[Federal Register Volume 73, Number 40 (Thursday, February 28, 2008)]
[Rules and Regulations]
[Pages 10675-10696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-872]


-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket No. 07-42; FCC 07-208]


Leased Commercial Access

AGENCY: Federal Communications Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: In this document, the Commission modifies the leased access 
rate formula; adopts customer service obligations that require minimal 
standards and equal treatment of leased access programmers with other 
programmers; eliminates the requirement for an independent accountant 
to review leased access rates; requires annual reporting of leased 
access statistics; adopts expedited time frames for resolution of 
complaints and modifies the discovery process.

DATES: The amendments contained in this final rule are effective as 
follows:
    Revised Sec.  76.970 is effective May 28, 2008 except for paragraph 
(j)(3) which contains information collection requirements that have not 
been approved by the Office of Management and Budget (OMB). The Federal 
Communications Commission will publish a document announcing the 
effective date upon OMB approval of those collection requirements.
    Section 76.972 is effective March 31, 2008 except for paragraphs 
(a), (b), (c), (d), (e) and (g) which contain information collection 
requirements that have not been approved by OMB and paragraph (f) which 
contains requirements related to those information collection 
requirements. The Federal Communications Commission will publish a 
document announcing the effective date upon OMB approval of those 
collection requirements.
    Amendments to Sec.  76.975 are effective March 31, 2008 except for 
paragraphs (d), (e), (g), and (h)(4) which contain information 
collection requirements that have not been approved by OMB and 
paragraphs (b), (c), and (f) which contain requirements related to 
those information collection requirements. The Federal Communications 
Commission will publish a document announcing the effective date upon 
OMB approval of those collection requirements.
    Section 76.978, as added in this rule, contains information 
collection requirements that have not been approved by OMB. The Federal 
Communications Commission will publish a document announcing the 
effective date upon OMB approval of those collection requirements.

ADDRESSES: Federal Communications Commission, 445 12th Street, SW., 
Room TW-A325, Washington, DC 20554. In addition to filing comments with 
the Office of the Secretary, a copy of any comments on the Paperwork 
Reduction Act information collection requirements contained herein 
should be submitted to Cathy Williams, Federal Communications 
Commission, Room 1-C823, 445 12th Street, SW., Washington, DC 20554, or 
via the Internet to <a href="/cdn-cgi/l/email-protection#cc9c9e8d8caaafafe2aba3ba"><span class="__cf_email__" data-cfemail="a1f1f3e0e1c7c2c28fc6ced7">[email protected]</span></a>. For additional information, see the 
SUPPLEMENTARY INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: For additional information on this 
proceeding, contact Steven Broeckaert, <a href="/cdn-cgi/l/email-protection#cd9eb9a8bba8a3e38fbfa2a8aea6aca8bfb98dabaeaee3aaa2bb"><span class="__cf_email__" data-cfemail="d182a5b4a7b4bfff93a3beb4b2bab0b4a3a591b7b2b2ffb6bea7">[email protected]</span></a>; Katie 
Costello, <a href="/cdn-cgi/l/email-protection#5f143e2b363a711c302c2b3a3333301f393c3c71383029"><span class="__cf_email__" data-cfemail="024963766b672c416d7176676e6e6d426461612c656d74">[email protected]</span></a>; or

[[Page 10676]]

David Konczal, <a href="/cdn-cgi/l/email-protection#266247504f42086d4948455c474a6640454508414950"><span class="__cf_email__" data-cfemail="befadfc8d7da90f5d1d0ddc4dfd2fed8dddd90d9d1c8">[email protected]</span></a>; of the Media Bureau, Policy 
Division, (202) 418-2120. For additional information concerning the 
Paperwork Reduction Act information collection requirements contained 
in this document, contact Cathy Williams at 202-418-2918, or via the 
Internet at <a href="/cdn-cgi/l/email-protection#ecbcbeadac8a8f8fc28b839a"><span class="__cf_email__" data-cfemail="e1b1b3a0a1878282cf868e97">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order (``Order''), FCC 07-208, adopted on November 27, 2007, and 
released on February 1, 2008. The full text of this document is 
available for public inspection and copying during regular business 
hours in the FCC Reference Center, Federal Communications Commission, 
445 12th Street, SW., CY-A257, Washington, DC 20554. This document will 
also be available via ECFS (http://www.fcc.gov/cgb/ecfs/). (Documents 
will be available electronically in ASCII, Word 97, and/or Adobe 
Acrobat.) The complete text may be purchased from the Commission's copy 
contractor, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. 
To request this document in accessible formats (computer diskettes, 
large print, audio recording, and Braille), send an e-mail to 
<a href="/cdn-cgi/l/email-protection#4b2d28287e7b7f0b2d2828652c243d"><span class="__cf_email__" data-cfemail="41272222747175012722226f262e37">[email protected]</span></a> or call the Commission's Consumer and Governmental 
Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).
    In addition to filing comments with the Office of the Secretary, a 
copy of any comments on the proposed information collection 
requirements contained herein should be submitted to Cathy Williams, 
Federal Communications Commission, 445 12th St., SW., Room 1-C823, 
Washington, DC 20554, or via the Internet at <a href="/cdn-cgi/l/email-protection#065654474660656528616970"><span class="__cf_email__" data-cfemail="74242635341217175a131b02">[email protected]</span></a>.

Paperwork Reduction Act of 1995 Analysis

    This document contains new and modified information collection 
requirements. The Commission will send the requirements to OMB for 
review. The Commission, as part of its continuing effort to reduce 
paperwork burdens, will invite the general public to comment on the 
information collection requirements as required by the Paperwork 
Reduction Act of 1995, Public Law 104-13. In addition, pursuant to the 
Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(c)(4), we sought specific comment on how we might ``further 
reduce the information collection burden for small business concerns 
with fewer than 25 employees.'' In this present document, we have 
assessed the potential effects of the various policy changes with 
regard to information collection burdens on small business concerns, 
and we find that these requirements will benefit many companies with 
fewer than 25 employees by facilitating the use of leased access 
channels and by promoting the fair and expeditious resolution of leased 
access complaints.

Summary of the Report and Order

I. Introduction

    1. In this Report and Order, we modify the Commission's leased 
access rules. With respect to leased access, we modify the leased 
access rate formula; adopt customer service obligations that require 
minimal standards and equal treatment of leased access programmers with 
other programmers; eliminate the requirement for an independent 
accountant to review leased access rates; and require annual reporting 
of leased access statistics. We also adopt expedited time frames for 
resolution of complaints and improve the discovery process. Finally, we 
seek comment in a Further Notice of Proposed Rulemaking on whether we 
should apply our new rate methodology to programmers that predominantly 
transmit sales presentations or program length commercials.

II. Commercial Leased Access Rules

A. Background
    2. The commercial leased access requirements are set forth in 
Section 612 of the Communications Act of 1934, as amended 
(``Communications Act''). The statute and corresponding leased access 
rules require a cable operator to set aside channel capacity for 
commercial use by unaffiliated video programmers. In implementing the 
statutory directive to determine maximum reasonable rates for leased 
access, the Commission adopted a maximum rate formula for full-time 
carriage on programming tiers based on the ``average implicit fee'' 
that other programmers are implicitly charged for carriage to permit 
the operator to recover its costs and earn a profit. The Commission 
also adopted a maximum rate for a la carte services based on the 
``highest implicit fee'' that other a la carte services implicitly pay, 
and a prorated rate for part-time programming.
B. Customer Service Standards and Equitable Contract Terms
    3. In this Order, we adopt uniform customer service standards to 
address the treatment of leased access programmers and potential leased 
access programmers by cable system operators. In order to make the 
leased access carriage process more efficient, we adopt new customer 
service standards, in addition to the existing standards. These 
standards are designed to ensure that leased access programmers are not 
discouraged from pursuing their statutory right to the designated 
commercial leased access channels, to facilitate communication of these 
rights and obligations to potential programmers, and to ensure a smooth 
process for gaining information about a cable system's available 
channels. We require cable system operators to maintain a contact name, 
telephone number and e-mail address on its website, and make available 
by telephone, a designated person to respond to requests for 
information about leased access channels. We also require cable system 
operators to maintain a brief explanation of the leased access statute 
and regulations on its website. Within three business days of a request 
for information, a cable system operator shall provide the prospective 
leased access programmers with the following information: (1) The 
process for requesting leased access channels; (2) The geographic 
levels of service that are technically possible; (3) The number and 
location and time periods available for each leased access channel; (4) 
Whether the leased access channel is currently being occupied; (5) A 
complete schedule of the operator's statutory maximum full-time and 
part-time leased access rates; (6) A comprehensive schedule showing how 
those rates were calculated; (7) Rates associated with technical and 
studio costs; (8) Electronic programming guide information; (9) The 
available methods of programming delivery and the instructions, 
technical requirements and costs for each method; (10) A comprehensive 
sample leased access contract that includes uniform terms and 
conditions such as tier and channel placement, contract terms and 
conditions, insurance requirements, length of contract, termination 
provisions and electronic guide availability; and (11) Information 
regarding prospective launch dates for the leased access programming. 
In addition to the customer service standards, we adopt penalties for 
ensuring compliance with these standards. We emphasize that the leased 
access customer service standards adopted herein are ``minimum'' 
standards. We cannot anticipate each and every instance of interaction 
between cable operators and leased access programmers.

[[Page 10677]]

    4. Maintenance of Contact Information. We require every cable 
system operator to maintain, on its website, a contact name, telephone 
number, and e-mail of an individual designated by the cable system 
operator to respond to requests for information about leased access 
channels. One of the more basic elements necessary to permit potential 
programmers reasonable access to cable systems is ready availability of 
a contact name, telephone number, and e-mail address of a cable system 
operator that the programmer can use to reach the appropriate person in 
the cable system to begin the process for requesting access to the 
system. While the physical location of a person designated as the 
leased access contact should not be critical in the relationship 
between the potential programmer and the cable system operator, the 
identity of that person and the ease of access to him are critical. 
Other aspects of the rules we adopt here deal with expeditious and full 
responses to leased access requests. The fact that the designated 
person is located some distance away should not affect the timeliness 
and substance of responses.
    5. Timing for Response. We amend our rules to require a cable 
system operator to respond to a request for information from a leased 
access programmer within three business days. We retain the 30-day 
response period currently provided in Section 76.970(i)(2) of the 
Commission's rules for cable systems that have been granted small 
system special relief. The identity of a designated person by the cable 
system operator who the potential programmer can contact is important 
only if that person replies quickly and fully to the requests of the 
programmer. Our current rules provide for a 15 day response by cable 
system operators to a request by a potential programmer. That response 
must include information on channel capacity available, the applicable 
rates, and a sample contract if requested. That response time is 
unnecessarily long and, as discussed below, the information is 
inadequate. Cable operators must have leased access channel information 
available in order to be able to comply with the statute and our rules. 
It does not take 15 days to provide a copy of that information to a 
potential leased access programmer. Three business days to reply to a 
request for such information is more than adequate. Accordingly, we are 
amending the response time permitted a cable system operator to three 
business days. We are also providing a more detailed list of 
information the operator must provide upon request within that time 
period. All of the information required to be provided is necessary for 
a potential leased access programmer to be able to file a bona fide 
request for carriage. There is no reason to delay providing the leased 
access programmer with the information it needs to take the necessary 
steps to obtain access.
    6. Process for Requesting Leased Access Channels. We require a 
cable system operator within three business days of a request to 
provide a prospective leased access programmer with the process for 
requesting leased access channels. One element of the information the 
cable system operator must make available to the potential programmer 
within three business days of a request is an explanation of the cable 
system operator's process for requesting leased access channels. 
Accordingly, we are requiring that the cable system operator include an 
explanation of the operator's process and procedures for requesting 
leased access channels.
    7. Geographic Levels of Service that Are Technically Possible. We 
require a cable system operator within three business days of a request 
to provide a prospective leased access programmer with the geographic 
levels of service that are technically possible. Commenters complain 
that cable system operators make available only limited levels of 
service. Typically, the service offered is defined by the size of the 
headend. We will not require, at this time, the operator to allow the 
leased access programmer to serve discrete communities smaller than the 
area served by a headend if they are not doing the same with other 
programmers. We acknowledge that with the consolidation of headends, 
programmers may be forced to purchase larger areas at higher costs than 
they would prefer. We will monitor developments in this area, and may 
revisit this issue if circumstances warrant. However, we will require 
cable system operators to clearly set out in their responses to 
programmers what geographic and subscriber levels of service they 
offer.
    8. Number, Location, and Time Periods Available for Each Leased 
Access Channel. We require a cable system operator within three 
business days of a request to provide a prospective leased access 
programmer with the number, location, and time periods available for 
each leased access channel. Our current leased access channel placement 
standards provide that programmers be given access to tiers that have 
subscriber penetration of more than 50 percent. 47 CFR 76.971(a)(1) We 
will not change that requirement, but we will expand on the current 
requirement relating to capacity in Section 76.970(i) to require cable 
system operators to provide, in their replies to requests from 
programmers, the specific number and location and time periods 
available for each leased access channel. This greater degree of 
certainty should assist programmers in their evaluations.
    9. Explanation of Currently Available and Occupied Leased Access 
Channels. We require a cable system operator within three business days 
of a request to provide a prospective leased access programmer with an 
explanation of currently available and occupied leased access channels. 
Section 612 of the Communications Act imposes specific requirements on 
cable operators with regard to leased access. 47 U.S.C. 532. It is 
inherent in these obligations to be able to provide timely and accurate 
information to prospective leased access programmers. Within three 
business days of a request by a current or potential leased access 
programmer, a cable operator shall provide information documenting: (1) 
The number of channels that the cable operator is required to designate 
for commercial leased access use pursuant to Section 612(b)(1); (2) the 
current availability of those channels for leased access programming on 
a full- or part-time basis; (3) the tier on which each leased access 
channel is located; (4) the number of customers subscribing to each 
tier containing leased access channels; (5) whether those channels are 
currently programmed with non-leased access programming; and (6) how 
quickly leased access channel capacity can be made available to the 
prospective leased access programmer. We believe this information is 
vital to enable leased access programmers to make an informed decision 
regarding whether to pursue leased access negotiations with a cable 
operator. Provision of this information will also benefit cable 
operators by timely informing leased access programmers of current 
leased access timing and availability, and thereby eliminating leased 
access requests that cannot be accommodated by existing leased access 
availability.
    10. Schedule and Calculation of Leased Access Rates. We require a 
cable system operator within three business days of a request to 
provide a prospective leased access programmer with a schedule and 
calculation of its leased access rates. As with information regarding 
available and occupied leased access channels, we believe Section 612 
imposes on cable operators the obligation to provide a timely and 
accurate explanation of its leased access

