[Federal Register Volume 61, Number 73 (Monday, April 15, 1996)]
[Proposed Rules]
[Pages 16447-16455]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9195]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[CS Docket No. 96-60; FCC 96-122]
Cable Television Leased Commercial Access
AGENCY: Federal Communications Commission.
ACTION: Further Notice of Proposed Rulemaking.
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SUMMARY: The Commission has adopted an Order on Reconsideration of the
First Report and Order and Further Notice of Proposed Rulemaking
regarding implementation of the leased commercial access provisions of
the 1992 Cable Act. The Order on Reconsideration segment of this
decision may be found elsewhere in this issue of the Federal Register.
The Further Notice of Proposed Rulemaking (``Further Notice'') segment
invites comment on whether the Commission should amend its commercial
leased access rules regarding maximum reasonable rates, part-time
rates, preferential access, tier and channel placement, operators'
obligation to open new leased access channels and bump existing non-
leased access services, selection of leased access programmers,
minority and educational programmers, procedures for resolution of
disputes, and resale of leased access time. The Further Notice is
intended to respond to certain petitions for reconsideration of the
Commission's current leased access rules.
DATES: Comments are due on or before May 15, 1996, and reply comments
are due on or before May 31, 1996. Written comments by the public on
the proposed and/or modified information collections are due May 15,
1996. Written comments must be submitted by the Office of Management
and Budget (``OMB'') on the proposed and/or modified information
collections on or before June 14, 1996.
ADDRESSES: Office of Secretary, Federal Communications Commission, 1919
M Street, NW., Washington, DC 20554. In addition to filing comments
with the Secretary, a copy of any comments on the information
collections contained herein should be submitted to Dorothy Conway,
Federal Communications Commission, Room 234, 1919 M Street, NW.,
Washington, DC 20554, or via the Internet to dconway@fcc.gov, and to
Timothy Fain, OMB Desk Officer, 10236 NEOB, 725--17th Street, NW.,
Washington, DC 20503 or via the Internet to fain__t@al.eop.gov.
FOR FURTHER INFORMATION, CONTACT: Lynn Crakes, Cable Services Bureau,
(202) 416-0800. For additional information concerning the information
collections contained in this Further Notice, contact Dorothy Conway at
(202) 418-0217, or via the Internet at dconway@fcc.gov.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Further Notice of Proposed Rulemaking, CS Docket No. 96-60, adopted
March 21, 1996, and released March 29, 1996. The full text of this
decision is available for inspection and copying during normal business
hours in the FCC Reference Center, Room 239, 1919 M Street, NW.,
Washington, DC 20554, and may be purchased from the Commission's copy
contractor, International Transcription Services, Inc., (202) 857-3800,
1919 M Street, NW., Washington, DC 20554.
Synopsis of the Further Notice of Proposed Rulemaking
I. Maximum Rate Formula
1. The Commission believes that its goal in determining a maximum
reasonable rate should be to promote the statutory objectives of
competition and diversity in programming sources without financially
burdening the operators, rather than to develop a price that will
necessarily be lower or higher than rates derived under the current
highest implicit fee formula. The Commission believes that, if the
maximum rate for leased access is reasonable, the resulting demand for
leased access channels will also be reasonable. It is in this context
that the Commission is re-examining the highest implicit fee formula.
The Commission believes that the highest implicit fee formula is likely
to overcompensate
[[Page 16448]]
cable operators and does not sufficiently promote the goals underlying
the leased access provisions. The Commission has therefore developed an
alternative that it believes may better promote the goals of leased
access.
A. Economic Justification for the Proposed Cost/Market Rate Formula
2. The Commission tentatively concludes that its approach to
setting a maximum rate should (a) encourage the use of the set-aside
channels without giving programmers a subsidy, and (b) allocate the
channels to the leased access programmers that value the channels most
(i.e., are willing to pay the most) when the demand for leased access
channels exceeds the statutory set-aside requirement. The Commission
therefore tentatively concludes that the maximum rate for leased access
should depend on whether a cable operator is leasing its full statutory
set-aside requirement. The Commission requests comment on these
tentative conclusions.
3. The Commission also tentatively concludes that, when the set-
aside capacity is not fully leased to unaffiliated programmers (or
minority or educational programmers pursuant to Section 612(i) of the
Communications Act), the maximum rate should be based on the operator's
reasonable costs (i.e., the costs of operating the cable system plus
the additional costs related to leased access), including a reasonable
profit. The Commission believes that a cost-based pricing scheme can
promote leased access without providing a subsidy to programmers. The
purpose of the cost formula is not to lower rates; it does not ensure
that leased access programming will increase or that the maximum rate
for leased access programmers will decrease. Programmers who cannot
afford the cost-based rate will not and should not gain access because
they would impose a financial burden on operators.
4. In addition, the cost formula is not intended to guarantee that
all operating costs will be fully recovered, but is intended to permit
the operator to continue to recover the same proportion of operating
costs from subscriber revenues as were recovered before the channel was
used for leased access. Thus, under the proposed cost formula, the
operator would not be adversely affected in terms of its ability to pay
operating costs. The Commission asks for comment on these tentative
conclusions.
5. The portion of the maximum rate for leased access channels
included in a tier of programming which the Commission proposes be paid
by the leased access programmer (the ``programmer charge'') would be
based on the reasonable costs (including reasonable profits) that
leased access imposes on the operator. Operators would be allowed to
recover only those types of opportunity costs which can reasonably be
attributed to carriage of the leased access programming and which are
reasonably quantifiable.
