on our
proposal.  In particular, we seek comment to develop a record on particular implementation
concerns and solutions.  However, given our concerns about the highest implicit fee formula,
we expect to act on the comments received in response to this Further Notice as expeditiously
as possible.
               a.   Economic Justification
     65.  We tentatively conclude that the maximum rate for leased access should
depend on whether a cable operator is leasing its full statutory set-aside requirement.  We
believe that the goal of the maximum rate should be to promote the use of the leased access
set-aside channels without imposing an undue financial burden on the operator.  We
therefore tentatively conclude that our 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.  We request comment on these tentative conclusions.
     66.  We also tentatively conclude that, when the set-aside capacity is not 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.  We request comment on this tentative
conclusion.  We believe that leased access can be promoted without providing a subsidy to
programmers by establishing a pricing scheme that is based on costs.  Programmers who
cannot afford the rate will not and should not gain access because they would impose a
financial burden on operators.  We ask for comment on this conclusion.
     67.  Under the proposed cost formula, we believe that the operator would be
compensated for reasonable costs associated with the leased access channels.  In this context,
the cost formula is not intended to guarantee that all operating costs will be fully recovered.
The intent of the cost formula is 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.
     68.  We believe that the proposed cost/market rate formula represents a pricing
scheme that would promote leased access without giving programmers a subsidy.  The
purpose of the cost formula is not to lower rates.  It does not guarantee that leased access
programming will increase or that the maximum rate for leased access programmers will
decrease.
     69.  The portion of the maximum rate for leased access channels included in a tier
of programming which we propose 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.  These costs are specific to the channels
designated for leased access.  Some of these costs are associated with removing or "bumping"
non-leased access programming to accommodate leased access programming; others are the
direct costs associated with the specific leased access programmer or its programming.  To
simplify this discussion, we will refer to all of these costs as opportunity costs.  As will be
discussed below, our proposed cost formula would not allow the operator to recover all
opportunity costs.  Instead, the operator 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.
     70.  On the other hand, we tentatively conclude 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.  We believe 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.
     71.  We recognize 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.  We believe 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.  After all, under our 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.
     72.  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, we do not believe that the operator is
charging unreasonable rates since Congress has determined the appropriate level of output.
We seek comment on these tentative conclusions.
     73.  We ask for comment on whether it is appropriate to allow the maximum leased
access rate to be negotiated when the operator has fulfilled its set-aside requirement, as well
as our rationale for doing so.  We seek comment on the extent to which negotiated rates are
adequate to address Congress' mandate that we 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.  We also ask for comment on how operators may
choose between competing programmers.  For instance, we ask if operators should be
required to select the highest bidder.  We also seek comment on any alternatives for setting
maximum rates when an operator is leasing its full set-aside capacity.
     74.  We do not propose to maintain the programmer categories established under
the highest implicit fee formula under the proposed cost formula.  Although operators are
permitted to consider content of programming in determining the price, we believe that the
Commission should not establish a separate maximum rate under the cost formula based on
the content of the leased access programming.  Our proposed cost formula is based purely on
the operator's costs associated with its system and leased access programming.  ValueVision's
claim that home shopping programmers should be treated differently simply because of the
"fundamentally different economics of the home shopping market" is unpersuasive.  Under the
proposed cost formula, we are not basing the maximum rate on the economics which the
leased access programmer faces.  We therefore do not believe that treating different
programmers differently is appropriate under the cost formula.  Similarly, we do not believe
that there is a need to establish categories for advertiser-supported and non-advertiser
supported programmers, as CME and Paradise propose.  Accordingly, we tentatively conclude
that we will not establish programmer categories for implementation of the cost formula.  We
request comment on this tentative conclusion.
               b.   Designating Channels
     75.  We propose 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.  If, for example, an operator plans to place leased access
programming on channel 28, and move the programming currently carried on channel 28 to
channel 32, the cost formula calculations should be based on the opportunity cost of the
programming currently carried on channel 32.
     76.  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.  We propose that the operator
would be required to place these channel designations, including the channel numbers and the
programming carried on each channel at the time the operator calculates the maximum rate
under the cost formula, in its public file.  We request comment on this proposal.  Operators
would be permitted to revise their selections annually to permit them to revisit the decisions
in light of any change in circumstances.  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.  We request comment on this proposal generally.  We also request comment on
how we 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, we ask
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.  We also ask whether
operators should be permitted to base their maximum rate calculation on affiliated
programming, if the operator designates channels that carry such affiliated programming.
               c.   Operating Costs
     77.  The first component of the proposed cost formula is the operating costs.  We
tentatively define 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.  We
therefore tentatively conclude 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.
     78.  Similarly, we propose 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, we believe 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.  We recognize that unregulated
subscriber revenue might recover more than the operator's operating costs; however, we
believe 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, we propose 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.  We seek comment on these tentative conclusions.
               d.   Net Opportunity Costs
     79.  We propose 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.  We recognize that our
proposed formula does not incorporate all opportunity costs.  As discussed below, some costs
are not easily quantified; others 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, we propose to identify categories of quantifiable costs which operators may include in
calculating the cost formula.
     80.  The first category of opportunity costs that the Commission proposes to allow
recovery for 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.  For example, if a channel designated for leased access
is currently being used for non-leased access programming which is generating advertising
revenues, the operator might be entitled to recover from the leased access programmer an
amount equal to the current programming's advertising revenues.
     81.  We do 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.  We believe 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, we tentatively
conclude 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, we believe such
bargaining is fully permitted by our rules and is a matter to be negotiated between the parties.
     82.  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
we propose be factored into the cost formula.
     83.  On the other hand, we also believe 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.  We believe that such a cost savings should be factored into the calculation
of the operator's net opportunity cost.  For instance, if an operator designates a channel for
leased access on which the operator currently carries a non-leased access programmer to
which the operator pays $.02 per subscriber in license fees, that $.02 multiplied by the
number of subscribers receiving that programming must be subtracted from the operator's
opportunity costs for that channel.  We tentatively conclude 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.  Since license fees are likely to be
substantial on premium channels, this opportunity cost is especially important for premium
channels designated for leased access.  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.  We ask 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.