[[Page 10678]]

rates to prospective leased access programmers. Accordingly, within 
three business days of a request by a current or potential leased 
access programmer, a cable operator shall provide information 
documenting the schedule of all leased access rates (full- and part-
time) available on the cable system. Cable operators must attach to 
this schedule a separate calculation detailing how each rate was 
derived pursuant to the revised rate formula adopted herein. This 
information will assist leased access programmers in determining 
whether leased access capacity on a given cable system is economically 
feasible. In addition, the rate calculations will further assist leased 
access programmers in determining whether particular cable operators 
are complying with their leased access obligations.
    11. Explanation of Any Rates Associated with Technical or Studio 
Costs. Included in the customer standards we are adopting today is a 
requirement that a cable operator provide a prospective leased access 
programmer, within three business days of a request, with a list of 
fees for providing technical support or studio assistance to the leased 
access programmer along with an explanation of such fees and how they 
were calculated. We note that our rules require leased access providers 
to reimburse cable operators ``for the reasonable cost of any technical 
support the operators actually provide.'' 47 CFR 76.971(c) Further, our 
rate calculation includes technical costs common to all programmers so 
that cable operators may not impose a separate charge for technical 
support they already provide to non-leased access programmers. Second 
Report and Order, 12 FCC Rcd at 5324, para. 114. At this time, we will 
not prescribe an hourly rate for technical support, but instead will 
monitor the effectiveness of the new customer standards that require 
that cable operators list up front any technical fees along with an 
explanation of the fee calculation. If leased access programmers have 
continued problems with high technical or studio cost, we will consider 
implementing a more specific solution.
    12. Programming Guide Information. We require a cable system 
operator within three business days of a request to provide a 
prospective leased access programmer with all relevant information for 
obtaining carriage on the program guide(s) provided on the operator's 
system. Moreover, we expressly require that, if a cable operator does 
not charge non-leased access programmers for carriage of their program 
information on a programming guide, the cable operator cannot charge 
leased access programmers for such service. Because of the dynamic 
nature of leased access programming, we believe that it would be 
impracticable to impose a requirement on cable operators to include all 
leased access listings in their programming guides. However, we believe 
that, in situations where time permits and the leased access 
programming information is submitted as reasonably required by the 
cable operators, cable operators must ensure that leased access 
programming information is incorporated in its program guide to the 
same extent that it does so for non-leased access programmers. In order 
to accomplish this, cable operators are required to provide potential 
leased access programmers with all relevant information for obtaining 
carriage on the program guide(s) provided on the operator's system. 
This information shall include the requirements necessary for a leased 
access programmer to have its programming included in the programming 
guide(s) that serve the tier of service on which the leased access 
provider contracts for carriage. At a minimum, the cable operator must 
provide: (1) The format in which leased access programming information 
must be provided to the cable operator for inclusion in the appropriate 
programming guide; (2) the content requirements for such information; 
(3) the time by which such programming information must be received for 
inclusion in the programming guide; and (4) the additional cost, if 
any, related to carriage of the leased access programmer's information 
on the programming guide. We expressly require that, if a cable 
operator does not charge non-leased access programmers for carriage of 
their program information on a programming guide, the cable operator 
cannot charge leased access programmers for such service.
    13. Methods of Programming Delivery. We require a cable system 
operator within three business days of a request to provide a 
prospective leased access programmer with available information 
regarding all acceptable, standard methods for delivering leased access 
programming to the cable operator. Because of the variable 
circumstances experienced by each cable system, we cannot establish a 
list of acceptable, standard delivery methods for leased access 
programming applicable to all cable systems. However, we believe that 
it incumbent upon a cable operator to provide prospective leased access 
programmers with sufficient information to be able to gauge the 
relative difficulty and expense of delivering its programming for 
carriage by the cable operator. A cable operator must make available 
information to leased access programmers regarding all acceptable, 
standard methods for delivering leased access programming to the cable 
operator. For each method of acceptable, standard delivery, the cable 
operator shall provide detailed instructions for the timing of 
delivery, the place of delivery, the cable operator employee(s) 
responsible for receiving delivery of leased access programming, all 
technical requirements and obligations imposed on the leased access 
programmer, and the total cost involved with each acceptable, standard 
delivery method that will be assessed by the cable operator. We 
clarify, however, that cable operators must give reasonable 
consideration to any delivery method suggested by a leased access 
programmer. A leased access programmer that is denied the opportunity 
to deliver its programming via a reasonable method may file a complaint 
with the Commission. In such complaint proceeding, the burden of proof 
shall be on the cable operator to demonstrate that its denial was 
reasonable given the unique circumstances of its cable system.
    14. Comprehensive Sample Leased Access Carriage Contract. We 
require a cable system operator within three business days of a request 
to provide a prospective leased access programmer with a comprehensive 
sample leased access carriage contract. We also require a cable system 
operator in its leased access carriage contract to apply the same 
uniform standards, terms, and conditions to leased access programmers 
as it applies to its other programmers.
    15. We do not intend by this requirement to infringe the freedom of 
contract of either party and expressly clarify that neither the cable 
operator nor the prospective leased access programmer need abide by any 
of the terms and conditions set forth in the sample contract. Instead, 
we believe that the provision of such agreements by cable operators 
serve to inform leased access programmers of terms and conditions that 
are generally acceptable to the cable operator and will be a useful 
first step in the initiation of leased access negotiations. 
Accordingly, within three business days of a request by a current or 
potential leased access programmer, a cable operator shall provide a 
copy of a sample leased access carriage contract setting forth what the 
cable operator considers to be the

[[Page 10679]]

standard terms and conditions for a leased access carriage agreement.
    16. As discussed below, we also require cable system operators to 
apply the same uniform standards, terms, and conditions to leased 
access programmers as it applies to its other programmers. Rather than 
dictate specific reasonable terms and conditions, we require that cable 
system operators apply the same uniform standards, terms, and 
conditions to leased access programmers as it applies to its other 
programmers.
    17. The Commission has stated in the past that the reasonableness 
of specific terms and conditions will be determined on a case-by-case 
basis, but set broad guidelines for tier placement and a general 
standard of reasonableness for contract terms and conditions.
    18. We will continue to address complaints about specific contract 
terms and conditions on a case-by-case basis. We emphasize that in all 
cases, the Commission will evaluate any complaints pursuant to a 
reasonableness standard. We also clarify that a cable system operator 
may not continue to include terms and conditions in new contracts that 
previously have been held to be unreasonable by the Commission. Not 
only are our orders binding on the affected parties to a leased access 
complaint, but unless and until an order is stayed or reversed by the 
Commission, a cable system operator is under an obligation to follow 
the Commission's rules and precedent in setting its practices, terms, 
and conditions.
    19. Because we do not think that every potential leased access 
programmer should be required to file a complaint to determine if every 
term in its contract is reasonable, we will require the cable operator 
to provide, along with its standard leased access contract, an 
explanation and justification, including a cost breakdown, for any 
terms and conditions that require the payment or deposit of funds. This 
includes insurance and deposit requirements, any fees for handling or 
delivery, and any other technical or equipment fees, such as tape 
insertion fees. This will allow the leased access programmer to 
determine whether the cost is reasonable and expedite any review by the 
Commission. We believe that requiring a cable operator to provide an 
explanation and justification for such a fee will encourage cable 
operators to impose only reasonable fees or, at least, facilitate the 
filing of a leased access complaint demonstrating that such a fee is 
unreasonable.
    20. With regard to non-monetary terms and conditions, such as 
channel and tier placement, targeted programming, access to electronic 
program guides, VOD, etc., we similarly require the cable operator to 
provide, along with its standard leased access contract, an explanation 
and justification of its policy. For example, with regard to the 
geographic scope of carriage, if a leased access programmer requests to 
have its programming targeted to a finite group of subscribers based on 
community location, unless the operator agrees to the request, it must 
not provide such limited carriage to other programmers or channels. To 
the extent the cable operator denies the request for limited carriage, 
the cable operator must provide an explanation as to why it is 
technically infeasible to provide such carriage. If limited carriage is 
technically feasible, the cable operator must provide a fee and cost 
breakdown for such carriage for comparison with similar coverage 
provided for non-leased access programmers.
    21. Similarly, with regard to tier placement and channel location, 
we require the cable operator to provide, along with its standard 
leased access contract, an explanation and justification of its policy 
regarding placement of a leased access programmer on a particular 
channel as well as an explanation and justification for the cable 
operator's policy for relocating leased access channels. To the extent 
a request for a particular channel is denied, the cable operator must 
provide a detailed explanation and justification for its decision.
    22. Launch Date. We require a cable system operator within three 
business days of a request to provide a prospective leased access 
programmer with information regarding prospective launch dates for the 
leased access programmer. Moreover, we require cable operators to 
launch leased access programmers within a reasonable amount of time. We 
consider 35-60 days after the negotiation is finalized to be a 
reasonable amount of time for launch of a programmer, unless the 
parties come to a different agreement. We note that this time frame 
affords cable operators sufficient time to satisfy the requirement, if 
applicable, to provide subscribers with 30-days written notice in 
advance of any changes in programming services or channel positions.
C. Response to Bona Fide Proposals for Leased Access
    23. We adopt rules to ensure that cable system operators respond to 
proposals for leased access in a timely manner and do not unreasonably 
delay negotiations for leased access. To address this concern, after 
the cable system operator provides the information requested above, in 
order to be considered for carriage on a leased access channel, we 
require a leased access programmer to submit a proposal for carriage by 
submitting a written proposal that includes the following information: 
(1) The desired length of a contract term; (2) The tier, channel and 
time slot desired; (3) The anticipated commencement date for carriage; 
(4) The nature of the programming; (5) The geographic and subscriber 
level of service requested; and (6) Proposed changes to the sample 
contract. The cable system operator must respond to the proposal by 
accepting the proposed terms or offering alternative terms within 10 
days. This same response deadline will apply until an agreement is 
reached or negotiations fail.
    24. Failure to provide the requested information will result in the 
issuance of a notice of apparent liability (``NAL'') including a 
forfeiture in the amount of $500.00 per day. A potential leased access 
programmer need not file a formal leased access complaint pursuant to 
Section 76.975 of the Commission's rules in order to bring a violation 
of our customer service standards to our attention. Rather, the 
programmer may notify the Commission either orally or in writing, and 
where necessary the Commission will submit a Letter of Inquiry 
(``LOI'') to the cable operator to obtain additional information. A 
cable system which is found to have failed to respond on time with the 
required information will be issued an NAL. The same process and 
forfeiture amount will apply for the failure to timely respond to a 
proposal as for the failure to comply with an information request. We 
rely on our general enforcement authority under Section 503 of the 
Communications Act to impose forfeitures in appropriate cases. See 47 
U.S.C. 503
D. Leased Access Rates
1. Maximum Rate for Leasing a Full Channel
    25. Background. The Commission's current rules calculate leased 
access rates for all tiers that have subscriber penetration of more 
than 50 percent. Upon request, cable operators generally must place 
leased access programmers on such a tier. To determine the average 
implicit fee for a full-time channel on a tier with a subscriber 
penetration over 50 percent, an operator first calculates the total 
amount it receives in subscriber revenue per month for the

[[Page 10680]]

programming on all such tiers, and then subtracts the total amount it 
pays in programming costs per month for such tiers (the ``implicit fee 
calculation''). A weighting scheme that accounts for differences in the 
number of subscribers and channels on all such tier(s) is used to 
determine how much of the total will be recovered from a particular 
tier. To calculate the average implicit fee per channel, the implicit 
fee for the tier is divided by the number of channels on the tier. The 
final result is the rate per month that the operator may charge the 
leased access programmer for a full-time channel on that tier. Where 
the leased access programmer agrees to carriage on a tier with less 
than 50 percent penetration, the average implicit fee is determined 
using subscriber revenues and programming costs for only that tier. The 
implicit fee for full-time channel placement as an a la carte service 
is based upon the revenue received by the cable operator for non-leased 
access a la carte channels on its system.
    26. In this Order we modify the method for determining the leased 
access rate for full-time carriage on a tier. We harmonize the rate 
methodology for carriage on tiers with more than 50% subscriber 
penetration and carriage on tiers with lower levels of penetration by 
calculating the leased access rate based upon the characteristics of 
the tier on which the leased access programming will be placed. Cable 
operators will calculate a leased access rate for each cable system on 
a tier-by-tier basis which will adequately compensate the operator for 
the net revenue that is lost when a leased access programmer displaces 
an existing program channel on the cable system. In addition, the Order 
sets a maximum allowable leased access rate of $0.10 per subscriber per 
month to ensure that leased access remains a viable outlet for 
programmers. At this time we leave the method for calculating rates for 
a la carte carriage unchanged.
    27. As an initial matter, we conclude that we will not apply this 
new rate methodology to programmers that predominantly transmit sales 
presentations or program length commercials. These programmers often 
``pay'' for carriage--either directly or through some form of revenue 
sharing with the cable operator. In our previous Order, we set the 
leased access rate for a la carte programmers at the ``highest implicit 
fee'' partly out of a concern that lower rates would simply lead these 
programmers to migrate to leased access if it were less expensive than 
what they are currently ``paying'' for carriage. Such a migration would 
not add to the diversity of voices and would potentially financially 
harm the cable system. Similarly, we do not wish to set the leased 
access rates at a point at which programmers that predominantly 
transmit sales presentations or program length commercials simply 
migrate to leased access because it is less expensive than their 
current commercial arrangements. We will seek comment in the Further 
Notice of Proposed Rulemaking on whether leased access is affordable at 
current rates to programmers that predominantly transmit sales 
presentations or program length commercials and whether reduced rates 
would simply cause migration of existing services to leased access.
2. The Marginal Implicit Fee
    28. The purposes of Section 612 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.'' Because Section 612 also requires that 
the price, terms and conditions for leased access be ``at least 
sufficient to assure that such use will not adversely affect the 
operation, financial condition or market development of the cable 
system,'' the Commission is faced with balancing the interests of 
leased access programmers with those of cable operators. We believe 
that our method provides a cable operator with a leased access rate 
that will allow the operator to replace an existing channel from its 
cable system with a leased access channel without experiencing a loss 
in net revenue. While we do not believe that our method for determining 
leased access rates will result in cable operators experiencing any 
loss in net revenue, the relevant statutory provision does not require 
such a finding. As explained above, Section 612(c)(1) provides that the 
``prices, terms and conditions'' of use must be ``at least sufficient 
to assure that such use will not adversely affect the operation, 
financial condition, or market development of the cable system.'' We 
interpret this provision to restrict ``prices, terms, and conditions'' 
of leased access use that materially affect the financial health of a 
cable system. We do not interpret the provision to require that cable 
operators experience no loss in revenue whatsoever as a result of 
leased access use. Thus, even if we were to conclude that our method 
for determining leased access rates would have some impact on cable 
operators' revenue, we would still adopt this method because we are 
confident that any impact on operators'' revenue would not be of 
sufficient magnitude to materially affect the financial health of cable 
systems. In addition, since we are required to balance the revenue 
requirement of cable operators and that of leased access programmers, 
we will assume that the cable operator will elect to replace a channel 
which does not generate a significant amount of the total net revenue 
of the system. We refer to this channel as the marginal channel and use 
the marginal implicit fee to determine leased access rates. Our method 
was intended to promote the goals of competition and diversity of 
programming sources while doing so in a manner consistent with growth 
and development of cable systems.
    29. Based on the wide variance between the actual use of leased 
access and the goals stated in the law, it appears that the current 
``average implicit fee'' formula for tiered leased access channels 
yields fees that are higher than the statute mandates, resulting in an 
underutilization of leased access channels. According to the 
Commission's most recent annual cable price survey, cable systems on 
average carry only 0.7 leased access channels. Because our Rules are 
not achieving their intended purpose, we are revisiting decisions made 
in the Second Report and Order establishing the maximum leased access 
rates in order to make the leased access channels a more viable outlet 
for programming. Throughout its implementation of Section 612, the 
Commission has recognized that the Rules adopted would need refinement 
as specifics regarding how the leased access rules were functioning 
became available.
    30. Due to the variances in channel line-ups and tier prices of 
cable systems, in most instances, a flat rate would either over- or 
undercompensate cable operators. As discussed below, however, we will 
set a cap on the maximum rate that cable operators may charge in order 
to prevent the construction of tiers in a manner that makes leased 
access rates excessively high.
    31. We agree with Shop NBC's assertion that the average implicit 
fee overcompensates cable operators because it reflects the average 
value of a channel to the cable operator instead of the value of the 
channel replaced. We will make adjustments to the rate calculations 
that should lower prices by using the marginal implicit fee rather than 
the average. The result is intended to promote the goals of leased 
access by providing more affordable opportunities

