11364 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

request a hearing on those objections.

Objections and hearing requests must be

filed with the Hearing Clerk, at the

address given above (40 CFR 178.20). A

copy of the objections and/or hearing

requests filed with the Hearing Clerk

should be submitted to the OPP docket

for this rulemaking. The objections

submitted must specify the provisions

of the regulation deemed objectionable

and the grounds for the objections (40

CFR 178.25). Each objection must be

accompanied by the fee prescribed by

40 CFR 180.33(i). If a hearing is

requested, the objections must include a

statement of the factual issues on which

a hearing is requested, the requestor’s

contentions on such issues, and a

summary of any evidence relied upon

by the requestor (40 CFR 178.27). A

request for a hearing will be granted if

the Administrator determines that the

material submitted shows the following:

There is genuine and substantial issue

of fact; there is a reasonable possibility

that available evidence identified by the

requestor would, if established, resolve

one or more of such issues in favor of

the requestor, taking into account

uncontested claims or facts to the

contrary; and resolution of the factual

issues in the manner sought by the

requestor would be adequate to justify

the action requested (40 CFR 178.32).

Information submitted in connection

with an objection or hearing request

may be claimed confidential by marking

any part or all of that information as

Confidential Business Information (CBI).

Information so marked will not be

disclosed except in accordance with

procedures set forth in 40 CFR part 2.

A copy of the information that does not

contain CBI must be submitted for

inclusion in the public record.

Information not marked confidential

may be disclosed publicly by EPA

without prior notice.

VIII. Public Docket

A record has been established for this

rulemaking under docket number [OPP–

300458]. A public version of this record,

which does not include any information

claimed as CBI, is available for

inspection from 8:30 a.m. to 4 p.m.,

Monday through Friday, excluding legal

holidays. The public record is located in

Room 1132 of the Public Response and

Program Resources Branch, Field

Operations Division (7506C), Office of

Pesticide Programs, Environmental

Protection Agency, Crystal Mall #2,

1921 Jefferson Davis Highway,

Arlington, VA.

Electronic comments may be sent

directly to EPA at:

opp-docket@epamail.epa.gov.

Electronic comments must be

submitted as an ASCII file avoiding the

use of special characters and any form

of encryption.

The official record for this

rulemaking, as well as the public

version, as described above, is kept in

paper form. Accordingly, in the event

there are objections and hearing

requests, EPA will transfer any copies of

objections and hearing requests received

electronically into printed, paper form

as they are received and will place the

paper copies in the official rulemaking

record. The official rulemaking record is

the paper record maintained at the

address in ‘‘ADDRESSES’’ at the

beginning of this document.

IX. Regulatory Assessment

Requirements

Under Executive Order 12866 (58 FR

51735, October 4, 1993), this action is

not a ‘‘significant regulatory action’’

and, since this action does not impose

any information collection requirements

as defined by the Paperwork Reduction

Act, 44 U.S.C. 3501 et seq., it is not

subject to review by the Office of

Management and Budget. In addition,

this action does not impose any

enforceable duty or contain any

unfunded mandate as described in the

Unfunded Mandates Reform Act of 1995

(Pub. L. 104–4), or require prior

consultation with State officials as

specified by Executive Order 12875 (58

FR 58093, October 28, 1993), or special

considerations as required by Executive

Order 12898 (59 FR 7629, February 16,

1994).

Because FFDCA section 408(l)(6)

permits establishment of this regulation

without a notice of proposed

rulemaking, the regulatory flexibility

analysis requirements of the Regulatory

Flexibility Act, 5 U.S.C. 604(a), do not

apply.

Under 5 U.S.C. 801(a)(1)(A) of the

Administrative Procedure Act (APA) as

amended by the Small Business

Regulatory Enforcement Fairness Act of

1996 (Title II of Pub. L. 104–121, 110

Stat. 847), EPA submitted a report

containing this rule and other required

information to the U.S. Senate, the U.S.

House of Representatives and the

Comptroller General of the General

Accounting Office prior to publication

of the rule in today’s Federal Register.

This rule is not a ‘‘major rule’’ as

defined by 5 U.S.C. 804(2) of the APA

as amended.

List of Subjects in 40 CFR Part 180

Environmental protection,

Administrative practice and procedure,

Agricultural commodities, Pesticides

and pests, Reporting and recordkeeping

requirements.

Dated: February 27, 1997.

Peter Caulkins,

Acting Director, Office of Pesticide Programs.

Therefore, 40 CFR Chapter I is

amended as follows:

PART 180—[AMENDED]

1. The authority citation for part 180

continues to read as follows:

Authority: 21 U.S.C. 346a and 371.

2. In § 180.431, by adding a new

paragraph (c) to read as follows:

§ 180.431 Clopyralid; tolerances for

residues.

* * * * *

(c) Section 18 emergency exemptions.

A time-limited tolerance is established

for residues of the herbicide clopyralid

(3,6-dichloro-2-pyridinecarboxylic acid)

in connection with use of the pesticide

under section 18 emergency exemptions

granted by EPA. The tolerance is

specified in the following table. The

tolerance expires on the date specified

in the table.

Commodity Parts per

million

Expiration

Date

Cranberries ........ 2 July 31, 1998

[FR Doc. 97–5875 Filed 3–11–97; 8:45 am]

BILLING CODE 6560–50–F

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 76

[CS Docket No. 96–60; FCC 97–27]

Cable Television Leased Commercial

Access

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: The Commission has adopted

a Second Report and Order and Second

Order on Reconsideration of the First

Report and Order (‘‘Order’’) regarding

implementation of the leased

commercial access provisions of the

1992 Cable Act. The Order addressed

comments and petitions for

reconsideration filed in response to the

Order on Reconsideration of the First

Report and Order and Further Notice of

Proposed Rulemaking in CS Docket 96–

60, FCC 96–122 (released March 29,

1996) (subparts referred to separately as

‘‘Reconsideration Order’’ and ‘‘Further

NPRM’’). The Order: revised the

maximum rate formulas for use of full-
Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations 11365

time leased access channels; declined to

impose a transition period for the

implementation of the revised rate

formulas; maintained the current rules

for maximum part-time rates and

adopted a rule that cable operators are

not required to open additional leased

access channels for part-time use until

all existing part-time leased access

channels are substantially filled or until

a programmer requests a year-long eighthour daily time slot that cannot

otherwise be accommodated; allowed

the resale of leased access time; granted

leased access programmers the right to

demand access to a tier with a

subscriber penetration of more than

50%; stipulated that minority and

educational programming does not

qualify as a substitute for leased access

programming unless it is carried on a

tier with a subscriber penetration of

more than 50%; declined to mandate

preferential treatment for certain types

of leased access programmers; required

operators to accept leased access

programmers on a non-discriminatory

basis so long as available leased access

capacity exceeds demand; required that

an independent accountant review an

operator’s rate calculations prior to the

filing of a rate complaint with the

Commission; established a standard of

reasonableness for certain contractual

requirements; specified when leased

access programmers must pay for

technical support; and defined the term

‘‘affiliate’’ for purposes of leased access.

The Order also addressed several issues

on reconsideration, including the

exclusion of programming revenues

from the maximum rate calculation, the

maximum rate calculation for a la carte

channels, cable operators’ obligations to

provide certain information to potential

leased access programmers and the need

for operators to comply with those

obligations, time increments, the

calculation of the leased access set-aside

requirement, and billing and collection

services. The Order is intended to

address issues and concerns raised in

the comments and petitions for

reconsideration that were filed with the

Commission in response to the

Reconsideration Order and Further

NPRM.

DATES: This rule is effective April 11,

1997, except the amendments to 47 CFR

76.970 (c), (d), (e), (f), (g), (h),

76.971(f)(1), and 76.975 (b) and (c),

which impose new or modified

information collection requirements,

shall become effective upon approval by

the Office of Management and Budget

(OMB), but no sooner than April 11,

1997. The Commission will publish a

document at a later date establishing the

effective date for the sections containing

information collection requirements.

Written comments by the public on the

modified information collection

requirements are due on or before April

11, 1997, and written comments by

OMB on the modified information

collection requirements are due on or

before May 12, 1997.

ADDRESSES: Office of the Secretary,

Federal Communications Commission,

1919 M Street, NW., Washington, DC

20554. A copy of any comments on the

information collections contained in the

Order should be submitted to Dorothy

Conway, Federal Communications

Commission, Room 234, 1919 M Street,

NW., Washington, DC 20554, or via the

Internet to dconway@fcc.gov, and to

Timothy Fain, OMB Desk Officer, 10236

NEOB, 725–17th Street, NW.,

Washington, DC 20503, or via the

Internet to fainlt@al.eop.gov.

FOR FURTHER INFORMATION CONTACT: Rick

Chessen, Cable Services Bureau, (202)

418–7200. For additional information

concerning the information collections

contained in the Order, contact Dorothy

Conway at (202) 418–0217, or via the

Internet at dconway@fcc.gov.

SUPPLEMENTARY INFORMATION:

Paperwork Reductions Act

The Order contains modified

information collections. The

Commission, as part of its continuing

effort to reduce paperwork burdens,

invites the general public and OMB to

comment on the information collections

contained in the Order, as required by

the Paperwork Reduction Act of 1995,

Public Law 104–13. Public and agency

comments are due 30 days from the date

of publication of the Order in the

Federal Register; OMB notification of

action is due 60 days from date of

publication of the Order in the Federal

Register. Comments should address: (a)

Whether the modified collection of

information is necessary for the proper

performance of the functions of the

Commission, including whether the

information shall have practical utility;

(b) the accuracy of the Commission’s

burden estimates; (c) ways to enhance

the quality, utility, and clarity of the

information collected; and (d) ways to

minimize the burden of the collection of

information on the respondents,

including the use of automated

collection techniques or other forms of

information technology.

OMB Approval Number: 3060–0568.

Title: Commercial leased access rates,

terms and conditions.

Type of Review: Revision of existing

collection.

Respondents: Business and other for

profit entities; not-for-profit institutions.

Number of Respondents: 6,330 (6,270

cable systems + 30 selected accountant

reviewers + an estimated 30 leased

access programmers involved in the

leased access rate dispute process).

Estimated Time Per Response: 1–10

hours.

Total Annual Burden: 94,171 hours,

estimated as follows: § 76.970 describes

the manner in which cable operators are

to calculate maximum leased access

rates. Currently, there are approximately

11,400 cable systems, of which

approximately 45% have channel

capacities of less than 36 channels, and

are therefore exempt from the

Commission’s leased access provisions.

The number of cable system

respondents is therefore 6,270 (55% of

11,400). The average annual burden of

calculating maximum rates is estimated

to be 4 hours per cable system.

6,270×4 hours=25,080 hours.

Section 76.970(h) requires cable

operators to provide the following

information within 15 calendar days of

a request regarding leased access (for

systems subject to small system relief,

cable operators are required to provide

the following information within 30

days of a request regarding leased

access): (a) A complete schedule of the

operator’s full-time and part-time leased

access rates; (b) how much of the cable

operator’s leased access set-aside

capacity is available; (c) rates associated

with technical and studio costs; and (d)

if specifically requested, a sample

leased access contract. We estimate that

each cable system operator will undergo

an average burden of 10 hours per year

to gather and maintain this information

and disclose it to requesting potential

leased access programmers. Of the 10

hours, we estimate an average burden of

4 hours for each operator to gather and

maintain the information and an average

burden of 6 hours for each operator to

furnish materials to an estimated 20

requesters per year.

6,270×10 hours=62,700 hours.

Section 76.971 requires cable

operators to provide billing and

collection services to leased access

programmers unless they can

demonstrate the existence of third party

billing and collection services which, in

terms of cost and accessibility, offer

leased access programmers an

alternative substantially equivalent to

that offered to comparable non-leased

access programmers. The Commission

estimates that identification of a third

party billing and collection service

rarely needs to occur because the vast

majority of leased access programming
11366 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

is placed on a programming services tier

and is billed as part of that tier.

Nonetheless, the Commission estimates

an average burden of no more than 1

hour per cable system operator to

identify a third party billing and

collection service and then to make the

necessary information available.

6,270×1 hour=6,270 hours.

Section 76.975(b) requires that

persons alleging that a cable operator’s

leased access rate is unreasonable must

receive a determination of the cable

operator’s maximum permitted rate

from an independent accountant prior

to filing a rate complaint with the

Commission. We estimate that operators

will undergo an average burden of 4

hours to arrange for an independent

accountant review and coordinate rate

information with the selected

accountant. This average burden

accounts for those instances where

parties that cannot agree on a mutually

acceptable accountant must each select

an independent accountant who in turn

select a third independent accountant.

Nationwide, we estimate a need for 30

accountant rate reviews per year.

30 × 4 hours = 120 hours.

76.975(c) requires that petitioners

attach a copy of the final accountant’s

report to their petition where the

petition is based on allegations that a

cable operator’s leased access rates are

unreasonable. We estimate that

petitioners will undergo an average

burden of 2 minutes to attach such

reports. Nationwide, we estimate that

petitioners will need to attach a total of

no more than 30 accountant’s reports

when filing petitions for relief.

30 × 2 minutes = 1 hour. 25,080 +

62,700 + 6,270 + 120 + 1 = 94,171

hours.

Estimated costs to respondents:

$74,000, estimated as follows: We

estimate the annual telephone, postage

and stationery costs incurred by cable

operators for leased access

recordkeeping, sending out leased

access information to prospective

programmers, identifying third party

billing collection services, and selecting

accountants to be $50,000, equating to

approximately $7.97 per operator.

($7.97 × 6,270 respondents = $50,000).

We estimate that accountants will

undergo an average burden of 8 hours to

review an operator’s maximum rate

calculations and to prepare the required

report. Accountants are estimated to be

paid $100 per hour for their services.