     84.  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 limiting that programming to
subscribers of the leased access service.  An operator may also incur additional costs
associated with scrambling if, for instance, the leased access programming is indecent and,
under Section 505 of Telecommunications Act of 1996, the operator is required to fully
scramble or fully block the leased access programming for those not subscribing to it.  Thus,
under our proposed cost formula, those costs could be included in calculating the maximum
rate.  We propose to distinguish these technical costs from those for technical support for
which the operator is permitted to charge separately under Section 76.971(c).  We request
comment on these proposals.
     85.  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.  Under the Commission's
going forward methodology, substituting the leased access programming for a non-leased
access programmer on the same tier would not affect the subscriber rate.  If the operator
adds a channel to the BST to accommodate leased access, the operator is permitted to add a
per-channel residual to the charge for the tier.  If the operator elects the going forward
option and adds a channel to a cable programming services tier, the operator would recover
the same $.20 from subscribers that it would recover if it placed a new non-leased access
channel on the tier.  Under any of these circumstances, no lost subscriber revenue would be
included in the calculation.  However, we seek 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.
     86.  We tentatively conclude 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.  We tentatively conclude that, in the tier context, any
such subscriber loss is too speculative to measure accurately.  In the premium context,
however, we believe 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, we request comment
on how our cost formula might measure changes in subscriber penetration due to the addition
of leased access programming.  Specifically, we seek comment on how such subscriber
revenues could be calculated and on how the operator could demonstrate that lost subscriber
revenues are attributable to a leased access programmer.
     87.  We also recognize 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.
We believe 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.  Since operators
forego the opportunity to carry their own programming any time leased access programming
is placed on a dark channel, we propose to allow operators to approximate the opportunity
costs of dark channels by assigning these 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, PEG, or any leased access channels already being carried, in order to satisfy the
set-aside requirement.  If the cost formula were based on designated leased access channels,
the number of designated dark channels would determine how many programmed channels
should be used.  Specifically, under this proposal, if one designated channel is dark, it would
be assigned 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.  We seek
comment on this proposal.
     88.  As stated above, we believe that it is necessary to use only channels with
positive opportunity costs as proxies for dark channels.  We believe that this is necessary
because we do not believe that operators generally carry programming that has a negative
economic benefit to them, which is what a negative opportunity cost value would indicate.
We suspect 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
we do not believe we 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, we tentatively conclude 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, we request comment on how we might measure changes in
subscriber penetration due to the addition of leased access programming.  We ask how we
might identify which channels should not be deemed to have the lowest opportunity cost for
purposes of approximating the opportunity costs of dark channels.
     89.  We believe that this method would yield the most reasonable approximation of
opportunity costs for dark channels.  We believe that, unless the operator has a programming
contract in place, permitting the operator to estimate the opportunity costs of new
programming that it may at some future time carry on a currently dark channel would allow
for too much speculation.  In addition, we believe that, when the new programming that the
operator would have placed on the dark channel is available, the operator acting rationally
would place the new programming on a channel with lower opportunity costs if the operator
expects the new programming to be more profitable than the programming that is replaced.
We therefore tentatively conclude that the opportunity costs of dark channels are most
reasonably approximated by measuring the opportunity costs of the channels that are most
likely to be bumped in order to accommodate new programming.  We believe that the
channels with the lowest opportunity costs are the most likely to be bumped but, as we
explained above, we would not require the use of channels with a zero or negative
opportunity cost value.  We ask commenters to address the validity of these assumptions.
               e.   Averaging the Per Channel Costs for All Designated Channels
     90.  Because the operator may select designated channels from the BST, any CPST,
or premium services, we believe that the corresponding per channel costs will vary depending
on the number of subscribers that receive each service.  Consequently, we propose 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.
     91.  We tentatively conclude that applying an average channel cost to leased access
will promote fairness because all leased access programmers will therefore be subject to the
same maximum rate.  We note that an operator's designation of leased access channels is
made independently of the leased access programmer's request for access.  We do 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.  In
other words, assuming there are no technical constraints, operators should not be required to
bump a tiered channel when the leased access programmer asks to be carried on a tier.  With
this in mind, we also believe 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.
     92.  Therefore, we propose 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.  We seek comment on
whether averaging the per channel costs is appropriate under the proposed cost formula.
               f.   Calculating the Leased Access Programmer Charge
     93.  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 the operator like that discussed
above in Section III.A.3.b., 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.  We request comment on this proposal.
     94.  We tentatively conclude 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.  We believe that this is
appropriate because we 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.  We request comment on
these tentative conclusions.
               g.   Adjustment for Part-time Administrative Costs
     95.  Regardless of whether the leased access programming is carried on a tier or as
a premium service, we recognize that there may be additional costs associated with part-time
leases.  We therefore tentatively conclude 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.  We do 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.  We therefore propose 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.  We ask for comment on these
tentative conclusions.
          2.   Market Rate as the Maximum Rate
     96.  As discussed above, we believe that, once an operator fulfills its set-aside
requirement, the maximum cost-based rate would 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.  We tentatively conclude 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.
     97.  We propose 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.  Market rates contained in unexpired contracts would not need
to be renegotiated.  We seek comment on this proposal generally, and ask whether this
proposal complies with our statutory mandate to establish maximum reasonable rates.  We
also seek 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, we request comment on alternatives for setting maximum reasonable rates when an
operator has satisfied its set-aside requirement.
          3.   Transition Period
     98.  We tentatively conclude that, on the effective date of the maximum rate-setting
rules which we will adopt in response to this Further Notice, operators should be required to
implement the adopted formula, whatever that 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.  We request comment on this tentative
conclusion.
     99.  We believe, 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.  We recognize 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 the cost formula, or
whatever formula we adopt, 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.  We therefore request comment on whether the Commission 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.  We also ask whether such transition relief should
be applied to dark channels for which the operator has programming contracts in place.  We
ask 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.  One possible approach would be the transition procedure
set forth in Appendix E hereto.  We seek comment on this approach and on any alternative
approaches.
          4.   Adjusting Leased Access Rates under the Cost Formula Over Time
     100. As described above, the proposed cost formula would require operators to
designate the specific channels they will use to satisfy their set-aside requirement.  We
propose 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.  We do 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.  In order to account for change,
including changes in the profitability of channels, we tentatively conclude that operators
should be allowed to redesignate their unused leased access channel capacity on an annual
basis.  For example, if an operator originally had to designate five channels, and one year
after the cost formula were to become effective, only three were being used for leased access
programming, the operator could change its remaining two channel designations and select
two different channels to use for leased access.  We request comment on these tentative
conclusions, and ask 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, we tentatively conclude 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.