[[Page 10681]]

for programmers without creating an artificially low rate.
    32. The legislative history provides that the leased access 
provisions are ``aimed at assuring that cable channels are available to 
enable program suppliers to furnish programming when the cable operator 
may elect not to provide that service as part of the program offerings 
he makes available to subscribers'' To promote this legislative purpose 
the Commission should set the leased access rates as low as possible 
consistent with the requirement to avoid any negative financial impact 
on the cable operator. One may assume that the cable operator, faced 
with a requirement to free up a channel for leased access, would have 
its own incentives to elect to replace one of the channels with the 
lowest implicit fee. But even if this is not the case, the discussion 
above suggests that the Commission should set its rules to encourage 
such a result. This dictates, at least in principle, the use of the 
lowest implicit fee, which we refer to as the ``marginal implicit 
fee.'' And it supports the conclusion that the current ``average 
implicit fee'' criterion for tiered channels is higher than warranted 
by the statute and may be impeding, rather than promoting, the goals of 
competition and diversity of programming sources. These rules provide 
cable operators a higher return for lost channel capacity than the 
value the cable operator would have received if the channel was not 
used for leased access programming. The ``average implicit fee'' is 
calculated based on the average value of all of the channels in a tier 
instead of the value of the channels most likely to be replaced. We 
will adopt a method which eliminates this excess recovery. This method 
remains faithful to the statutory requirements while more appropriately 
balancing the interests of cable operators and leased access 
programmers.
3. The Cable Operator's Net Revenue From a Cable Channel
    33. Cable channels are sold in bundles of channels known as tiers. 
It is therefore not possible to directly observe the revenue per 
subscriber a cable operator earns from carrying an individual channel 
included in a tier. We therefore approximate the revenue earned by 
those channels on the tier. To do so we assume that the revenue 
generated by each channel is directly proportional to the per 
subscriber affiliation fee paid by the cable operator to the 
programmer. The first step in the calculation is to determine this 
factor of proportionality which we refer to as the mark-up. To do so, 
the cable operator will take the total subscriber revenue for the 
programming tier at issue and divide by the total of the affiliation 
fees that the cable operator pays to the programmers for the channels 
on that tier. For the purposes of defining the price of a tier and the 
channels on the tier we adopt the incremental approach in cases where 
the cost and channels of one tier are implicitly incorporated into 
larger tiers. For example, when the expanded basic tier incorporates 
the basic tier, the expanded basic tier price is the retail price of 
the expanded basic tier less the retail price of the basic tier and the 
channels on the expanded basic tier are those that are not available on 
the basic tier. A similar adjustment is required of other tiers which 
are not sold on an incremental basis. This calculation will generate 
the mark-up of channels that are sold on the tier. The gross revenue 
per subscriber due to carriage of a specific channel on the tier is 
then simply the per subscriber affiliation fee paid to the programmer 
for the specific channel multiplied by the mark-up. It is our 
understanding that some programming contracts specify a single rate for 
a group, or bundle, of channels. In these cases, for the purposes of 
determining the per subscriber affiliation fee for one of the bundled 
channels, the fee in the contract shall be allocated in its entirety to 
the highest rated network in the bundle. The net revenue per subscriber 
earned by the cable operator from the channel is the difference between 
the gross revenue per subscriber and the per subscriber affiliation fee 
paid by the cable operator. This value represents the implicit fee for 
the channel.
4. The Net Revenue of the Marginal Channel
    34. The net revenue per subscriber is the reduction in profit a 
cable operator would experience if it did not carry the channel in 
question. In our previous method for calculating leased access rates 
the calculation was based the average net revenue of all channels 
carried by the cable operator. In our new method, we base the leased 
access rate on the net revenue of the least profitable channels 
voluntarily carried by the cable operators on the tier where the leased 
access programming will be carried. We do so because this represents an 
approximation of the minimum net revenue a network must generate in 
order for the cable operator to consider carrying it on the tier. As 
mentioned, we examine the net revenue of channels that are voluntarily 
carried by the cable operator. From this calculation we exclude 
channels whose carriage is mandated by statute, regulation, or 
franchise agreement. These mandated channels consist of broadcast 
stations that are subject to the must-carry rules as well as public, 
educational, and governmental (``PEG'') channels that are carried 
pursuant to a franchise agreement. In addition, broadcaster's multi-
cast channels are also excluded from the marginal channels. Our goal is 
to base the leased access rate on the net revenue of channels which are 
subject to free market negotiations over the carriage decision and 
affiliation fee. It is the net revenue of these types of channels which 
provides an indication of the net revenue that would be forgone when a 
cable operator devotes channel capacity to a leased access programmer 
since the cable operator would be unable to displace a broadcast 
station or PEG channel.
    35. We identify the least profitable, or marginal, channels using 
the fraction of activated channels that a cable operator is statutorily 
required to make available for commercial leased access. The leased 
access rate is the mean value of net revenue earned by the lowest 
earning channels on the tier, up to the designated leased access 
fraction of qualifying channels on the tier. For example, in the case 
of a cable system with 100 activated channels and 40 channels on the 
expanded basic tier, the mean value of the net revenue of the 6 
channels with the lowest net revenue will be the leased access rate for 
carriage on the expanded basic tier. We use the mean rather than the 
minimum value because use of the minimum would undercompensate the 
cable operator if more than one leased access channel was carried 
because, presumably, all channels other than the minimum earn higher 
net revenues. Use of the mean ensures that if the cable operator 
carries the statutory maximum number of leased access channels by 
displacing the lowest earning channels on its system, the cable 
operator will be fully compensated for lost revenue.
    36. Appendix B of this Order presents an example of the calculation 
of the leased access rates for a hypothetical cable system.
5. Determining the Maximum Allowable Leased Access Rate
    37. We recognize that our tier-based calculation method may lead to 
inequitable results in situations when a tier carries only a few non-
mandated programming networks in combination with a large amount of 
mandated programming. This may create incentives among cable operators 
to design programming tiers that are unaffordable for leased access

[[Page 10682]]

programmers. Such an outcome would contravene our statutory directive. 
Therefore we institute a maximum allowable rate based upon industry-
wide cable operator programming costs and revenues. This will ensure 
that leased access programmers can reach consumers in all areas of the 
country. We will permit cable operators to seek a waiver of the maximum 
allowable rate to ensure no unreasonable financial burden is put on any 
cable operator. The maximum allowable leased access rate will apply to 
carriage on any tier in which the operator-specific leased access rate 
for the tier exceeds the maximum allowable rate.
    38. We take several approaches to calculating this maximum rate. 
For example, we calculate the maximum rate utilizing a methodology 
based on per-subscriber affiliation fees that compensates systems that 
must vacate a channel in order to provide capacity to a commercial 
leased access programmer. We also calculate the maximum allowable 
leased access rate using a method that follows the one used to 
calculate the system-specific rates. In both cases, maximum rates for 
each of the analog and digital tiers are no greater than $0.10 per 
subscriber per month. The methods are detailed in Appendix B. 
Therefore, the maximum leased access rate will not exceed $0.10 per 
subscriber per month for any cable system.
    39. Cable operators may petition the Commission to exceed the 
maximum allowable leased access rates. A petition for relief must 
present specific facts justifying the system's specific leased access 
rate and provide an alternative rate which equitably balances the 
revenue requirements of the cable operator with the public interest 
goals of the leased access statute. Our presumption is that the mean 
value of the net revenue of the marginal networks, including those 
currently earning no license fee, provides the most reasonable 
approximation of the revenue which is forgone when a cable operator 
carries leased access programming.
6. Effective Date of New Rate Regulations
    40. We recognize that the industry should receive an appropriate 
amount of time to review and to take steps to comply with the new rate 
regulations set forth above. Section 76.970(j)(3), which contains new 
or modified information collection requirements that have not been 
approved by the Office of Management and Budget (OMB), is effective 
upon OMB approval. Section 76.970 is effective May 28, 2008 or upon OMB 
approval of Sec.  76.970(j)(3), whichever is later. After OMB approval 
is received, the Commission will publish a document in the Federal 
Register announcing the effective date of the rules requiring OMB 
approval and those whose effective date was delayed pending OMB 
approval of other rules.
E. Expedited Process
    41. As explained below, we do not change the current pleading cycle 
for leased access complaints set forth in Section 76.975 of the 
Commission's rules, which requires the complaint to be filed with the 
Commission within 60 days of any alleged violation and the cable 
operator to submit a response within 30 days from the date of the 
complaint. The Media Bureau will resolve all leased access complaints 
within 90 days of the close of the pleading cycle, obtaining additional 
discovery from the parties as necessary to quickly resolve complaints. 
Finally, we eliminate the requirement that a complainant alleging that 
a leased access rate is unreasonable must first receive a determination 
of the cable operator's maximum permitted rate from an independent 
accountant.
    42. Discussion. We retain our existing pleading cycle for 
resolution of leased access complaints set forth in Section 76.975 of 
the Commission's rules, which requires the complaint to be filed with 
the Commission within 60 days of any alleged violation and the cable 
operator to submit a response within 30 days from the date of the 
complaint. We find that our current pleading cycle is not too lengthy, 
as it is imperative that we receive all the necessary information to 
resolve the dispute. Although we retain the existing time limits on 
filing of complaints, we add an exception that the time limit on filing 
complaints will be suspended if the complainant files a notice with the 
Commission prior to the expiration of the filing period, stating that 
it seeks an extension of the filing deadline in order to pursue active 
negotiations with the cable operator. The cable operator must agree to 
the extension.
    43. The Media Bureau will resolve all leased access complaints 
within 90 days of the close of the pleading cycle, obtaining additional 
discovery from the parties as necessary to quickly resolve complaints. 
As part of the remedy phase of the leased access complaint process, the 
Media Bureau will have discretion to request that the parties file 
their best and final offer proposals for the prices, terms, or 
conditions in dispute. The Commission will have the discretion to adopt 
one of the proposals or choose to fashion its own remedy. We believe 
that this expedited process will help to resolve leased access disputes 
quickly and efficiently and create a body of precedent to encourage 
private negotiations and the settlement of disputes. If the Media 
Bureau concludes that the complainant is entitled to access a leased 
access channel, the Media Bureau's resolution of the complaint will 
include a launch date for the programming.
    44. Elimination of Independent Accountant Requirement. We eliminate 
the requirement for a complainant alleging that a leased access rate is 
unreasonable to first obtain a determination of the cable operator's 
maximum permitted rate from an independent accountant prior to filing a 
petition for relief with the Commission. While the Commission adopted 
the independent accountant requirement as a means to ``streamline'' the 
leased access complaint process, the record reflects that this 
requirement has not worked as intended. We conclude that the expense, 
delay, and uncertainty for leased access programmers resulting from the 
requirement to obtain a determination from an independent accountant 
are not what the Commission envisioned in attempting to ``streamline'' 
the leased access complaint process. Furthermore, we believe the new 
rate methodology we have adopted, along with the requirement to provide 
rate information and an explanation of how rates were calculated, will 
result in a simpler and transparent process for leased access rates. We 
also believe the expedited complaint process and expanded discovery we 
adopt herein provide leased access programmers with a more efficient 
process for challenging the commercial leased access rates charged by 
cable operators. While cable operators argue that the use of an 
independent accountant is important to protect commercially sensitive 
financial information, the Protective Order we adopt below will 
sufficiently safeguard such information.
F. Discovery
    45. As discussed below, we adopt expanded discovery rules for 
leased access complaints to improve the quality and efficiency of the 
Commission's resolution of these complaints. We amend our discovery 
rules pertaining to leased access complaints to require respondents to 
attach to their answers copies of any documents that they rely on in 
their defense; find that in the context of a complaint proceeding, it 
would be unreasonable for a respondent not to produce all the documents 
either

[[Page 10683]]