(30 accountant reviews) × (8 hours per

review) × ($100 per hour) = $24,000.

Total costs to respondents = $50,000 +

$24,000 = $74,000.

Needs and Uses: The information

collected is used by prospective leased

access programmers and the

Commission to verify rate calculations

for leased access channels and to

eliminate uncertainty in negotiations for

leased commercial access. The

Commission’s leased access

requirements are designed to promote

diversity of programming and

competition in programming delivery as

required by section 612 of the

Communications Act.

Synopsis

The following is a synopsis of the

Commission’s Second Report and Order

and Second Order on Reconsideration of

the First Report and Order in CS Docket

96–60, FCC 97–27, adopted January 31,

1997 and released February 4, 1997. The

full text of this decision is available for

inspection and copying during normal

business hours in the FCC Reference

Center (Room 239), 1919 M Street, NW.,

Washington, DC 20554, and may be

purchased from the Commission’s copy

contractor, International Transcription

Services, Inc. (202) 857–3800, 1919 M

Street, NW., Washington, DC 20554.

I. Introduction

1. The statutory framework for

commercial leased access, provided in

Section 612 of the Communications Act

of 1934, as amended, 47 U.S.C. 521 et

seq. (‘‘Communications Act’’), was first

established by the Cable

Communications Policy Act of 1984,

Public Law 98–549, 98 Stat. 2779

(1984), 47 U.S.C. 521 et seq. (‘‘1984

Cable Act’’) and was amended by the

Cable Television Consumer Protection

and Competition Act of 1992, Public

Law 102–385, 106 Stat. 1460 (1992), 47

U.S.C. 521 et seq. (‘‘1992 Cable Act’’).

Commercial leased access was created

to provide access to the channel

capacity of cable systems by parties

unaffiliated with the cable operator that

wish to distribute video programming

free of the editorial control of the cable

operator. Channel set-aside

requirements were established in

proportion to a system’s total activated

channel capacity. The statutory

objectives of leased access are to

‘‘promote competition in the delivery of

diverse sources of video programming

and to assure that the widest possible

diversity of information sources are

made available to the public from cable

systems in a manner consistent with

growth and development of cable

systems.’’ Each system operator subject

to the leased access requirement must

establish, consistent with the rules

prescribed by the Commission, ‘‘the

price, terms, and conditions of such use

which are at least sufficient to assure

that such use will not adversely affect

the operation, financial condition, or

market development of the cable

system.’’

2. In the Report and Order and

Further Notice of Proposed Rulemaking

in MM Docket No. 92–266, FCC 93–177,

58 FR 29736 (May 21, 1993) (‘‘Rate

Order’’), the Commission established

initial regulations to implement the

leased access provisions of the 1992

Cable Act. The Commission adopted the

‘‘highest implicit fee’’ formula as the

method for setting maximum reasonable

rates, and adopted various standards

governing access terms and conditions,

tier placement, technical standards for

use, technical support, security

deposits, conditions based on program

content, requirements for billing and

collection services, and procedures for

the expedited resolution of disputes. In

the Reconsideration Order, the

Commission addressed certain issues

pertaining to the highest implicit fee

formula, the provision of certain leased

access rate and channel availability

information to prospective leased access

programmers, acceptable time

increments and pricing for part-time

leased access use, operator provision of

billing and collection services for leased

access programmers, security deposits,

calculation of the leased access set-aside

requirement and reporting

requirements. In the Further NPRM, the

Commission re-examined the highest

implicit fee formula from an economic

perspective and tentatively concluded

that the highest implicit fee formula is

likely to overcompensate cable

operators and does not sufficiently

promote the goals underlying the leased

access provisions. The Commission

proposed a cost/market rate approach to

setting maximum reasonable rates and

requested comment on the approach

and its implementation. In addition, the

Commission sought comment on: (a)

Part-time rates and an operator’s

obligation to open additional leased

access channels for part-time use, (b) the

resale of leased access time, (c) tier and

channel placement for leased access

programming, (d) the placement of

minority or educational programming

when it is used as a substitute for leased

access programming, (e) preferential

treatment for certain types of leased

access programmers, including not-forprofit programmers, (f) the selection of

leased access programmers, and (g)

streamlined leased access dispute

resolution procedures.

3. In the Order, the Commission

amended its rules pertaining to cable

television commercial leased access,

after considering the comments and
Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations 11367

reply comments filed in response to the

Further NPRM, and addressed petitions

for reconsideration of the leased access

rules adopted in the Reconsideration

Order.

II. Report and Order

A. Maximum Rate Formula for Leasing

a Full Channel

4. Background: Section 612 directs the

Commission to determine the maximum

reasonable rates that cable operators

may charge for commercial leased

access. In the Rate Order, the

Commission adopted rules that

established maximum rates based on the

highest implicit fee paid by non-leased

access programming services distributed

on a system. In the non-leased access

context, cable operators generally pay

programmers (e.g., a contractual license

fee or a copyright fee) for their

programming services. Nevertheless,

there is an implicit fee for carriage to the

extent that the amount of subscriber

revenue that the operator receives for

the programming is greater than the fee

that the operator pays to the

programmer. In other words, the amount

of subscriber revenue that the

programmer forgoes to the operator

represents an implicit payment for

carriage. The Commission determined

that the implicit fee paid by a

programmer is the average price per

channel that a subscriber pays the

operator minus the amount per

subscriber that the operator pays the

programmer. The highest of the implicit

fees charged any unaffiliated non-leased

access programmer was the maximum

rate per subscriber that a cable operator

could charge a leased access

programmer.

5. In the Reconsideration Order and

Further NPRM, we identified certain

problems with the highest implicit fee

formula and sought comment on a

‘‘cost/market rate formula,’’ an

alternative approach that we believed

might better promote the goals of leased

access. Under this proposed approach,

the maximum rate for leased access

would depend on whether the cable

operator is leasing its full statutory setaside requirement. When the full setaside capacity is not leased to

unaffiliated programmers, the maximum

rate would be based on the operator’s

reasonable and quantifiable costs (i.e.,

the costs of operating the cable system

plus the additional costs related to

leased access), including a reasonable

profit. The operator would be allowed to

use the subscriber revenue received

from a leased access channel to offset

the operating costs associated with the

channel. In addition, the operator would

be allowed to charge the leased access

programmer the reasonable costs of

bumping a programming service in

order to accommodate the leased access

programmer. We tentatively concluded

that once the operator met its set-aside

requirement, the cost-based maximum

rate could be replaced by a market rate.

6. Discussion: Our role with regard to

leased access rates is to establish

maximum reasonable rates, not a

mandatory rate that must be charged to

all leased access programmers.

Operators have the discretion to

negotiate rates below the maximum

rates established by the Commission.

For clarification purposes, we adopted a

rule that specifically states that cable

operators are permitted under our rules

to negotiate rates below the maximum

permissible rates.

i. Cost/Market Rate Formula

7. After reviewing the record in this

proceeding and after considering and

analyzing all of the options presented,

we concluded that the proposed cost/

market rate formula does not adequately

account for certain factors which, if

excluded, would make the maximum

leased access rates resulting from the

formula unworkable in today’s

programming marketplace. Although the

proposed cost/market rate formula

accounts for lost advertising revenue

and lost commissions that would result

from bumping existing programming, it

does not account for negative effects

that leased access programming might

have on subscriber revenue (i.e., lost

subscriber revenue caused by

subscribers dropping the tier or by

requiring a lower price due to a

devaluation of the tier). In the Further

NPRM, we recognized this cost but

tentatively concluded that the inability

to quantify the specific effect on

subscriber revenue caused by the

replacement of current programming

with leased access programming in the

tiered programming services context

made it too speculative to include as an

opportunity cost category in the cost/

market rate formula. We nevertheless

sought comment on how our cost/

market rate formula might measure

changes in subscriber penetration due to

the addition of leased access

programming.

8. Neither the Commission nor the

commenters in this proceeding have

been able to accurately quantify the

effect that leased access programming

carried on a programming services tier

may have on subscribership or

subscriber revenues to a degree specific

enough to assign it a definite value in

a formula. Nevertheless, we no longer

believe that this effect is a factor that

reasonably can be ignored. Under the

cost/market rate formula, the value of a

channel is measured by subtracting the

programming or license fee the operator

pays for the channel from the

advertising revenues and commissions

the operator receives for the channel.

The formula does not include the

subscriber revenue received for the

channel because, as explained above,

we assumed that leased access

programming would have no

measurable impact on subscriber

revenue. By ignoring the effect of leased

access programming on subscriber

revenue, the cost/market rate formula

assigns a negative value to a channel

where the license fee is higher than the

revenue collected from advertising and

commissions. For example, a

programming service such as The

Disney Channel, which carries no

commercial advertising, could have a

negative value under the cost/market

rate formula and thus would yield a

negative leased access rate. The

proposed cost/market rate formula

therefore must not accurately represent

at least some important factor in

assessing the value of a channel because

a well-established channel like The

Disney Channel is unlikely to have a

negative value to the operator. The

missing factor, we believe, is the

subscriber revenue that an operator

receives because it carries a particular

channel. In the case of a channel newly

added to a tier, this subscriber revenue

includes both the additional amount an

operator can charge its existing

subscribers when it adds a channel and

also the full tier price paid by

subscribers the channel attracts to the

tier.

9. Because the cost/market rate

formula does not adequately account for

a significant benefit that cable operators

receive from programming, we believe it

may result in an unduly low rate that

does not adequately capture the value of

a channel. Such a rate would not

adequately compensate the cable

operator and would force cable

operators to subsidize leased access

programmers, thereby impermissibly

affecting the cable system’s operation,

financial condition or market

development. We therefore concluded

that the proposed cost/market rate

formula would not accurately establish

reasonable maximum rates because, in

its attempt to measure the opportunity

costs of using a channel for leased

access, it ignores a significant

opportunity cost—the effect on

subscriber revenue. Because neither the

Commission nor the commenters in this

proceeding have been able to
11368 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

specifically quantify this effect, we were

unable to revise our proposed formula

in a way that would allow us to adopt

it as an appropriate method for

determining maximum leased access

rates.

ii. Maximum Rate for Full-Time Leased

Access Programming Carried on a

Programming Services Tier

10. Based on our review of the

comments, we no longer believe that the

proposed cost/market rate formula is a

reasonable formula for determining

maximum leased access rates. Instead,

we decided to retain an implicit fee

formula. We did, however, modify our

current formula to address the concerns

set forth in the Further NPRM and in the

comments. Specifically, as described

below, we concluded that the maximum

reasonable rate for leased access

programming that is carried on a

programming services tier should be the

‘‘average implicit fee.’’ We will,

however, continue to monitor the

availability of leased access channels

and may revisit this issue if it appears

that the average implicit fee formula no

longer reflects a reasonable rate.

11. To determine the average implicit

fee for a full-time channel on a

particular tier with a subscriber

penetration over 50%, an operator must

first calculate the total amount it

receives in subscriber revenue per

month for the programming on all such

tier(s), and then subtract the total

amount it pays in programming costs

per month for such tier(s) (the ‘‘total

implicit fee calculation’’). A weighting

scheme that accounts for differences in

the number of subscribers and channels

on all such tier(s) must be used to

determine how much of the total

implicit fee calculation will be

recovered from any particular tier. The

weighting scheme is determined in two

steps. First, the number of subscribers is

multiplied by the number of channels

(the result is the number of ‘‘subscriberchannels’’) on each tier with subscriber

penetration over 50%. For instance, a

tier with 10 channels and 1,000

subscribers would have 10,000

subscriber-channels. Second, the

number of subscriber-channels on each

of these tiers is divided by the total

number of subscriber-channels on all

such tiers. Given the percent of

subscriber-channels for the particular

tier, the implicit fee for the tier is

computed by multiplying the

subscriber-channel percentage for the

tier by the total implicit fee calculation.

Finally, to calculate the average implicit

fee per channel, the implicit fee for the

tier must be divided by the

corresponding number of channels on

the tier. The final result is the maximum

rate per month that the operator may

charge the leased access programmer for

a full-time channel on that particular

tier. In the event of an agreement to

lease capacity on a tier with less than

50% penetration, the average implicit

fee should be determined on the basis

of subscriber revenues and

programming costs for that tier alone.

12. In essence, the average implicit fee

measures the average amount that fulltime programmers implicitly ‘‘pay’’ the

cable operator for carriage. In other

words, the average implicit fee

represents the average amount of

subscriber revenue that full-time

programmers cede to the operator to

permit the operator to cover its costs

and earn a profit. For instance, if

subscribers pay an average of $0.50 per

channel for a particular tier, and the

average programming or license fee on

the tier is $0.10, then, on average,

programmers on the tier are implicitly

‘‘paying’’ the operator $0.40 for carriage.

Since full-time lessees resemble, and

will be competing with, full-time cable

networks, it is appropriate that the

maximum full-time leased access rate

reflect the average marketplace terms

and conditions under which cable

networks are able to gain access to the

cable system. From the operator’s

standpoint, the average implicit fee

represents the average value of a

channel after programming acquisition

costs are paid. A formula based on the

average value of a channel may reflect

the value of channel capacity more

accurately than a formula based on the

value of the programming bumped for

leased access, such as the proposed

cost/market rate formula, because

programming that is bumped for leased

access may not have had sufficient

opportunity to reach its full revenuegenerating potential.

13. In addition, we adopted an

average implicit fee formula because it

is possible to determine the average

value of a channel accurately, even

when channels are sold as part of a

package (i.e., a tier). A precise

calculation of the average channel value

is possible because the necessary

components are known: in particular,

what a subscriber pays for the tier and

what the operator pays in total

programming costs for all channels on

the tier. By contrast, the proposed cost/

market rate formula and the highest

implicit fee formula cannot provide

such accuracy because they attempt to

measure the value of an individual

channel on a tier. However, the value of

an individual channel on a tier cannot

be ascertained accurately because it is

not possible to determine the subscriber

revenue attributable to a particular

channel that is sold collectively with

other channels as a single package. The

same problem would be presented by an

attempt to determine the lowest implicit

fee.