     101. In addition to permitting redesignation of leased access channels, we tentatively
conclude 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.  We request 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).  We
believe that allowing an operator to update its rates will better approximate the operator's
changing costs of satisfying its leased access requirement.  We request 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.  We also seek
comment on whether such an option would provide operators with the opportunity to evade
the maximum rate.
     B.   Part-Time Rates
     102. As stated above in Section III.B., we conclude that proration of the maximum
rate with time of day pricing is an appropriate method for establishing part-time rates under
the highest implicit fee formula, at least for this interim time period.  We request 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.
We seek 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, we request 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.
     C.   Preferential Access
          1.   Background
     103. In the Rate Order, we declined to establish a special rate category for not-for-
profit programmers, and we also declined to require cable operators to set aside separate
leased access channel capacity for not-for-profit programmers.  Since we expected our rules
to result in rates adequate to attract potential not-for-profit programmers, we stated that the
procedure we were adopting for determining the maximum leased access rates would reduce
the need to specify any preferential rates for not-for-profit organizations.  In addition, we
noted that Section 611 of the Communications Act, regarding PEG access, adequately
provided for not-for-profit programming, thus precluding the need for any set-aside for such
programming.
          2.   Petitions
     104. CME urges the Commission to reconsider its decision not to establish lower
maximum rates for not-for-profit channel lessees.  CME claims that the rates required by
the Commission's rules result in unreasonably high rates for even major national not-for-profit
organizations.  CME requests that the Commission therefore establish reduced rates for not-
for-profit programmers.  In its pleadings, CME requests that we set the not-for-profit rate at a
nominal charge, such as one tenth of a cent ($.001) per subscriber or three percent of the
programmer's revenue derived from carriage, whichever is greater.  For a hypothetical
system with 50,000 subscribers, a one tenth of a cent per subscriber charge would result in a
rate of $50 per month for a full-time channel.  CME subsequently suggested that not-for-
profits be charged the "incremental cost" of adding a not-for-profit channel to the cable
system, which it determines to be $783 annually (or $65.25 a month) per system, regardless
of the system's channel capacity, technical make-up, or number of subscribers.
     105. CME also urges the Commission to reconsider its decision not to establish a
set-aside for not-for-profit programming.  CME argues that the Commission erroneously
concluded that Section 611 of the Communications Act provides adequate access for not-for-
profits.  CME points out that Section 611 does not require local franchising authorities to
provide PEG channels and claims that few operators make them available.  CME further
contends that most not-for-profits do not qualify for use of PEG channels.  CME asserts
that a temporary set-aside would give not-for-profits additional time to organize and raise the
funds needed to launch a new programming service.
     106. Other parties have also sought preferential rate and set-aside treatment under
the leased access rules.  For example, SUR states that per-event or per-channel pay
programmers serving minority or educational needs, as defined in Section 612(i)(2) and (3),
should receive a substantial discount on the maximum rate calculated for a general interest
programmer such as HBO.  The discount should, according to SUR, reflect the size of the
potential minority or educational interest to be served.  SUR further argues that, when an
operator is confronted with greater demand for leased access than it can accommodate, the
operator should be required to allow first use for "diversity enhancing and Congressionally
favored program offerings" which, according to SUR, include minority and educational
programming.  In addition, Engle Broadcasting ("Engle"), licensee of a low power
television ("LPTV") station, asks that preferential leased access rates be accorded to all LPTV
stations.  According to Engle, LPTVs are supported entirely by local advertisers (in other
words, they do not receive any revenues from viewers or subscribers), which means that they
cannot afford the rates required by the Commission's rules.  Engle contends that the
Commission should encourage LPTV carriage on leased access because, among other things,
LPTVs generally provide local, community-oriented programming which serves the public
interest.
     107. Cable operators object to these requests for preferential treatment.  Bend, for
example, contends that reduced leased access rates for some programmers are not essential to
program diversity.  In opposition to CME's request, Bend claims that PEG channels serve
as outlets for not-for-profit entities or other non-commercial programmers.  Bend notes that
Congress granted local franchising authorities discretion to decide whether cable system
revenue or other resources should be used to promote PEG access.  Bend further asserts that
cable operators provide a variety of programming that caters to special needs and interests.
     108. Continental also objects to the preferential treatment requested by various
programmers and points out that CME's request for lower rates and channel set-asides for
not-for-profits is "largely a rehash of arguments previously considered and properly rejected
by the Commission."  Continental stresses that what is at issue are the rates for leased
access.  According to Continental, educational entities have ample subsidized access both on
cable systems (i.e., through must carry, PEG, Section 612(i)) and through other media outlets
(i.e., ITFS).  Continental claims that "minority programmers receive special preferences in
broadcast licensing with PEG and the Section 612(i) minority provisions providing more than
adequate subsidized minority outlets."  Thus, Continental insists, there is no basis for
setting special lower rates for these, or any, programmers.
     109. CVI contends that there is no rationale or legal basis for the Commission to
prescribe lower rates for special classes of programmers.  CVI argues that Congress modified
the leased access provision "to promote competition in the delivery of diverse sources of
video programming," not to force cable operators to subsidize underfunded programmers.
With respect to CME's request for temporary set-aside capacity, CVI asserts that not only is a
set-aside confiscatory, it is inconsistent with the framework of the legislation.  Similarly,
Cox Cable Communications, Inc. ("Cox") states that it strongly opposes mandatory, separate,
lower rates for not-for-profit organizations.  Cox contends that operators should not be forced
to give up their property (i.e., channel capacity) for less than a fair market return.  Cox
instead supports allowing operators, at their discretion, to negotiate more favorable rates for
not-for-profit programmers.
     110. Time Warner claims that attempts to create additional categories of
programming based on the nature of the speaker or content of its speech results in content-
based regulation that cannot survive scrutiny under the First Amendment.  Further, Time
Warner argues that such categorization is inconsistent with the Congressional admonition that
cable operators not exercise editorial discretion on leased access channels.  Time Warner
claims that, contrary to CME's argument, most subscribers are served by systems offering
PEG channels.  Time Warner also claims that CME offers no evidence to support its claim
that most non-profit programmers will not qualify to use public access channels.