6. On the other hand, the Commission tentatively concludes that if
the operator satisfies its set-aside requirement, the maximum rate
should be a market rate determined by negotiation between the operator
and the leased access programmer. The Commission believes that market
rates will most effectively determine which programmers should receive
leased access on the system when the operator's set-aside is satisfied.
Within the leased access market, those programmers who are able to pay
the most for channel capacity would presumably be able to acquire the
set-aside channels. The higher price which some leased access
programmers may offer to pay for the channel capacity reflects the
greater ability and willingness of consumers to pay for the programming
to be carried on each of these channels. Thus, relying on market prices
to allocate channel capacity provides consumers with an efficient
mechanism to communicate their preferences about which leased access
programming should be carried by the operator. The Commission seeks
comment on these tentative conclusions.
7. The Commission recognizes that the market rate may rise above
the operator's costs; such prices, however, are the result of
competition among unaffiliated programmers to use the statutory leased
access channel capacity. The Commission believes that, so long as the
operator is accommodating leased access to the full extent required by
Congress and Section 612, any price increase would be reasonable. Under
the Commission's proposal, the operator cannot charge market rates if
the number of channels leased falls below the number designated by the
statute. Thus, a higher rate would reflect excess demand by programmers
for the operator's statutory channel capacity.
8. In general, market power refers to the ability of a seller to
restrict output below the desirable level and to set a price above
costs (i.e., to set an unreasonable rate). In the leased access
context, Congress has defined the appropriate level of output by
establishing the set-aside requirement, and the operator cannot
restrict the output below this level. Therefore, even if the market
rate rises above the operator's costs, the Commission does not believe
that the operator is charging unreasonable rates since Congress has
determined the appropriate level of output. The Commission seeks
comment on these tentative conclusions.
9. The Commission seeks comment on the extent to which negotiated
rates are adequate to address Congress' mandate that the Commission set
a maximum reasonable rate and the extent to which negotiated rates
could be used to exercise editorial control over the leased access
channels, contrary to Congress' intent. The Commission also asks for
comment on how operators may choose between competing programmers. For
instance, the Commission asks if operators should be required to select
the highest bidder. The Commission also seeks comment on any
alternatives for setting maximum rates when an operator is leasing its
full set-aside capacity.
10. The Commission does not propose to maintain the programmer
categories established under the highest implicit fee formula under the
proposed cost formula. Our proposed cost formula is based purely on the
operator's costs associated with its system and leased access
programming. and does not base the maximum rate on the economics which
the leased access programmer faces. The Commission therefore does not
believe that treating different programmers differently is appropriate
under the cost formula. Accordingly, the Commission tentatively
concludes that it will not establish programmer categories for
implementation of the cost formula, and requests comment on this
tentative conclusion.
B. Calculation of the Maximum Rate Under the Proposed Cost Formula
1. Designating Channels
11. The Commission proposes that the cost formula determine a
maximum leased access rate based on the cost of the channels designated
to be used for leased access by an operator. The opportunity costs
would be derived from the programming that is actually bumped from the
operator's programming line-up.
12. To derive the channel cost under the proposed cost formula, an
operator would first select the specific channels it would use for
leased access programming, as demand arises, in order to meet its set-
aside requirement. The Commission proposes that the operator would be
required to place these channel designations, including the channel
numbers and the programming carried on each channel at
[[Page 16449]]
the time the operator calculates the maximum rate under the cost
formula, in its public file. The operator would be required to
designate enough channels to satisfy its full set-aside requirement.
Basing the rate on the actual designated channels would be attractive
from an economic perspective because the compensation to the operator
would be based on its actual costs of leasing the designated channels.
The Commission requests comment on this proposal generally. The
Commission also requests comment on how the Commission might restrict
an operator's ability to manipulate its designation of channels so as
to derive a prohibitively high rate in an effort to impede leased
access. For example, the Commission asks whether there should be a
presumption against an operator designating only its highest valued
channels in such a way as to inflate its maximum leased access rate.
The Commission also asks whether operators should be permitted to base
their maximum rate calculation on affiliated programming, if the
operator designates channels that carry such affiliated programming.
2. Operating Costs
13. The first component of the proposed cost formula is the
operating costs. The Commission tentatively defines operating costs to
include fixed and variable costs that the cable operator incurs
regardless of what programming is carried over the channel. Commission
data shows that, in the tier context, this component, including a
reasonable rate of return, is substantially covered by the revenue the
operator receives from subscribers. Using subscriber revenue as a proxy
for the operating costs for tiered channels allows the operator to
recover its operating costs to the same extent as it did with non-
leased access programming on the channel. The Commission therefore
tentatively concludes that it is appropriate for purposes of the
proposed cost formula to designate subscriber revenue as the operator's
payment toward its operating costs. Thus, the operator would not need
to calculate its operating costs for channels that are currently on
programming tiers (or dark), and would instead use the amount
representing the average subscriber revenue per channel as its
operating costs per channel in calculating the cost formula.
14. Similarly, the Commission proposes that operators would not
need to calculate their operating costs for channels that are currently
carried as premium services or on unregulated programming tiers. As
with channels carried on regulated programming tiers, the Commission
believes that using the subscriber revenue for an unregulated channel
as its payment toward its operating costs will allow the operator to
recover its operating costs to the same extent as it does with the non-
leased access programming carried on the channel. The Commission
recognizes that unregulated subscriber revenue might recover more than
the operator's operating costs; however, the Commission believes that
any profit which is generated from subscriber revenue could be viewed
as an opportunity cost imposed on the operator who forgoes these
profits when this channel is used to carry leased access programming.
