Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-97-01138/USCOURTS-caDC-97-01138-0/pdf.json

Parties Involved:
Alliance for Community Media
Intervenor for Petitioner
Association of Independent Video and Filmmakers
Intervenor for Petitioner
Center for Media Education
Intervenor for Petitioner
Community Broadcasters Association
Intervenor for Petitioner
Consumer Federation of America
Intervenor for Petitioner
Federal Communications Commission
Respondent
National Cable Television Association, Inc.
Intervenor for Respondent
People for the American Way
Intervenor for Petitioner
United States Catholic Conference
Intervenor for Petitioner
United States of America
Respondent
ValueVision International, Inc.
Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 10, 1998 Decided July 24, 1998

No. 97-1138

ValueVision International, Inc.,

Petitioner

v.

Federal Communications Commission and

United States of America,

Respondents

Center for Media Education, et al.,

Intervenors

Consolidated with

No. 97-1178

On Petitions for Review of an Order of the

Federal Communications Commission

William R. Richardson, Jr. argued the cause for petitioner

ValueVision International, Inc. With him on the briefs was

Jonathan J. Frankel. J. Roger Wollenberg entered an appearance.

Peter Tannenwald argued the cause and filed the briefs for

petitioner Community Broadcasters Association.

Joel Marcus, Counsel, Federal Communications Commission, argued the cause for respondents. With him on the

briefs were Christopher J. Wright, General Counsel, and

Daniel M. Armstrong, Associate General Counsel. Robert J.

Wiggers and Robert B. Nicholson, Attorney, U.S. Department

of Justice, entered appearances.

Daniel L. Brenner, Neal M. Goldberg and Diane B. BurUSCA Case #97-1138 Document #369500 Filed: 07/24/1998 Page 1 of 17
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stein were on the brief for intervenor National Cable Television Association, Inc.

Angela J. Campbell, Andrew J. Schwartzman and Gigi B.

Sohn were on the briefs for intervenors Center for Media

Education, et al.

Before: Randolph, Rogers, and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Randolph.

Randolph, Circuit Judge: These consolidated petitions for

review challenge portions of a Federal Communications Commission rule setting rates, terms and conditions for the carriage of "leased access" programming on cable systems.

Our opinion in Time Warner Entertainment Co. v. FCC, 93

F.3d 957, 967-69 (D.C. Cir. 1996), describes the subject of

leased access as follows: "In response to FCC v. Midwest

Video Corp., 440 U.S. 689 (1979), the [Cable Communications

Policy Act of 1984, Pub. L. No. 98-549, 98 Stat. 2779 ("1984

Act")] compelled cable operators of systems with more than

thirty-six channels to set aside between 10 and 15 percent of

their channels for commercial use by persons unaffiliated with

the operator. 47 U.S.C. s 532(b)(1). The larger the number

of channels in the system, the greater the percentage of

channels the operator must set aside.1 'Leased access' was

__________

1 Subject to the rates, terms, and conditions established by the

FCC pursuant to 47 U.S.C. s 532(c)(4), cable operators must set

aside capacity for leased access as follows:

originally aimed at bringing about 'the widest possible diversity of information sources' for cable subscribers. Id.

s 532(a). Congress thought cable operators might deny access to programmers if the operators disapproved the programmer's social or political viewpoint, or if the programmers' offerings competed with those the operators were

providing. 'Diversity,' as the 1984 Act used the term, referred not to the substantive content of the program on a

leased access channel, but to the entities--the 'sources'--

responsible for making it available. See H.R. Rep. No. 934,

[98th Cong., 2d Sess. 48 (1984), reprinted in 1984

U.S.C.C.A.N. 4655, 4685].

"The 1984 Act gave cable operators the authority to establish the price, terms, and conditions of the service on their

leased access channels. 1984 Act, s 2, 98 Stat. at 2783

(original version of 47 U.S.C. s 532(c)(1)). With respect to

those channels, then, the operator stood in the position of a

common carrier. See Midwest Video, 440 U.S. at 701; Implementation of Section 10 of the Cable Consumer Protection

and Competition Act of 1992: Indecent Programming and

__________

(A) An operator of any cable system with 36 or more (but not

more than 54) activated channels shall designate 10 percent of

such channels which are not otherwise required for use (or the

use of which is not prohibited) by Federal law or regulation.