          3.   Discussion
     111. In adopting the 1984 Cable Act, Congress contemplated that operators would
be permitted to offer preferential leased access rates to not-for-profit entities.  The House
Committee stated that:
          [i]t is important to note, though, that [Section 612(f)] does contemplate
          permitting the cable operator to establish rates, terms, and conditions which are
          discriminatory. . . . [B]y establishing one rate for all leased access users, a
          price might be set which would render it impossible for certain classes of cable
          services, such as those offered by not-for-profit entities, to have any reasonable
          expectation of obtaining leased access to a cable system.
Furthermore, one of the statutory purposes of the leased access provisions is "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."
Diversity might be hampered if, as CME argues, even the largest not-for-profit organizations
cannot afford the maximum leased access rates allowed by the Commission's rules.  The
Commission is concerned that not-for-profit programmers are being excluded from leased
access, but lacks sufficient evidence in the record to make a determination 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.
     112. The Commission 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.  In order to determine the extent to which current
rates may be restricting the diversity of programmers, 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.  In other words, we solicit commenters to furnish
examples that are specific and concrete.  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.
     113. If we conclude that some form of preferential treatment is appropriate, we seek
comment on whether a lower maximum rate should apply to not-for-profit leased access
programmers.  For example, if a nominal rate should be set, we seek specific evidence
demonstrating what rate should apply and why.  Alternatively, if the proposed cost formula is
adopted, we seek 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, we solicit 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.
     114. 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.  We seek comment on whether the statute would permit us to consider a set-
aside requirement for not-for-profit programmers.  If so, would the public interest be served
by such a set-aside requirement and how should it be structured?  For example, would a
reservation of 25 percent 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, we would stipulate that until a 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.
     115. We also seek 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.  We believe that there is insufficient evidence on the record for
us to adopt the recommendations of SUR and Engle that LPTV stations and minority and
educational programmers should receive preferential treatment, but we invite commenters to
demonstrate with specific evidence why a preference for certain types of for-profit
programmers may be appropriate.  We also seek 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.
     D.   Tier and Channel Placement
          1.   Background
     116. Congress did not mandate specific tier or channel location for leased access, as
it did for PEG channels.  Thus, in the Rate Order, the Commission declined to establish
requirements for placing leased access on particular tiers or channels.  Instead, we determined
that these issues are best left in the first instance to negotiations between the parties.
          2.   Petitions
     117. CME urges the Commission to reconsider its decision not to establish terms
regarding channel location and tier access.  According to CME, the statute directs the
Commission to "establish reasonable terms and conditions for such use [of leased access],"
and one of the terms to be established is channel placement.  CME relies on the legislative
history of the 1992 Cable Act, which states that the Commission "should ensure that these
[leased access] programmers are carried on channel locations that most subscribers actually
use."  Thus, CME argues that, in order to fulfill Congressional intent, the Commission
should establish reasonable terms and conditions involving channel placement.  ValueVision
supports CME's position on tier and channel placement.  Videomaker also urges the
Commission not to give operators discretion as to tier and channel location for leased access
because the operator may place the programmer on a tier that very few subscribers receive, or
at less desirable time slots.  Videomaker asserts that placement of a lessee's programming is
crucial to its success, and thus an uncooperative operator could effectively stifle the lessee's
chances of success if the operator has the ability to control leased access tier and channel
placement.  Cable operators, on the other hand, have not asked us to reconsider the initial
determination that channel placement and tier access will be influenced by individual
circumstances and are best resolved through the negotiation process in the first instance.
          3.   Discussion
     118. 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.  We tentatively
conclude 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.  We believe 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.
     119. Our 1995 Competition Report states that a large percentage of subscribers
(more than 90 percent) receive CPSTs.  We tentatively conclude that both the BST and the
CPST with the highest subscriber penetration qualify as genuine outlets because "most
subscribers actually use" them.  However, we seek 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 we interpret the term "most subscribers" as greater than
50 percent?  In order to permit flexibility in the market development of an operator's cable
system, we 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.  An exception would apply for programming that the operator is required or
permitted to scramble or trap out, such as channels that are primarily dedicated to sexually-
oriented programming.  To ease technical burdens, operators would be permitted to place such
programming with other programming that is also scrambled or trapped out.
     120. Our discussion of tier and channel placement in the Rate Order was intended
to recognize that there are likely to be issues related to access control equipment which could
affect a system's channel placements.  The core requirement is that the operator place the
leased access programming on the system.  Depending on the current use of the channels the
operator designates for leased access, retrapping might be required to provide full access or
converter boxes might be required by subscribers without "cable ready" television sets.  For
example, a system providing a BST containing only mandated services (local must-carry
signals and PEG access channels) and controlling subscriber access through a trapping system
would have to change out the traps of all basic subscribers to afford them access to a new
leased channel service.  We propose to allow operators to consider these concerns when
deciding whether to place leased access programming on either the BST or a CPST that
qualifies as a genuine outlet.  However, as stated above, it would be the operator's
prerogative to place programming that is required or permitted to be scrambled or trapped out
with other programming that is scrambled or trapped out.
     E.   Obligation to Open New Channels and Bump Existing
          Non-Leased Access Services
          1.   Background
     121.  In the Rate Order, we did not specify the extent to which cable operators are
required to remove current non-leased access programming to make capacity available for
leased access programming when the operator does not have unused capacity available to
otherwise accommodate the request.  We also did not address whether operators are required
to open up a second set-aside channel that is dark (i.e., activated but without programming) in
order to accommodate a leased access request when the first set-aside channel is not fully
leased.
     122. In TV-24 Sarasota, Inc. v. Comcast, the programmer argued that the cable
operator should be required to open up an additional leased access channel, even though the
first channel set-aside was not fully leased, in order to accommodate its request for a
particular two-hour time slot twice a week.  The programmer complained that the operator
should not be able to prevent it from obtaining a specific time of day slot that may already be
taken on the first channel.  The programmer's argument was rejected because the operator
could reasonably accommodate the programmer's request by providing comparable time slots
on the existing leased access channel.
          2.   Petitions
     123. In its petition, which was filed before the release of the TV-24 Sarasota, Inc. v.
Comcast decision, Continental asked us to clarify on reconsideration that cable operators are
not required to make a specific time available to a lessee if it would require the use of a
second designated leased access channel, so long as time remains on the first designated
channel already used for commercial leasing.