14. We also believe that developments

in the multichannel video programming

marketplace are relevant to our decision

to adopt the average implicit fee

formula. The number of non-vertically

integrated national programming

services has grown in each of the past

three years. We believe that a shift from

a highest implicit fee formula to an

average implicit fee formula may

provide additional opportunities for

diverse, unaffiliated programmers to

enter the marketplace, without creating

a maximum rate that is artificially low

and putting the cable operator’s

operation, financial development or

market development at risk.

15. Moreover, we believe that the

average implicit fee formula addresses

the concerns with the highest implicit

fee formula that we expressed in the

Reconsideration Order. Most

importantly, we do not believe that the

average implicit fee formula permits the

operator a ‘‘double recovery.’’ In the

Reconsideration Order, we noted that

the highest implicit fee formula

overcompensates the operator because it

appears to allow the value of the

channel to be recovered twice—once

from the leased access programmer (the

highest implicit fee), and once from

subscribers (the average per channel

subscriber charge). For example, if the

subscriber revenue for a tier is an

average of $0.50 per channel and the

lowest license fee for unaffiliated

programming on that tier is $0.05, the

highest implicit fee for that tier would

be $0.45. Because we assumed that the

leased access programmer would pay up

to $0.45 (the highest implicit fee) and

the subscriber would still pay $0.50 (the

average per channel subscriber charge),

we believed that the operator was

permitted to recover the value of the

channel twice.

16. Our ‘‘double recovery’’ hypothesis

was based on the assumption that

operators would be able to charge

subscribers the same amount for leased

access programming that they charge on

average for other programming on the

same tier. Although a number of

commenters in this proceeding

supported this assumption, other

commenters asserted that subscribers

will not be willing to pay the same

amount for leased access programming

because subscribers value it less than

programming selected by the operator.

These commenters claimed that the

amount of subscriber revenue that
Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations 11369

operators will be able to collect for most

leased access channels will be close to

or equal to zero, and leased access

programming may in fact diminish the

value of a tier because subscribers will

find it so unappealing that viewership

of the other programming on the tier

will be adversely impacted.

17. Based on the record before us, we

could not conclude that operators, in

general, will be able to charge the same

amount for a tier once leased access

programming is added, especially since

most leased access programming will be

new and will not have an established

audience. We could not, however,

predict with any certainty what the

relative value of the leased access

programming will be. It is possible that

some leased access programming will be

as profitable, if not more so, than some

of the operator’s selected programming

and that the effect on the tier charge will

be neutral or positive. On the other

hand, it is also possible that some leased

access programming will be less

valuable than the operator’s current

programming, leading either to a loss of

subscribers or to a loss of subscriber

revenue if the operator lowers the tier

price.

18. We therefore found that the

assumption underlying our ‘‘double

recovery’’ hypothesis—that leased

access programming will always be

equally valuable to the operator as its

non-leased access programming—was

not supported by the record. Neither the

Commission nor the commenters,

however, have been able to develop a

reliable method for predicting what

value, if any, subscribers will place on

leased access programming. Since the

current record did not permit us to

accurately assess the impact of leased

access programming on the value of the

tier, we could not find that leased access

programming will necessarily result in

an excess recovery (let alone a ‘‘double’’

recovery) for the operator.

19. Moreover, we believe that any

potential excess recovery generally will

be minimal. Based on what cable

operators in a competitive environment

are able to charge subscribers for the

addition of a new channel, our ‘‘going

forward’’ order allows operators to

charge a subscriber $0.20 a month for an

additional channel. We expect,

however, that operators will recover less

than $0.20 for a new leased access

channel because we believe that, on

average, subscribers will not be willing

to pay as much for new leased access

programming as they do for new

programming selected by the cable

operator. In selecting its own

programming, a cable operator is able to

take into account the particular mix of

programming already on its system and

the particular interests and demands of

its subscribership. Thus, unlike with

leased access, the operator can select

programming that will maximize net

subscriber revenue.

20. Additional factors are likely to

further reduce any potential excess

recovery. For one, the ‘‘going forward’’

rate is based on what operators can

charge subscribers when new channels

are added without displacing existing

programming. Therefore, if leased

access programming displaces existing

programming, any amount of subscriber

revenue that an operator gains from a

leased access channel may be offset by

subscriber revenue lost from the

displaced channel. In addition, we

believe that subscriber revenue from a

leased access channel will be further

offset by lost advertising revenues since

leased access programmers, unlike other

programmers, generally will not provide

advertising slots to the cable operator.

Subscriber revenue will also be offset by

additional administrative costs imposed

by leasing, which are not recovered

through the average implicit fee

formula. For all of the above reasons, we

believe that any excess recovery for a

leased access channel will be

significantly less than the $0.20 that an

operator is allowed to charge

subscribers for a new channel.

21. Although we no longer believe

that our ‘‘double recovery’’ concern was

a valid reason for rejecting the highest

implicit fee formula, we nonetheless

believe that the average implicit fee

formula is a more appropriate method

for determining the maximum leased

access rate. First, as discussed above,

the average implicit fee is based on a

more logical calculation than the

highest implicit fee, because it is

derived from values that can be

measured—subscriber revenue for the

tier(s) and programming costs for the

tier(s)—to arrive at an average amount of

subscriber revenue that programmers

cede to the operator in exchange for

carriage. The highest implicit fee

formula, by contrast, attempts to

measure the implicit fee of a particular

channel by using one verifiable figure

(the actual programming cost) and one

proxy (the average per channel

subscriber revenue), since the actual

amount that subscribers pay for any

particular channel on a tier cannot be

determined. Second, the average

implicit fee mitigates our previous

concern that the highest implicit fee

may overcompensate operators by

permitting them to charge the highest

mark-up over programming costs (i.e.,

the highest of the implicit fees). While

the average implicit fee formula does

not allow the operator to recover its

highest mark-up over programming

costs, it also does not restrict the

operator to charging the lowest mark-up

over programming costs. Although we

stated in the Rate Order that using the

highest market value of channel

capacity is fair, we believe that basing

the maximum rate on the average markup over programming costs more

appropriately balances the interests of

cable operators and leased access

programmers.

22. Third, we also expressed concern

in the Reconsideration Order that an

implicit fee formula is not based on the

operator’s reasonable costs. We now

believe, however, that an implicit fee

formula may better reflect the value of

the channel capacity, since a formula

based strictly on quantifiable costs

cannot account for lost subscriber

revenue and therefore may not

adequately compensate the operator.

Given that the maximum rate should not

adversely affect the operation, financial

condition or market development of the

cable system, it is entirely appropriate

to consider these non-quantifiable costs,

such as any negative effects leased

access programming may have on the

value of the tier, in establishing the

market value of a channel.

23. We also made a few other changes

to the manner in which the maximum

leased access rate is calculated for tiered

channels. First, we departed from the

current rule requiring rate calculations

to be made on a tier-by-tier basis. As

described below, we have determined

that leased access programmers have the

right to demand access to a tier with

more than 50% subscriber penetration.

We believe that subscribers generally

perceive these highly penetrated tiers as

a single programming package, not as

separate products. Consistent with this

view, we believe that operators should

calculate the average implicit fee using

all channels carried on any tier with

more than 50% subscriber penetration.

In addition, our rate regulation rules

generally are based on the principle of

tier neutrality, which requires cable

operators to charge the same per

channel rate regardless of the

programming costs incurred on a

particular tier. Prior to rate regulation,

we believe that tier prices did not

necessarily follow this tier neutrality

principle. Similarly, because the

Communications Act requires cable

operators to transmit must-carry and

public, educational, and governmental

(‘‘PEG’’) access channels on the basic

service tier, the average programming

cost on that tier will tend to be lower

than it would be absent such a carriage

requirement. Since, as a result of
11370 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

regulation, individual tier prices may

not be directly correlated with their

underlying programming costs, we

believe that it is appropriate to permit

cable operators to assess these costs

more accurately by averaging across

highly penetrated tiers.

24. Second, we believe that the

maximum rate calculation should no

longer exclude channels devoted to

must-carry broadcast signals or PEG

access programming. In the

Reconsideration Order, we stated that

must-carry and PEG access channels

should be excluded from consideration

because the lack of program license fees

for those channels does not represent a

marketplace decision, but is the result of

statutory mandates. Under the highest

implicit fee approach, the inclusion of

channels with zero license fees, such as

must-carry and PEG access channels,

would virtually ensure that every cable

system had a commensurately high

leased access rate. Now, with the

average implicit fee formula, because all

of the programming costs are averaged

together, it is appropriate to include

must-carry and PEG access channels in

calculating the maximum leased access

rate. Although the lack of programming

costs for these channels makes it

inappropriate to use them as the sole

determinant of maximum rates, these

channels are relevant to a calculation

that is based on the value of the relevant

tier(s). Since the average implicit fee is

derived from the total value of the tier(s)

being considered, it is appropriate to

account for the effect of all of the

channels on the tier(s). Moreover, as

with all individual channels on a tier,

it would not be possible to ascertain

how much the total subscriber revenue

for the tier should be reduced if mustcarry and PEG access channels were

excluded.

25. For the same reason we also

concluded that the maximum rate

calculation should no longer exclude

channels devoted to affiliated

programming. In the Rate Order, we

determined that affiliated programming

should not be considered in

determining the highest implicit fee

because to do so could affect the

operator’s right to charge affiliated and

unaffiliated programmers different rates.

However, in addition to the necessity of

including all channels on the relevant

tier(s) in an average implicit fee

calculation, we believe that requiring

cable operators to base an implicit fee

calculation only on unaffiliated

programming may inappropriately

result in different maximum leased

access rates for systems that are

identical but for their affiliation with

certain programmers. We believe that

adopting a standard similar to that

adopted with regard to our affiliate

transaction rules will resolve this

disparity without interfering with the

operator’s right to establish different

rates for affiliated and unaffiliated

programmers. We therefore modified

our rules to require that, in calculating

the average implicit fee, operators must

use programming costs for affiliated

programming that reflect the prevailing

company prices offered in the

marketplace to third parties. If a

prevailing company price does not exist,

the programming should be priced at

the lower of the programmer’s cost or

the fair market value. Because these

objective measurements are based on

factors outside affiliated transactions,

the requirement to use them as proxies

for the actual programming costs does

not conflict with our conclusion in the

Rate Order that the Commission is

precluded from establishing rates based

on transactions with affiliates.

26. Finally, we eliminated our current

programmer categories for determining

maximum rates for leased access

programming that is carried on a tier. In

the Rate Order, the Commission stated

that the programmer categories were

intended to reflect the different

economies faced by the different types

of programmers. We now believe,

however, that basing maximum rates on

the average value of the channel

capacity is a more appropriate approach

to implementing section 612 than

making distinctions based on the

different economies among leased

access programmers. For this reason,

and also because an average implicit fee

calculation must include all channels

on the relevant tier(s), we abolished the

mandatory distinction between the rate

charged to direct sales programmers and

‘‘all others.’’ Therefore, all leased access

programmers carried on a cable system’s

tier will be subject to the same

maximum rate, which will be derived

using all channels on the relevant

tier(s), including channels devoted to

direct sales programming (e.g., home

shopping networks and infomercials).

As described below, cable operators will

still be required to calculate different

rates for programming services sold on

a per-channel, or a la carte, basis. We

will maintain the distinction between

leased access programming carried on a

tier and leased access programming

offered as an a la carte service, not

because of their ‘‘different economies,’’

but because of the practical differences

involved in implementing a maximum

leased access rate for a la carte services.

iii. Maximum Rate for Full-Time Leased

Access Programming Carried as an A La

Carte Service

27. Despite our conclusion that the

average implicit fee formula is the

appropriate method for setting

maximum reasonable rates for leased

access programming carried on a tier,

we concluded that the highest implicit

fee formula remains the best approach

for setting maximum reasonable rates

for leased access programming offered

to subscribers as an a la carte service.

Because the subscriber revenue for an a

la carte service is known, an a la carte

programmer can readily determine how

much it is implicitly paying the operator

for carriage. If an unaffiliated a la carte

programmer is implicitly paying more

than the maximum leased access rate for

carriage, the a la carte programmer

could obtain a larger share of the

subscriber revenue simply by

demanding a lease. This potential

disruption to operators’ negotiated

relationships with unaffiliated a la carte

programmers could adversely impact

the operation, financial condition, and

market development of cable systems.

The highest implicit fee for a la carte

services protects operators from this

potential adverse effect because, unlike

the average implicit fee, it represents the

maximum amount that any a la carte

programmer is implicitly paying for

carriage. The average implicit fee does

not pose such a risk for tiered services

because the actual subscriber revenue

for individual channels is not known.

Even if the actual subscriber revenue for

a particular tiered service could be

determined, a non-leased access

programmer implicitly paying more

than the average implicit fee would

have little reason to switch to leased

access because subscriber revenue is not

passed through to leased access

programmers that are carried on a tier.

Non-leased access programmers that are

carried on a tier are unlikely to switch

from an arrangement where they receive

a license fee to an arrangement where

they pay the cable operator but receive

no subscriber revenue.