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(B) An operator of any cable system with 55 or more (but not

more than 100) activated channels shall designate 15 percent of

such channels which are not otherwise required for use (or the

use of which is not prohibited) by Federal law or regulation.

(C) An operator of any cable system with more than 100

activated channels shall designate 15 percent of all such channels.

(D) An operator of any cable system with fewer than 36

activated channels shall not be required to designate channel

capacity for commercial use by persons unaffiliated with the

operator, unless the cable system is required to provide such

channel capacity under the terms of a franchise in effect on

October 30, 1984.

47 U.S.C. s 532(b)(1).

Other Types of Materials on Cable Access Channels, 8

F.C.C.R. 998, 1001-02 p 22 (1993) (first report and order). If

an operator refused to provide service, persons aggrieved had

the right either to bring an action in district court or to

petition the Commission for relief. 47 U.S.C. s 532(d)-(e).

The operator's rates, terms, and conditions were presumed

reasonable, a presumption that could be overcome 'by clear

and convincing evidence to the contrary.' Id. s 532(f). The

operator was free to use any of the channels set aside for

leased access until someone signed up. Id. s 532(b)(4).

"The 1984 legislation did not accomplish much. Unaffiliated programming on leased access channels rarely appeared.

See Donna M. Lampert, Cable Television: Does Leased Access Mean Least Access?, 44 Fed. Comm. L.J. 245, 266-67 &

n.122 (1992). Exactly why is uncertain. Cable operators said

the reasons were high production costs and low demand in

the face of the already wide array of programming operators

were already providing. Others laid the blame at the feet of

the operators, claiming they had set unreasonable terms for

leased access. The FCC, in a 1990 report, recommended

amending the 1984 Act to provide a national framework of

leased access rules and to streamline the section's enforcement mechanism. Competition, Rate Deregulation, and the

Comm'ns Policies Relating to the Provision of Cable Television Serv., 5 F.C.C.R. 4962, 5048-50 pp 177-83 (1990) (report).

The House Energy and Commerce Committee thought that

cable operators had financial incentives to refuse access to

those who would compete with existing programs. H.R. Rep.

No. 628, 102d Cong., 2d Sess. 39-40 (1992). The Senate

Commerce, Science, and Transportation Committee concurred, observing that the interests of cable operators and

leased access programmers were almost certain to clash.2

This Senate committee believed that the 1984 Act's leased

access scheme suffered from 'fundamental problems' and that

__________

2 The House Committee mentioned a study indicating that "there

are 68 nationally delivered cable video networks, 39 of which, or 57

percent, have some ownership affiliation with the operating side of

the cable industry." H.R. Rep. No. 628, supra, at 41.

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the Act's permitting operators to establish the rates and

terms of leased access service made 'little sense.' S. Rep. No.

92, [102d Cong., 2d Sess. 30-32, reprinted in 1992

U.S.C.C.A.N. 1133, 1163-65].

"Amendments enacted in 1992 authorized the FCC to establish a maximum price for leased access, to regulate terms

and conditions, and to establish procedures for the expedited

resolution of disputes. 47 U.S.C. s 532(c)(4)(A). At the

same time, Congress added a second rationale for leased

access: 'to promote competition in the delivery of diverse

sources of video programming.' Id. s 532(a), as amended."

Congress gave the Commission 180 days within which to

establish rates. See id. s 532(c)(4)(B). The Commission met

the deadline, but cautioned that its rate formula was only a

"starting point that will need refinement...." Implementation of Sections of the Cable Television Consumer Protection

and Competition Act of 1992: Rate Regulation--Report and

Order and Further Notice of Proposed Rulemaking ("Initial

Rate Order"), 8 F.C.C.R. 5631, 5936 (1993). The initial leased

access rate rested on what the Commission called the "implicit fee" paid by non-leased access programmers to cable

operators. See id. For non-leased channels, cable operators

pay to acquire programming, then offer that programming to

subscribers for a monthly service charge. The difference

between the price cable operators pay programmers and the

price subscribers pay for service is the "implicit fee" programmers pay to cable operators for carriage on the operator's system. See id. at 5950. Cable operators act as the