For simplicity, the Commission proposes not to require the operator to
deduct this lost profit from the operating cost portion of the formula
simply to add it back to the opportunity cost portion. The Commission
seeks comment on these tentative conclusions.
3. Net Opportunity Costs
15. The Commission proposes that the second component of the cost
formula, ``net opportunity costs,'' would include the reasonable costs
(or cost savings) that the operator incurs by leasing the channel to
the leased access programmer that it would not have incurred had it
continued with the current use of the channel. In other words, the net
opportunity cost portion of the cost formula would include reasonably
quantifiable costs (or savings) associated with carrying the leased
access programming instead of other programming. The Commission
recognizes that our proposed formula does not incorporate all
opportunity costs. As discussed below, some costs are not easily
quantified; other costs the Commission does not believe are appropriate
to include in the leased access fee. In order to provide some
uniformity in the calculation of opportunity costs, the Commission
proposes to identify categories of quantifiable costs which operators
may include in calculating the cost formula.
16. The first category of opportunity costs for which the
Commission proposes to allow recovery is lost advertising revenues.
This type of lost revenue would be a quantifiable opportunity cost when
the operator is forced to bump a non-leased access programmer to
accommodate the leased access programmer, or when the operator is
forced to forego placing new programming on a dark channel. The
Commission does not propose to reduce the opportunity cost for lost
advertising revenue by the value of any advertising time the operator
may receive from the leased access programmer. The Commission believes
that the leased access programmer is entitled to pay no more than the
maximum rate, regardless of whether the operator receives advertising
time. If the leased access programmer does not want to give the
operator advertising time, the Commission tentatively concludes that
the programmer is not required to do so. On the other hand, if the
programmer wishes to bargain for a lower rate in exchange for
advertising time, the Commission believes such bargaining is fully
permitted by our rules and is a matter to be negotiated between the
parties. The Commission requests comment on these tentative
conclusions.
17. The Commission proposes that the second opportunity cost
category should be lost commissions. If, for example, to accommodate a
leased access channel, an operator were to bump a direct sales
programmer from which the operator receives a percentage of the
programmer's revenues, those commissions constitute a quantifiable
opportunity cost which the Commission proposes be factored into the
cost formula. The Commission requests comment on this proposal.
18. On the other hand, the Commission also believes that any
program license fee that the operator does not have to pay because the
non-leased access programming is not being carried is a cost savings.
The Commission believes that such a cost savings should be factored
into the calculation of the operator's net opportunity cost. The
Commission tentatively concludes that cable operators should be
required to deduct any license or programming fees that the operator
does not have to pay due to the carriage of the leased access
programming. One possible concern is the extent to which either the
operator or the programmer can influence the license fees paid for non-
leased access programming. The Commission asks how, if at all, the
operator or programmer can influence the programming license fee and
how that influence might affect the Commission's measurement of
programming cost savings under the proposed cost formula.
19. Another cost category which the Commission believes may be
appropriate relates to technical costs (e.g., the cost of scrambling)
incurred by the operator in offering leased access programming. If, for
example, a programmer asks to lease channel capacity for a premium
service, an operator may incur additional costs of
[[Page 16450]]
limiting that programming to subscribers of the leased access service.
Thus, under our proposed cost formula, those costs could be included in
calculating the maximum rate. The Commission proposes to distinguish
these technical costs from those for technical support for which the
operator is permitted to charge separately. The Commission requests
comment on these proposals.
20. Another potential opportunity cost category could be any
reduction in the tier charge that the operator charges the subscriber
when the reduction is caused by substituting the leased access
programming for non-leased access programming. Although the Commission
believes that there would be no such lost subscriber revenue under the
Commission's going forward methodology, it seeks comment on how an
operator might be able to demonstrate that its subscriber revenue is
quantifiably reduced on a specific designated channel because of the
leased access programming carried on that same channel, and, if this is
possible, whether the operator should be permitted to include this loss
in the cost formula.
21. The Commission tentatively concludes that the cost formula
should not explicitly include revenue lost because of a purported loss
in subscribership to a particular tier because particular programming
is dropped. The Commission tentatively concludes that, in the tier
context, any such subscriber loss is too speculative to measure
accurately. In the premium context, however, the Commission believes
that this subscriber loss is included by allowing the operator to
include an amount in the proposed cost formula equal to the total
subscriber revenue for the bumped channel. In addition, operators would
be able to consider any potential loss of subscribership in deciding
which channels to designate for leased access. Nonetheless, the
Commission requests comment on how our cost formula might measure
changes in subscriber penetration due to the addition of leased access
programming.
22. The Commission also recognizes that there may be opportunity
costs associated with using a channel for leased access which does not
currently carry programming, i.e., a dark channel. The Commission
believes that the presence of dark channels on a system does not
necessarily indicate a lack of available programming. As an example, an
operator might reserve a dark channel in anticipation of more desirable
programming becoming available in the future. The Commission proposes
to allow operators to approximate the opportunity costs of dark
channels by assigning dark channels the per channel opportunity cost of
the programmed channels on the system with opportunity costs that have
the lowest positive values, not including programmed channels that the
operators are required to carry such as must-carry stations, public,
educational and governmental (``PEG'') access channels, or any leased
access channels already being carried. If one designated channel is
dark, the operator would assign it the opportunity cost of the
programmed channel on the system which has the opportunity cost with
the lowest positive value; if an operator designates two dark channels
for leased access, it would assign the opportunity cost of the two
programmed channels on the system which have the lowest opportunity
cost with a positive value, and so on. The Commission seeks comment on
this proposal.