requested by the complainant or ordered by the Commission, provided 
that such documents are in its control and relevant to the dispute, 
subject to the protection of confidential material. We emphasize that 
the Commission will use its authority to issue default orders granting 
a complaint if a respondent fails to comply with reasonable discovery 
requests. The respondent shall have the opportunity to object to any 
request for documents. Such request shall be heard, and determination 
made, by the Commission. The respondent need not produce the disputed 
discovery material until the Commission has ruled on the discovery 
request. Any party who fails to timely provide discovery requested by 
the opposing party to which it has not raised an objection may be 
deemed in default and an order may be entered in accordance with the 
allegations contained in the complaint, or the complaint may be 
dismissed with prejudice.
    46. Under the current rules, a leased access complainant is 
entitled, either as part of its complaint or through a motion filed 
after the respondent's answer is submitted, to request that Commission 
staff order discovery of any evidence necessary to prove its case. See 
47 CFR 76.7(e), (f). Respondents are also free to request discovery. We 
believe that expanded discovery will improve the quality and efficiency 
of the Commission's resolution of leased access complaints. 
Accordingly, we find that it would be unreasonable for a respondent not 
to produce all the documents either requested by the complainant or 
ordered by the Commission, provided that such documents are in its 
control and relevant to the dispute. In reaching this finding, we agree 
that evidence detailing how the cable operator calculated its leased 
access rate, as well as the availability of certain contracts for 
carriage of leased access programming, subject to confidential 
treatment, are essential for determining whether the cable operator has 
violated the Commission's leased access rules. The Commission's Rules 
allow the Commission staff to order production of any documents 
necessary to the resolution of a leased access complaint. See 47 CFR 
76.7(e), (f). The subject discovery may require the production of 
confidential material, including evidence detailing how the cable 
operator calculated its leased access rate as well as carriage 
contracts, subject to our confidentiality rules. While we retain this 
process for the Commission to order the production of documents and 
other discovery, we will also allow parties to a leased access 
complaint to serve requests for discovery directly on opposing parties.
    47. Parties to a leased access complaint may serve requests for 
discovery directly on opposing parties, and file a copy of the request 
with the Commission. As discussed above, the respondent shall have the 
opportunity to object to any request for documents that are not in its 
control or relevant to the dispute. Such request shall be heard, and 
determination made, by the Commission. Until the objection is ruled 
upon, the obligation to produce the disputed material is suspended. Any 
party who fails to timely provide discovery requested by the opposing 
party to which it has not raised an objection as described above may be 
deemed in default and an order may be entered in accordance with the 
allegations contained in the complaint, or the complaint may be 
dismissed with prejudice.
    48. We reiterate that respondents to leased access complaints must 
produce in a timely manner the contracts and other documentation that 
are necessary to resolve the complaint, subject to confidential 
treatment. In order to prevent abuse, the Commission will strictly 
enforce its default rules against respondents who do not answer 
complaints thoroughly or do not respond in a timely manner to 
permissible discovery requests with the necessary documentation 
attached. Respondents that do not respond in a timely manner to all 
discovery ordered by the Commission will risk penalties, including 
having the complaint against them granted by default. Likewise, a 
complainant that fails to respond promptly to a Commission order 
regarding discovery will risk having its complaint dismissed with 
prejudice. Finally, a party that fails to respond promptly to a request 
for discovery to which it has not raised a proper objection will be 
subject to these sanctions as well.
    49. We understand that this approach requires the submission of 
confidential and extremely competitively-sensitive information. 
Accordingly, in order to appropriately safeguard this confidential 
information we believe it is necessary to utilize the protective order 
adopted for use in our program access proceedings (``Protective 
Order''), which we attach hereto as Appendix A.
    50. A Protective Order constitutes both an Order of the Commission 
and an agreement between the party executing the declaration and the 
submitting party. The Commission has full authority to fashion 
appropriate sanctions for violations of its protective orders, 
including but not limited to suspension or disbarment of attorneys from 
practice before the Commission, forfeitures, cease and desist orders, 
and denial of further access to confidential information in Commission 
proceedings. We intend to vigorously enforce any transgressions of the 
provisions of our protective orders.
G. Annual Reporting of Leased Access Statistics
    51. We adopt an annual reporting requirement for cable operators to 
submit information pertaining to leased access rates, usage, channel 
placement, and complaints, among other leased access matters. In the 
NPRM, we sought comment on various questions regarding the status of 
commercial leased access, such as the extent to which programmers are 
making use of commercial leased access channels, whether cable 
operators have denied requests for commercial leased access, whether 
cable operators use commercial leased access channels for their own 
purposes, and the effectiveness of the complaint process.
    52. We did not receive a large number of comments containing 
industry-wide data regarding use of leased access. As described below, 
to ensure that we have sufficient up-to-date information on the status 
of leased access programming in the future, we adopt an annual 
reporting requirement for cable operators.
    53. Discussion. We adopt an annual reporting requirement for cable 
operators pertaining to leased access rates, usage, channel placement, 
and complaints, among other leased access matters. We find that 
gathering up-to-date information and statistics on an annual basis 
pertaining to leased access is critical to our efforts to track trends 
in commercial leased access rates and usage as well as to monitor any 
efforts by cable operators to impede use of commercial leased access 
channels. This information will allow us to determine whether further 
modifications to the commercial leased access rules we adopt herein are 
needed based on a more concrete factual setting. The Annual Report will 
require each cable system to provide the following information:
    <bullet> List the number of commercial leased access channels 
provided by the cable system.
    <bullet> List the channel number and tier applicable to each 
commercial leased access channel.
    <bullet> Provide the rates the cable system charges for full-time 
and part-time leased access on each leased access channel.

[[Page 10684]]

    <bullet> Provide the calculated maximum commercial leased access 
rate and actual rates.
    <bullet> List programmers using each commercial leased access 
channel and state whether each programmer is using the channel on a 
full-time or part-time basis.
    <bullet> List number of requests received for information 
pertaining to commercial leased access and the number of bona fide 
proposals received for commercial leased access.
    <bullet> Describe whether you have denied any requests for 
commercial leased access and, if so, explain the basis for the denial.
    <bullet> Describe whether a complaint has been filed against the 
cable system with the Commission or with a Federal district court 
regarding a commercial leased access dispute.
    <bullet> Describe whether any entity has sought arbitration with 
the cable system regarding a commercial leased access dispute.
    <bullet> Describe the extent to which and for what purposes the 
cable system uses commercial leased access channels for its own 
purposes.
    <bullet> Describe the extent to which the cable system impose 
different rates, terms, or conditions on commercial leased access 
programmers (such as with respect to security deposits, insurance, or 
termination provisions). Explain any differences.
    <bullet> List and describe any instances of the cable system 
requiring an existing programmer to move to another channel or tier.
    54. Each cable system must submit this report with the Commission 
by April 30th of each year. The report will request information for the 
preceding calendar year. We anticipate that any burdens associated with 
this annual reporting requirement will be limited, as the information 
requested should be readily available to cable operators.
    55. We provide leased access programmers and other interested 
parties with an opportunity to file comments on a voluntary basis with 
the Commission responding to the cable operators' annual leased access 
reports. These comments should be filed by May 15th of each year. We 
invite commercial leased access programmers to provide information such 
as the following in these comments:
    <bullet> List the number of commercial leased access channels 
leased on each cable system. Indicate the channel number and tier 
applicable to each commercial leased access channel.
    <bullet> Describe whether a cable operator has denied any request 
for commercial leased access and, if so, explain the basis for the 
denial.
    <bullet> Describe whether cable operators have responded to 
requests for information pertaining to leased access within three 
business days, as required by the Commission's rules.
    <bullet> Describe whether the programmer has filed any complaints 
with the Commission or a Federal district court against a cable 
operator regarding a commercial leased access dispute.
    <bullet> Describe whether the programmer has sought arbitration 
with a cable operator regarding a commercial leased access dispute.
    <bullet> Describe any difficulties the programmer has faced in 
trying to obtain access to a commercial leased access channel.

III. Constitutional Issues

    56. The revisions to the leased access rules we adopt herein 
withstand constitutional scrutiny. The leased access provision of the 
1992 Cable Act has survived a facial First Amendment challenge in Time 
Warner Entertainment Co., L.P. v. FCC, 93 F.3d 957 (DC Cir. 1996) 
(``Time Warner''). The DC Circuit has already decided that the leased 
access provision of the 1992 Cable Act is not content-based. The leased 
access provision does not favor or disfavor speech on the basis of the 
ideas contained therein; rather, it regulates speech based on 
affiliation with a cable operator. The court held in Time Warner that 
the provisions of the Cable Act that regulate speech based on 
affiliation with a cable operator are subject to intermediate scrutiny 
and are constitutional if the government's interest is important or 
substantial and the means chosen to promote that interest do not burden 
substantially more speech than necessary to achieve the aim. The Time 
Warner court found that there is a substantial government interest in 
promoting diversity and competition in the video programming 
marketplace. We find that this substantial government interest remains 
today. While MVPDs argue that there are more outlets today for 
independent programmers, such as the Internet, they fail to demonstrate 
that these alternative outlets can be considered sufficient to conclude 
that Congress's goals of promoting competition and diversity in passing 
the leased access provisions of the 1992 Cable Act have been achieved. 
The rules we adopt today simply implement the statutory requirements 
enacted by Congress.
    57. We also reject the claim that the leased access rules deprive 
cable operators of the value of their property (i.e., channel capacity) 
without just compensation in violation of the Fifth Amendment. The 
Fifth Amendment ``takings'' clause requires ``just compensation'' for a 
government ``taking'' of private property. Moreover, the leased access 
provision of the 1992 Cable Act, as well as our rules implementing that 
provision, provide just compensation to cable operators for use of 
their channel capacity. We conclude that leased access rules satisfy 
requirements that there must be an ``essential nexus'' between the 
taking and a legitimate state interest as well as a ``rough 
proportionality'' between the taking and the magnitude of the 
government objective. As the DC Circuit previously held, there is a 
substantial government interest in promoting competition and diversity 
in the video programming marketplace, and the provisions of the 1992 
Cable Act regulating cable-affiliated programming are narrowly tailored 
to achieve those goals. Thus, there is no ``taking'' within the meaning 
of the Fifth Amendment.
    58. We also reject the argument that the NPRM failed to provide the 
specificity required under the Administrative Procedure Act (``APA'') 
and that the Commission must issue another notice before adopting final 
rules. Section 553(b) and (c) of the APA requires agencies to give 
public notice of a proposed rule making that includes ``either the 
terms or substance of the proposed rule or a description of the 
subjects and issues involved'' and to give interested parties an 
opportunity to submit comments on the proposal. See 5 U.S.C. 553(b), 
(c). The notice ``need not specify every precise proposal which [the 
agency] may ultimately adopt as a rule''; it need only ``be sufficient 
to fairly apprise interested parties of the issues involved.'' See 
Nuvio Corp. v. FCC, 473 F.3d 302, 310 (DC Cir. 2006) (internal 
quotations omitted). In particular, the APA's notice requirements are 
satisfied where the final rule is a ``logical outgrowth'' of the 
actions proposed. See Public Service Commission of the District of 
Columbia v. FCC, 906 F.2d 713, 717 (DC Cir. 1990). The questions raised 
in the NPRM, as well as the concerns mentioned in the Adelphia Order 
which resulted in the NPRM, regarding the adequacy of the current 
leased access regimes, including the complaint process, were sufficient 
to put interested parties on notice that the Commission was considering 
how to revise the leased access rules to effectuate the intent of 
Congress. See NPRM, 22 FCC Rcd 11222, para. 1 (citing Adelphia Order, 
21 FCC Rcd 8203, 8277, para. 165; 8367 (Statement of Commissioner

[[Page 10685]]

Copps); 8371 (Statement of Commissioner Adelstein)); See also Adelphia 
Order, 21 FCC Rcd at paras. 99, 109, 114, 165, 190-91, 298. Because 
parties could have anticipated that the rules ultimately adopted herein 
were possible, it is a ``logical outgrowth'' of the original proposal, 
and adequate notice was provided under the APA. See Northeast Maryland 
Waste Disposal Authority v. EPA, 358 F.3d 936, 951 (DC Cir. 2004) 
(discussing APA notice requirements and the ``logical outgrowth'' 
test).

IV. Procedural Matters

    59. Congressional Review Act. The Commission will send a copy of 
this Report and Order in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act, see 5 U.S.C. 801(a)(1)(A).
    60. Effective Date. Sections 76.975(h)(1),(2) and (3) and (i) are 
effective March 31, 2008. Sections 76.970(j)(3), 76.972(a), (b), (c), 
(d), (e), and (g); 76.975(d), (e), (g) and (h)(4); and 76.978, which 
contain new or modified information collection requirements that have 
not been approved by the Office of Management and Budget (OMB), are 
effective upon OMB approval. Section 76.970 is effective May 28, 2008 
or upon OMB approval of Sec.  76.970(j)(3), whichever is later. The 
effective date of Sections 76.972 (f) and 76.975 (b), (c) and (f) is 
delayed until OMB approval of the aforementioned rule sections. After 
OMB approval is received, the Commission will publish a document in the 
Federal Register announcing the effective date of the rules requiring 
OMB approval and those whose effective date was delayed pending OMB 
approval of other rules.
    61. Final Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act of 1980, as amended (``RFA''), an Initial 
Regulatory Flexibility Analysis (``IRFA'') was incorporated in the 
Notice of Proposed Rulemaking (``NPRM'') in MB Docket No. 07-42. The 
Commission sought written public comment on the proposals in the Notice 
of Proposed Rulemaking, including comment on the IRFA. This present 
Final Regulatory Flexibility Analysis (``FRFA'') conforms to the RFA.
A. Need for, and Objectives of, the Rules Adopted
    62. The commercial leased access requirements set forth in Section 
612 of the Communications Act of 1934 require a cable operator to set 
aside channel capacity for commercial use by video programmers 
unaffiliated with the cable operator. The purposes of Section 612 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.''
    63. In the Order, the Commission concludes that its rules governing 
commercial leased access have impeded the use of leased access channels 
by programmers, including smaller entities, thereby undermining the 
goals of Section 612. The Order adopts several rules to address this 
concern. Regarding commercial leased access rates, the Commission 
concludes that its current formula for calculating leased access rates 
yields fees charged by cable operators that are higher than the statute 
mandates, resulting in an underutilization of leased access channels. 
To address this concern, the Order modifies the Commission's formula 
used to calculate commercial leased access rates, which will result in 
making these channels a more viable outlet for leased access 
programming. The Order also provides that the maximum leased access 
rate will not exceed $0.10 per subscriber per month for any cable 
system. Cable operators may petition the Commission to exceed the 
maximum allowable leased access rates. A petition for relief must 
present specific facts justifying the system's specific leased access 
rate and provide an alternative rate which equitably balances the 
revenue requirements of the cable operator with the public interest 
goals of the leased access statute. The Order does not apply the new 
rate methodology or the maximum allowable leased access rate of $0.10 
per subscriber to programmers that predominantly transmit sales 
presentations or program length commercials.
    64. To address poor customer service practices of cable system 
operators with regard to potential leased access programmers, the Order 
requires a cable system operator to meet uniform customer service 
standards; to maintain a contact name, telephone number, and e-mail 
address on its website; to make available by telephone a designated 
person to respond to requests for information about leased access 
channels; and to maintain a brief explanation of the leased access 
statute and regulations on its website. In response to concerns raised 
by commercial leased access programmers that contract terms and 
conditions imposed by cable operators are often unfair, unreasonable, 
onerous, and overly burdensome, the Order requires cable operators to 
apply the same uniform standards, terms, and conditions for all of its 
leased access programmers as it applies to its other programmers. The 
Order also specifies the information that a leased access programmer 
must provide to a cable system operator in order to be considered for 
carriage, and requires the cable system operator to respond to the 
proposal by accepting the proposed terms or offering alternative terms 
within 10 days.
    65. Regarding leased access complaint procedures, the Order adopts 
an expedited process which requires the Media Bureau to resolve leased 
access complaints within 90 days of the close of the pleading cycle and 
eliminates the requirement for a leased access complainant alleging 
that a rate is unreasonable to first obtain a determination of the 
cable operator's maximum permitted rate from an independent accountant. 
The Order revises rules to provide that, as part of the remedy phase of 
a leased access complaint process, the Media Bureau will have the 
discretion to request that the parties file their best and final offer 
for the prices, terms, or conditions in dispute, and the Media Bureau 
will have the discretion to adopt one of the best and final offers or 
to choose to fashion its own remedy. The Order also amends the 
Commission's discovery rules pertaining to leased access complaints by 
requiring respondents to attach to their answers copies of any 
documents that they rely on in their defense; finding that in the 
context of a complaint proceeding, it would be unreasonable for a 
respondent not to produce all the documents either requested by the 
complainant or ordered by the Commission, provided that such documents 
are in its control and relevant to the dispute, subject to the 
protection of confidential material; and emphasizing that the 
Commission will use its authority to issue default orders granting a 
complaint if a respondent fails to comply with its discovery requests.
    66. Moreover, in order to ensure that the Commission has sufficient 
up-to-date information on the status of leased access programming in 
the future, the Order adopts a reporting requirement for cable 
operators that requires cable operators to file annual reports on 
leased access rates, channel usage, and complaints, among other matters 
pertaining to leased access. Leased access programmers will have an 
opportunity to file comments with the Commission in response to these 
reports.