"middlemen" between programmers and consumers. They

recover costs of carrying the programming and generate their

profit off the "markup" charged to subscribers. The Commission concluded that a fair leased access rate should compensate the operator for the "implicit fee" it would have

earned had it not been required to lease the channel.3

__________

3 The Commission set out the method by which the implicit fee

should be calculated. First, the Commission separated programmers seeking to lease commercial access channels into three categories: those planning to charge subscribers directly on a per event

Recognizing that the implicit fee varies from channel to

channel, the Commission set the rate cap for leased access at

the highest implicit fee for a channel within the same category carried on a particular cable system. Id. at 5951.

Petitions for reconsideration challenged the "highest implicit fee" formula. Cable operators and leased access programmers agreed that the Commission's rate had not stimulated the use of leased access, but differed about the reasons

why. See Implementation of Sections of the Cable Television

Consumer Protection and Competition Act of 1992: Rate

Regulation, Leased Commercial Access--Order on Reconsideration of the First Report and Order and Further Notice of

Proposed Rulemaking ("Reconsideration Order" ), 11

F.C.C.R. 16933, 16937 (1996). The Commission agreed to

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reopen the issue, but was careful not to guarantee a reduction

in rates, stating that "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." Id. at 16944. However, the Commission "tentatively" concluded that the highest implicit fee formula might

overcompensate cable operators. Id. at 16937. It proposed

replacing the implicit fee-based rate with a cost-based rate

formula that it hoped would cure deficiencies in the highest

__________

or per channel basis to view their programming; those proposing to

use the channel for more than 50% of their lease time to sell

products directly to customers (such as home shopping networks

and infomercials); and all others. The Commission required cable

operators to identify the programmers it carried on its non-leased

access channels that fell within each of these three categories. The

implicit fee was then determined through a two step calculation.

The operator subtracted the monthly per subscriber rate it paid the

programmer from the rate per month that a subscriber paid to

receive the program. This number was then multiplied by the

percentage of subscribers that were able to receive that channel or

programming. The result was the implicit fee per subscriber for

use of the channel. For each of the three types of programming,

the highest of these fees was the maximum monthly leased access

rate per subscriber that the operator could charge. See id. at 5949-

50.

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implicit fee formula, and thus "better promote the goals of

leased access." Id. Under the cost-based approach, cable

operators that had not filled their quota of leased access

channels could charge no more than "reasonable costs," which

would include a reasonable profit. Id. at 16960. Although

the Commission hoped the new formula would promote leased

access, it warned that the "purpose of the cost formula is not,

however, to lower leased access rates." Id. at 16938.

After considering comments filed by cable operators and

programmers, the Commission issued an order rejecting the

cost-based formula in favor of an implicit fee-based rate. See

Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992: Leased Commercial Access--Second Report and Order and Second Order on

Reconsideration of the First Report and Order ("Final Rate

Order"), 12 F.C.C.R. 5267 (1997). The Commission explained

that its cost-based rate proposal was flawed because it "does

not account for negative effects that leased access programming might have on subscriber revenue (i.e., lost subscriber

revenue caused by subscribers dropping the tier or by requiring a lower price due to a devaluation of the tier)." Id. at

5279.

Rather than reinstating its original highest implicit fee

formula, the Commission reduced the rate to the "average

implicit fee," which is essentially the average amount full-time

programmers implicitly "pay" the cable operator for carriage.

See id. at 5283. The Commission also made a number of

changes to the terms and conditions of leased access favoring

leased access programmers. Such programmers were given

the right to demand access to a tier with more than 50

percent subscriber penetration, see id. at 5290, thus preventing operators from relegating leased access to the least

watched tiers. The Commission rejected the cable operators'

challenge to a rule requiring operators to lease time in halfhour increments, see id. at 5298, and required operators to

prorate the full-time rate for part-time use. See id. at 5302.

The Commission also allowed leased access programmers to

resell part of their time to other unaffiliated programmers.

See id. at 5305.

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Petitioner Community Broadcasters Association is a trade

association for low-power television broadcast stations. Petitioner ValueVision International, Inc., is engaged in the business of producing television home shopping programs for

distribution over cable systems. Their challenges to the

Commission's Final Rate Order, although framed in different

ways, boil down to a contention that the Commission showed

too much concern for the financial health of cable operators

and too little concern for the ability of programmers to afford

leased access.