23. The Commission believes that it is necessary to use only
channels with positive opportunity costs as proxies for dark channels,
because operators generally will not carry programming that has a
negative economic benefit to them, which is what a negative opportunity
cost value would indicate. The Commission suspects that, if a channel
has a negative net opportunity cost, it may be because the cost formula
does not include an approximation of the value of subscriber
penetration. Although the Commission does not believe that it can
accurately measure loss in subscriber penetration that may be caused by
substituting leased access programming for non-leased access
programming for purposes of the cost formula, the Commission
tentatively concludes that using only those channels with a positive
opportunity cost as proxies for dark channels will compensate for this
limitation. As also stated above, however, the Commission requests
comment on how it might measure changes in subscriber penetration due
to the addition of leased access programming. The Commission asks how
it might identify which channels should not be deemed to have the
lowest opportunity cost for purposes of approximating the opportunity
costs of dark channels.
4. Averaging the Per Channel Costs for All Designated Channels
24. Because the operator may select designated channels from the
basic service tier (``BST''), any cable programming service tier
(``CPST''), or premium services, the Commission believes that the
corresponding per channel costs will vary depending on the number of
subscribers that receive each service. Consequently, the Commission
proposes that all costs must be computed on a per channel basis rather
than on a per subscriber basis. As discussed below, the per channel
costs for each designated channel could then be used to determine the
average channel costs of a designated channel.
25. The Commission tentatively concludes that applying an average
channel cost to leased access will promote fairness because all leased
access programmers will be subject to the same maximum rate. The
Commission notes that an operator's designation of leased access
channels is made independently of the leased access programmer's
request for access. The Commission does not believe that the operator
should be required to bump the same type of service (i.e., a channel on
the BST, a CPST, or a premium channel) that is requested by the leased
access programmer. The Commission also believes that averaging the
channel costs would mitigate against the operator's ability to
manipulate the cost formula by designating one high cost channel and
requiring a particular leased access programmer that the operator wants
to keep off its system to pay the opportunity costs for that particular
programming.
26. Therefore, the Commission proposes that, after the operator has
calculated the per channel opportunity costs and added the
corresponding subscriber revenue (as a proxy for operating costs) to
obtain a total per channel cost, the operator should average these per
channel costs by adding them all together and dividing by the number of
designated channels. The result would be the Commission's proposed
cost-based maximum rate for a leased access channel if the operator has
not fulfilled its leased access set-aside requirement. The Commission
seeks comment on whether averaging the per channel costs is appropriate
under the proposed cost formula.
5. Calculating the Leased Access Programmer Charge
27. Under our proposed cost formula, once the operator determines
the maximum rate as set forth above, the operator would determine how
much of that maximum rate it could charge the leased access programmer.
If the leased access programming is to be carried on a programming
tier, the proposed cost formula would allow the operator to collect and
retain revenue for that channel from the subscribers to the tier as
payment for its operating costs. However, to avoid a double recovery by
[[Page 16451]]
the operator, the operator would not be permitted to include these
operating costs in computing the portion of the maximum rate that the
operator may charge the leased access programmer. The operator would
therefore be required to subtract the total subscriber revenue for the
channel from the maximum rate. The difference would be the programmer
charge, i.e., the maximum amount that the operator would be permitted
to charge the leased access programmer directly. The Commission
requests comment on this proposal.
28. The Commission tentatively concludes that if a leased access
channel is to be carried as a premium service, the full maximum rate
derived from the cost formula could be charged to the leased access
programmer, to the extent that all of the monthly subscriber revenue
for the leased access channel flows to the leased access programmer.
The Commission believes that this is appropriate because the Commission
cannot assume that the leased access premium service will attract the
same subscribership as the non-leased access programming. Thus, the
operator would be allowed to charge the full maximum rate which
recovers its costs. In return, the programmer would receive all the
subscriber revenues from its premium service. The Commission requests
comment on these tentative conclusions.
6. Adjustment for Part-Time Administrative Costs
29. Regardless of whether the leased access programming is carried
on a tier or as a premium service, the Commission recognizes that there
may be additional costs associated with part-time leases. The
Commission therefore tentatively concludes that operators should be
permitted to charge a part-time leased access programmer the actual
incurred costs of negotiating and administering the programmer's part-
time contract which exceed what normally would be spent in negotiating
and administering a full-time leased access programming contract. The
Commission does not believe that it is more expensive for an operator
to negotiate and administer a full-time leased access programming
contract than it is for them to negotiate and administer a full-time
non-leased access programming contract. The Commission therefore
proposes not to allow operators to charge full-time leased access
programmers for administrative costs. Under our proposal, the
additional costs associated with part-time leasing would be added to
the programmer charge derived in accordance with the procedures
described above for determining rates for leased access programming
carried on a tier or as a premium service. The Commission asks for
comment on these tentative conclusions.
C. Market Rate as the Maximum Rate
30. As discussed above, the Commission believes that, once an
operator fulfills its set-aside requirement, the maximum cost-based
rate should be replaced by a market based rate and not capped by the
proposed cost formula. Under this proposal, the operator would be
allowed to charge whatever rate it could negotiate with the leased
access programmers, as long as the operator continues to meet its
statutory set-aside requirement. Whether the operator retains the
subscriber revenue would be a matter negotiated between the parties.