[[Page 10686]]

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    67. There were no comments filed specifically in response to the 
IRFA.
C. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply
    68. The RFA directs agencies to provide a description of, and where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A ``small business concern'' is one which: (1) Is independently 
owned and operated; (2) is not dominant in its field of operation; and 
(3) satisfies any additional criteria established by the Small Business 
Administration (``SBA'').
    69. Wired Telecommunications Carriers. The 2007 North American 
Industry Classification System (``NAICS'') defines ``Wired 
Telecommunications Carriers'' (2007 NAISC code 517110) to include the 
following three classifications which were listed separately in the 
2002 NAICS: Wired Telecommunications Carriers (2002 NAICS code 517110), 
Cable and Other Program Distribution (2002 NAICS code 517510), and 
Internet Service Providers (2002 NAISC code 518111). The 2007 NAISC 
defines this category as follows: ``This industry comprises 
establishments primarily engaged in operating and/or providing access 
to transmission facilities and infrastructure that they own and/or 
lease for the transmission of voice, data, text, sound, and video using 
wired telecommunications networks. Transmission facilities may be based 
on a single technology or a combination of technologies. Establishments 
in this industry use the wired telecommunications network facilities 
that they operate to provide a variety of services, such as wired 
telephony services, including VoIP services; wired (cable) audio and 
video programming distribution; and wired broadband Internet services. 
By exception, establishments providing satellite television 
distribution services using facilities and infrastructure that they 
operate are included in this industry.'' The SBA has developed a small 
business size standard for Wired Telecommunications Carriers, which is 
all firms having 1,500 employees or less. According to Census Bureau 
data for 2002, there were a total of 27,148 firms in the Wired 
Telecommunications Carriers category (2002 NAISC code 517110) that 
operated for the entire year; 6,021 firms in the Cable and Other 
Program Distribution category (2002 NAISC code 517510) that operated 
for the entire year; and 3,408 firms in the Internet Service Providers 
category (2002 NAISC code 518111) that operated for the entire year. Of 
these totals, 25,374 of 27,148 firms in the Wired Telecommunications 
Carriers category (2002 NAISC code 517110) had less than 100 employees; 
5,496 of 6,021 firms in the Cable and Other Program Distribution 
category (2002 NAISC code 517510) had less than 100 employees; and 
3,303 of the 3,408 firms in the Internet Service Providers category 
(2002 NAISC code 518111) had less than 100 employees. Thus, under this 
size standard, the majority of firms can be considered small.
    70. Cable and Other Program Distribution. The 2002 NAICS defines 
this category as follows: ``This industry comprises establishments 
primarily engaged as third-party distribution systems for broadcast 
programming. The establishments of this industry deliver visual, aural, 
or textual programming received from cable networks, local television 
stations, or radio networks to consumers via cable or direct-to-home 
satellite systems on a subscription or fee basis. These establishments 
do not generally originate programming material.'' This category 
includes, among others, cable operators, direct broadcast satellite 
(``DBS'') services, home satellite dish (``HSD'') services, satellite 
master antenna television (``SMATV'') systems, and open video systems 
(``OVS''). The SBA has developed a small business size standard for 
Cable and Other Program Distribution, which is all such firms having 
$13.5 million or less in annual receipts. According to Census Bureau 
data for 2002, there were a total of 1,191 firms in this category that 
operated for the entire year. Of this total, 1,087 firms had annual 
receipts of under $10 million, and 43 firms had receipts of $10 million 
or more but less than $25 million. Thus, under this size standard, the 
majority of firms can be considered small.
    71. Cable System Operators (Rate Regulation Standard). The 
Commission has also developed its own small business size standards for 
the purpose of cable rate regulation. Under the Commission's rules, a 
``small cable company'' is one serving 400,000 or fewer subscribers 
nationwide. As of 2006, 7,916 cable operators qualify as small cable 
companies under this standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that 6,139 systems have under 
10,000 subscribers, and an additional 379 systems have 10,000-19,999 
subscribers. Thus, under this standard, most cable systems are small.
    72. Cable System Operators (Telecom Act Standard). The 
Communications Act of 1934, as amended, also contains a size standard 
for small cable system operators, which is ``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.'' There are approximately 65.4 million 
cable subscribers in the United States today. Accordingly, an operator 
serving fewer than 654,000 subscribers shall be deemed a small 
operator, if its annual revenues, when combined with the total annual 
revenues of all its affiliates, do not exceed $250 million in the 
aggregate. Based on available data, we find that the number of cable 
operators serving 654,000 subscribers or less totals approximately 
7,916. We note that the Commission neither requests nor collects 
information on whether cable system operators are affiliated with 
entities whose gross annual revenues exceed $250 million. Although it 
seems certain that some of these cable system operators are affiliated 
with entities whose gross annual revenues exceed $250,000,000, we are 
unable at this time 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.
    73. Direct Broadcast Satellite (``DBS'') Service. DBS service is a 
nationally distributed subscription service that delivers video and 
audio programming via satellite to a small parabolic ``dish'' antenna 
at the subscriber's location. Because DBS provides subscription 
services, DBS falls within the SBA-recognized definition of Cable and 
Other Program Distribution. This definition provides that a small 
entity is one with $13.5 million or less in annual receipts. Currently, 
three operators provide DBS service, which requires a great investment 
of capital for operation: DIRECTV, EchoStar (marketed as the DISH 
Network), and Dominion Video Satellite, Inc. (``Dominion'') (marketed 
as Sky Angel). All three currently offer subscription services. Two of 
these

[[Page 10687]]

three DBS operators, DIRECTV and EchoStar Communications Corporation 
(``EchoStar''), report annual revenues that are in excess of the 
threshold for a small business. The third DBS operator, Dominion's Sky 
Angel service, serves fewer than one million subscribers and provides 
20 family and religion-oriented channels. Dominion does not report its 
annual revenues. The Commission does not know of any source which 
provides this information and, thus, we have no way of confirming 
whether Dominion qualifies as a small business. Because DBS service 
requires significant capital, we believe it is unlikely that a small 
entity as defined by the SBA would have the financial wherewithal to 
become a DBS licensee. Nevertheless, given the absence of specific data 
on this point, we recognize the possibility that there are entrants in 
this field that may not yet have generated $13.5 million in annual 
receipts, and therefore may be categorized as a small business, if 
independently owned and operated.
    74. Private Cable Operators (PCOs) also known as Satellite Master 
Antenna Television (SMATV) Systems. PCOs, also known as SMATV systems 
or private communications operators, are video distribution facilities 
that use closed transmission paths without using any public right-of-
way. PCOs acquire video programming and distribute it via terrestrial 
wiring in urban and suburban multiple dwelling units such as apartments 
and condominiums, and commercial multiple tenant units such as hotels 
and office buildings. The SBA definition of small entities for Cable 
and Other Program Distribution Services includes PCOs and, thus, small 
entities are defined as all such companies generating $13.5 million or 
less in annual receipts. Currently, there are approximately 150 members 
in the Independent Multi-Family Communications Council (IMCC), the 
trade association that represents PCOs. Individual PCOs often serve 
approximately 3,000-4,000 subscribers, but the larger operations serve 
as many as 15,000-55,000 subscribers. In total, PCOs currently serve 
approximately one million subscribers. Because these operators are not 
rate regulated, they are not required to file financial data with the 
Commission. Furthermore, we are not aware of any privately published 
financial information regarding these operators. Based on the estimated 
number of operators and the estimated number of units served by the 
largest ten PCOs, we believe that a substantial number of PCOs may 
qualify as small entities.
    75. Home Satellite Dish (``HSD'') Service. Because HSD provides 
subscription services, HSD falls within the SBA-recognized definition 
of Cable and Other Program Distribution, which includes all such 
companies generating $13.5 million or less in revenue annually. HSD or 
the large dish segment of the satellite industry is the original 
satellite-to-home service offered to consumers, and involves the home 
reception of signals transmitted by satellites operating generally in 
the C-band frequency. Unlike DBS, which uses small dishes, HSD antennas 
are between four and eight feet in diameter and can receive a wide 
range of unscrambled (free) programming and scrambled programming 
purchased from program packagers that are licensed to facilitate 
subscribers' receipt of video programming. There are approximately 30 
satellites operating in the C-band, which carry over 500 channels of 
programming combined; approximately 350 channels are available free of 
charge and 150 are scrambled and require a subscription. HSD is 
difficult to quantify in terms of annual revenue. HSD owners have 
access to program channels placed on C-band satellites by programmers 
for receipt and distribution by MVPDs. Commission data shows that, 
between June 2004 and June 2005, HSD subscribership fell from 335,766 
subscribers to 206,358 subscribers, a decline of more than 38 percent. 
The Commission has no information regarding the annual revenue of the 
four C-Band distributors.
    76. Broadband Radio Service and Educational Broadband Service. 
Broadband Radio Service comprises Multichannel Multipoint Distribution 
Service (MMDS) systems and Multipoint Distribution Service (MDS). MMDS 
systems, often referred to as ``wireless cable,'' transmit video 
programming to subscribers using the microwave frequencies of MDS and 
Educational Broadband Service (EBS) (formerly known as Instructional 
Television Fixed Service (ITFS)). We estimate that the number of 
wireless cable subscribers is approximately 100,000, as of March 2005. 
The SBA definition of small entities for Cable and Other Program 
Distribution, which includes such companies generating $13.5 million in 
annual receipts, appears applicable to MDS and ITFS.
    77. The Commission has also defined small MDS (now BRS) entities in 
the context of Commission license auctions. For purposes of the 1996 
MDS auction, the Commission defined a small business as an entity that 
had annual average gross revenues of less than $40 million in the 
previous three calendar years. This definition of a small entity in the 
context of MDS auctions has been approved by the SBA. In the MDS 
auction, 67 bidders won 493 licenses. Of the 67 auction winners, 61 
claimed status as a small business. At this time, the Commission 
estimates that of the 61 small business MDS auction winners, 48 remain 
small business licensees. In addition to the 48 small businesses that 
hold BTA authorizations, there are approximately 392 incumbent MDS 
licensees that have gross revenues that are not more than $40 million 
and are thus considered small entities. MDS licensees and wireless 
cable operators that did not receive their licenses as a result of the 
MDS auction fall under the SBA small business size standard for Cable 
and Other Program Distribution, which includes all such entities that 
do not generate revenue in excess of $13.5 million annually. 
Information available to us indicates that there are approximately 850 
of these licensees and operators that do not generate revenue in excess 
of $13.5 million annually. Therefore, we estimate that there are 
approximately 850 small entity MDS (or BRS) providers, as defined by 
the SBA and the Commission's auction rules.
    78. Educational institutions are included in this analysis as small 
entities; however, the Commission has not created a specific small 
business size standard for ITFS (now EBS). We estimate that there are 
currently 2,032 ITFS (or EBS) licensees, and all but 100 of the 
licenses are held by educational institutions. Thus, we estimate that 
at least 1,932 ITFS licensees are small entities.
    79. Local Multipoint Distribution Service. Local Multipoint 
Distribution Service (LMDS) is a fixed broadband point-to-multipoint 
microwave service that provides for two-way video telecommunications. 
The SBA definition of small entities for Cable and Other Program 
Distribution, which includes such companies generating $13.5 million in 
annual receipts, appears applicable to LMDS. The Commission has also 
defined small LMDS entities in the context of Commission license 
auctions. In the 1998 and 1999 LMDS auctions, the Commission defined a 
small business as an entity that had annual average gross revenues of 
less than $40 million in the previous three calendar years. Moreover, 
the Commission added an additional classification for a ``very small 
business,'' which was defined as an entity that had annual average 
gross revenues of less than $15 million in the previous three calendar 
years. These definitions of ``small business'' and ``very small 
business'' in the context of the LMDS auctions have been approved

[[Page 10688]]

by the SBA. In the first LMDS auction, 104 bidders won 864 licenses. Of 
the 104 auction winners, 93 claimed status as small or very small 
businesses. In the LMDS re-auction, 40 bidders won 161 licenses. Based 
on this information, we believe that the number of small LMDS licenses 
will include the 93 winning bidders in the first auction and the 40 
winning bidders in the re-auction, for a total of 133 small entity LMDS 
providers as defined by the SBA and the Commission's auction rules.
    80. Open Video Systems (``OVS''). The OVS framework provides 
opportunities for the distribution of video programming other than 
through cable systems. Because OVS operators provide subscription 
services, OVS falls within the SBA-recognized definition of Cable and 
Other Program Distribution Services, which provides that a small entity 
is one with $ 13.5 million or less in annual receipts. The Commission 
has approved approximately 120 OVS certifications with some OVS 
operators now providing service. Broadband service providers (BSPs) are 
currently the only significant holders of OVS certifications or local 
OVS franchises, even though OVS is one of four statutorily-recognized 
options for local exchange carriers (LECs) to offer video programming 
services. As of June 2005, BSPs served approximately 1.4 million 
subscribers, representing 1.49 percent of all MVPD households. Among 
BSPs, however, those operating under the OVS framework are in the 
minority. As of June 2005, RCN Corporation is the largest BSP and 14th 
largest MVPD, serving approximately 371,000 subscribers. RCN received 
approval to operate OVS systems in New York City, Boston, Washington, 
DC and other areas. The Commission does not have financial information 
regarding the entities authorized to provide OVS, some of which may not 
yet be operational. We thus believe that at least some of the OVS 
operators may qualify as small entities.
    81. Cable and Other Subscription Programming. The Census Bureau 
defines this category as follows: ``This industry comprises 
establishments primarily engaged in operating studios and facilities 
for the broadcasting of programs on a subscription or fee basis * * *. 
These establishments produce programming in their own facilities or 
acquire programming from external sources. The programming material is 
usually delivered to a third party, such as cable systems or direct-to-
home satellite systems, for transmission to viewers.'' The SBA has 
developed a small business size standard for firms within this 
category, which is all firms with $13.5 million or less in annual 
receipts. According to Census Bureau data for 2002, there were 270 
firms in this category that operated for the entire year. Of this 
total, 217 firms had annual receipts of under $10 million and 13 firms 
had annual receipts of $10 million to $24,999,999. Thus, under this 
category and associated small business size standard, the majority of 
firms can be considered small.
    82. Motion Picture and Video Production. The Census Bureau defines 
this category as follows: ``This industry comprises establishments 
primarily engaged in producing, or producing and distributing motion 
pictures, videos, television programs, or television commercials.'' The 
SBA has developed a small business size standard for firms within this 
category, which is all firms with $27 million or less in annual 
receipts. According to Census Bureau data for 2002, there were 7,772 
firms in this category that operated for the entire year. Of this 
total, 7,685 firms had annual receipts of under $24,999,999 and 45 
firms had annual receipts of between $25,000,000 and $49,999,999. Thus, 
under this category and associated small business size standard, the 
majority of firms can be considered small. Each of these NAICS 
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.
    83. Motion Picture and Video Distribution. The Census Bureau 
defines this category as follows: ``This industry comprises 
establishments primarily engaged in acquiring distribution rights and 
distributing film and video productions to motion picture theaters, 
television networks and stations, and exhibitors.'' The SBA has 
developed a small business size standard for firms within this 
category, which is all firms with $27 million or less in annual 
receipts. According to Census Bureau data for 2002, there were 377 
firms in this category that operated for the entire year. Of this 
total, 365 firms had annual receipts of under $24,999,999 and 7 firms 
had annual receipts of between $25,000,000 and $49,999,999. Thus, under 
this category and associated small business size standard, the majority 
of firms can be considered small. Each of these NAICS 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.
    84. Small Incumbent Local Exchange Carriers. We have included small 
incumbent local exchange carriers in this present RFA analysis. A 
``small business'' under the RFA is one that, inter alia, meets the 
pertinent small business size standard (e.g., a telephone 
communications business having 1,500 or fewer employees), and ``is not 
dominant in its field of operation.'' The SBA's Office of Advocacy 
contends that, for RFA purposes, small incumbent local exchange 
carriers are not dominant in their field of operation because any such 
dominance is not ``national'' in scope. We have therefore included 
small incumbent local exchange carriers in this RFA, although we 
emphasize that this RFA action has no effect on Commission analyses and 
determinations in other, non-RFA contexts.
    85. Incumbent Local Exchange Carriers (``LECs''). Neither the 
Commission nor the SBA has developed a small business size standard 
specifically for incumbent local exchange services. The appropriate 
size standard under SBA rules is for the category Wired 
Telecommunications Carriers. Under that size standard, such a business 
is small if it has 1,500 or fewer employees. According to Commission 
data, 1,307 carriers have reported that they are engaged in the 
provision of incumbent local exchange services. Of these 1,307 
carriers, an estimated 1,019 have 1,500 or fewer employees and 288 have 
more than 1,500 employees. Consequently, the Commission estimates that 
most providers of incumbent local exchange service are small 
businesses.
    86. Competitive Local Exchange Carriers, Competitive Access 
Providers (CAPs), ``Shared-Tenant Service Providers,'' and ``Other 
Local Service Providers.'' Neither the Commission nor the SBA has 
developed a small business size standard specifically for these service 
providers. The appropriate size standard under SBA rules is for the 
category Wired Telecommunications Carriers. Under that size standard, 
such a business is small if it has 1,500 or fewer employees. According 
to Commission data, 859 carriers have reported that they are engaged in 
the provision of either competitive access provider services or 
competitive local exchange carrier services. Of these 859 carriers, an 
estimated 741 have 1,500 or fewer employees and 118 have more than 
1,500 employees. In addition, 16 carriers have reported that they are 
``Shared-Tenant Service Providers,'' and