          3.   Discussion
     124. Cable operators that have not fulfilled their statutory requirements for leased
access generally should be required to accommodate requests for leased access time.
However, we recognize 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.  As was the case in TV-24 Sarasota, Inc. v.
Comcast, a programmer may request a specific leased access time slot for only a few hours
per week at a time which is currently being used by another leased access programmer.  We
seek comment on whether there is any compelling reason to depart from this precedent and
require the operator to open up another leased access channel, thereby dislocating a full-time
programmer, even if the operator can otherwise reasonably accommodate the leased access
request in a comparable time slot.  As stated in TV-24 Sarasota, Inc. v. Comcast, "we
believe that a possible disruption of existing 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, we
solicit comment on whether it is sufficient to require a "reasonable accommodation in a
comparable time slot" or whether the standard should be further defined, such as a
comparable time slot where the audience is of similar size and profile.  We also seek
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.  We
tentatively conclude 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.
     125. We also tentatively conclude that operators should not be required to open up
an additional channel even if it is dark, provided that the programmer can otherwise be
reasonably accommodated or does not agree to a minimum time increment of eight hours
within a 24-hour period.  We believe that essentially the same opportunity costs are involved
regardless of whether the operator is forced to dislocate existing programming or is precluded
from carrying new programming.
     126. We remind operators of their obligation to negotiate with programmers in good
faith and in a timely manner to accommodate reasonable leased access requests.  The goals of
promoting diversity of programming sources consistent with the growth and development of
cable systems, while also minimizing the amount of program disruption to subscribers, will be
considered in evaluating the reasonableness of an operator's accommodation of a leased
access request.
     F.   Selection of Programmers
     127. The Commission has not specifically addressed the manner in which lessees are
to be selected for placement on leased access channels.  We stated in the Rate Order that
each lessee will only be allowed to lease up to one channel if there are other leased access
programmers demanding use of the additional designated channels.  We further stated that
this rule is not intended to permit adverse effects on the operation, financial condition, or
market development of the cable system.  In their petitions, ValueVision and CME propose
that leased access channels be provided on a first-come, first-served basis.  According to
ValueVision, without this scheme, cable operators will impermissibly look to content as a
means of allocating scarce leased access channel capacity.  HSN, on the other hand, argues
that first-come, first-served is not necessary because most operators are looking to elevate
revenue potential and not to scrutinize content.  CVI and Continental also oppose a first-
come, first-served approach because they argue that it will not necessarily promote diversity
and in fact may lead to home shopping channels occupying the majority of the leased access
channels available.
     128. We tentatively conclude 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, we seek comment on whether
operators should be allowed to accept leased access programmers on a basis other than one
that is strictly first-come, first-served.  We believe 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."
     129. 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.  We are not suggesting that an operator would be allowed to completely refuse
part-time requests for leased access.  The issue here is, when two applicants request leased
access time and the operator cannot accommodate them both within the set-aside requirement,
should the operator be allowed to select the full-time applicant over the part-time applicant.
At the same time, we are 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, we seek 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.  Alternatively, instead of allowing a preference for the last available leased access
channel, we seek comment on whether we should require one or two leased access channels
to be used exclusively for part-time use.  We further seek comment on whether we should
allow operators to base their selections on any content-neutral criteria other than the full-
time/part-time distinction.
     G.   Minority and Educational Programmers
          1.   Background
     130. 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
percent of the cable system's designated leased access channels.  In the Rate Order, we stated
that we would reflect the provisions of Section 612(i) in our rules.  For purposes of the
minority programming provision, we concluded that programming that covers "minority
viewpoints" or is "directed at members of minority groups" must cover the viewpoints of, or
be targeted to, members of minority groups, as defined in Section 309(i)(3)(c)(ii) of the
Communications Act.  Regarding the appropriate proportion of programming that must be
devoted to coverage of minority or educational programming to qualify as "substantially all"
under the statute, we stated that programming sources that devote 90 percent or more of their
programming to such purposes may qualify as a statutory source of minority or educational
programming.
          2.   Petitions
     131. Discovery Communications, Inc. ("Discovery") and Black Entertainment
Television, Inc. ("BET") ask for further refinement of the rules allowing minority and
educational programming to substitute for leased access programs as permitted under Section
612(i).  According to Discovery and BET, if qualified minority and educational
programming is relegated to a la carte distribution or a CPST with low subscriber penetration,
its use as a substitute for commercial leased access will not fulfill the purpose Congress
intended.  Thus, Discovery and BET request that we require, as a further condition to this
"substitution" provision, that programming must be made available as part of either the BST
or a CPST with high subscriber penetration in order to qualify as leased access
programming.
          3.   Discussion
     132. We seek comment on whether the requirements for tier and channel placement,
as proposed above in Section IV.D., 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?
Discovery and BET have not provided specific evidence that these types of programmers are
unable to negotiate for placement on the tier of their choice.  Nor is there explicit language in
the statute or legislative history stipulating that minority and educational programming should
be received by most subscribers.  However, language used in the leased access provisions
suggests 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.
Specifically, 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).  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, we tentatively conclude 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.
     H.   Procedures for Resolution of Disputes
          1.   Background
     133. In the Rate Order, the Commission established that disputes over leased access
rates or terms and conditions would be resolved through the complaint process.  Complaints
must be filed with the Commission within 60 days of the alleged violation, must state
concisely the facts constituting a violation of the leased access rules and cite the specific rule
or regulation allegedly violated.  An operator has 30 days from the petition filing date to
respond.  In the case of a rate dispute, a complaint need only allege that a given rate is
higher than the maximum rate permitted under our rules; the operator is then required to
submit data showing that the rate charged was not higher than the maximum rate it
charged.  In order for relief to be granted, the complainant must ultimately show, by clear
and convincing evidence, that the cable operator violated our leased access rules or otherwise
acted unreasonably or in bad faith.