Leased access programmers would then be forced to compete against each
other for limited channel space, much the same as non-leased access
programmers do. The Commission tentatively concludes that the pressure
on the operator to meet its set-aside requirement and the competition
between the programmers seeking leased access will determine an
appropriate market rate.
31. The Commission proposes that operators would be permitted to
renegotiate the rate charged leased access programmers upon renewal of
each programmer's contract, as long as the operator continues to
fulfill its set-aside requirement. Thus, if the set-aside requirement
has been filled, a current leased access programmer who gained access
at the cost formula rate would have an opportunity at the end of its
contract to bid against rival leased access programmers to obtain the
right to continue to be carried on the system. If the amount of leased
access programming being carried drops below the set-aside requirement,
the operator would be required to return to the cost formula to
determine the maximum rate on new programming contracts, as well as on
contracts that are renewed at any time while the set-aside requirement
is not met. The Commission seeks comment on this proposal generally,
and asks whether this proposal complies with our statutory mandate to
establish maximum reasonable rates. The Commission also seeks comment
on whether operators could exercise editorial control over leased
access programmers contrary to Congress' intent, if rates for leased
access were market based. In addition, the Commission requests comment
on alternatives for setting maximum reasonable rates when an operator
has satisfied its set-aside requirement.
D. Transition Period
32. The Commission tentatively concludes that, on the effective
date of the maximum rate-setting rules which the Commission will adopt
in response to this Further Notice, operators should be required to
implement the adopted formula, whatever it may be, for (a) programmers
that are currently leasing channel capacity from an operator and (b)
programmers demanding leased access on a system that has unused (or
dark) channel capacity. The Commission requests comment on this
tentative conclusion. The Commission believes, however, that transition
relief may be appropriate in the case of new leased access requests
with respect to systems that do not have any dark channels, where
operators would be forced to bump existing programming in order to
accommodate a leased access request. The Commission recognizes that,
when an operator places non-leased access programming on a channel
designated for leased access, the operator and programmer generally
assume the risk that the programming may have to be bumped for a leased
access programmer. The risk of having to bump, however, may increase
with the introduction of whatever formula the Commission adopts,
depending on the extent to which rates using the adopted formula affect
the utilization of leased access. A transition to the new formula might
(a) avoid unduly penalizing operators and programmers for decisions to
use designated channels for non-leased access programming that were
reasonably based on circumstances created by the Commission's previous
rules, and (b) mitigate against the sudden disruption to subscribers'
programming line-ups. The Commission therefore requests comment on
whether it should phase in the proposed cost formula, or any other rate
setting formula which the Commission may adopt, for those leased access
requests that can only be accommodated by bumping existing non-leased
access programming. The Commission also asks whether such transition
relief should be applied to dark channels for which the operator has
programming contracts in place. The Commission asks for comment on how
a transition might be accomplished and the specific mechanism the
Commission should employ. In this context, commenters should explain
how any proposed transition period would be consistent with the
Commission's obligation to establish maximum reasonable rates for
leased access.
[[Page 16452]]
E. Adjusting Leased Access Rates Over Time
33. As described above, the proposed cost formula would require
operators to designate the specific channels they will use to satisfy
their set-aside requirement. The Commission proposes that an operator's
selections are binding and the designated channels must be the ones
that are in fact used to accommodate leased access requests. The
Commission does not believe, however, that operators should be required
to adhere to their initial designations indefinitely, since the
popularity and profitability of a designated channel could unexpectedly
increase and the operator might no longer want to use it for leased
access. The Commission tentatively concludes that, in order to account
for change, operators should be allowed to redesignate their unused
leased access channel capacity on an annual basis. The Commission
requests comment on these tentative conclusions, and asks how an
operator's maximum leased access rates should be adjusted over time.
Our presumption in allowing operators this flexibility is that
operators generally will want to use their least profitable channels
for leased access, and so will redesignate a channel that is less
profitable than the one that is being replaced. If an operator
redesignates a channel that is significantly more profitable than the
previously selected channel, and the redesignation would raise the
operator's maximum rate, the Commission tentatively concludes that the
redesignation would be evidence of an attempt to inflate the maximum
rate in contravention of the purposes of our rules and the statute.
34. In addition to permitting redesignation of leased access
channels, the Commission tentatively concludes that operators should be
permitted to recalculate their maximum rates annually, in order to
account for changes in the allowable opportunity costs of designated
channels that currently are not being used for leased access. The
Commission requests comment on whether this annual recalculation is
appropriate, and on whether it should occur on the anniversary of the
effective date of our modified rules, each calendar year, or on some
anniversary which is most appropriate for an individual operator (to
coincide with its annual audits, for example). The Commission believes
that allowing an operator to update its rates will better approximate
the operator's changing costs of satisfying its leased access
requirement. The Commission requests comment on whether our maximum
rate should be cumulative over the life of the leased access contract
so that an operator and a leased access programmer have the option, if
mutually agreed upon, to establish a rate below the maximum rate during
the first part of the contract term and a rate above the maximum rate
during a subsequent part of the contract term, and asks whether such an
option would provide operators with the opportunity to evade the
maximum rate.