Intervenors Center for Media Education, Alliance for Community Media, Association of Independent Video and Filmmakers, Consumer Federation of America, United States

Catholic Conference, and People for the American Way (hereinafter referred to as "Media Education") jointly filed a brief

supporting petitioners. We address their claims separately

only where they differ from petitioners'.

I

Section 532(a) sets out the competing goals of the 1992 Act:

"The purpose of this section is to promote competition in the

delivery of diverse sources of video programming and to

assure that the widest possible diversity of information

sources are made available to the public from cable systems

in a manner consistent with growth and development of cable

systems." 47 U.S.C. s 532(a). In setting rates for leased

access, the Commission was to "assure that [cable channel

leasing] will not adversely affect the operation, financial condition, or market development of the cable system." Id.

s 532(c)(1).

The Commission reads the statute to require "balancing the

interests of leased access programmers with those of cable

operators." Final Rate Order, 12 F.C.C.R. at 5278. In the

Commission's view, diversity is to be encouraged, but only in

ways that do not impose adverse financial effects on cable

operators, because "Congress did not intend that cable operators subsidize leased access programmers." Id. at 5279. The

Commission therefore designed rates to compensate cable

operators fully for lost operational and opportunity costs

resulting from the displacement of operator-selected channels

with leased access programming.

This interpretation, Community Broadcasters tells us, is

contrary to the clear language of the statute and in any event

is unreasonable because it fails to achieve the statute's "primary objective" of promoting diversity in programming. The

objective of ensuring that cable systems will not be adversely

affected financially was, according to this petitioner, merely a

"caveat" designed to prevent the "destruction" of the cable

industry. The Commission therefore should not have given

equal weight to the interests of cable operators.4

The statutory language permits the Commission's construcUSCA Case #97-1138 Document #369500 Filed: 07/24/1998 Page 8 of 17
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tion. The Act instructs the Commission to set rates sufficient

to "assure that [leased access] will not adversely affect the

operation, financial condition, or market development of the

cable system." 47 U.S.C. s 532(c)(1) (emphasis added). This

provision serves as more than a mere "caveat" to the ultimate

goals of promoting leased access. The rates, terms and

conditions of leased access must be set within its limits. The

Commission's choice of the average implicit fee formula was a

reasonable means of accomplishing the statute's purposes.

Media Education thinks s 532 embodies three goals--promoting leased access, protecting the cable industry, and

assuring that the public has access to diverse sources of

programming. According to Media Education, the Commission erred by considering only the first two in setting a

maximum rate for leased access. We do not see how Media

Education's interpretation of s 532 alters the outcome. The

Commission was faced with reconciling the statute's purposes

of promoting diversity through leased access without finan-

__________

4 We do not consider Community Broadcasters' argument that

the Commission erred in focusing on economic harm to cable

channels, when it should have limited its analysis to economic harm

to the cable system. No party raised this distinction before the

Commission, and the Commission never addressed it. Under 47

U.S.C. s 405(a), the question is therefore not properly before us.

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cially burdening cable operators. To the extent that its rate

cap makes leased access more affordable, the public arguably

will benefit from the resulting "diversity of information

sources." 47 U.S.C. s 532(a). But the public's interest in

diversity does not outweigh the statute's mandate that leased

access rates not "adversely affect" cable operators, any more

than promoting leased access programming does.

The legislative history also supports the Commission's interpretation. True, Congress hoped that granting ratemaking authority to the Commission would promote competition in the programming market and increase the diversity of

programming sources. But Congress never intended to ensure financial success for leased access programmers. In

fact, the Senate Report frankly acknowledged that leased

access might not be economically viable. Outside of leased

access, cable operators pay for the programs they select,

offsetting the high costs of production borne by programmers. Yet under even the most generous formula, leased

access programmers would be required to pay some fee to

operators for access. Cable operators informed the Senate

during oversight hearings that most programmers simply

cannot afford to pay for access. The Senate Report conceded

that the "cable industry has a sound argument in claiming

that the economics of leased access are not conducive to its

use." S. Rep. No. 102-92, at 31 (1991).