[[Page 10689]]

all 16 are estimated to have 1,500 or fewer employees. In addition, 44 
carriers have reported that they are ``Other Local Service Providers.'' 
Of the 44, an estimated 43 have 1,500 or fewer employees and one has 
more than 1,500 employees. Consequently, the Commission estimates that 
most providers of competitive local exchange service, competitive 
access providers, ``Shared-Tenant Service Providers,'' and ``Other 
Local Service Providers'' are small entities.
    87. Electric Power Generation, Transmission and Distribution. The 
Census Bureau defines this category as follows: ``This industry group 
comprises establishments primarily engaged in generating, transmitting, 
and/or distributing electric power. Establishments in this industry 
group may perform one or more of the following activities: (1) Operate 
generation facilities that produce electric energy; (2) operate 
transmission systems that convey the electricity from the generation 
facility to the distribution system; and (3) operate distribution 
systems that convey electric power received from the generation 
facility or the transmission system to the final consumer.'' The SBA 
has developed a small business size standard for firms in this 
category: ``A firm is small if, including its affiliates, it is 
primarily engaged in the generation, transmission, and/or distribution 
of electric energy for sale and its total electric output for the 
preceding fiscal year did not exceed 4 million megawatt hours.'' 
According to Census Bureau data for 2002, there were 1,644 firms in 
this category that operated for the entire year. Census data do not 
track electric output and we have not determined how many of these 
firms fit the SBA size standard for small, with no more than 4 million 
megawatt hours of electric output. Consequently, we estimate that 1,644 
or fewer firms may be considered small under the SBA small business 
size standard.
D. Description of Reporting, Recordkeeping and Other Compliance 
Requirements
    88. The rules adopted in the Report and Order will impose 
additional reporting, recordkeeping, and other compliance requirements 
on cable system operators and leased access programmers. The Order 
requires a respondent in a leased access complaint proceeding that 
expressly relies upon a document in asserting a defense to include the 
document as part of its answer. The Order finds that in the context of 
a leased access complaint proceeding, it would be unreasonable for a 
respondent not to produce all the documents either requested by the 
complainant or ordered by the Commission, provided that such documents 
are in its control and relevant to the dispute. The Order requires the 
parties to a leased access complaint proceeding to enter into a 
Protective Order to protect pleading or discovery material that is 
deemed by the submitting party to contain confidential information. The 
Order requires cable system operators to submit annual reports on 
leased access rates, channel usage, and complaints. The Order requires 
cable system operators to provide prospective leased access programmers 
with certain information within three business days of the date on 
which a request for leased access information is made. A longer period 
for small systems to respond has been retained. The Order requires 
cable system operators to meet uniform customer service standards with 
respect to their dealings with leased access programmers and to apply 
uniform contract terms and conditions to all leased access programmers 
as applied to other programmers. The Order requires cable systems to 
maintain a contact name, telephone number, and e-mail address on their 
Web site and to make available by telephone a designated person to 
respond to requests for information about leased access channels. The 
Order requires a cable system operator to maintain a brief explanation 
of the leased access statute and regulations on its Web site. The Order 
specifies the information that a leased access programmer must provide 
to a cable system operator in order to be considered for carriage and 
requires the cable system operator to respond to the proposal by 
accepting the proposed terms or offering alternative terms within 10 
days.
E. Steps Taken To Minimize Significant Impact on Small Entities and 
Significant Alternatives Considered
    89. The RFA requires an agency to describe any significant 
alternatives that it has considered in proposing regulatory approaches, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities. The Notice invited comment on issues that had the potential 
to have significant economic impact on some small entities.
    90. As discussed in Section A, the decision to modify the leased 
access rules will facilitate the goals of Section 612 of the 
Communications Act ``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.'' The decision confers benefits upon the variety of 
leased access programmers, most of which are smaller entities. Thus, 
the decision to modify the leased access rules benefits smaller 
entities as well as larger entities. The alternative of retaining the 
current leased access rules would hinder achieving the goals of 
competition and diversity as envisioned by Congress. Moreover, the 
alternative of requiring only certain cable operators to comply with 
these new rules, such as only large cable operators, would similarly 
impede achieving the goals of competition and diversity as envisioned 
by Congress. However, a longer period for small systems to respond to 
certain requests for information has been retained.
F. Report to Congress
    91. The Commission will send a copy of the Report and Order, 
including this FRFA, in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act. In addition, the Commission will send a copy of the Report and 
Order, including this FRFA, to the Chief Counsel for Advocacy of the 
SBA. A copy of the Report and Order and FRFA (or summaries thereof) 
will also be published in the Federal Register.

V. Ordering Clauses

    92. Accordingly, it is ordered, pursuant to the authority found in 
Sections 4(i), 303, and 612 of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 303, and 532, this Report and Order and 
Further Notice of Proposed Rulemaking is adopted.
    93. It is ordered that, pursuant to the authority found in Sections 
4(i), 303, and 612 of the Communications Act of 1934, as amended, 47 
U.S.C. 154(i), 303, and 532, the Commission's Rules are hereby amended 
as set forth in the Rule Changes.
    94. It is further ordered that, Sections 76.975(h)(1), (2) and (3) 
and (i) are effective March 31, 2008. Sections 76.970(j)(3), 76.972(a), 
(b), (c), (d), (e), and (g); 76.975(d), (e), (g) and (h)(4); and

[[Page 10690]]

76.978, which contain new or modified information collection 
requirements that have not been approved by the Office of Management 
and Budget (OMB), are effective upon OMB approval. Section 76.970 is 
effective May 28, 2008 or upon OMB approval of Sec.  76.970(j)(3), 
whichever is later. The effective date of Sections 76.972 (f) and 
76.975 (b), (c) and (f) is delayed until OMB approval of the 
aforementioned rule sections. After OMB approval is received, the 
Commission will publish a document in the Federal Register announcing 
the effective date of the rules requiring OMB approval and those whose 
effective date was delayed pending OMB approval of other rules.
    95. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order and Further Notice of Proposed 
Rulemaking, including the Initial and Final Regulatory Flexibility 
Analyses, to the Chief Counsel for Advocacy of the Small Business 
Administration.
    96. It is further ordered that the Commission shall send a copy of 
this Report and Order and Further Notice of Proposed Rulemaking in a 
report to be sent to Congress and the Government Accountability Office 
pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

List of Subjects in 47 CFR Part 76

    Administrative practice and procedure and Cable television.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Rule Changes

0
For the reasons stated in the preamble, the Federal Communications 
Commission amends 47 CFR part 76 as follows:

PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

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

    Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 302a, 303, 
303a, 307, 308, 309, 312, 315, 317, 325, 338, 339, 340, 503, 521, 
522, 531, 532, 533, 534, 535, 536, 537, 543, 544, 544a, 545, 548, 
549, 552, 554, 556, 558, 560, 561, 571, 572 and 573.


0
2. Revise Sec.  76.970 to read as follows:


Sec.  76.970  Commercial leased access rates.

    (a) Cable operators shall designate channel capacity for commercial 
use by persons unaffiliated with the operator in accordance with the 
requirement of 47 U.S.C. 532. For purposes of 47 U.S.C. 532(b)(1)(A) 
and (B), only those channels that must be carried pursuant to 47 U.S.C. 
534 and 535 qualify as channels that are required for use by Federal 
law or regulation. 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 an entity is an ``affiliate'' for 
purposes of commercial leased access, entities are affiliated if either 
entity has an attributable interest in the other or if a third party 
has an attributable interest in both entities.
    (c) Attributable interest shall be defined by reference to the 
criteria set forth in Notes 1-5 to Sec.  76.501 provided, however, 
that:
    (1) The limited partner and LLC/LLP/RLLP insulation provisions of 
Note 2(f) shall not apply; and
    (2) The provisions of Note 2(a) regarding five (5) percent 
interests shall include all voting or nonvoting stock or limited 
partnership equity interests of five (5) percent or more.
    (d) The maximum commercial leased access rate that a cable operator 
may charge to programmers that predominantly transmit sales 
presentations or program length commercials 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).
    (e) The average implicit fee identified in paragraph (d) of this 
section for a full-time 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 subscriber-channels. Second, 
the subscriber-channels 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).
    (f) 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.
    (g) 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

[[Page 10691]]

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 
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.
    (h) 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.
    (i) The maximum commercial leased access rate that a cable operator 
may charge for full-time channel placement, except to programmers that 
predominantly transmit sales presentations or program length 
commercials, is the lower of the marginal implicit fee for a full-time 
channel placement on the tier where the leased access programming will 
be placed or $0.10 per subscriber per month.
    (j)(1)(i) The marginal implicit fee identified in paragraph (i) of 
this section for a full-time channel shall be calculated by first 
determining the mark-up of the tier where the leased access programming 
will be placed. The mark-up is calculated by determining the total 
amount the operator receives in subscriber revenue per month for the 
tier, and dividing by the total amount it pays in affiliation fees for 
the channels located on the tier. The resulting figure is the mark-up. 
In cases where the cost and channels of one tier are implicitly 
incorporated into a larger tier, the larger tier price is equal to the 
larger tier price minus the smaller tier price and the channels on the 
larger tier are those that are not available on the smaller tier.
    (ii) The monthly gross subscriber revenue per channel is obtained 
by multiplying the monthly per subscriber affiliation fee for each 
channel by the mark-up for the tier. The net subscriber revenue per 
channel per month for each channel is the difference between the 
monthly gross subscriber revenue per channel and the monthly per 
subscriber affiliation fee paid for that channel by the cable operator. 
This value represents the implicit fee for the individual channel.
    (iii) To determine the marginal channels on the tier for systems 
with 55 or more activated channels, multiply the number of non-mandated 
channels on the tier by 0.15 and round to the nearest number. To 
determine the marginal channels on the tier for systems with 54 or less 
activated channels, multiply the number of non-mandated channels on the 
tier by 0.10 and round to the nearest number. That is the number of 
marginal channels. Next identify the channels with the lowest implicit 
fee until that number is reached. These are the marginal channels.
    (iv) Finally, calculate the marginal implicit fee by taking the 
mean of the implicit fees of the marginal channels by summing the 
implicit fees of the marginal channels and dividing by the number of 
marginal channels. The result is the marginal implicit fee.
    (2) The affiliation fees for channels used in determining the 
marginal implicit fee are the contractual license fee or retransmission 
consent fee representing the compensation per subscriber per month paid 
to the programmer for the right to carry the programming. It excludes 
fees for services other than the provision of channel capacity, such as 
marketing, and excludes revenues. The affiliation fees for channels 
used in determining the marginal implicit fee shall reflect the 
prevailing affiliation fees offered in the marketplace to third 
parties. If a prevailing affiliation fee does not exist, the 
affiliation fee for that programming shall be priced at the 
programmer's cost or the fair market value, whichever is lower. The 
marginal implicit fee calculation shall be based on affiliation fees in 
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).
    (3) 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.
    (4) Cable operators are permitted to negotiate rates below the 
maximum permitted rates.

0
3. Add Sec.  76.972 to read as follows:


Sec.  76.972  Customer service standards.

    (a)(1) A cable system operator shall maintain a contact name, 
telephone number and e-mail address on its Web site and available by 
telephone of a designated person to respond to requests for information 
about leased access channels.
    (2) A cable system operator shall maintain a brief explanation of 
the leased access statute and regulations on its Web site.
    (b) Cable system operators shall provide prospective leased access 
programmers with the following information within three business days 
of the date on which a request for leased access information is made:
    (1) The cable system operator's process for requesting leased 
access channels;
    (2) The geographic and subscriber levels of service that are 
technically possible;
    (3) The number and location and time periods available for each 
leased access channel;
    (4) Whether the leased access channel is currently being occupied;
    (5) A complete schedule of the operator's statutory maximum full-
time and part-time leased access rates;
    (6) A comprehensive schedule showing how those rates were 
calculated;
    (7) Rates associated with technical and studio costs;
    (8) Whether inclusion in an electronic programming guide is 
available;
    (9) The available methods of programming delivery and the 
instructions, technical requirements and costs for each method;
    (10) A comprehensive sample leased access contract that includes 
uniform terms and conditions such as tier and channel placement, 
contract terms and conditions, insurance requirements, length of 
contract, termination provisions and electronic guide availability; and
    (11) Information regarding prospective launch dates for the leased 
access programmer.
    (c) A bona fide proposal, as used in this section, is defined as a 
proposal from a potential leased access programmer that includes the 
following information:
    (1) The desired length of a contract term;
    (2) The tier, channel and time slot desired;
    (3) The anticipated commencement date for carriage;
    (4) The nature of the programming;
    (5) The geographic and subscriber level of service requested; and

[[Page 10692]]

    (6) Proposed changes to the sample contract.
    (d) All requests for leased access must be made in writing and must 
specify the date on which the request was sent to the operator.
    (e) A cable system operator must respond to a bona fide proposal 
within 10 days after receipt.
    (f) A cable system operator will be subject to a forfeiture for 
each day it fails to comply with Sec. Sec.  76.972(a) or 76.972(e).
    (g)(1) Operators of systems subject to small system relief shall 
provide the information required in paragraph (b) 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 Sec.  76.901(c) and are owned by 
a small cable company as defined under Sec.  76.901(e); or
    (ii) Have been granted special relief.
    (2) 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.

0
4. Section 76.975 is amended to revise paragraphs (b) through (g) and 
redesignate paragraph (h) as paragraph (i) and to add new paragraph (h) 
to read as follows:


Sec.  76.975  Commercial leased access dispute resolution.