II. Part-Time Rates
35. The Commission's current rules permit prorating the maximum
monthly rate as one method of deriving rates for shorter periods. The
rules the Commission adopted on reconsideration provide that operators
may establish a schedule of rates, or rate card, for different times of
day, pursuant to which, if all times were used, the sum of the part-
time charges for any single leased access channel within a 24-hour
period would not exceed its maximum rate for the leased access channel
if the daily rate were prorated evenly from the monthly maximum rate
and were calculated in accordance with the Commission's rules. The
Commission requests comment, however, on whether such proration is
appropriate under our proposed cost formula, and, more specifically, if
it is, whether the restriction that the part-time rates for a 24 hour
time period total no more than the maximum rate is appropriate under
the proposed cost formula. The Commission seeks comment on whether, if
the cost/market rate formula were to be adopted for full-time leased
access use, an entirely different method of calculating the maximum
reasonable rate for part-time use would be more appropriate. If so, the
Commission requests comment on how to define part-time leased access
use, e.g., leases for less than a 24 hour channel, for 12 hours, for
eight hours, or fewer.
III. Preferential Access
36. The Commission is concerned that not-for-profit programmers are
being excluded from leased access, but the record lacks sufficient
evidence to make a determination of whether the goal of diversity is
being achieved and, if it is not being achieved, whether one of the
reasons is that rates are unaffordable for not-for-profit entities. The
Commission therefore invites interested parties to demonstrate, with
specific examples, whether current leased access programming sources
are sufficiently diverse and whether preferential treatment for not-
for-profit programmers would significantly affect the diversity of
current programming sources. The Commission requests commenters to
provide precise data indicating whether or not rates charged to leased
access programmers are affordable for not-for-profit entities.
Commenters in support of preferential treatment for not-for-profit
programmers should explain their position within the context of our
previously stated belief that operators should not have to subsidize
leased access programmers and the statutory requirement that leased
access use should not adversely affect the operation, financial
condition, or market development of the cable system. Those commenters
should also address the extent to which preferential treatment is
necessary given that public access is already provided for under
current PEG requirements.
37. The Commission seeks comment on whether, if the Commission
concludes that some form of preferential treatment is appropriate, a
lower maximum rate should apply to not-for-profit leased access
programmers, and if so, what rate should apply and why. Alternatively,
if the proposed cost formula is adopted, the Commission seeks comment
on whether operators should be required to exclude lost advertising
revenues or lost commissions from maximum rates charged to not-for-
profit leased access programmers. In addition, the Commission solicits
comment on whether not-for-profit leased access programmers should be
entitled to preferential rates during any transition period that might
be adopted for the cost formula.
38. Preferential rates, if adopted, would provide no relief if not-
for-profit leased access programmers are denied access to a system
because the operator has met its set-aside requirement. The Commission
seeks comment on whether the statute would permit us to consider a set-
aside requirement for not-for-profit programmers. If so, the Commission
asks whether the public interest would be served by such a set-aside
requirement and how it should be structured. For example, would a
reservation of 25% of leased access capacity be appropriate? Should a
set-aside requirement be temporary or permanent, and if temporary, what
length of time would be appropriate? Furthermore, if the proposed cost
formula were adopted, how would the need for a set-aside requirement be
affected, given that the formula allows market rates to prevail when
demand for leased access exceeds an operator's set-aside requirement?
If a such a set-aside requirement were imposed, the Commission would
stipulate that until a
[[Page 16453]]
not-for-profit leased access programmer demanded access to a not-for-
profit set-aside channel, the operator must use the channel for for-
profit leased access programming, unless no demand exists, in which
case it may use it for its own programming.
39. The Commission also seeks comment on whether preferential
treatment should be limited to not-for-profit programmers or whether
certain types of for-profit programmers should also receive
preferential treatment. The Commission believes that there is
insufficient evidence on the record for us to indicate that LPTV
stations and minority and educational programmers should receive
preferential treatment, but the Commission invites commenters to
demonstrate with specific evidence why a preference for certain types
of for-profit programmers may be appropriate. The Commission also seeks
comment on whether a ``not-for-profit programmer'' should be defined as
a programmer with Section 501(c)(3) tax-exempt status or whether
another classification should apply.
IV. Tier and Channel Placement
40. The statutory commercial leased access provisions are intended
to provide programmers with a ``genuine outlet'' for their programming.
According to the legislative history of the 1992 amendments to Section
612, the Commission should ensure that programmers are carried on
channel locations that ``most subscribers actually use,'' a guideline
that should be interpreted in light of the statutory provision that
leased access use should not adversely affect the market development of
a cable system. The Commission tentatively concludes that, absent some
compelling reason (such as technical considerations), leased access
programmers have the right to be placed on a tier, as opposed to being
carried as a premium service. The Commission believes that, if an
operator were permitted to force leased access programming to be
offered as a premium service, the programmer would not be assured
access to most subscribers.
41. Our 1995 Competition Report states that a large percentage of
subscribers (more than 90%) receive CPSTs. The Commission tentatively
concludes that both the BST and the CPST with the highest subscriber
penetration qualify as genuine outlets because most subscribers
actually use them. However, the Commission seeks comment on whether a
CPST that does not boast the highest subscriber penetration could
qualify as a genuine outlet, and under what circumstances. For example,
should the Commission interpret the term ``most subscribers'' as
greater than 50%? In order to permit flexibility in the market
development of an operator's cable system, the Commission would allow
the operator to decide whether it is appropriate for its particular
system to carry the leased access channel on the BST or on a CPST that
qualifies as a genuine outlet. To ease technical burdens on operators,
the Commission proposes to permit operators to place leased access
programming that it must scramble or trap out with other programming
that is also scrambled or trapped out. The Commission also proposes to
allow operators to consider these technical concerns when deciding
whether to place leased access programming on either the BST or a CPST
that qualifies as a genuine outlet. The Commission seeks comment on
these tentative conclusions.