          2.   Petitions
     134. CME urges the Commission to reconsider its procedures for resolving leased
access disputes because it asserts that the procedures adopted in the Rate Order will not
protect against patterns of abuse or facilitate dispute resolution.  CME argues that the
Commission's rules impose an overly burdensome standard of proof on leased access
complainants and set no time limit in which complaints must be decided by the
Commission.  Specifically, CME argues that adoption of the "clear and convincing" burden
of proof comes from the Commission's misinterpretation of Section 612(f) of the
Communications Act.  CME argues that, while prior to the 1992 Cable Act a cable
operator's rates, terms and conditions were presumed reasonable and a lessee could only rebut
the presumption with a clear and convincing showing that the operator's demands were
unreasonable, the 1992 Cable Act directs the Commission to "determine the maximum
reasonable rates" and "establish reasonable terms and conditions" for leased access.  CME
states that the need to rebut applies only if there is a presumption and, because there is no
longer a presumption that a cable operator's rates, terms and conditions are reasonable, there
is no longer any need for the lessee to show anything by clear and convincing evidence.
CME also argues that Commission rules do not give lessees access to information they may
need to make a prima facie complaint because the Commission appears to be treating the data
on which a cable operator relies to set maximum rates as proprietary.  CME maintains that,
without such data, it will be "virtually impossible" for the lessee to make out a prima facie
case, much less to prove a violation by clear and convincing evidence.  Finally, CME
maintains that the leased access rules adopted will not result in the expeditious resolution of
disputes because operators are given too much time to respond to complaints.  CME argues
that the operators' response periods should be shortened from 30 days to 10 to 15 days.
     135. In opposition, Continental argues that the dispute resolution procedure for
leased access is not burdensome to complainants.  Continental asserts that CME
misconstrues the burden of proof imposed on lessees.  Continental interprets the rules to
require that a complainant need only allege that the rate is excessive to satisfy its burden,
with the burden then shifting to the cable operator to demonstrate compliance.  CVI agrees
and states that the Rate Order suggests that the pleading requirements for a programmer, at
least in the rate dispute context, are not strict.  CVI also calls CME's proposal for
shortening operators' response time unfair and unnecessary.
          3.   Discussion
     136. The statutory presumption is that rates, terms, and conditions for leased access
are reasonable unless the complainant demonstrates clear and convincing evidence to the
contrary.  However, as we indicated in the Rate Order, in the case of a rate dispute, a
complainant is required only to allege that a given rate is higher than the maximum rate
permitted under our rules.  After the complaint is filed and served on the operator, the
operator then has 30 days to submit data showing that the rate charged was not higher than
the permitted maximum rate.  After all evidence has been submitted, complainants that are
able to demonstrate clear and convincing evidence of a violation have recourse to a variety of
relief measures, including refunds, injunctive relief, and even forfeitures.  As stated in the
Rate Order, the availability of refund relief will help a leased access programmer obtain
access while a dispute is pending, since any overcharges will be repaid.
     137. In order to streamline the complaint process before the Commission, we
propose 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.  We seek comment on whether, in the
absence of any evidence to the contrary, we 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.
     138. We tentatively conclude 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.  We seek comment on this proposal.  Alternatively, we seek comment on
whether operators should be required to provide the report upon request to potential leased
access programmers.  We seek 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.  We also seek 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?
     139. We strongly recommend the use of alternative dispute resolution ("ADR") to
settle disputes that are not resolved as a result of the accountant's report.  ADR is
especially suited to resolving leased access disputes since the rate calculations are based
largely on questions of fact.  Furthermore, ADR could well provide the parties faster relief
than agency adjudication.  We therefore urge parties to bring complaints to the Commission
only as last resort, after all attempts at informal settlement have failed.
     140. In light of the streamlining proposed above, and contrary to CME's contention,
we do 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, we believe that shortening the operator's response period would be unfair to the
operator.
     I.   Resale of Leased Access Time
     141. We seek comment on whether we 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 we 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.  This type of resale service might provide substantial benefit to programmers with
limited time and resources to conduct transactions directly with operators.  In addition, a
"mini-tier" that would compete directly with the operator's tiers could be created if several
channels were resold by the lessee.  On the other hand, it may be just as burdensome for
the leased access programmer to conduct business with the lessee as it is with the operator.
Also, since the operator lacks editorial discretion over the content of leased access
programming, the leased access channels could already be considered a mini-tier that provides
competition to the operator's programming.  Furthermore, permitting the resale of leased
access time may defeat the Commission's mandate to establish maximum leased access rates
if lessees were able to extract unreasonable rates for limited leased access space.  Given these
conflicting considerations, we seek comment on the advisability of allowing the resale of
leased access time.  If the Commission were to prohibit resale, we ask whether an exception
should apply for not-for-profit leased access programmers.
V.   REGULATORY FLEXIBILITY ANALYSIS
     A.   Final Regulatory Flexibility Act Analysis for the Order on Reconsideration
     142. Pursuant to the Regulatory Flexibility Act of 1980, Pub. L. No. 96-354, 94
Stat. 1164, 5 U.S.C.  601-612 ("Regulatory Flexibility Act"), the Commission's final
analysis with respect to this Order on Reconsideration is as follows:
     143. Need and purpose of this action.  The Commission, in compliance with Section
9 of the Cable Television Consumer Protection and Competition Act of 1992, 47 U.S.C.
 532 (1992), pertaining to leased commercial access, is required  to adopt rules and
procedures intended to ensure the availability of and accessibility to leased commercial access
on cable systems.
     144. Summary of issues raised by the public in response to the Initial Regulatory
Flexibility Analysis.  There were no comments submitted in response to the Initial Regulatory
Flexibility Analysis.
     145. Significant alternatives considered and rejected.  Petitioners for reconsideration
did not submit comments analyzing the administrative burden of the leased access rules
pursuant to the Regulatory Flexibility Act.  The Commission nonetheless has attempted to
minimize such burdens.
     B.   Initial Regulatory Flexibility Act Analysis for the Further Notice of
          Proposed Rulemaking
     146. 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.  601 et seq. (1981).
     147. Reason for Action.  Section 612 of the Communications Act of 1934, as
amended, 47 U.S.C.  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.
     148. Objectives.  To propose rules which implement Section 612 of the
Communications Act of 1934, as amended, 47 U.S.C.  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.
     149. Legal Basis.  Action as proposed for this rulemaking is contained in Sections 1,
4(i), 4(j) and 612 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i),
154(j) and 532.
     150. Description, Potential Impact and Number of Small Entities Affected.  We
anticipate 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 we do not
currently have information pertaining to the extent of such impact or the number of small
entities that may be affected.
     151. Reporting, Recordkeeping and Other Compliance Requirements.  Action as
proposed in this rulemaking may impose new reporting requirements on cable operators.