28. In addition, because in the a la

carte context we are able to determine

the actual subscriber revenue derived

from particular programming services,

we do not need to use the average

implicit fee formula. Moreover, there

can be no ‘‘double recovery’’ in the a la

carte context because any subscriber

revenues for a leased access channel

carried as an a la carte service are

readily ascertainable and can be passed

through to the leased access

programmer. In order to protect against

any over recovery, we modified our
Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations 11371

rules to clarify that any subscriber

revenue from an a la carte leased access

service must be passed through to the

leased access programmer. As with the

average implicit fee, we require

operators to include affiliated a la carte

services in their highest implicit fee

calculation using the rules described

above for determining programming

costs for affiliated programming. As

discussed below, we also made one

modification regarding the calculation

of the highest implicit fee for a la carte

programming services.

iv. Transition Period

29. We did not establish a transition

period for implementing our revised

rate formulas. In the Rate Order, the

Commission clearly stated that ‘‘the

rules we adopt should be understood as

a starting point that will need

refinement both through the rulemaking

process and as we address issues on a

case-by-case basis.’’ Thus, cable

operators and non-leased access

programmers have had ample notice

that the rate formula was subject to

change. Both operators and

programmers alike understand that a

reduction in the maximum rate could

increase the demand for leased access,

thereby increasing the possibility that

bumping might occur. We believe that

operators and programmers that

negotiate to place non-leased access

programming on a channel designated

for leased access assume the risk that

the programming might have to be

bumped for a leased access programmer.

Section 612 explicitly provides that

operators may no longer use unused

leased access capacity once a written

agreement is obtained by a leased access

programmer.

B. Part-Time Leased Access

Programming and Maximum Part-Time

Rates

30. Under the Commission’s rules,

cable operators are required to

accommodate part-time leased access

requests, but need not accommodate

requests of less than one half hour. With

respect to rates for part-time leased

access programming, the Commission’s

rules permit cable operators to charge

different time-of-day rates, provided

that: (a) The total of the rates for a day’s

schedule (i.e., a 24-hour block) does not

exceed the maximum rate for one day of

a full-time leased access channel

prorated evenly from the monthly rate;

(b) the overall pattern of time-of-day

rates is otherwise reasonable; and (c) the

time-of-day rates are not intended to

unreasonably limit leased access use.

The Further NPRM sought comment on

a cable operator’s obligation to

accommodate a part-time leased access

programmer by opening a new channel

for leased access use, and on the

calculation of maximum rates for parttime use.

i. Accommodation of Requests for PartTime Leased Access

31. As an initial matter, we affirmed

our current rule requiring cable

operators to lease time in half-hour

increments. We recognize that part-time

leasing is not expressly required by the

statute, that it may impose additional

administrative and other costs on cable

operators, and that it may pose the risk

of capacity being under-used. As noted

above, if cable operators are not

adequately compensated for their

capacity, it may constitute a violation of

Section 612. We also recognize,

however, that the statute does not

restrict leased access to full-time

programming and that part-time

programming currently represents a

significant share of the leased access

marketplace, thereby providing much of

the competition and diversity of

programming sources that Section 612

was intended to promote. Therefore,

rather than permit cable operators to

exclude part-time leased access

programming, we permit cable operators

to set reasonable limits on when and

how part-time programming must be

accommodated, as set forth below.

32. First, we affirmed the holding in

TV–24 Sarasota, Inc. v. Comcast, 10

FCC Rcd 3512, 3518 (Cable Serv. Bur.,

Dec. 27, 1994) that a cable operator is

not required to open an additional

leased access channel if a programmer’s

request can be accommodated in a

comparable time slot on an existing

leased access channel. We believe that

the comparability of time slots can be

determined by a number of objective

factors, such as day of the week, time of

day, and audience share. We also

adopted our tentative conclusion in the

Further NPRM that a cable operator

should not be required to make even a

dark channel available for leased access,

so long as the programmer’s request can

be accommodated in a comparable time

slot on a programmed channel. In

addition, we extended TV–24 Sarasota

to permit a cable operator to

accommodate a part-time leased access

request by offering the programmer a

comparable time slot on a channel

otherwise carrying non-leased access

programming.

33. Furthermore, we concluded that

cable operators should not be required

to open an additional channel for use by

part-time leased access programmers

until existing part-time leased access

channels are substantially filled with

leased access programming. For these

purposes, we will consider a channel to

be ‘‘substantially filled’’ with leased

access programming if leased access

programming occupies 75% or more of

its programming day. In other words,

cable operators do not have to open a

second channel for part-time use until

the first part-time channel has at least

18 hours of programming every day.

Likewise, a third channel for part-time

use does not have to be made available

until the second channel has at least 18

hours of programming every day, and so

on.

34. Consistent with our tentative

conclusion in the Further NPRM, we

provide an exception to this rule and

require operators to open an additional

channel for part-time leased access use

if a programmer (or collective) agrees to

provide programming for a minimum of

eight contiguous hours every day for at

least one year. The programmer may

select any eight-hour time period during

the day, but the same eight hours must

be used every day. Therefore, even if an

operator has an existing part-time leased

access channel that is not substantially

filled with leased access programming,

the operator must open an additional

part-time leased access channel if it

cannot otherwise accommodate a

programmer’s request for a year-long

eight-hour daily time slot. Once an

operator has opened a vacant channel to

accommodate such a request, our other

leased access rules apply. If, however,

the operator has accommodated such a

request on a channel already carrying an

existing full-time non-leased access

programmer, the operator does not have

to accommodate other part-time

requests of less than eight hours on that

channel until all other existing part-time

leased access channels are substantially

filled with leased access programming.

35. Part-time programmers are

permitted to seek access on a collective

basis. If part-time programmers request

an entire channel on a collective basis,

the operator must provide the channel

regardless of any unused capacity on

part-time leased access channels

because we would not consider that a

request for part-time programming.

Similarly, part-time programmers that

individually cannot meet the year-long

eight-hour daily time commitment may

demand access as a group in order to

satisfy the requirement. Allowing

collective requests will not impose any

further burden on cable operators since

the same request could have been made

by an individual programmer.

36. To summarize, we modified our

rules regarding part-time leased access

programming as follows. Cable

operators may accommodate part-time
11372 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

leased access requests by providing

comparable time slots on non-leased

access channels or on channels already

being used for leased access on a parttime basis. Cable operators will not be

required to make an additional channel

available for part-time leased access use

until all other part-time leased access

channels have at least 18 hours of leased

access programming every day. So long

as an operator has at least one channel

designated for part-time leased access

use that is not substantially filled by

part-time programmers, the operator

will not be required to open another

part-time channel even if comparable

time slots are no longer available on the

part-time channel that is only partially

programmed. However, if a leased

access programmer (or collective)

agrees, at a minimum, to provide

programming during the same eighthour time slot every day for at least one

year, an operator will be required to

accommodate the request even if an

existing part-time leased access channel

is not substantially filled with leased

access programming. We believe that

this approach achieves the statutory

objectives of competition and diversity

of programming sources, while doing so

in a manner consistent with the growth

and development of cable systems.

ii. Maximum Part-Time Rates

37. Because we did not adopt the

proposed cost/market rate formula, and

because the formulas for tiered and a la

carte full-time services that we adopted

are similar in kind to the existing

approach for setting the maximum fulltime leased access rate, we affirmed our

decision to require that cable operators

prorate their maximum full-time rate

when determining their maximum

permitted part-time rate, and to allow

operators to adjust part-time rates

according to time-of-day pricing. As we

stated in the Reconsideration Order, we

believe that this approach accounts for

marketplace realities by recognizing that

different time slots have different

values, furthers the statutory goal of

promoting a diversity of programming

sources, and promotes the full use of

leased access channels by making nonprime time slots less expensive than

prime-time slots, and therefore more

attractive, to programmers. Cable

operators are permitted to recover any

additional technical costs that are

attributable to part-time leased access

programming in accordance with the

rules described below.

C. Resale of Leased Access Time

38. In the Further NPRM, we asked

whether persons unaffiliated with the

operator should be allowed to lease

programming time from the operator

and then sell it for a profit to other

unaffiliated persons. In the Order, we

concluded that resale of leased access

capacity to persons unaffiliated with the

operator should be permitted, subject to

certain contractual conditions described

below that a cable operator may

reasonably impose, because we believe

that resale can provide substantial

benefits to leased access programmers

without an adverse impact on cable

operators. In particular, we believe that

small and part-time programmers could

benefit from resale. For instance, a

reseller could bring together various

part-time programmers to form a

programming package for an entire

channel. This service would not only

relieve operators of much of the cost

and burden of dealing with a large

number of small programmers, but

would be more efficient, since a

reseller’s business would be devoted to

this goal while cable operators typically

devote little or no staff to promoting

leased access. We believe that resale

may prove to be a crucial mechanism by

which part-time programmers are able

to obtain carriage.

39. To avoid discouraging cable

operators from providing carriage to notfor-profit entities and others at reduced

rates, we found that it would be a

reasonable term or condition of carriage

for a cable operator to provide that if the

lessee resells its capacity, the lessee

must start paying the operator at a rate

which may be up to and including the

maximum permissible rate. In addition,

cable operators may provide in their

leased access contracts that any

sublessees are subject to the non-price

terms and conditions that apply to the

initial lessee. Finally, we noted that the

cable operator’s right to refuse to

transmit programming containing

obscenity or indecency applies to any

leased access program or portion of a

leased access program, regardless of

whether the programmer purchased

leased access capacity directly from the

cable operator or through a reseller.

D. Tier and Channel Placement

40. Background: According to the

legislative history of the 1992

amendments to Section 612, the

purpose of leased access would be

defeated if leased access programmers

were placed on tiers that few

subscribers access. The 1992 Senate

Report states that ‘‘[t]he FCC should

ensure that [leased access] programmers

are carried on channel locations that

most subscribers actually use.’’ It further

states that ‘‘it is vital that the FCC use

its authority to ensure that these

channels are a genuine outlet for

programmers.’’ In the Further NPRM,

the Commission tentatively concluded

that leased access programmers are

entitled to placement either on the basic

service tier (‘‘BST’’) or on the cable

programming services tier (‘‘CPST’’)

with the highest subscriber penetration,

unless technical or other compelling

reasons weigh against such placement.

We reasoned that the BST and the CPST

with the highest subscriber penetration

qualify as ‘‘genuine outlets’’ because

‘‘most subscribers actually use’’ them.

We sought comment on whether the

term ‘‘most subscribers’’ should be

interpreted to mean that any CPST that

has a subscriber penetration of more

than 50% should also qualify as a

‘‘genuine outlet.’’

41. Discussion: As stated in the

Further NPRM, we believe that we must

ensure a ‘‘genuine outlet’’ for leased

access programming in order to further

the statutory goals of competition in the

delivery of video programming sources

and diversity of programming sources.

To that end, we affirmed our tentative

conclusion that, absent a technical or

other compelling reason, leased access

programmers have the right to demand

access to a tier that most subscribers

actually use. Leased access

programmers would not be assured

access to most subscribers if cable

operators were permitted to require

leased access channels to be sold on an

individual, or a la carte, basis.

42. Although we continue to believe

that the BST and the CPST with the

highest subscriber penetration qualify as

genuine outlets, we do not think it is

necessary to restrict the placement of

leased access programming to only

those tiers. We believe that any tier with

a subscriber penetration over 50%

should also qualify as a genuine outlet

because it consists of channel locations

that ‘‘most subscribers actually use.’’

Therefore, if a leased access programmer

requests placement on a tier, we will

allow the cable operator the flexibility

to place the programming on any tier

that has a subscriber penetration of

more than 50%. We believe that this

approach takes into account the

‘‘legitimate need of the cable operator to

market its product’’ because it allows

the operator to consider the marketing

mix of different tiers. The record

reflected that some commenters would

favor placing leased access channels on

a separate tier comprised primarily, if

not exclusively, of leased access

programming. We concluded that so

long as such a tier has a subscriber

penetration of more than 50%, the cable

operator is not precluded from

developing a tier that predominantly

features leased access programming.
Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations 11373

43. With regard to specific channel

placement, we believe that the cable

operator should have the discretion to

select the channel location of a leased

access channel, so long as the operator’s

choice is reasonable. Because a

determination of reasonable channel

placement will depend on the particular

circumstances of a situation, we will

evaluate these types of disputes on a

case-by-case basis. We will take into

consideration evidence that the operator

deliberately interfered with potential

viewership of the leased access

programming in an effort to discourage

continued carriage (e.g., by intentionally

surrounding a leased access channel

with dark channels or by frequently

shifting its channel location without

sufficient justification). Once a cable

operator has provided leased access

programmers with a genuine outlet, we

do not believe it is necessary to interfere

with that operator’s ability to structure

channel line-ups. Therefore, although a

leased access programmer may demand

access to a tier that has a subscribership

of more than 50%, the cable operator is

entitled to place the leased access

programming on any reasonable channel

location on any qualifying tier.

E. Minority and Educational

Programmers

44. Background: Pursuant to section

612(i), a cable operator may substitute

programming from a qualified minority

or educational programming source for

up to 33% of its designated leased

access channels. In the Further NPRM,

the Commission sought comment on

whether leased access requirements

regarding tier and channel placement

should also apply to minority or

educational programming that is used as

a substitute for leased access

programming. The Commission

tentatively concluded that minority or

educational programming should not

qualify as a substitute for leased access

programming unless it is carried on the

BST or on a CPST that qualifies as a

genuine outlet.

45. Discussion: Applying the same

tier placement standard we adopted for

leased access, we concluded that

minority or educational programming

will not qualify as a substitute for leased

access programming unless it is carried

on a tier that has a subscriber

penetration of more than 50%. The

cable operator may select which

qualifying tier to use for the substituted

programming. As we noted in the

Further NPRM, neither the statute nor

the legislative history specifically

requires that most subscribers receive

the substituted minority or educational

programming. However, as we

previously stated, the language of

Section 612(i)(1) strongly suggests that

Congress envisioned that any

substituted minority or educational

programming would be placed on the

same channels that would have been

used for leased access. Specifically,

section 612(i)(1) states that ‘‘a cable

operator required by this section to

designate channel capacity for

commercial use may use any such

channel capacity’’ to provide minority

or educational programming.