II

In its 1990 Report to Congress, the Commission identified

the underutilization of leased access as a problem Congress

should address, and Congress responded by transferring the

obligation to set leased access rates from cable operators to

the Commission. In implementing the 1992 Act, the Commission stated that its only obligation was to set a reasonable

rate cap, regardless of its effect on demand for leased access.

See Final Rate Order, 12 F.C.C.R. at 5278-79. The Commission erred, according to both petitioners, by focusing on the

financial condition of the cable operators rather than the

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financial capabilities of leased access programmers. They

rely on Motor Vehicle Manufacturers Ass'n v. State Farm

Mutual Auto Insurance Co., 463 U.S. 29, 43 (1983), for the

proposition that the Commission's "fail[ure] to consider an

important aspect of the problem" that it had previously

recognized--namely, whether its rates created a viable market for leasing cable channels--was arbitrary and capricious.

The trouble with petitioners' argument is in its premise. It

is not accurate to say that the Commission ignored the fact

that its chosen rate formula might not increase use of leased

access. The Commission did no such thing. It recognized

this possible consequence, but thought it did not justify

requiring cable operators to subsidize leased access programmers. When an agency considers a particular factor and

rationally concludes that it should not affect its decision, the

agency is not acting arbitrarily. It is exercising the judgment Congress entrusted to it.

The Commission did not completely disregard the 1992

Act's goal of promoting leased access, as petitioners suppose.

Many of the changes to its initial rulemaking were designed

to improve conditions for leased access. It reduced the rate

from the highest implicit fee to the average implicit fee in an

attempt to bring leased access within programmers' reach.

See Final Rate Order, 12 F.C.C.R. at 5282. It altered the

terms of leased access to benefit programmers by permitting

part-time leases, resale of leased access slots, and by requiring cable operators to place leased access channels on tiers

with 50 percent subscriber penetration. See id. at 5298, 5305,

5308. Community Broadcasters and ValueVision dismiss

these changes in the terms and conditions of leased access as

unhelpful to those who cannot afford the rates. Yet they

cannot deny that the Commission's rulemaking included a

number of changes favorable to leased access programmers.

These changes belie petitioners' contention that the Commission ignored the interests of leased access programmers.

ValueVision argues that the Commission's average implicit

fee formula suffers from the same flaws as the previous

highest implicit fee rate--flaws that motivated the CommisUSCA Case #97-1138 Document #369500 Filed: 07/24/1998 Page 11 of 17
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sion to engage in a new round of notice and comment

rulemaking. The Final Rate Order cannot stand, ValueVision continues, because the Commission failed to give "reasoned analysis" for its return to the very rate formula that it

had earlier rejected.

In the first place, it is worth noting that the Commission

never "rejected" its original implicit fee approach. The concerns it articulated in its Reconsideration Order were only

"tentative." Reconsideration Order, 11 F.C.C.R. at 16937.

The Commission solicited additional comments precisely because it was unsure whether its doubts were justified, and

whether the cost-based approach would solve old problems or

merely create new ones.

In the second place, the Commission did furnish a "reasoned analysis" for its reaffirmation of the implicit fee approach. In its Final Rate Order, the Commission explained

that it was returning to an implicit fee formula because the

concerns it had raised in its Reconsideration Order had

proven unfounded. The Commission had worried that the

implicit fee approach resulted in "double recovery" for cable

operators, who were paid once in the form of subscriber

fees and then again by leased access programmers. See

Reconsideration Order, 11 F.C.C.R. at 16937. But after

considering numerous comments submitted by operators

and programmers, the Commission concluded that its "double recovery" hypothesis was based on the erroneous assumption that operators would be able to charge subscribers the same amount for leased access programming that

they charge for other programming on the same tier. See

Final Rate Order, 12 F.C.C.R. at 5289. This was unlikely,

the Commission realized, because subscribers could find

leased access programming less attractive than the programming selected by the cable operator, reducing not only

the fee the operator could charge for that channel, but also

the fee it could charge for an entire tier of channels in

which the leased access channel was placed.5 See id. at

__________

5 ValueVision's comments to the Commission reveal that it also

recognized the possibility of subscriber loss, although it thought the

problem less significant than did the Commission. See id. at 5287.