* * * * *
    (b) 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, Sec. Sec.  
76.970, 76.971, and 76.972 may file a petition for relief with the 
Commission.
    (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.
    (d) The petition must be filed within 60 days of the alleged 
violation. The time limit on filing complaints will be suspended if the 
complainant files a notice with the Commission prior to the expiration 
of the filing period, stating that it seeks an extension of the filing 
deadline in order to pursue active negotiations with the cable 
operator, and the cable operator agrees to the extension.
    (e) Discovery. In addition to the general pleading and discovery 
rules contained in Sec.  76.7 of this part, parties to a leased access 
complaint may serve requests for discovery directly on opposing 
parties, and file a copy of the request with the Commission. The 
respondent shall have the opportunity to object to any request for 
documents that are not in its control or relevant to the dispute. Such 
request shall be heard, and determination made, by the Commission. 
Until the objection is ruled upon, the obligation to produce the 
disputed material is suspended. Any party who fails to timely provide 
discovery requested by the opposing party to which it has not raised an 
objection, or who fails to respond to a Commission order for discovery 
material, may be deemed in default and an order may be entered in 
accordance with the allegations contained in the complaint, or the 
complaint may be dismissed with prejudice.
    (f) Protective Orders. In addition to the procedures contained in 
Sec.  76.9 of this part related to the protection of confidential 
material, the Commission may issue orders to protect the 
confidentiality of proprietary information required to be produced for 
resolution of leased access complaints. A protective order constitutes 
both an order of the Commission and an agreement between the party 
executing the protective order declaration and the party submitting the 
protected material. The Commission has full authority to fashion 
appropriate sanctions for violations of its protective orders, 
including but not limited to suspension or disbarment of attorneys from 
practice before the Commission, forfeitures, cease and desist orders, 
and denial of further access to confidential information in Commission 
proceedings.
    (g) The cable operator or other respondent will have 30 days from 
the filing of the petition to file a response. To the extent that a 
cable operator expressly references and relies upon a document or 
documents in asserting a defense or responding to a material 
allegation, such document or documents shall be included as part of the 
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.
    (h)(1) The Media Bureau will resolve a leased access complaint 
within 90 days of the close of the pleading cycle.
    (2) The Media Bureau, after consideration of the pleadings, may 
grant the relief requested, in whole or in part, including, but not 
limited to ordering refunds, injunctive measures, or forfeitures 
pursuant 47 U.S.C. 503, denying the petition, or issuing a ruling on 
the petition or dispute.
    (3) To be afforded relief, the petitioner must show by clear and 
convincing evidence that the cable operator has violated the 
Commission's leased access provisions in 47 U.S.C. 532 or Sec. Sec.  
76.970, 76.971, or 76.972, or otherwise acted unreasonably or in bad 
faith in failing or refusing to make capacity available or to charge 
lawful rates for such capacity to an unaffiliated leased access 
programmer.
    (4) As part of the remedy phase of the leased access complaint 
process, the Media Bureau will have discretion to request that the 
parties file their best and final offer for the prices, terms, or 
conditions in dispute. The Commission will have the discretion to adopt 
one of the proposals or choose to fashion its own remedy.
* * * * *

0
5. Section 76.978 is added to read as follows:


Sec.  76.978  Leased access annual reporting requirement.

    (a) Each cable system shall submit a Leased Access Annual Report 
with the Commission on a calendar year basis, no later than April 30th 
following the close of each calendar year, which provides the following 
information for the calendar year:
    (1) The number of commercial leased access channels provided by the 
cable system.
    (2) The channel number and tier applicable to each commercial 
leased access channel.
    (3) The rates the cable system charges for full-time and part-time 
leased access on each leased access channel.
    (4) The cable system's calculated maximum commercial leased access 
rate and actual rates.
    (5) The programmers using each commercial leased access channel and 
whether each programmer is using the channel on a full-time or part-
time basis.
    (6) The number of requests received for information pertaining to

[[Page 10693]]

commercial leased access and the number of bona fide proposals received 
for commercial leased access.
    (7) Whether the cable system has denied any requests for commercial 
leased access and, if so, with an explanation of the basis for the 
denial.
    (8) Whether a complaint has been filed against the cable system 
with the Commission or a Federal district court regarding a commercial 
leased access dispute.
    (9) Whether any entity has sought arbitration with the cable system 
regarding a commercial leased access dispute.
    (10) The extent to which and for what purposes the cable system 
uses commercial leased access channels for its own purposes.
    (11) The extent to which the cable system impose different rates, 
terms, or conditions on commercial leased access programmers (such as 
with respect to security deposits, insurance, or termination 
provisions) with an explanation of any differences.
    (12) A list and description of any instances of the cable system 
requiring an existing programmer to move to another channel or tier.
    (b) Leased access programmers and other interested parties may file 
comments with the Commission in response to the Leased Access Annual 
Reports by May 15th.
    The attached Appendices A and B will not be included in the Code of 
Federal Regulations (CFR).

Appendix A--Standard Protective Order and Declaration for Use in 
Section 612 Commercial Leased Access Proceedings

Before the Federal Communications Commission, Washington, DC 20554

In the Matter of [Name of Proceeding], Docket No. ------

PROTECTIVE ORDER

    1. This Protective Order is intended to facilitate and expedite 
the review of documents obtained from a person in the course of 
discovery that contain trade secrets and privileged or confidential 
commercial or financial information. It establishes the manner in 
which ``Confidential Information,'' as that term is defined herein, 
is to be treated. The Order is not intended to constitute a 
resolution of the merits concerning whether any Confidential 
Information would be released publicly by the Commission upon a 
proper request under the Freedom of Information Act or other 
applicable law or regulation, including 47 CFR 0.442.
    2. Definitions.
    a. Authorized Representative. ``Authorized Representative'' 
shall have the meaning set forth in Paragraph 7.
    b. Commission. ``Commission'' means the Federal Communications 
Commission or any arm of the Commission acting pursuant to delegated 
authority.
    c. Confidential Information. ``Confidential Information'' means 
(i) information submitted to the Commission by the Submitting Party 
that has been so designated by the Submitting Party and which the 
Submitting Party has determined in good faith constitutes trade 
secrets and commercial or financial information which is privileged 
or confidential within the meaning of Exemption 4 of the Freedom of 
Information Act, 5 U.S.C. 552(b)(4) and (ii) information submitted 
to the Commission by the Submitting Party that has been so 
designated by the Submitting Party and which the Submitting Party 
has determined in good faith falls within the terms of Commission 
orders designating the items for treatment as Confidential 
Information. Confidential Information includes additional copies of, 
notes, and information derived from Confidential Information.
    d. Declaration. ``Declaration'' means Attachment A to this 
Protective Order.
    e. Reviewing Party. ``Reviewing Party'' means a person or entity 
participating in this proceeding or considering in good faith filing 
a document in this proceeding.
    f. Submitting Party. ``Submitting Party'' means a person or 
entity that seeks confidential treatment of Confidential Information 
pursuant to this Protective Order.
    3. Claim of Confidentiality. The Submitting Party may designate 
information as ``Confidential Information'' consistent with the 
definition of that term in Paragraph 2.c of this Protective Order. 
The Commission may, sua sponte or upon petition, pursuant to 47 CFR 
0.459 and 0.461, determine that all or part of the information 
claimed as ``Confidential Information'' is not entitled to such 
treatment.
    4. Procedures for Claiming Information is Confidential. 
Confidential Information submitted to the Commission shall be filed 
under seal and shall bear on the front page in bold print, 
``CONTAINS PRIVILEGED AND CONFIDENTIAL INFORMATION--DO NOT 
RELEASE.'' Confidential Information shall be segregated by the 
Submitting Party from all non-confidential information submitted to 
the Commission. To the extent a document contains both Confidential 
Information and non-confidential information, the Submitting Party 
shall designate the specific portions of the document claimed to 
contain Confidential Information and shall, where feasible, also 
submit a redacted version not containing Confidential Information.
    5. Storage of Confidential Information at the Commission. The 
Secretary of the Commission or other Commission staff to whom 
Confidential Information is submitted shall place the Confidential 
Information in a non-public file. Confidential Information shall be 
segregated in the files of the Commission, and shall be withheld 
from inspection by any person not bound by the terms of this 
Protective Order, unless such Confidential Information is released 
from the restrictions of this Order either through agreement of the 
parties, or pursuant to the order of the Commission or a court 
having jurisdiction.
    6. Access to Confidential Information. Confidential Information 
shall only be made available to Commission staff, Commission 
consultants and to counsel to the Reviewing Parties, or if a 
Reviewing Party has no counsel, to a person designated by the 
Reviewing Party. Before counsel to a Reviewing Party or such other 
designated person designated by the Reviewing Party may obtain 
access to Confidential Information, counsel or such other designated 
person must execute the attached Declaration. Consultants under 
contract to the Commission may obtain access to Confidential 
Information only if they have signed, as part of their employment 
contract, a non-disclosure agreement the scope of which includes the 
Confidential Information, or if they execute the attached 
Declaration.
    7. Disclosure. Counsel to a Reviewing Party or such other person 
designated pursuant to Paragraph 5 may disclose Confidential 
Information to other Authorized Representatives to whom disclosure 
is permitted under the terms of paragraph 8 of this Protective Order 
only after advising such Authorized Representatives of the terms and 
obligations of the Order. In addition, before Authorized 
Representatives may obtain access to Confidential Information, each 
Authorized Representative must execute the attached Declaration.
    8. Authorized Representatives shall be limited to:
    a. Subject to Paragraph 8.d, counsel for the Reviewing Parties 
to this proceeding, including in-house counsel, actively engaged in 
the conduct of this proceeding and their associated attorneys, 
paralegals, clerical staff and other employees, to the extent 
reasonably necessary to render professional services in this 
proceeding;
    b. Subject to Paragraph 8.d, specified persons, including 
employees of the Reviewing Parties, requested by counsel to furnish 
technical or other expert advice or service, or otherwise engaged to 
prepare material for the express purpose of formulating filings in 
this proceeding; and
    c. Subject to Paragraph 8.d., any person designated by the 
Commission in the public interest, upon such terms as the Commission 
may deem proper; except that,
    d. Disclosure shall be prohibited to any persons in a position 
to use the Confidential Information for competitive commercial or 
business purposes, including persons involved in competitive 
decision-making, which includes, but is not limited to, persons 
whose activities, association or relationship with the Reviewing 
Parties or other Authorized Representatives involve rendering advice 
or participating in any or all of the Reviewing Parties', Associated 
Representatives' or any other person's business decisions that are 
or will be made in light of similar or corresponding information 
about a competitor.
    9. Inspection of Confidential Information. Confidential 
Information shall be maintained by a Submitting Party for inspection 
at two or more locations, at least one of which shall be in 
Washington, DC. Inspection shall be carried out by Authorized 
Representatives upon reasonable notice not to exceed one business 
day during normal business hours.

[[Page 10694]]

    10. Copies of Confidential Information. The Submitting Party 
shall provide a copy of the Confidential Material to Authorized 
Representatives upon request and may charge a reasonable copying fee 
not to exceed twenty five cents per page. Authorized Representatives 
may make additional copies of Confidential Information but only to 
the extent required and solely for the preparation and use in this 
proceeding. Authorized Representatives must maintain a written 
record of any additional copies made and provide this record to the 
Submitting Party upon reasonable request. The original copy and all 
other copies of the Confidential Information shall remain in the 
care and control of Authorized Representatives at all times. 
Authorized Representatives having custody of any Confidential 
Information shall keep the documents properly and fully secured from 
access by unauthorized persons at all times.
    11. Filing of Declaration. Counsel for Reviewing Parties shall 
provide to the Submitting Party and the Commission a copy of the 
attached Declaration for each Authorized Representative within five 
(5) business days after the attached Declaration is executed, or by 
any other deadline that may be prescribed by the Commission.
    12. Use of Confidential Information. Confidential Information 
shall not be used by any person granted access under this Protective 
Order for any purpose other than for use in this proceeding 
(including any subsequent administrative or judicial review), shall 
not be used for competitive business purposes, and shall not be used 
or disclosed except in accordance with this Order. This shall not 
preclude the use of any material or information that is in the 
public domain or has been developed independently by any other 
person who has not had access to the Confidential Information nor 
otherwise learned of its contents.
    13. Pleadings Using Confidential Information. Submitting Parties 
and Reviewing Parties may, in any pleadings that they file in this 
proceeding, reference the Confidential Information, but only if they 
comply with the following procedures:
    a. Any portions of the pleadings that contain or disclose 
Confidential Information must be physically segregated from the 
remainder of the pleadings and filed under seal;
    b. The portions containing or disclosing Confidential 
Information must be covered by a separate letter referencing this 
Protective Order;
    c. Each page of any Party's filing that contains or discloses 
Confidential Information subject to this Order must be clearly 
marked: ``Confidential Information included pursuant to Protective 
Order, [cite proceeding];'' and
    d. The confidential portion(s) of the pleading, to the extent 
they are required to be served, shall be served upon the Secretary 
of the Commission, the Submitting Party, and those Reviewing Parties 
that have signed the attached Declaration. Such confidential 
portions shall be served under seal, and shall not be placed in the 
Commission's Public File unless the Commission directs otherwise 
(with notice to the Submitting Party and an opportunity to comment 
on such proposed disclosure). A Submitting Party or a Reviewing 
Party filing a pleading containing Confidential Information shall 
also file a redacted copy of the pleading containing no Confidential 
Information, which copy shall be placed in the Commission's public 
files. A Submitting Party or a Reviewing Party may provide courtesy 
copies of pleadings containing Confidential Information to 
Commission staff so long as the notations required by this Paragraph 
13 are not removed.
    14. Violations of Protective Order. Should a Reviewing Party 
that has properly obtained access to Confidential Information under 
this Protective Order violate any of its terms, it shall immediately 
convey that fact to the Commission and to the Submitting Party. 
Further, should such violation consist of improper disclosure or use 
of Confidential Information, the violating party shall take all 
necessary steps to remedy the improper disclosure or use. The 
Violating Party shall also immediately notify the Commission and the 
Submitting Party, in writing, of the identity of each party known or 
reasonably suspected to have obtained the Confidential Information 
through any such disclosure. The Commission retains its full 
authority to fashion appropriate sanctions for violations of this 
Protective Order, including but not limited to suspension or 
disbarment of attorneys from practice before the Commission, 
forfeitures, cease and desist orders, and denial of further access 
to Confidential Information in this or any other Commission 
proceeding. Nothing in this Protective Order shall limit any other 
rights and remedies available to the Submitting Party at law or 
equity against any party using Confidential Information in a manner 
not authorized by this Protective Order.
    15. Termination of Proceeding. Within two weeks after final 
resolution of this proceeding (which includes any administrative or 
judicial appeals), Authorized Representatives of Reviewing Parties 
shall, at the direction of the Submitting Party, destroy or return 
to the Submitting Party all Confidential Information as well as all 
copies and derivative materials made, and shall certify in a writing 
served on the Commission and the Submitting Party that no material 
whatsoever derived from such Confidential Information has been 
retained by any person having access thereto, except that counsel to 
a Reviewing Party may retain two copies of pleadings submitted on 
behalf of the Reviewing Party. Any confidential information 
contained in any copies of pleadings retained by counsel to a 
Reviewing Party or in materials that have been destroyed pursuant to 
this paragraph shall be protected from disclosure or use 
indefinitely in accordance with paragraphs 10 and 12 of this 
Protective Order unless such Confidential Information is released 
from the restrictions of this Order either through agreement of the 
parties, or pursuant to the order of the Commission or a court 
having jurisdiction.
    16. No Waiver of Confidentiality. Disclosure of Confidential 
Information as provided herein shall not be deemed a waiver by the 
Submitting Party of any privilege or entitlement to confidential 
treatment of such Confidential Information. Reviewing Parties, by 
viewing these materials: (a) Agree not to assert any such waiver; 
(b) agree not to use information derived from any confidential 
materials to seek disclosure in any other proceeding; and (c) agree 
that accidental disclosure of Confidential Information shall not be 
deemed a waiver of the privilege.
    17. Additional Rights Preserved. The entry of this Protective 
Order is without prejudice to the rights of the Submitting Party to 
apply for additional or different protection where it is deemed 
necessary or to the rights of Reviewing Parties to request further 
or renewed disclosure of Confidential Information.
    18. Effect of Protective Order. This Protective Order 
constitutes an Order of the Commission and an agreement between the 
Reviewing Party, executing the attached Declaration, and the 
Submitting Party.
    19. Authority. This Protective Order is issued pursuant to 
Sections 4(i) and 4(j) of the Communications Act as amended, 47 
U.S.C. 154(i), (j) and 47 CFR 0.457(d).