Furthermore, to allow a more lenient

standard for minority or educational

programming could potentially

diminish its value as a substitute for

leased access programming. We

therefore imposed the same tier and

channel placement requirements on

substitute minority or educational

programming as we did on leased access

programming.

F. Preferential Access

46. Background: In the Further NPRM,

we asked whether preferential treatment

for not-for-profit leased access

programmers should be required to

promote a diversity of programming

sources. We sought comment on how to

calculate preferential rates, if found to

be necessary, and we asked whether

cable operators should be required to

give preferential access to not-for-profit

programmers by setting aside a certain

percentage of their leased access

capacity for such use (e.g., 25%).

Commenters were also invited to

demonstrate with specific evidence why

preferential treatment might be

appropriate for certain types of for-profit

programmers, such as low power

television (‘‘LPTV’’) stations and

minority and educational programmers.

47. Discussion: We do not believe that

mandating preferential access or

preferential rates for not-for-profit

programmers, or any other class of

programmers, is necessary or

appropriate under Section 612. First,

leased access is intended for

‘‘commercial use,’’ which the

Communications Act defines as ‘‘the

provision of video programming,

whether or not for profit.’’ The fact that

not-for-profit leased access programmers

are defined as commercial users for

purposes of leased access indicates that

they should compete on equal terms

with for-profit leased access

programmers.

48. Second, we do not believe that

requiring cable operators to offer

preferential treatment to not-for-profit

programmers is necessary to serve the

statutory purposes of Section 612.

Mandatory preferential treatment would

not necessarily promote diversity since

unaffiliated not-for-profit programming

sources are not inherently more diverse

than unaffiliated for-profit programming

sources. In fact, mandatory preferential

treatment could potentially conflict

with the statutory directive that leased

access rates not ‘‘adversely affect the

operation, financial condition, or market

development of the cable system’’

because a mandatory preferential rate

below what the Commission has

determined to be the maximum

reasonable rate may be insufficient to

compensate operators for leased access

use. Third, not-for-profit status does not

necessarily indicate a lack of financial

resources. While we noted that Congress

gave cable operators the flexibility to

negotiate lower rates, we do not believe

that operators’ right to negotiate lower

rates should be transformed into an

obligation to provide affordable rates to

not-for-profit leased access

programmers.

49. We also declined to mandate

preferential treatment for not-for-profit

programmers that qualify as minority or

educational programmers under Section

612(i)(2) or (3). Congress chose to

encourage minority and educational

programming by allowing it to be used

as a substitute for leased access,

regardless of its profit status. There is no

evidence that Congress intended the

Commission to create an additional

mechanism to promote not-for-profit

minority or educational programming

through preferential rates and set-asides.

Furthermore, we did not require cable

operators to provide preferential

treatment for LPTV stations or for

educational and community

programming services that public

television stations may wish to offer in

addition to their primary over-the-air

signals. Congress provided public

television stations and LPTV stations

the preferences it deemed necessary.

G. Selection of Leased Access

Programmers

50. In the Further NPRM, the

Commission proposed rules to govern a

cable operator’s selection of leased

access programmers. In the Order, we

concluded that, so long as an operator’s

available leased access capacity is

sufficient to satisfy the current demand

for leased access, all leased access

requests must be accommodated as

expeditiously as possible, unless the

operator refuses to transmit the

programming because it contains

obscenity or indecency. We believe that

such an approach is the most

appropriate method of assuring that

cable operators comply with section

612(c)(2), which explicitly restricts

operators’ exercise of editorial control
11374 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

over leased access programming.

Section 612(c)(2) provides that ‘‘a cable

operator shall not exercise any editorial

control over any video programming

provided pursuant to this section, or in

any other way consider the content of

such programming,’’ except in the case

of programming containing obscenity or

indecency, or to the minimum extent

necessary to set a reasonable price. We

believe that requiring operators to

accommodate all leased access requests

when the programming does not contain

obscenity or indecency, so long as there

is available capacity, will most

effectively restrict operators’ exercise of

editorial control, without impinging

upon their discretion with regard to

price and sexually-oriented

programming. We also believe that such

an approach will further the statutory

objective to promote competition

because it will reduce an operator’s

ability to select leased access

programming based on anti-competitive

motives.

51. We believe, however, that an

operator should be allowed to make

objective, content-neutral selections

from among leased access programmers

when the operator’s available leased

access channel capacity is insufficient

to accommodate all pending leased

access requests. In the full-time channel

context, this situation would arise if two

or more leased access programmers

requested the remaining available leased

access space; in the part-time context,

this situation could arise, for example,

if two or more programmers requested

the 8:00 p.m. to 9:00 p.m. time slot on

the system’s part-time leased access

channel. In such situations, we believe

that the cable operator should be

allowed to make an objective, contentneutral selection among the competing

programmers. For example, the operator

could hold a lottery. Or, the operator

could base its decision on other

objective, content-neutral criteria such

as a programmer’s non-profit status, the

amount of time a programmer is willing

to lease, or a programmer’s willingness

to pay the highest reasonable price for

the capacity at issue. Allowing

flexibility within this limited context

will better enable operators to assure the

growth and development of their cable

systems.

H. Procedures for Resolution of

Disputes

52. We affirmed our proposal in the

Further NPRM to streamline the

complaint process by requiring that an

independent accountant make a

determination of the cable operator’s

maximum permitted rate prior to the

filing of any complaint alleging that the

operator’s rate is unreasonable. We

believe that such a requirement will

preserve Commission resources by

reducing the likelihood that

unsubstantiated claims will be filed

with the Commission. In the event that

a complaint is filed with the

Commission because the dispute

remains unresolved despite the

accountant’s final report, there will be a

rebuttable presumption that the

accountant’s findings are correct.

53. We did not adopt our proposal in

the Further NPRM to allow the cable

operator to select an independent

accountant in the event that the operator

and leased access programmer fail to

agree on a mutually acceptable

accountant. Such an approach may be

unfair to the leased access programmer

because it does not encourage the

operator to find a mutually acceptable

accountant. Instead, we required that if

the parties cannot agree on a mutually

acceptable accountant within five

business days of the programmer’s

request for a review, they must each

select an independent accountant on the

sixth business day. These two

accountants will then have five business

days to select a third independent

accountant to perform the review. To

account for their more limited

resources, operators of systems entitled

to small system relief will have 14

business days to select an independent

accountant when no agreement can be

reached. A cable system is entitled to

small system relief if it either: (a) serves

15,000 or fewer subscribers and is

owned by a small cable company

serving a total of 400,000 or fewer

subscribers over all of its systems, or (b)

has been granted special relief as

provided for in the Sixth Report and

Order and Eleventh Order on

Reconsideration in MM Docket Nos. 92–

266 and 93–215, 60 FR 35854 (July 12,

1995) (‘‘Small System Order’’). The final

accountant report must be completed

within 60 days of when the final

accountant is selected to perform the

review. The Order amended the

Commission’s current rule requiring

complaints to be filed within 60 days of

the alleged violation to provide instead

that complaints must be filed within 60

days of the completion of the final

accountant report.

54. The operator must pay the full

cost of the review if the final accountant

report shows that the operator’s rate

exceeds the maximum permitted rate by

more than a de minimis amount.

Otherwise, each party will pay their

own expenses incurred in making the

review and will split the cost of the final

accountant’s review. We believe that

this approach is appropriate because,

unlike the leased access programmer,

the cable operator possesses all the

information necessary to calculate its

rates accurately and knows, or should

know, whether its rates are excessive.

55. The final accountant report should

be filed in the cable system’s local

public file. In order for the information

to serve as adequate notice to other

potential leased access programmers,

the final accountant report must, at a

minimum, state the maximum permitted

rate and explain, as fully as possible

without revealing proprietary

information, how it was determined.

The report must be signed, dated, and

certified by the accountant.

56. We strongly encourage parties to

use ADR to settle disputes that are not

resolved by the final accountant report.

If parties attempt, but fail, to settle their

dispute through ADR, we will make an

exception to our requirement that

complaints must be filed within 60 days

of the completion of the final

accountant report, provided that the

leased access programmer certifies that

its complaint was filed within 60 days

of the termination of the ADR

proceedings. The cable operator may

rebut such a certification.

I. Contractual Issues

i. Minimum Contract Length

57. In response to the request of a few

commenters that we address certain

contractual issues that arise in the

negotiation of leased access contracts,

we found that the record before us was

insufficient to determine what a

reasonable minimum contract length

would be. We recognize that the lack of

long-term security could create

difficulties for leased access

programmers that need to obtain

financing or to make long-term

investments in leases and equipment.

However, our rule that operators must

accommodate all leased access requests

so long as capacity exceeds demand

guarantees that a leased access

programmer will be assured of

continued access at least until the

operator’s set-aside requirement is met.

Operators are not allowed to terminate

leased access contracts for simply any

reason asserted by the cable operator.

Termination provisions of leased access

contracts must be commercially

reasonable. Because we believe that this

requirement affords leased access

programmers adequate security, we

declined to establish a minimum

contract length.

58. Operators may not, however,

unreasonably limit the length of a

contract with a leased access

programmer. In assessing

reasonableness in this context, we will
Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations 11375

weigh heavily the contract lengths that

the operator enters into with the nonleased access programming services on

its system.

ii. Insurance Requirements

59. At the outset, we noted that

operators have the right to require

reasonable liability insurance coverage

for leased access programming. We

declined to adopt specific conditions or

limits regarding the amount of coverage

or the type of insurance policy that

operators may require because we

believe that a specific restriction might

not be appropriate for all situations.

Instead, we adopted a standard

comparable to the standard that applies

in the context of security deposits for

leased access programming. That is,

insurance requirements must be

reasonable in relation to the objective of

the requirement. Cable operators will

bear the burden of proof in establishing

reasonableness. Similar to the rule for

security deposits, insurance

requirements may be sufficient to insure

adequate coverage. Determinations of

what is a ‘‘reasonable’’ insurance

requirement will be based on the

operator’s practices with respect to

insurance requirements imposed on

non-leased access programmers, the

likelihood that the nature of the leased

access programming will pose a liability

risk for the operator, previous instances

of litigation arising from the leased

access programming, and any other

relevant factors.

J. Technical Equipment Costs

60. The Commission’s rules provide

that cable operators must provide ‘‘the

minimal level of technical support

necessary for [leased access] users to

present their material on the air * * *

provided however, that leased access

providers must reimburse operators for

the reasonable cost of any technical

support that operators actually

provide.’’ We clarified that this

provision entitles cable operators to

charge an additional fee only for the

reasonable cost of providing technical

support to a leased access programmer

that is not also provided to non-leased

access programmers on the system.

Cable operators may not impose a

separate charge for the same kind of

technical support that they already

provide to non-leased access

programmers because the maximum

leased access rate represents what nonleased access programmers implicitly

pay for carriage, including their

technical costs. In other words, the

maximum leased access rate already

includes technical costs common to all

programmers. Similarly, the operator

cannot impose an additional charge on

the leased access programmer to

purchase additional equipment (e.g.,

when the current equipment is fully

utilized) if the same type of equipment

is used to serve non-leased access

programmers. For example, the operator

cannot add a charge for the costs of

providing a satellite dish if it provides

that type of technical support to nonleased access programmers at no

additional charge. In contrast, the

operator is entitled to add a charge to

recover the costs of providing, for

instance, a tape recorder or a camera if

such technical equipment would be

provided to non-leased access

programmers for the same additional

charge. The operator may also charge

the leased access programmer for the

use of technical equipment that is

provided at no charge for PEG access

programming, provided that the

franchise agreement requires the

operator to provide the equipment, the

equipment is not being used for any

other non-leased access programming,

and the operator’s franchise agreement

does not preclude such use.

61. If, in order to accommodate a

leased access programmer, a cable

operator must purchase technical

equipment that is not of a type used by

non-leased access programmers on the

system, we believe that the operator

should have the option of requiring the

leased access programmer to pay the full

purchase price of the equipment.

Should the cable operator exercise this

option, the leased access programmer

will have all rights of ownership

associated with the equipment under

applicable state and local law. If, on the

other hand, the operator prefers to own

the technical equipment, it may

purchase the equipment for itself and

lease it to leased access programmers at

a reasonable rate. We believe that this

approach will protect leased access

programmers, while assuring that the

cable system’s operation, financial

condition or market development are

not adversely affected.

K. Definition of Affiliate

62. For purposes of section 612, we

adopted the definition of affiliate that

applies in the context of our program

access rules under section 628 and our

open video system rules under section

653. As we do in those contexts, we

apply the definitions contained in the

notes to 47 CFR 76.501 (which reflect

the broadcast attribution rules contained

in the notes to 47 CFR 73.3555), with

certain modifications. Specifically, in

contrast to the broadcast attribution

rules reflected in § 76.501: (a) An entity

is considered a cable operator’s affiliate

if the cable operator holds 5% or more

of the entity’s stock, whether voting or

non-voting; (b) there is no single

majority shareholder exception; and (c)

all limited partnership interests of 5%

or greater qualify, regardless of

insulation. In addition, actual working

control, in whatever manner exercised,

is also deemed a cognizable interest.

63. Section 612 is designed to

promote diversity of programming

sources and to reduce the ability of

cable operators to discriminate against

unaffiliated programming services for

anti-competitive reasons. Because these

dual objectives are analogous to the

objectives of the program access and

open video system rules, adoption of a

similar affiliation standard is warranted.

Moreover, by adopting a definition of

affiliate for leased access that is

consistent with the program access

standard, we avoided the possibility

that a programmer will be considered a

cable operator’s affiliate for one purpose

but not for another.

64. We also clarified that leased

access programmers are required to be

unaffiliated only with the operator of

the cable system on which they seek

carriage. Section 612(b)(1) provides that

leased access channel capacity shall be

designated for use by programmers

‘‘unaffiliated with the cable operator.’’