V. Obligation to Open New Channels and Bump Existing Non-Leased Access
Services
42. Although cable operators that have not fulfilled their
statutory leased access set-aside requirement are generally required to
accommodate requests for leased access time, the Commission recognizes
that there may be circumstances in which substantially greater harm to
the subscribers, the operator, and the non-leased access programmer may
result if the leased access request is accommodated than would result
for the leased access programmer if the leased access request is not
accommodated. The Commission seeks comment on whether, when a specific
time slot requested by a part-time leased access programmer is already
leased, an operator should be required to open up another leased access
channel, if the operator can otherwise reasonably accommodate the
leased access request in a comparable time slot. The Commission
believes that the possible disruption of existing programming or the
preclusion of future programming in order to accommodate only a few
hours of leased access demand, where adequate and comparable capacity
is available on an existing leased access channel, will not advance the
goal of assuring that the widest possible diversity of information
sources are made available to the public from cable systems in a manner
consistent with the growth and development of cable systems. However,
the Commission solicits comment on whether it is sufficient to require
a ``reasonable accommodation in a comparable time slot'' or whether the
standard should be further defined. The Commission also seeks comment
on whether the operator should be required to remove an existing full-
channel programmer if the leased access programmer agrees to a minimum
time increment. The Commission tentatively concludes that the guarantee
of a minimum time increment of eight hours within a 24-hour period
would be a reasonable pre-condition for requiring an operator to open
up an additional channel for leased access.
VI. Selection of Programmers
43. The Commission has not specifically addressed the manner in
which lessees are to be selected for placement on leased access
channels. The Commission tentatively concludes that a first-come,
first-served approach is preferable so long as available leased access
channel capacity is sufficient to accommodate incoming leased access
requests. However, if an operator's available leased access channel
capacity is insufficient to accommodate all pending leased access
requests, the Commission seeks comment on whether operators should be
allowed to accept leased access programmers on a basis other than
first-come, first-served. The Commission believes that allowing cable
operators limited ability to make content-neutral selections from among
leased access programmers may be appropriate in order to enable them to
avoid certain situations that might ``adversely affect the operation,
financial condition, or market development of the cable system.''
44. For example, operators may wish to give priority to leased
access programmers that request a full-time lease over a programmer
seeking to lease only part-time, thus minimizing the disruption to the
subscriber, as well as easing the administrative burdens on the
operator. The Commission is not suggesting that an operator would be
allowed to completely refuse part-time requests for leased access, but
is asking whether, when the operator cannot accommodate all leased
access requests within its set-aside requirement, the operator should
be allowed to select a full-time applicant over a part-time applicant.
At the same time, the Commission is concerned that allowing a
preference for full-time programmers may not further the statutory goal
of promoting the widest possible diversity of programming sources,
since encouraging part-time use could result in a wider variety of
programmers. To that end, the Commission seeks comment on whether
certain circumstances favor shifting the preference to the competing
part-time applicant, for example if the part-time applicant is a not-
for-profit entity.
[[Page 16454]]
Alternatively, instead of allowing a preference for the last available
leased access channel, the Commission seeks comment on whether it
should require one or two leased access channels to be used exclusively
for part-time use. The Commission further seeks comment on whether it
should allow operators to base their selections on any content-neutral
criteria other than the full-time/part-time distinction.
VII. Minority and Educational Programmers
45. Section 612(i) of the Communications Act permits a cable
operator to place programming from a qualified minority or educational
programming source on up to 33% of the cable system's designated leased
access channels. The Commission seeks comment on whether the
requirements for tier and channel placement, as proposed above, should
apply to minority and educational programming that is carried as a
substitute for leased access programming. Specifically, should
operators be required to carry minority and educational programming on
the BST or a CPST that qualifies as a genuine outlet, if they are
claiming it as a substitute for leased access? There is no explicit
language in the statute or legislative history stipulating that
minority and educational programming should be received by most
subscribers. However, Section 612(i)(1) provides that ``a cable
operator required by this section to designate channel capacity for
commercial use may use any such channel capacity'' for minority and
educational programming (emphasis added), suggesting that Congress
envisioned that the same channels that would have been used for leased
access should be used for any substituted minority and educational
programming. Moreover, to allow a less stringent standard for minority
and educational programming would seem to defeat the use of such
programming as a substitute for leased access. Therefore, the
Commission tentatively concludes that minority and educational
programming should not qualify as a replacement for leased access
programming unless it is carried on the BST or a CPST that qualifies as
a genuine outlet. As with leased access, the operator could choose on
which qualifying tier to carry the programming.
VIII. Procedures for Resolution of Disputes
46. In order to streamline the Commission's complaint process, the
Commission proposes to stipulate that a leased access programmer may
not file a complaint alleging that an operator's maximum rate was
calculated incorrectly unless an independent certified public
accountant has first reviewed the operator's calculations and made an
independent determination of the maximum rate. If the operator and
leased access programmer cannot agree on a mutually acceptable
accountant, the operator may select any independent certified public
accountant. The review must be conducted within 60 days of the leased
access programmer's request to the operator for a review. The operator
would be expected to provide the accountant with all information
necessary to support its rate calculation, including an explanation of
how the rate was calculated. The findings of the accountant would be
certified in a final report and provided to both parties. The
Commission seeks comment on whether, in the absence of any evidence to
the contrary, the Commission should consider a determination by the
accountant that the operator's rate exceeds the permissible rate to
constitute clear and convincing evidence that the rate is unreasonable.