     152. Federal Rules which Overlap, Duplicate or Conflict with these Rules.  None.
      153.     Any Significant Alternatives Minimizing Impact on Small Entities and
Consistent with Stated Objectives.  The Further Notice solicits comments on alternatives.
VI.  INITIAL PAPERWORK REDUCTION ACT OF 1995 ANALYSIS
     154. This Order on Reconsideration and Further Notice of Proposed Rulemaking
("Order and Further Notice") contains either a proposed or modified information collection.
As part of our continuing effort to reduce paperwork burdens, we invite the general public
and the Office of Management and Budget ("OMB") to take this opportunity to comment on
the information collections contained in this Order and 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 the Further Notice; OMB comments are due 60 days
from the date of publication of this Order and 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.
VII. PROCEDURAL PROVISIONS
     155. Redesignation of Docket.  We believe that it would facilitate consideration of
leased commercial access issues by the Commission if they were separated from MM Docket
92-266 and redesignated as a separate docket.  Accordingly, we are redesignating the
Commission's consideration of leased commercial access issues as CS Docket No. 96-60.
Parties are required to caption filings in response to this Order and Further Notice under this
new docket number.
     156. Ex parte Rules - Non-Restricted Proceeding.  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 C.F.R.  1.1202, 1.1203, and 1.1206(a).
     157. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the
Commission's Rules, 47 C.F.R.  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.  To file formally in
this proceeding, you must file an original plus six copies of all comments, reply comments,
and supporting comments.  If you want each Commissioner to receive a personal copy of
your comments and reply comments, you must file an original plus eleven copies.  You
should send comments and reply comments to Office of the Secretary, Federal
Communications Commission, 1919 M Street, N.W., Washington, D.C. 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,
N.W., Washington D.C. 20554.
     158. 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, N.W., Washington, D.C. 20054, or via the Internet
to dconway@fcc.gov, and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725-17th
Street, N.W., Washington, D.C. 20503 or via the Internet to fain_t@al.eop.gov.
VIII.     ORDERING CLAUSES
     159. Accordingly, IT IS ORDERED that the Petitions for Reconsideration in MM
Docket No. 92-266 which pertain to commercial leased access are GRANTED IN PART and
DENIED IN PART, as provided above herein.
     160. IT IS FURTHER ORDERED that Part 76 of the Commission's rules IS
HEREBY AMENDED as shown in Appendix F.  The amendments to 47 C.F.R.  76.970(a),
(b), (c), (d), 76.971(g) and 76.977 shall go into effect 30 days following publication of this
Order on Reconsideration in the Federal Register.  The amendments to 47 C.F.R.  76.970(e)
impose information collections, and will therefore not go into effect until approved by the
Office of Management and Budget.
     161. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 4(j) and 612 of the
Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j) and 532, NOTICE IS
HEREBY GIVEN of proposed amendments to Part 76, in accordance with the proposals,
discussions, and statement of issues in this Further Notice of Proposed Rulemaking, and that
COMMENT IS SOUGHT regarding such proposals, discussion, and statement of issues.
     162. IT IS FURTHER ORDERED that the Secretary shall send a copy of this Order
on Reconsideration and Further Notice of Proposed Rulemaking, including the Initial
Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business
Administration in accordance with paragraph 603(a) of the Regulatory Flexibility Act, Pub. L.
No. 96-354, 94 Stat. 1164, 5 U.S.C.  601 et seq. (1981).
                         FEDERAL COMMUNICATIONS COMMISSION
                         William F. Caton
                         Acting Secretary
                                APPENDIX A
Petitions for Reconsideration:
Booth American Company, et. al.
Cablevision Systems Corporation
Center for Media Education, et. al.
Comcast Cable Communications, Inc.
Community Broadcasters Association
Continental Cablevision, Inc.
Paradise Television Network, Inc.
SUR Corporation
Time Warner Entertainment Company, L.P.
ValueVision International, Inc.
Oppositions to Petitions:
Bend Cable Communications, Inc., et. al.
Cablevision Industries Corporation, et. al.
Center for Media Education, et. al.
Continental Cablevision, Inc.
Home Shopping Network, Inc.
Time Warner Entertainment Company, L.P.
ValueVision International, Inc.
Videomaker Magazine
Replies to Oppositions:
Cablevision Systems Corporation
Center for Media Education, et. al.
Continental Cablevision, Inc.
Engle Broadcasting
Paradise Television Network, Inc.
SUR Corporation
Time Warner Entertainment Company, L.P.
ValueVision International, Inc.
                                APPENDIX B
                   Calculation of Proposed Cost Formula
Step 1:   Designate Leased Access Channels
     Designate specific channels to be used as leased access channels.  The number of
     channels designated must be at least equal to the system's set-aside requirement set
     forth in Section 612(a).  The channels that are designated for purposes of calculating
     this formula must be those that the operator actually intends to use for leased access if
     demand exists.  Any type of channels (e.g., those on programming tiers, those offered
     as premium services, those currently carrying no programming, those carrying non-
     leased access programming, and those carrying leased access programming) may be
     designated.
Step 2:   Calculate the Per Channel Cost for Each Designated Channel Presently on a
          Tier
(a)  Divide the monthly tier subscriber charge for the relevant tier by the number of
     channels on that tier to obtain the monthly "average subscriber revenue."  This number
     represents the "operating costs" of the system that are allocated to each channel on the
     system, regardless of whether leased access or non-leased access programming is
     carried on the channel.
(b)  Calculate the "net opportunity costs" for the channel on a per subscriber per month
     basis.
(c)  Add the average subscriber revenue from Step 2(a) to the net opportunity costs from
     Step 2(b), and multiply the total by the number of subscribers receiving the relevant
     tier.  The result is the Per Channel Cost.
Step 3:   Calculate the Per Channel Cost for Each Designated Channel Presently
          Carried as a Premium Service
(a)  Subtract the per subscriber license fee paid by the operator to the programmer from
     the revenue received by the operator from each subscriber.  This net revenue is
     presumed to cover all operating and opportunity costs; however, if it does not, add any
     additional opportunity costs associated with leasing the channel.
(b)  Multiply this amount derived in Step 3(a) by the number of subscribers currently
     subscribing to the premium service.  The result is the Per Channel Cost.