We believe that use of the term ‘‘the’’ to

modify ‘‘cable operator’’ clearly

indicates that Congress was referring

only to the cable operator of the

particular system in question. We

believe that if Congress feared that

affiliated programmers have an

advantage in acquiring carriage from

even rival cable operators, it would have

disqualified all affiliated programmers

by using ‘‘a’’ or ‘‘any’’ to modify ‘‘cable

operator.’’ Furthermore, allowing a

broader category of programmers to use

leased access will advance the statutory

purposes of promoting competition and

diversity.

III. Order on Reconsideration

A. Maximum Rate Formula

i. Exclusion of Programming Revenues

65. We declined to modify our current

rule that programming revenues

received by the operator from nonleased access programmers, such as

sales commissions from home shopping

networks, should be excluded from the

maximum rate calculation. We found

that the effect of excluding sales

commissions on future maximum leased

access rates will be minimal given that

the Order: (a) Adopted the average

implicit fee for tiered services which,

unlike the highest implicit fee, is

derived using all channels on the
11376 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

relevant tier(s), and (b) eliminated direct

sales programming as a separate

category for setting rates. We therefore

do not believe that excluding sales

commissions will result in the migration

of home shopping networks to leased

access.

ii. Averaging Subscriber Penetration for

A La Carte Channels

66. The Reconsideration Order

clarified that in order to calculate the

maximum rate when leased access

programming is offered as an a la carte

service, the highest per-subscriber

implicit fee should be multiplied by the

average number of subscribers that

subscribe to the operator’s a la carte

services. As discussed above, we

continue to permit cable operators to

use the highest implicit fee formula to

set maximum reasonable rates for leased

access programming that is carried as an

a la carte service. We believe, however,

that it is most appropriate to require

operators to determine on an aggregate

basis for a single channel which of their

a la carte services has the highest

implicit fee. For example, if Channel A

on a given cable system has a persubscriber implicit fee of $1.00 and has

2000 subscribers, its aggregate implicit

fee is $2000. If Channel B has a persubscriber implicit fee of $1.50 and

1000 subscribers, its aggregate implicit

fee is $1500. Of these channels, Channel

A has the highest aggregate implicit fee

even though it has a lower persubscriber implicit fee than Channel B.

Therefore, assuming these two channels

are the only channels offered on an a la

carte basis, the amount that is implicitly

paid for Channel A would be the

maximum rate that the operator may

charge a leased access programmer that

wishes to be carried as an a la carte

service.

67. We believe that this formulation

accurately represents the highest

amount that a non-leased access

programmer has agreed to implicitly pay

the operator for carriage as an a la carte

service. Thus, it will discourage existing

a la carte services from migrating to

leased access. Accordingly, on

reconsideration, we concluded that

operators should not be required to

multiply the highest per-subscriber

implicit fee by the average number of

subscribers that subscribe to the

operator’s a la carte services. Instead,

operators must determine which a la

carte service has the highest implicit fee

by comparing their implicit fees on an

aggregate basis.

B. Provision of Initial Leased Access

Information

i. Response Period

68. In the Reconsideration Order, we

stated that our leased access complaint

process had revealed that cable

operators often did not provide rate

information in a timely manner, despite

our rule requiring a schedule of rates to

be provided to prospective leased access

programmers upon request. In order to

facilitate the provision of such

information to potential leased access

programmers, we required an operator

to provide the following information

within seven business days of a request

regarding leased access: (a) A complete

schedule of the operator’s full-time and

part-time leased access rates; (b) how

much of the cable operator’s leased

access set-aside capacity is available; (c)

rates associated with technical and

studio costs; and (d) if specifically

requested, a sample leased access

contract.

69. In the Order, we stressed our

expectation that cable operators will

respond to all leased access requests in

a complete and timely manner. While

we recognized the importance of prompt

disclosure of the required information

by cable operators, we nevertheless

modified our rule to require operators to

respond to a leased access request

within 15 calendar days of the date the

leased access programmer makes the

request. Such an extension should

insure that operators have a reasonable

length of time to process leased access

requests even when those requests are

received through the mail. In order to

provide more certainty regarding the

date of a request, we also modified our

rule to require that all requests for

leased access be made in writing and

specify the date they are sent to the

operator. In addition, we allowed

operators of systems subject to small

system relief 30 calendar days from the

date of a leased access request to

provide the required information, rather

than the 15 calendar days in which

other operators must respond.

ii. Preconditions To Providing Initial

Leased Access Information

70. Because we remain concerned that

requests for programmer information

will be used by operators to discourage

leased access use, operators may not ask

for any information before responding to

a leased access request unless the

information is necessary to prepare the

required response. For instance, if a

leased access request does not specify

for which cable system access is sought,

the cable operator may ask the

programmer for this information

because maximum rates are calculated

on a per-system basis. On the other

hand, information from the programmer

regarding its tier preference is not

necessary for the operator to provide the

required information, since the operator

may place a programmer demanding

access to a tier on any tier with more

than 50% subscriber penetration. In

addition, operators are not entitled to

inquire about the content of the

programming before responding to a

request because such information is not

relevant to the required rate and

capacity information.

71. We did, however, make an

exception for systems subject to small

system relief because their initial costs

of providing this information may be

higher than other systems. Therefore,

we found that operators of systems

subject to small system relief do not

have to provide the required

information until the leased access

programmer supplies the following

information: (a) Desired length of

contract term, (b) time slot desired, (c)

anticipated commencement date for

carriage, and (d) the nature of the

programming.

iii. Obligation To Provide Information

Regarding the Amount of Available

Leased Access Capacity

72. We declined to reconsider our

requirement that cable operators

provide potential leased access users

with information about how much setaside capacity is available on their

systems. We believe that information

concerning overall available channel

capacity may be of use to a potential

leased access programmer in deciding

which cable system best meets its needs,

particularly if the programmer wishes to

lease more than one channel. Moreover,

we do not believe that calculating a

system’s available leased access

capacity is difficult, particularly with

the clarifications of our rules regarding

the methodology for calculating setaside requirements. Finally, the

additional time we granted cable

operators to supply the information

should make supplying the information

less burdensome.

C. Time Increments

73. We declined to alter our current

rule that operators are not required to

accept leases that are for less than halfhour intervals. As noted above, parttime leased access programming

provides much of the competition and

diversity of programming sources that

Section 612 was intended to promote.

As we stated in the Reconsideration

Order, the most common programming

time increment is typically one-half to
Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations 11377

one hour. We therefore continue to

believe that permitting operators to

exclude leased access programming

seeking half-hour increments would

unfairly deny access to a substantial

number of potential programmers.

Moreover, we believe that the rules we

adopted regarding part-time use address

any concerns that a half-hour minimum

will cause excessive migration of

current infomercial programming to

leased access channels and will lead to

excessive displacement of existing nonleased access programmers. We clarified

that the leased access rate for a halfhour program must be prorated to reflect

the length of the program (i.e., hourly

rates cannot be charged for half-hour

programs).

D. Calculation of Statutory Set-Aside

Requirement

74. Section 612 requires a cable

system to set aside up to 15% of its

activated channels for leased access. For

operators with 100 or fewer activated

channels, the statutory set-aside

requirements for leased access channels

are expressed as a percentage of

‘‘channels not otherwise required for

use by federal law or regulation.’’ We

continue to believe that, when

calculating its set-aside requirement, an

operator must include channels carrying

retransmission consent stations because

such channels are not ‘‘required by

federal law or regulation.’’ We clarified

that channels which cannot be used due

to technical and safety regulations of the

federal government, such as

aeronautical channels, should be

excluded when calculating the set-aside

requirement for cable systems that have

100 channels or less.

E. Billing and Collection Services

75. Section 612(c)(4)(A)(ii) grants the

Commission the authority to establish

reasonable terms and conditions for the

billing of rates to subscribers and for the

collection of revenue from subscribers

for leased access channels. In the Rate

Order, we required cable operators to

provide billing and collection services

to leased access programmers unless

operators could demonstrate the

existence of third-party billing and

collection services which, in terms of

cost and accessibility, offer leased

access programmers an alternative

substantially equivalent to that offered

to comparable non-leased access

programmers. In both the Rate Order

and the Reconsideration Order, we did

not adopt specific rules regarding rates

for such services. In the Order, we

declined to modify our current rule or

to establish specific rules relating to the

rates that cable operators can charge for

billing and collection services.

IV. Market Entry Analysis

76. We noted that section 257 of the

Communications Act requires the

Commission to complete a proceeding

to identify and eliminate market entry

barriers for entrepreneurs and other

small businesses in the

telecommunications industry. The

Commission is directed to promote a

diversity of media voices and vigorous

economic competition, among other

things. We believe that the Order is

consistent with the objectives of section

257 in that it establishes rates, terms,

and conditions for leased access that are

intended to promote diversity and

competition. We also believe that our

provisions for part-time leased access

are especially suited to allow small or

entrepreneurial leased access

programmers to enter the

telecommunications programming

marketplace.

V. Final Regulatory Flexibility Analysis

77. As required by section 603 of the

Regulatory Flexibility Act, 5 U.S.C. 603,

(‘‘RFA’’), an Initial Regulatory

Flexibility Analysis (‘‘IRFA’’) was

incorporated in the Further NPRM. The

Commission sought written public

comments on the proposals in the

Further NPRM, including comments on

the IRFA. This Final Regulatory

Flexibility Analysis (‘‘FRFA’’) conforms

to the RFA, as amended.

A. Need for Action and Objectives of the

Rule

78. Section 612 of the

Communications Act requires the

Commission to establish reasonable

terms and conditions, including

maximum reasonable rates, for leased

access on cable systems. The purpose of

the Order is to amend the Commission’s

rules regarding leased access, including

the rules for calculating maximum

reasonable rates. The statutory

objectives of the leased access

provisions are to promote competition

in the delivery of diverse programming

sources and to assure the widest

possible diversity of programming

sources in a manner that is consistent

with the growth and development of

cable systems.

B. Summary of Issues Raised by the

Public Comments in Response to the

Initial Regulatory Flexibility Analysis

79. In response to the IRFA, the Small

Cable Business Association (‘‘SCBA’’)

filed comments criticizing the

Commission for failing to estimate the

number of small cable systems and

small cable operators that would be

affected by the regulations proposed in

the Further NPRM. SCBA argued that, as

reflected in the Small System Order, the

Commission has extensive data

regarding the existence of small cable

entities. SCBA also claimed the

Commission neither sought specific

comment regarding the impact of its

proposals on small cable entities nor

asked for alternatives. SCBA urged the

Commission to adopt the alternatives for

small cable systems that it has proposed

in this proceeding. In its filings, SCBA

raised the following issues and

alternatives.

80. Information Collection Issues.

SCBA argued that the Commission’s

seven business-day response time for

providing leased access information

imposes significant burdens on small

cable systems. SCBA recommended that

the Commission allow small system

operators 30 days to provide a written

response stating whether unused leased

access capacity is available and 60 days

to provide the remaining required

information. SCBA also requested that

the Commission allow small system

operators to respond only to ‘‘bona fide’’

leased access requests.

81. Rate Issues. SCBA argued that the

Commission’s proposed cost/market rate

formula would not adequately

compensate small system operators for

the following reasons:

(a) Full-Time Rates. SCBA contended

that because small system operators

often receive no advertising revenues,

the Commission’s cost/market rate

formula could result in leased access

rates of zero or less. Among other

things, SCBA suggested that the

Commission revise the proposed

formula to allow small system operators

to recover all operating costs reflected

on FCC Form 1230, instead of using

subscriber revenue as a surrogate for

such costs. Alternatively, SCBA

proposed allowing operators of small

systems to charge market rates for all

leased access programmers regardless of

demand, particularly if the party

requesting access is affiliated with the

provider of a competing multi-channel

video programming service.

(b) Part-Time Rates. SCBA argued that

if the full-time rate under the proposed

cost/market rate formula is prorated, the

per hour or half-hour rates for small

systems would be lower than

advertising rates, which would create a

flood of requests for part-time leased

access.

(c) Transaction Costs. SCBA

contended that leased access contracts

create higher transaction costs than

other programming contracts because

leased access agreements are negotiated
11378 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

more frequently and must be negotiated

on a system-by-system basis. SCBA

proposed that the Commission remedy

this problem for small system operators

by allowing them to include an

additional amount of at least $1,000 in

their leased access rate calculations.

(d) Technical Costs. SCBA argued that

additional headend equipment used to

add leased access channels will result in

high per-subscriber costs for small

systems. SCBA proposed that the

Commission allow small system

operators to charge leased access

programmers for all technology costs

related to leased access.

(e) Transition Period. SCBA argued

that the Commission should phase in

leased access obligations for small cable

systems to avoid the disruption to

current programming line-ups that the

proposed cost/market rate formula

would create.

(f) Advance Channel Designations.

The Further NPRM proposed that a

cable operator must place in its public

file a list of the specific channels it

intends to use for leased access

programming. SCBA argued that small

system operators should only be

required to provide the required leased

access information following receipt of

a ‘‘bona fide’’ request.

82. In reviewing the record before us,

we identified issues that may impact

small leased access programmers, such

as maximum rate calculations, part-time

use of leased access, resale, tier and

channel placement, preferential access,

dispute resolution procedures, certain

contractual issues, technical equipment

costs, and the definition of affiliate. The

Order addressed comments from leased

access programmers regarding these

issues.

C. Description and Estimate of the

Number of Small Entities Impacted

83. The RFA directs the Commission

to provide a description of and, where

feasible, an estimate of the number of

small entities that will be affected by the

proposed rules. The RFA defines the

term ‘‘small entity’’ as having the same

meaning as the terms ‘‘small business,’’

‘‘small organization,’’ and ‘‘small

governmental jurisdiction,’’ and the

same meaning as the term ‘‘small

business concern’’ under section 3 of

the Small Business Act. Under the

Small Business Act, a ‘‘small business

concern’’ is one which: (a) Is

independently owned and operated; (b)

is not dominant in its field of operation;

and (c) satisfies any additional criteria

established by the Small Business

Administration (‘‘SBA’’). The rules we

adopted in the Order will affect cable

systems and cable programmers.