5286-87. When cable operators choose their programming,

they may take into account the programs they currently

offer, tailoring their selections to appeal to current subscribers and to attract new subscribers. Cable operators have

no such control over leased access programming. Although

the Commission acknowledged the possibility that some

leased access programming will be attractive to subscribers,

it concluded that on average leased access programming is

less desirable to customers than the programming offered

by the operator. See id. at 5287-89. Because subscribers

might place no value on leased access programming, the

lease fee is the only payment the operator receives, and

therefore the operator does not "double recover" for those

channels.

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Even if a leased access channel generates subscriber revenue, the Commission recognized that it may not be enough to

offset the lost revenues from the channel it displaced.

Leased access programming can be less valuable to operators

for reasons aside from its lack of desirability to subscribers.

In accepting a leased access channel, the cable operator may

lose advertising revenues because leased access programmers

generally do not provide advertising slots to the cable operator. See id. at 5289. And leased access programming creates additional administrative costs. See id. For all of these

reasons, the Commission concluded that the implicit fee formula would not result in a double recovery for cable operators as it had originally feared, but would merely compensate

the operator for the potential decrease in overall system value

resulting from the replacement of the operator-selected channels with leased access channels.

In its Reconsideration Order, the Commission expressed

concern that the highest implicit fee overcompensated operators, who were willing to accept a lower fee for some of their

programming. See Reconsideration Order, 11 F.C.C.R. at

16937. The Commission explained in the Final Rate Order

that its decision to replace the highest implicit fee with the

average implicit fee "mitigates" this problem. Final Rate

Order, 12 F.C.C.R. at 5290. ValueVision is not satisfied.

The average implicit fee still overcompensates operators,

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ValueVision believes, because operators will bump the channels with the lowest implicit fee if forced to make room for

leased access channels, thereby earning a better return off

the leased access channels. But as the Commission explained, it is impossible to calculate a particular program's

implicit fee with certainty because viewers purchase most

channels in multi-channel tiers. See id. at 5289-90. Operators know what they pay for each channel, but they cannot be

sure of the value of any single channel to subscribers. See id.

Indeed, some subscribers may place little to no value on a

channel that others highly value. Moreover, the implicit fee

bears no relation to the popularity of a particular channel,

and therefore no relation to the value of that channel to the

operator. For example, it can be assumed that subscribers

are willing to pay dearly for very popular channels, but those

channels also cost operators the most to purchase, and therefore will often have very low implicit fees. The lowest

implicit fee may actually be negative, and therefore is unsuitable as the rate-base for leased access. The Commission

concluded that the average implicit fee is the most suitable

basis from which to calculate leased access rates, since it

would not regularly over- or undercompensate cable operators for bumping operator-selected channels for leased access

programming. See id.

Finally, the Commission concluded that it had been wrong

to think its cost-based formula would more accurately reflect

the costs of leased access. The Commission realized that the

cost-based rate did not account for the fact that leased access

programming could diminish the value of the entire tier on

which it was placed. Operators deserved to recover lost

subscriber fees resulting from leased access. The implicit fee

was therefore a more accurate measure of the true costs of

leased access. See id. at 5290. Although the average implicit

fee is not a perfect measure of the costs of leased access

programming, it falls well within the "zone of reasonableness"

required to survive judicial review. Nader v. FCC, 520 F.2d

182, 192 (D.C. Cir. 1975) (citing Permian Basin Area Rate

Cases, 390 U.S. 747, 767 (1968)).

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III

ValueVision complains that the Commission refused to give

"any real consideration" to its market-based explicit fee proposal. ValueVision wanted the Commission to base its fees

on the rates paid by an unusual class of non-leased cable

channels where the programmers pay operators a certain

amount per subscriber, just as leased access programmers do.

According to ValueVision, this "real world" explicit fee approach provides a better estimate of the amount cable operators should be compensated for carrying leased access programming.

As the Commission explained in its Final Rate Order,

ValueVision's "explicit fee" approach was one of many flat

rate proposals. Final Rate Order, 12 F.C.C.R. at 5294.