Attachment A to Section 612 Protective Order

DECLARATION

In the Matter of [Name of Proceeding] Docket No.------

    I, --------------------, hereby declare under penalty of perjury 
that I have read the Protective Order that has been entered by the 
Commission in this proceeding, and that I agree to be bound by its 
terms pertaining to the treatment of Confidential Information 
submitted by parties to this proceeding. I understand that the 
Confidential Information shall not be disclosed to anyone except in 
accordance with the terms of the Protective Order and shall be used 
only for purposes of the proceedings in this matter. I acknowledge 
that a violation of the Protective Order is a violation of an order 
of the Federal Communications Commission. I acknowledge that this 
Protective Order is also a binding agreement with the Submitting 
Party. I am not in a position to use the Confidential Information 
for competitive commercial or business purposes, including 
competitive decision-making, and my activities, association or 
relationship with the Reviewing Parties, Authorized Representatives, 
or other persons does not involve rendering advice or participating 
in any or all of the Reviewing Parties', Associated Representatives' 
or other persons' business decisions that are or will be made in 
light of similar or corresponding information about a competitor.

(signed)---------------------------------------------------------------
(printed name)---------------------------------------------------------
(representing)---------------------------------------------------------
(title)----------------------------------------------------------------
(employer)-------------------------------------------------------------
(address)--------------------------------------------------------------
(phone)----------------------------------------------------------------
(date)-----------------------------------------------------------------
(date)-----------------------------------------------------------------

[[Page 10695]]

Appendix B--Example Calculation of the Leased Access Rate

I. Example of the Marginal Implicit Fee Calculation

    The following table illustrates the channel line-up of a tier 
with greater than 50% subscriber penetration. The tier consists of 
26 channels. We will assume that 100 subscribers purchase this tier 
and that they all pay the retail price of $18.95.

------------------------------------------------------------------------
                                     Affiliation fee
                                      paid by cable
                                     operator to the      Implicit fee
            Programming                 programmer       (net revenue)
                                     (monthly amount
                                     per subscriber)
------------------------------------------------------------------------
Broadcast Station 1...............              $0.00             $0.000
Broadcast Station 2...............               0.05              0.082
Broadcast Station 3...............               0.00              0.000
PEG 1.............................               0.00              0.000
Leased Access 1...................               0.00              0.000
Cable Network 1...................               0.12              0.196
Cable Network 2...................               0.34              0.556
Cable Network 3...................               0.05              0.082
Cable Network 4...................               0.07              0.114
Cable Network 5...................               0.01              0.016
Cable Network 6...................               0.04              0.065
Cable Network 7...................               0.05              0.082
Cable Network 8...................               0.27              0.442
Cable Network 9...................               0.00              0.000
Cable Network 10..................               0.10              0.164
Cable Network 11..................               0.48              0.785
Cable Network 12..................               2.19              3.582
Cable Network 13..................               1.10              1.799
Cable Network 14..................               0.57              0.932
Cable Network 15..................               0.15              0.245
Cable Network 16..................               0.41              0.671
Cable Network 17..................               0.19              0.311
Cable Network 18..................               0.06              0.098
Cable Network 19..................               0.21              0.343
Cable Network 20..................               0.11              0.180
Cable Network 21..................               0.62              1.014
------------------------------------------------------------------------

Step 1: Determine Monthly Per-Subscriber Affiliation Fees for Each 
Channel on the Tier

    The preceding table presents the monthly per-subscriber 
affiliation fee paid by the cable operator to the programmer. These 
values are those contractually agreed to and paid by the cable 
operator. As illustrated, this hypothetical cable operator carries 
three broadcast stations. Two of the broadcast stations do not 
receive a monthly per-subscriber payment from the cable operator, 
while ``Broadcast Station 2'' receives $0.05 per month per 
subscriber from the cable operator. In addition, ``Cable Network 8'' 
and ``Cable Network 9'' are sold by the programmer on a bundled 
basis in a contract which does not specify individual affiliation 
fees for each network, but instead specifies a rate of $0.27 for 
carriage of both networks. ``Cable Network 8'' is the higher rated 
of the two networks and therefore the affiliation fee is allocated 
to it and the affiliate fee for ``Cable Network 9'' is set equal to 
zero.

Step 2: Determine the Mark-Up of the Tier

    The mark-up is equal to the total subscriber revenue for the 
programming tier (100 x $18.95 = $1,895), divided by the total of 
the affiliation fees the cable operator pays to the programmers for 
the channels on the tier (100 x $7.19 = $719). In the example the 
mark-up is equal to 2.636.

Step 3: Determine the Implicit Fee of Each Channel on the Tier

    The implicit fee, or net revenue, is equal to the gross revenue 
from the channel less the affiliation fee of the channel. The gross 
revenue is obtained by multiplying the affiliation fee by the mark-
up of the tier.

Step 4: Determine the Number of Marginal Channels on the Tier

    The number of marginal channels is equal to 15% of the non-
mandated channels on the tier. In this case, the tier contains 5 
mandated channels: ``Broadcast Station 1,'' ``Broadcast Station 2,'' 
``Broadcast Station 3,'' ``PEG 1,'' and ``Leased Access 1.'' 
Therefore there are 21 non-mandated channels on the tier. The number 
of marginal channels is 0.15 x 21 = 3.15. The result should be 
rounded to the nearest positive integer. This tier has three 
marginal channels.

Step 5: Determine the Marginal Channels

    The marginal channels are the three non-mandated channels with 
the lowest implicit fee. In this example, those channels are: 
``Cable Network 5,'' ``Cable Network 6,'' and ``Cable Network 9.''

Step 6: Calculate the Marginal Implicit Fee

    The marginal implicit fee is the mean of the implicit fees of 
the three marginal channels. The marginal implicit fee is (0.000 + 
0.016 + 0.065)/3 = 0.027. The monthly rate for a leased access 
programmer on this tier is $0.027 per subscriber.

II. Alternative Methods for Calculating the Maximum Allowable Leased 
Access Rate

    20. We use several methods to examine aggregate information on 
the cable industry and develop a maximum allowable leased access 
rate. All of our methods begin with the construction of hypothetical 
analog and digital tiers based upon the 194 most widely distributed 
networks. We obtain the number of subscribers to the most widely 
distributed programming networks from SNL Kagan, Economics of Basic 
Cable Networks, 13th Ed. (at 36-40) and SNL Kagan, Media Trends, 
2007 Edition (at 58). Affiliation fees for these networks are from 
SNL Kagan, Economics of Basic Cable Networks, 13th Edition (at 60-
62); SNL Kagan, Media Trends, 2007 Edition (at 59); and SNL Kagan, 
Cable Program Investor, October 18, 2007 (at 2-3). We base the sizes 
of the hypothetical analog and digital tiers on data collected via 
the FCC's Cable Price Survey. The survey indicates that the average 
analog tier contains 54.9 non-mandated channels and the most highly 
subscribed digital tier contains 33.7 additional channels. Report on 
Cable Industry Prices, Table 4, 21 FCC Rcd 15087 (released December 
27, 2006). The most widely distributed networks were ranked

[[Page 10696]]

according to their subscribers. They are then weighted according to 
the number of subscribers that they reach relative to the most 
widely distributed network, The Discovery Channel, which received a 
weight of 1. Lesser distributed networks receive weights that are 
equivalent to the fraction of subscribers they have relative to the 
most widely distributed network.
    21. The hypothetical analog tier consists of the channels with 
the highest subscribers, whose weights sum to 54.9. This 
hypothetical analog tier consists of 67 program networks. These 67 
networks reach the same number of subscribers as that which would be 
reached if 55 networks each reached 100% of cable subscribers. 
Construction of the hypothetical digital tier is complicated by the 
fact that 12 of the 194 most widely distributed networks do not 
currently receive any license fees. We therefore proceed on two 
fronts. We construct a digital tier which includes these ``no-fee'' 
networks which we refer to as the ``inclusive digital tier'' as well 
as an ``exclusive digital tier'' which excludes networks with no 
license fees from the hypothetical digital tier. An additional 
complication is that our information on affiliation fees and 
distribution of cable networks is not sufficiently broad to get a 
sufficient number of networks whose weights sum to 33.7, the number 
of channels on the average digital tier. Therefore both the 
inclusive and exclusive digital tiers will contain all of the 
networks not included in our hypothetical analog tier. The inclusive 
digital tier consists of 127 networks with a total weight of 17. The 
exclusive digital tier contains 115 networks with a weight of 15.1.
    22. We examine two approaches to calculating the marginal 
implicit fees of the hypothetical analog and digital tiers. The 
first approach, which we refer to as the net revenue approach, 
follows the method used to calculate the operator-specific rates. 
The average mark-up of cable operators is determined. This value is 
used to determine net revenue of each network on the tier by 
multiplying it against the affiliation fee to obtain gross revenue 
and subtracting off the programming cost to obtain net revenue. The 
marginal implicit fee is calculated as the mean or median net 
revenue of the least profitable 15% of channels on the tier. The 
other approach, which we call the per-subscriber fee approach, 
calculates the marginal implicit fee as the mean or median 
affiliation fee of the least costly 15% of channels on the 
hypothetical tier. Because the mark-up of each channel on a tier is 
the same, ranking networks by net revenue or per-subscriber fees 
leads to the same ordering of the networks. Therefore, the 
identities of the channels used to calculate the marginal implicit 
fee under either approach are the same for a given hypothetical 
tier.

A. The Marginal Implicit Fee Under the Net Revenue Approach

    23. As discussed, the net revenue approach mirrors the system-
specific method adopted in this order. The mark-up of programming 
costs by cable operators is determined by dividing video revenues by 
programming costs. We base this calculation on the average of the 
programming cost as a percentage of revenue for three large cable 
operators in 2005. The inverse of this number is equal to the mark-
up. SNL Kagan, Cable TV Investor: Deals and Finance, January 31, 
2007 at 6. The mark-up in the cable industry is 2.76. This mark-up 
is then applied to the per-subscriber affiliation fees of the 
networks in the hypothetical tiers in order to determine the gross 
revenue per subscriber that each of those networks generates for the 
cable industry. Subtracting the per subscriber affiliation fee from 
the gross revenue per subscriber yields the net revenue per 
subscriber. The next step in the calculation is to determine the 
marginal channels, which is based upon the number of channels that 
the average cable operator must set aside for leased access. The 
marginal networks for the maximum allowable rate on an analog tier 
will be the 15% of 54.9 or 8.2 networks. The marginal channels are 
those channels, with the lowest net revenues amongst the 67, whose 
weights sum to 8.2 (the number of marginal channels on our 
hypothetical analog tier). The weighted mean of the net revenue of 
those 13 networks is equal to $0.091 per subscriber per month and 
the weighted median is equal to $0.094 per subscriber per month.
    24. Calculation of the maximum rate for the hypothetical digital 
tiers is similar. The tier consists of those networks that were not 
included in the hypothetical analog tier with the greatest numbers 
of subscribers, whose weights sum to 33.7. Our information on per 
subscriber affiliation fees and distribution of cable networks is 
not sufficiently broad to get a sufficient number of networks whose 
weights sum to 33.7. This occurs because there is a substantial 
population of networks with very limited distribution. However, in 
our existing data, we noted that there are a number of networks with 
license fees that are effectively zero. It is likely that the lesser 
networks that we have been unable to include have a similar paucity 
of license revenues. Failure to include these additional networks 
makes the marginal implicit fee for digital tiers slightly higher 
than it otherwise would be. The marginal channels are those 
channels, with the lowest net revenues whose weights sum to 5.1 (15% 
of the number of channels on our hypothetical digital tier). The 
weighted mean net revenue of those networks is $0.056 per subscriber 
per month and the weighted median is $0.070 per subscriber per month 
for the exclusive digital tier. The weighted mean net revenue for 
the inclusive digital tier is $0.026 per subscriber per month and 
the weighted median is $0.035 per subscriber per month.

B. The Marginal Implicit Fee Under the Per-Subscriber Fee Approach

    25. The per-subscriber fee method is based upon the costs 
incurred by a cable system when it must vacate a channel in order to 
provide capacity to a commercial leased access programmer. If a 
cable system that receives a request for LA carriage has no vacant 
channels available, then the system will need to incur certain costs 
in order to make the required capacity available to the LA 
programmer. Specifically, it is unlikely that the commercial 
contracts that the cable operator has with program channels permit 
unilateral costless cancellation by the cable operator. Even without 
detailed information on these contracts, it is reasonable to assume 
that the cable operator would need to provide some compensation to 
the ``bumped'' channel in order to induce it to vacate the system. 
One reasonable candidate for this is the fee that the cable operator 
was collecting from each consumer and paying to the bumped channel 
(the ``per-subscriber fee''). If we assume that the marginal channel 
is earning negligible advertising revenues, then that channel would 
be made whole if it continued to receive the per-subscriber fee that 
the cable operator had been paying. We use this as an alternative 
method of examining the costs that leased access programming may 
impose on cable operators.
    To calculate the marginal implicit fee under the per-subscriber 
fee approach, rather than calculating the weighted means and medians 
of the net revenue of the bottom 15% of networks in a tier, the 
weighted means and medians of the affiliation fees are calculated. 
As discussed, because a constant mark-up is applied to affiliation 
fees when calculating net revenue, networks with the lowest net 
revenue are also the networks with the lowest affiliation fees. 
Therefore the marginal implicit cost using the per-subscriber fee 
method is based on exactly the same networks as used to calculate 
the marginal implicit fee with the net revenue method. The weighted 
mean of the per-subscriber fee of the marginal networks on the 
hypothetical analog tier is equal to $0.051 per subscriber per month 
and the weighted median is equal to $0.053 per subscriber per month. 
The weighted mean of the per-subscriber fee of the marginal networks 
on the hypothetical inclusive digital tier is equal to $0.015 per 
subscriber per month and the weighted median is equal to $0.020 per 
subscriber per month. The weighted mean of the programming cost of 
the marginal networks on the hypothetical exclusive digital tier is 
equal to $0.032 per subscribe.

[FR Doc. 08-872 Filed 2-27-08; 8:45 am]
BILLING CODE 6712-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>