84. Cable Systems: The SBA has

developed a definition of small entities

for cable and other pay television

services, which includes all such

companies generating $11 million or

less in revenue annually. While this

definition includes small cable entities,

it also includes closed circuit television

services, direct broadcast satellite

services, multipoint distribution

systems, satellite master antenna

systems and subscription television

services. Thus, the definition includes

many small entities that will not be

directly impacted by our leased access

rules. According to the Census Bureau,

there were 1,423 such cable and other

pay television services generating less

than $11 million in revenue that were

in operation for at least one year at the

end of 1992. We noted that not only

does this estimate include small entities

other than small cable entities, but the

majority of the small cable systems

included within this estimate have less

than 36 channels and therefore are not

subject to the Commission’s leased

access regulations. We therefore

estimated that, based on the SBA

definition, the number of small cable

entities likely to be impacted by our

rules will be significantly less than

1,423 entities.

85. The Commission has developed

its own definition of a small cable

system for purposes of rate regulation.

Under the Commission’s rules, cable

systems serving fewer than 15,000

subscribers are considered small

systems, and small systems owned by

small cable companies serving fewer

than 400,000 subscribers nationwide are

entitled to small system relief. This

definition is both broader and narrower

than that of the SBA. The definition is

broader in that it includes larger cable

systems than the SBA definition. It is

narrower in that, unlike the SBA

definition, it does not include closed

circuit television services, direct

broadcast satellite services, multipoint

distribution systems, satellite master

antenna systems, or subscription

television services. Our most recent

information indicates that, under the

Commission’s definition, there were

1,439 systems entitled to small system

relief at the end of 1995. Of these

systems, we estimated that

approximately 614 systems offer more

than 36 channels, and thus are subject

to our leased access rules.

86. Section 623(m)(2) of the

Communications Act defines a small

cable system operator as ‘‘a cable

operator that, directly or through an

affiliate, serves in the aggregate fewer

than 1 percent of all subscribers in the

United States and is not affiliated with

any entity or entities whose gross

annual revenues in the aggregate exceed

$250,000,000.’’ The Commission has

determined that there are 61,700,000

subscribers in the United States.

Therefore, we found that an operator

serving fewer than 617,000 subscribers

shall be deemed a small operator if its

annual revenues, when combined with

the total annual revenues of all of its

affiliates, do not exceed $250 million in

the aggregate. Based on available data,

we found that the number of cable

operators serving 617,000 subscribers or

less totals 1,450. Although it seems

certain that some of these cable system

operators are affiliated with entities

whose gross annual revenues exceed

$250 million, we were unable to

estimate with greater precision the

number of cable system operators that

would qualify as small cable operators

under the definition in the

Communications Act.

87. Cable Programmers: We anticipate

that both small leased access

programmers and small non-leased

access programmers may be impacted

by our leased access rules. The

Commission has not developed a

definition of small entities applicable to

producers or distributors of cable

television programs. Therefore, we

utilized the SBA classifications of

Motion Picture and Video Tape

Production (SIC 7812), and Theatrical

Producers (Except Motion Pictures) and

Miscellaneous Theatrical Services (SIC

7922). These SBA definitions provide

that a small entity in the cable television

programming industry is an entity with

$21.5 million or less in annual receipts

for SIC 7812, and $5 million or less in

annual receipts for SIC 7922. Census

Bureau data indicate the following: (a)

There were 7,265 firms in the United

States classified as Motion Picture and

Video Production (SIC 7812), and that

6,987 of these firms had $16.999 million

or less in annual receipts and 7,002 of

these firms had $24.999 million or less

in annual receipts; and (b) there were

5,671 firms in the United States

classified as Theatrical Producers and

Services (SIC 7922), and that 5,627 of

these firms had $4.999 million or less in

annual receipts.

88. Each of these SIC categories is

very broad and includes firms that may

be engaged in various industries,

including cable programming. Specific

figures are not available regarding how

many of these firms exclusively produce

and/or distribute programming for cable

television or how many are

independently owned and operated.

Thus, we estimated that our rules may

affect approximately 6,987 small entities

that produce and distribute taped cable
Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations 11379

television programs and 5,627 small

producers of live programs. In addition,

as of May 31, 1996, there were 1,880

LPTV stations that may also be affected

by our rules.

D. Reporting, Recordkeeping, and Other

Compliance Requirements

This section specifies the reporting,

recordkeeping and other related

requirements of the regulations adopted,

amended, modified, or clarified in the

Order.

89. Maximum Rate Calculations:

Operators of cable systems subject to

leased access requirements must

calculate their maximum leased access

rates in accordance with the rate

formulas we have established. We do

not believe that operators will need

additional professional skills to perform

these calculations.

90. Accountant Reports: A final

accountant report that is completed as a

result of a dispute concerning an

operator’s rate calculations must be filed

in the operator’s local public file.

91. Provision of Initial Leased Access

Information: Within 15 calendar days of

a leased access request, cable operators

are required to provide the following

types of information: (a) A complete

schedule of the operator’s full-time and

part-time leased access rates, (b) how

much of the cable operator’s leased

access set-aside capacity is available, (c)

rates associated with technical and

studio costs, and (d) if specifically

requested, a sample leased access

contract. An exception is provided for

operators of systems entitled to small

system relief, which are allowed 30

calendar days to provide the required

information. In addition, these operators

are not required to respond to a leased

access request if the programmer does

not provide the following information:

(a) Desired length of contract term, (b)

time slot desired, (c) anticipated

commencement date for carriage, and

(d) the nature of the programming.

92. Requirements for Leased Access

Requests: Leased access requests must

be made in writing and must specify the

date the request was sent to the

operator.

E. Significant Alternatives and Steps

Taken to Minimize the Significant

Economic Impact on a Substantial

Number of Small Entities Consistent

With the Stated Objectives

This section analyzes the impact on

small entities of the regulations

adopted, amended, modified, or

clarified in the Order.

93. Information Collection Issues. We

allow operators of systems entitled to

small system relief to respond to leased

access requests within 30 calendar days,

instead of the 15 calendar days required

of other operators. In addition, we do

not require these operators to respond to

leased access requests unless the

programmer provides the following

information: (a) Desired length of

contract term, (b) time slot desired, (c)

anticipated commencement date for

carriage, and (d) the nature of the

programming. These modifications to

the Commission’s rules should mitigate

any disproportionate burdens that

responding to a leased access request

may create for small system operators.

94. Rate Issues. We do not believe that

either full-time or part-time rates under

our maximum rate formula will impose

disproportionate burdens on small

system operators. When calculated for a

particular cable system, both the average

implicit fee (for tiered services) and the

highest implicit fee (for a la carte

services) represent what current nonleased access programmers are

implicitly paying for carriage on that

system. Because the maximum rates

under an implicit fee formula are

tailored to each individual system, we

disagreed with SCBA that small system

operators should be allowed to charge

market prices. For the following

reasons, we also disagreed with SCBA’s

various other proposals to modify the

maximum rate formula for small

systems.

(a) Transaction Costs. We did not

agree with SCBA that small system

operators should be allowed to include

in their rates an additional sum of at

least $1,000 as compensation for

transaction costs imposed by leased

access because, as discussed above, we

believe that the recovery that operators

may gain from subscriber revenue for

leased access programming will

sufficiently offset any additional

transaction costs.

(b) Technical Costs. We declined to

adopt modified rules for small system

operators regarding the recovery of

technical costs associated with leased

access. We do not believe that there will

be a disproportionate impact on small

system operators because our rules

enable them to recover technical costs

that are specific to leasing.

(c) Transition Period. SCBA argued

that the Commission should phase in

leased access obligations for small cable

systems in order to minimize the

displacement of existing programming

services. In light of our adoption of the

average implicit fee methodology and

our accommodations of the special

needs of small systems, we concluded

that a transition period was

unnecessary.

(d) Advance Channel Designations.

SCBA argued that the Commission

should not require small system

operators to publicly file a list of their

designated leased access channels. The

Commission did not adopt such a

requirement for any cable systems.

95. Dispute Resolution Procedures. To

account for their more limited

resources, we allow operators of systems

entitled to small system relief 14

business days to select an independent

accountant when an operator and a

leased access programmer fail to agree

on a mutually acceptable accountant to

review the operator’s rate calculations

in the case of a dispute. The general rule

is that the parties must each select an

independent accountant on the sixth

business day if they cannot agree on a

mutually acceptable accountant within

five business days of the programmer’s

request for a review.

96. Impact on Cable Programmers.

Leased access may impact existing

programmers to the extent that operators

displace them in order to accommodate

leased access requests. However, we

believe that displacement of existing

programmers is inherent in section

612(b)(4), which provides that a cable

operator may no longer use unused

leased access capacity once a written

agreement is obtained by a leased access

programmer. In addition, since it is

within an operator’s discretion to select

which non-leased access programmers

to carry (aside from must-carry and PEG

access channels), our rules do not create

a disproportionate impact on small nonleased access programmers. With

respect to small leased access

programmers, we believe that the

impact of our revised rules generally

will be positive, particularly since our

rules will result in lower maximum

rates for tiered services, permit resale,

grant access to highly penetrated tiers,

and require part-time rates to be

prorated without a surcharge. Although

permissible costs for insurance policies,

technical equipment, and accountant

reviews of rate calculations may impose

a burden on small leased access

programmers, we believe that such

impacts are the normal costs of being a

leased access programmer, and that no

modifications are warranted.

F. Report to Congress

97. The Commission will send a copy

of this Final Regulatory Flexibility

Analysis, along with the Order, in a

report to Congress pursuant to the Small

Business Regulatory Enforcement

Fairness Act of 1996, 5 U.S.C.

801(a)(1)(A).
11380 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

VI. Ordering Clauses

98. Accordingly, it is ordered that,

pursuant to the authority granted in

sections 4(i), 4(j), and 612 of the

Communications Act of 1934, as

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

532, the Petitions for Reconsideration in

CS Docket No. 96–60 are Granted in

part and denied in part, as provided

herein.

99. It is further ordered that, pursuant

to the authority granted in Sections 4(i),

4(j), and 612 of the Communications Act

of 1934, as amended, 47 U.S.C. 154(i),

154(j) and 532, Part 76 of the

Commission’s rules is hereby amended

as indicated below. The amendments to

47 CFR 76.970 (a), (b), (i), 76.971 (a), (c),

(d), (g), (h), and 76.977(a) shall become

effective April 11, 1997. The

amendments to 47 CFR 76.970 (c), (d),

(e), (f), (g), (h), 76.971(f)(1), and 76.975

(b) and (c), which impose information

collection requirements, shall become

effective upon approval by the Office of

Management and Budget (OMB), but no

sooner than April 11, 1997. The

Commission will publish a document at

a later date establishing the effective

date for the sections containing

information collection requirements.

100. It is further ordered that the

Secretary shall send a copy of this

Order, including the Final Regulatory

Flexibility Analysis, to the Chief

Counsel for Advocacy of the Small

Business Administration in accordance

with paragraph 603(a) of the Regulatory

Flexibility Act, Public Law 96–354, 94

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

List of Subjects in 47 CFR Part 76

Administrative practice and

procedure, Cable television, Reporting

and recordkeeping requirements.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Part 76 of Title 47 of the Code of

Federal Regulations is amended as

follows:

PART 76—CABLE TELEVISION

SERVICE

1. The authority citation for Part 76

continues to read as follows:

Authority: 47 U.S.C. 151, 152, 153, 154,

301, 302, 303, 303a, 307, 308, 309, 312, 315,

317, 325, 503, 521, 522, 531, 532, 533, 534,

535, 536, 537, 543, 544, 544a, 545, 548, 552,

554, 556, 558, 560, 561, 571, 572, 573.

2. Section 76.970 is amended by

adding a last sentence to paragraph (a),

revising paragraphs (b), (c), (d), (e) and

(f), and adding new paragraphs (g), (h)

and (i) to read as follows:

§ 76.970 Commercial leased access rates.

(a) * * * For cable systems with 100

or fewer channels, channels that cannot

be used due to technical and safety

regulations of the Federal Government

(e.g., aeronautical channels) shall be

excluded when calculating the set-aside

requirement.

(b) In determining whether a party is

an ‘‘affiliate’’ for purposes of

commercial leased access, the

definitions contained in the notes to

§ 76.501 shall be used, provided,

however, that the single majority

shareholder provision of Note 2(b) to

§ 76.501 and the limited partner

insulation provisions of Note 2(g) to

§ 76.501 shall not apply, and the

provisions of Note 2(a) to § 76.501

regarding five (5) percent interest shall

include all voting or nonvoting stock or

limited partnership equity interest of

five (5) percent or more. Actual working

control, in whatever manner exercised,

shall also be deemed a cognizable

interest.

(c) The maximum commercial leased

access rate that a cable operator may

charge for full-time channel placement

on a tier exceeding a subscriber

penetration of 50 percent is the average

implicit fee for full-time channel

placement on all such tier(s).

(d) The average implicit fee identified

in paragraph (c) of this section for a fulltime channel on a tier with a subscriber

penetration over 50 percent shall be

calculated by first calculating the total

amount the operator receives in

subscriber revenue per month for the

programming on all such tier(s), and

then subtracting the total amount it pays

in programming costs per month for

such tier(s) (the ‘‘total implicit fee

calculation’’). A weighting scheme that

accounts for differences in the number

of subscribers and channels on all such

tier(s) must be used to determine how

much of the total implicit fee

calculation will be recovered from any

particular tier. The weighting scheme is

determined in two steps. First, the

number of subscribers is multiplied by

the number of channels (the result is the

number of ‘‘subscriber-channels’’) on

each tier with subscriber penetration

over 50 percent. For instance, a tier with

10 channels and 1,000 subscribers

would have a total of 10,000 subscriberchannels. Second, the subscriberchannels on each of these tiers is

divided by the total subscriber-channels

on all such tiers. Given the percent of

subscriber-channels for the particular

tier, the implicit fee for the tier is

computed by multiplying the

subscriber-channel percentage for the

tier by the total implicit fee calculation.