ValueVision proposed a rate of 10 cents per subscriber per

month. Other suggested flat rates ranged from a penny to 90

cents. Presented with a wide array of estimated "real world"

rates--and no method of choosing among them--the Commission explained that it was rejecting them all for failure to

provide "sufficient empirical evidence demonstrating how

their proposed flat rate would promote the statutory objectives...." Id. We find this explanation to be sufficient.

IV

Community Broadcasters invokes s 604 of the Regulatory

Enforcement Act, 5 U.S.C. s 604 (as amended by the Small

Business Regulatory Enforcement and Fairness Act of 1996),

and s 257 of the Communications Act of 1934, 47 U.S.C.

s 257(a), as additional reasons why the Commission improperly failed to consider the interests of leased access programmers. The Regulatory Flexibility Act provides that an agency shall accompany the promulgation of new rules with a

"final regulatory flexibility analysis" assessing the negative

impact of the rules on small businesses. 5 U.S.C. s 604.

The Communications Act requires the Commission to promote diversity of media voices and to identify and eliminate

barriers to market entry for small businesses in telecommunications. See 47 U.S.C. s 257(a) & (b). Although the Commission performed the analysis required by these statutes,

Community Broadcasters nevertheless alleges that the Commission's analysis was insufficient because it focused on the

effect the rules would have on those cable operators qualifying as small businesses and because it did not give adequate

consideration to the negative impact of the rules on leased

access programmers, most of whom are also small businesses.

The Commission argues that 47 U.S.C. s 405(a) bars Community Broadcasters from raising issues regarding the Regulatory Flexibility Act on appeal because it failed to argue this

point below. Under s 405(a), a party must file a petition for

reconsideration before the Commission unless the Commission has had an "opportunity to pass" on the issue. Although

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ysis in its Reconsideration Order, and then sought written

comments, Community Broadcasters never complained that

the Commission's analysis had granted too much attention to

small cable operators and too little to small leased access

programmers. Arguably, however, the fact that the Commission addressed the effect of its rules on small leased access

programmers in its Final Regulatory Flexibility Analysis

preserves the question whether its discussion was sufficient.

In any event, we find that the Commission fulfilled its

obligations under the Regulatory Flexibility Act. Understandably, the Commission's primary focus was on the small

cable operators, who were directly subject to the new rule.

See Final Rate Order, 12 F.C.C.R. at 5337-45. But the

Commission did not fail to consider the impact of the rules on

cable programmers. It concluded that the revised rules

would have only a "positive" effect on programmers because

they lowered the maximum rates for leased access service,

permitted resale, granted access to highly penetrated tiers,

and required part-time rates to be pro-rated. See id. at 5345.

This analysis is sufficient to satisfy the obligations of the

Regulatory Flexibility Act.

Nor do we find that the Commission erred in its market

entry analysis. As s 257 of the Communications Act requires, the Commission analyzed barriers to market entry for

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entrepreneurs and other small businesses in telecommunications created by its new rules. See 12 F.C.C.R. at 5336. The

Commission stated that it had established rates, terms and

conditions for leased access intended to promote diversity and

competition. See id. It noted that its "provisions for parttime leased access are especially suited to allow small or

entrepreneurial leased access programmers to enter the telecommunications programming marketplace." Id. That Community Broadcasters disagrees with this analysis does not

mean that the Commission failed to meet its obligations to

examine and discuss the issue.

V

Media Education challenges the Commission's decision not

to grant preferential rates for nonprofit programmers.

Leased access is intended for "commercial use," which the

Communications Act defines as including both for-profit and

not-for-profit video programming. 47 U.S.C. s 532(b)(5).

The Commission viewed this provision as an indication that

Congress intended nonprofit users to compete on equal footing for leased access. See Final Rate Order, 12 F.C.C.R. at

5313. In addition, the Commission noted that mandatory

preferential treatment for nonprofit programmers would not

necessarily promote diversity since there is no reason to think

nonprofits are "inherently more diverse than unaffiliated forprofit programming sources." Id. The Commission was also

concerned that a preference might "adversely affect the

operation, financial condition, or market development of the

cable system" in contradiction to the statute's mandate. Id.

at 5313-14. We find the Commission's interpretation of the

statute to be reasonable, and conclude that the statute's

purpose of promoting diversity did not require such a mandatory preference.

The petitions for judicial review are denied.

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