Step 4:   Average the Per Channel Cost of All the Designated Channels
     Total the Per Channel Cost of all of the designated channels (including tiered and
     premium programming services) and divide by the number of channels.  The result is
     the Maximum Monthly Rate for a full-time leased access channel on the system,
     assuming that the system's leased access set-aside requirement is not being fully used
     by leased access programmers.
Step 5:   Calculate the Amount to Be Charged to the Leased Access Programmer
(a)  If a leased access programmer requests a full-time channel on a tier, subtract the total
     subscriber revenue (the average subscriber revenue from Step 2(a) multiplied by the
     number of subscribers) for the tier on which the leased access programming is to be
     carried from the Maximum Monthly Rate in Step 4.  The difference is the portion of
     the Maximum Monthly Rate that the operator may charge the leased access
     programmer directly.
(b)  If a leased access programmer requests that its programming be carried as a premium
     service, the full Maximum Monthly Rate may be charged to the leased access
     programmer, as long as all of the monthly subscriber revenue for the channel flows to
     the leased access programmer.
(c)  If a leased access programmer requests less than a full-time channel (i.e., part-time
     use), the tiered and premium service rates from Steps 5(a) and 5(b) may be prorated
     (evenly or based on time of day pricing, at the operator's option) to calculate the
     appropriate rate.                                APPENDIX E
            An Example Transition to the Proposed Cost Formula
     The following is one example of how a transition to the cost formula could be
implemented.  For the first year of the transition from the highest implicit fee to the cost
formula, the maximum charge to the leased access programmer would be the highest implicit
fee reduced by one-fourth of the difference between the highest implicit fee and the
programmer charge using the cost formula.  For the second year, the maximum charge would
be the highest implicit fee reduced by one-half of the difference between the highest implicit
fee and the programmer charge using the cost formula.  For the third year, the maximum
charge would be the highest implicit fee reduced by three-fourths of the difference between
the highest implicit fee and the programmer charge using the cost formula.  Beginning on
April 1, 1999, the maximum programmer charge would be derived using the cost formula.
     In other words, the per channel transition rates would be as follows (where HIF =
highest implicit fee multiplied by the applicable number of subscribers, and CF =
programmer charge using the cost formula):
     Effective date of revised
          rules to March 31, 1997  =  HIF - [.25 x (HIF - CF)]
     April 1, 1997 to March 31, 1998    =  HIF - [.50 x (HIF - CF)]
     April 1, 1998 to March 31, 1999    =  HIF - [.75 x (HIF - CF)]
     April 1, 1999 and thereafter       =  CF
                                APPENDIX F
                               Revised Rules
Part 76 of Title 47 of the Code of Federal Regulations is amended as follows:
PART 76 -- CABLE TELEVISION SERVICE
1.  The authority citation for Part 76 continues to read as follows:
     AUTHORITY: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat. as amended, 1064,
1065, 1066, 1081, 1082, 1083, 1084, 1085, 1101; 47 U.S.C. Secs. 152, 153, 154, 301, 303,
307, 308, 309, 532, 535, 542, 543, 552, as amended, 106 Stat. 1460.
2.   Section 76.970 is amended by revising paragraphs (a), (b), (c), (d), and (e) to read as
follows:
 76.970  Commercial leased access rates.
     (a)  Cable operators shall designate channel capacity for commercial use by persons
unaffiliated with the operator in accordance with the requirement of 47 U.S.C. 532.  For
purposes of 47 U.S.C. 532(b)(1)(A) and (B), only those channels that must be carried
pursuant to 47 U.S.C. 534 and 535 qualify as channels that are required for use by Federal
law or regulation.
     (b)  The maximum commercial leased access rate that a cable operator may charge is
the highest implicit fee charged any unaffiliated programmer (excluding leased access
programmers, non-retransmission consent broadcasters and public, educational and
governmental access programmers) within the same programming category.
     (c)  The per subscriber implicit fee charged an unaffiliated programmer shall be
calculated by determining the monthly price a subscriber pays to view the programming of
the unaffiliated programmer and subtracting the monthly price per subscriber that the operator
pays to carry the programming of the unaffiliated programmer.  The implicit fee is
determined by multiplying the per subscriber implicit fee by:
     (1)  If the leased access programming is carried on a programming tier, the number of
subscribers that subscribe to the programming tier on which the leased access programming is
carried; or
     (2)  If the leased access programming is carried as a premium service, the average
number of subscribers that subscribe to unaffiliated non-leased access programming services
that are carried as premium services.
     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).
     (d)  For each of the three programming categories as defined in paragraph (f) of this
section, the highest implicit fee charged any unaffiliated programmer (excluding leased access
programmers, non-retransmission consent broadcasters and public, educational and
governmental access programmers) in each category shall be the maximum monthly leased
access rate per subscriber that the operator could charge a commercial leased access
programmer in the same category.  The highest implicit fee shall be based on contracts in
effect in the previous calendar year.  Maximum rates for shorter periods can be calculated
either by prorating the monthly maximum rate uniformly, or by developing a schedule of and
applying different rates for different times of day, provided that the total of the rates for a 24-
hour period does not exceed the maximum rate for one day of a full-time leased access
channel (prorated evenly from the monthly rate derived in accordance with paragraphs (b),
(c), and (d) of this section).
     (e)  Within seven business days of a prospective leased access programmer's request, a
cable system operator must provide such programmer with the following information:
 (1) a complete schedule of the operator's full-time and part-time leased access rates; (2) how
much of the operator's leased access set-aside capacity is available; (3) rates associated with
technical and studio costs; and (4) if specifically requested, a sample leased access contract.
Requests under this paragraph (e) may be made by any reasonable means (e.g., in person, by
telephone, by facsimile or by mail), and the information shall be deemed provided when the
operator sends or gives the information to the programmer.  Operators shall maintain, for
Commission inspections, sufficient supporting documentation to justify the scheduled rates,
including supporting contracts, calculations of the implicit fees, and justifications for all
adjustments.
                                   *****
3.   Section 76.971 is amended by adding new paragraph (g) to read as follows:
 76.971  Commercial leased access terms and conditions.
                                   *****
     (g)  Operators are not required to accept leases which are for less than a one-half hour
interval.
4.   Section 76.977 is amended by revising the heading to read as follows:
 76.977  Minority and educational programming used in lieu of designated commercial
leased access capacity.
                                   *****