Finally, to calculate the average implicit

fee per channel, the implicit fee for the

tier must be divided by the

corresponding number of channels on

the tier. The final result is the maximum

rate per month that the operator may

charge the leased access programmer for

a full-time channel on that particular

tier. The average implicit fee shall be

calculated by using all channels carried

on any tier exceeding 50 percent

subscriber penetration (including

channels devoted to affiliated

programming, must-carry and public,

educational and government access

channels). In the event of an agreement

to lease capacity on a tier with less than

50 percent penetration, the average

implicit fee should be determined on

the basis of subscriber revenues and

programming costs for that tier alone.

The license fees for affiliated channels

used in determining the average implicit

fee shall reflect the prevailing company

prices offered in the marketplace to

third parties. If a prevailing company

price does not exist, the license fee for

that programming shall be priced at the

programmer’s cost or the fair market

value, whichever is lower. The average

implicit fee shall be based on contracts

in effect in the previous calendar year.

The implicit fee for a contracted service

may not include fees, stated or implied,

for services other than the provision of

channel capacity (e.g., billing and

collection, marketing, or studio

services).

(e) The maximum commercial leased

access rate that a cable operator may

charge for full-time channel placement

as an a la carte service is the highest

implicit fee on an aggregate basis for

full-time channel placement as an a la

carte service.

(f) The highest implicit fee on an

aggregate basis for full-time channel

placement as an a la carte service shall

be calculated by first determining the

total amount received by the operator in

subscriber revenue per month for each

non-leased access a la carte channel on

its system (including affiliated a la carte

channels) and deducting the total

amount paid by the operator in

programming costs (including license

and copyright fees) per month for

programming on such individual

channels. This calculation will result in

implicit fees determined on an aggregate

basis, and the highest of these implicit

fees shall be the maximum rate per

month that the operator may charge the

leased access programmer for placement

as a full-time a la carte channel. The

license fees for affiliated channels used

in determining the highest implicit fee

shall reflect the prevailing company

prices offered in the marketplace to

third parties. If a prevailing company
Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations 11381

price does not exist, the license fee for

that programming shall be priced at the

programmer’s cost or the fair market

value, whichever is lower. The highest

implicit fee shall be based on contracts

in effect in the previous calendar year.

The implicit fee for a contracted service

may not include fees, stated or implied,

for services other than the provision of

channel capacity (e.g., billing and

collection, marketing, or studio

services). Any subscriber revenue

received by a cable operator for an a la

carte leased access service shall be

passed through to the leased access

programmer.

(g) The maximum commercial leased

access rate that a cable operator may

charge for part-time channel placement

shall be determined by either prorating

the maximum full-time rate uniformly,

or by developing a schedule of and

applying different rates for different

times of the day, provided that the total

of the rates for a 24-hour period does

not exceed the maximum daily leased

access rate.

(h)(1) Cable system operators shall

provide prospective leased access

programmers with the following

information within 15 calendar days of

the date on which a request for leased

access information is made:

(i) How much of the operator’s leased

access set-aside capacity is available;

(ii) A complete schedule of the

operator’s full-time and part-time leased

access rates;

(iii) Rates associated with technical

and studio costs; and

(iv) If specifically requested, a sample

leased access contract.

(2) Operators of systems subject to

small system relief shall provide the

information required in paragraph (h)(1)

of this section within 30 calendar days

of a bona fide request from a prospective

leased access programmer. For these

purposes, systems subject to small

system relief are systems that either:

(i) Qualify as small systems under

§ 76.901(c) and are owned by a small

cable company as defined under

§ 76.901(e); or

(ii) Have been granted special relief.

(3) Bona fide requests, as used in this

section, are defined as requests from

potential leased access programmers

that have provided the following

information:

(i) The desired length of a contract

term;

(ii) The time slot desired;

(iii) The anticipated commencement

date for carriage; and

(iv) The nature of the programming.

(4) All requests for leased access must

be made in writing and must specify the

date on which the request was sent to

the operator.

(5) Operators shall maintain, for

Commission inspection, sufficient

supporting documentation to justify the

scheduled rates, including supporting

contracts, calculations of the implicit

fees, and justifications for all

adjustments.

(i) Cable operators are permitted to

negotiate rates below the maximum

rates permitted in paragraphs (c)

through (g) of this section.

3. Section 76.971 is amended by

revising paragraphs (a), (c), (f)(1) and (g),

adding two sentences to the end of

paragraph (d), and adding new

paragraph (h) to read as follows:

§ 76.971 Commercial leased access terms

and conditions.

(a) (1) Cable operators shall place

leased access programmers that request

access to a tier actually used by most

subscribers on any tier that has a

subscriber penetration of more than 50

percent, unless there are technical or

other compelling reasons for denying

access to such tiers.

(2) Cable operators shall be permitted

to make reasonable selections when

placing leased access channels at

specific channel locations. The

Commission will evaluate disputes

involving channel placement on a caseby-case basis and will consider any

evidence that an operator has acted

unreasonably in this regard.

(3) On systems with available leased

access capacity sufficient to satisfy

current leased access demand, cable

operators shall be required to

accommodate as expeditiously as

possible all leased access requests for

programming that is not obscene or

indecent. On systems with insufficient

available leased access capacity to

satisfy current leased access demand,

cable operators shall be permitted to

select from among leased access

programmers using objective, contentneutral criteria.

(4) Cable operators that have not

satisfied their statutory leased access

requirements shall accommodate parttime leased access requests as set forth

in this paragraph. Cable operators shall

not be required to accept leases for less

than one half-hour of programming.

Cable operators may accommodate parttime leased access requests by opening

additional channels for part-time use or

providing comparable time slots on

channels currently carrying leased or

non-leased access programming. The

comparability of time slots shall be

determined by objective factors such as

day of the week, time of day, and

audience share. A cable operator that is

unable to provide a comparable time

slot to accommodate a part-time

programming request shall be required

to open an additional channel for parttime use unless such operator has at

least one channel designated for parttime leased access use that is

programmed with less than 18 hours of

part-time leased access programming

every day. However, regardless of the

availability of partially programmed

part-time leased access channels, a cable

operator shall be required to open an

additional channel to accommodate any

request for part-time leased access for at

least eight contiguous hours, for the

same time period every day, for at least

a year. Once an operator has opened a

vacant channel to accommodate such a

request, our other leased access rules

apply. If, however, the operator has

accommodated such a request on a

channel already carrying an existing

full-time non-leased access programmer,

the operator does not have to

accommodate other part-time requests

of less than eight hours on that channel

until all other existing part-time leased

access channels are substantially filled

with leased access programming.

* * * * *

(c) Cable operators are required to

provide unaffiliated leased access users

the minimal level of technical support

necessary for users to present their

material on the air, and may not

unreasonably refuse to cooperate with a

leased access user in order to prevent

that user from obtaining channel

capacity. Leased access users must

reimburse operators for the reasonable

cost of any technical support actually

provided by the operator that is beyond

that provided for non-leased access

programmers on the system. A cable

operator may charge leased access

programmers for the use of technical

equipment that is provided at no charge

for public, educational and

governmental access programming,

provided that the operator’s franchise

agreement requires it to provide the

equipment and does not preclude such

use, and the equipment is not being

used for any other non-leased access

programming. Cable operators that are

required to purchase technical

equipment in order to accommodate a

leased access programmer shall have the

option of either requiring the leased

access programmer to pay the full

purchase price of the equipment, or

purchasing the equipment and leasing it

to the leased access programmer at a

reasonable rate. Leased access

programmers that are required to pay

the full purchase price of additional

equipment shall have all rights of
11382 Federal Register / Vol. 62, No. 48 / Wednesday, March 12, 1997 / Rules and Regulations

ownership associated with the

equipment under applicable state and

local law.

(d) * * * Cable operators may impose

reasonable insurance requirements on

leased access programmers. Cable

operators shall bear the burden of proof

in establishing reasonableness.

* * * * *

(f) (1) A cable operator shall provide

billing and collection services for

commercial leased access cable

programmers, unless the operator

demonstrates the existence of third

party billing and collection services

which in terms of cost and accessibility,

offer leased access programmers an

alternative substantially equivalent to

that offered to comparable non-leased

access programmers.

* * * * *

(g) Cable operators shall not

unreasonably limit the length of leased

access contracts. The termination

provisions of leased access contracts

shall be commercially reasonable and

may not allow operators to terminate

leased access contracts without a

reasonable basis.

(h) Cable operators may not prohibit

the resale of leased access capacity to

persons unaffiliated with the operator,

but may provide in their leased access

contracts that any sublessees will be

subject to the non-price terms and

conditions that apply to the initial

lessee, and that, if the capacity is resold,

the rate for the capacity shall be the

maximum permissible rate.

4. Section 76.975 is amended by

revising paragraphs (b), (c), (d) and (e)

to read as follows:

§ 76.975 Commercial leased access

dispute resolution.

* * * * *

(b) (1) Any person aggrieved by the

failure or refusal of a cable operator to

make commercial channel capacity

available or to charge rates for such

capacity in accordance with the

provisions of Title VI of the

Communications Act, or our

implementing regulations, §§ 76.970

and 76.971, may file a petition for relief

with the Commission. Persons alleging

that a cable operator’s leased access rate

is unreasonable must receive a

determination of the cable operator’s

maximum permitted rate from an

independent accountant prior to filing a

petition for relief with the Commission.

(2) Parties to a dispute over leased

access rates shall have five business

days to agree on a mutually acceptable

accountant from the date on which the

programmer provides the cable operator

with a written request for a review of its

leased access rates. Parties that fail to

agree on a mutually acceptable

accountant within five business days of

the programmer’s request for a review

shall each be required to select an

independent accountant on the sixth

business day. The two accountants

selected shall have five business days to

select a third independent accountant to

perform the review. Operators of

systems subject to small system relief

shall have 14 business days to select an

independent accountant when an

agreement cannot be reached. For these

purposes, systems subject to small

system relief are systems that either:

(i) Qualify as small systems under

§ 76.901(c) and are owned by a small

cable company as defined under

§ 76.901(e); or

(ii) Have been granted special relief.

(3) The final accountant’s report must

be completed within 60 days of the date

on which the final accountant is

selected to perform the review. The final

accountant’s report must, at a minimum,

state the maximum permitted rate, and

explain how it was determined without

revealing proprietary information. The

report must be signed, dated and

certified by the accountant. The report

shall be filed in the cable system’s local

public file.

(4) If the accountant’s report indicates

that the cable operator’s leased access

rate exceeds the maximum permitted

rate by more than a de minimis amount,

the cable operator shall be required to

pay the full cost of the review. If the

final accountant’s report does not

indicate that the cable operator’s leased

access rate exceeds the maximum

permitted rate by more than a de

minimis amount, each party shall be

required to split the cost of the final

accountant’s review, and to pay its own

expenses incurred in making the review.

(5) Parties may use alternative dispute

resolution (ADR) processes to settle

disputes that are not resolved by the

final accountant’s report.

(c) A petition must contain a concise

statement of the facts constituting a

violation of the statute or the

Commission’s Rules, the specific

statute(s) or rule(s) violated, and certify

that the petition was served on the cable

operator. Where a petition is based on

allegations that a cable operator’s leased

access rates are unreasonable, the

petitioner must attach a copy of the final

accountant’s report. In proceedings

before the Commission, there will be a

rebuttable presumption that the final

accountant’s report is correct.

(d) Where a petition is not based on

allegations that a cable operator’s leased

access rates are unreasonable, the

petition must be filed within 60 days of

the alleged violation. Where a petition

is based on allegations that the cable

operator’s leased access rates are

unreasonable, the petition must be filed

within 60 days of the final accountant’s

report, or within 60 days of the

termination of ADR proceedings.

Aggrieved parties must certify that their

petition was filed within 60 days of the

termination of ADR proceedings in

order to file a petition later than 60 days

after completion of the final

accountant’s report. Cable operators

may rebut such certifications.

(e) The cable operator or other

respondent will have 30 days from the

filing of the petition to file a response.

If a leased access rate is disputed, the

response must show that the rate

charged is not higher than the maximum

permitted rate for such leased access,

and must be supported by the affidavit

of a responsible company official. If,

after a response is submitted, the staff

finds a prima facie violation of our

rules, the staff may require a respondent

to produce additional information, or

specify other procedures necessary for

resolution of the proceeding.

* * * * *

5. Section 76.977 is amended by

revising the last sentence of paragraph

(a) to read as follows:

§ 76.977 Minority and educational

programming used in lieu of designated

commercial leased access capacity.

(a) * * * The channel capacity used

to provide programming from a

qualified minority programming source

or from any qualified educational

programming source pursuant to this

section may not exceed 33 percent of

the channel capacity designated

pursuant to 47 U.S.C. 532 and must be

located on a tier with more than 50

percent subscriber penetration.

* * * * *

[FR Doc. 97–5897 Filed 3–11–97; 8:45 am]

BILLING CODE 6712–01–P

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

49 CFR Part 1

[(OST) Docket No. 1; Amdt. 1–284]

Organizations and Delegation of

Powers and Duties; Delegation to the

Commandant, United States Coast

Guard and Administrator, Maritime

Administration

AGENCY: Office of the Secretary, DOT.

ACTION: Final rule.

SUMMARY: This rule revises in part the

delegations of Secretarial authority