47. The Commission tentatively concludes that, in order to provide
notice to other potential leased access programmers, the accountant's
final report should be filed in the cable system's local public file.
The Commission seeks comment on this proposal. Alternatively, the
Commission seeks comment on whether operators should be required to
provide the report upon request to potential leased access programmers.
The Commission seeks comment on what type of information should be
contained in the accountant's final report and what type of information
would be proprietary and thus kept confidential. The Commission also
seeks comment on how the accountant's expenses should be paid. For
example, should the parties share the expenses equally or should the
full amount be paid by the party that the accountant's report proved
was incorrect?
48. In light of the streamlining proposed above, the Commission
does not believe that it is necessary for the Commission to set a time
limit within which complaints will be decided by the Commission. Each
leased access complaint proceeding differs in complexity and requires
varying amounts of Commission time and resources. In addition, the
Commission believes that shortening the operator's response period
would be unfair to the operator.
IX. Resale of Leased Access Time
49. The Commission seeks comment on whether the Commission should
permit leased access time to be resold by the lessee. Leased access
programmers are of course entitled to sell time to advertisers. The
question here is whether the Commission should allow persons
unaffiliated with the operator to lease time from the operator and then
sell it as programming time to other unaffiliated persons for a profit.
The Commission seeks comment on the advisability of allowing the resale
of leased access time. If the Commission were to prohibit resale, the
Commission asks whether an exception should apply for not-for-profit
leased access programmers.
X. Initial Regulatory Flexibility Act Analysis
50. Pursuant to Section 603 of the Regulatory Flexibility Act, the
Commission has prepared the following initial regulatory flexibility
analysis (``IRFA'') of the expected impact of these proposed policies
and rules on small entities. Written public comments are requested on
the IRFA. These comments must be filed in accordance with the same
filing deadlines as comments on the rest of the Further Notice, but
they must have a separate and distinct heading designating them as
responses to the regulatory flexibility analysis. The Secretary shall
send a copy of the Further Notice, including the IRFA, to the Chief
Counsel for Advocacy of the Small Business Administration in accordance
with Section 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-
354, 94 Stat. 1164, 5 U.S.C. Sec. 601 et seq. (1981).
51. Reason for Action. Section 612 of the Communications Act of
1934, as amended, 47 U.S.C. Sec. 532, requires the Commission to
prescribe rules and regulations regarding commercial use of channel
capacity for unaffiliated persons. The Commission is using this Further
Notice to seek comment on various issues concerning implementation of
this statute.
52. Objectives. To propose rules which implement Section 612 of the
Communications Act of 1934, as amended, 47 U.S.C. Sec. 532, and further
its goals of promoting competition in the delivery of diverse sources
of video programming and to assure that the widest possible diversity
of information sources are made available to the public from cable
systems in a manner consistent with the growth and development of cable
systems.
53. Legal Basis. Action as proposed for this rulemaking is
contained in
[[Page 16455]]
Sections 1, 4(i), 4(j) and 612 of the Communications Act of 1934, as
amended, 47 U.S.C. Secs. 151, 154(i), 154(j) and 532.
54. Description, Potential Impact and Number of Small Entities
Affected. The Commission anticipates a possible impact on small
entities, as defined in Section 601(3) of the Regulatory Flexibility
Act, including cable operators and leased access programmers, but the
Commission does not currently have information pertaining to the extent
of such impact or the number of small entities that may be affected.
55. Reporting, Recordkeeping and Other Compliance Requirements.
Action as proposed in this rulemaking may impose new reporting
requirements on cable operators.
56. Federal Rules which Overlap, Duplicate or Conflict with these
Rules. None.
57. Any Significant Alternatives Minimizing Impact on Small
Entities and Consistent with Stated Objectives. The Further Notice
solicits comments on alternatives.
XI. Ex Parte
58. This is a non-restricted notice and comment rulemaking
proceeding. Ex parte presentations are permitted, except during the
Sunshine Agenda period, provided that they are disclosed as provided in
Commission's rules. See generally 47 CFR 1.1202, 1.1203, and 1.1206(a).
XII. Comment Dates
59. Pursuant to applicable procedures set forth in Sections 1.415
and 1.419 of the Commission's Rules, 47 CFR 1.415 and 1.419, interested
parties may file comments on or before May 15, 1996 and reply comments
on or before May 31, 1996. All relevant and timely comments will be
considered before final action is taken in this proceeding. To file
formally in this proceeding, participants must file an original plus
six copies of all comments, reply comments, and supporting comments. If
participants want each Commissioner to receive a personal copy of your
comments and reply comments, you must file an original plus eleven
copies. Comments and reply comments should be sent to Office of the
Secretary, Federal Communications Commission, 1919 M Street, NW.,
Washington, DC 20554. Comments and reply comments will be available for
public inspection during regular business hours in the FCC Reference
Center, Room 239, Federal Communications Commission, 1919 M Street,
NW., Washington DC 20554.
60. Written comments by the public on the proposed and/or modified
information collections are due on or before May 15, 1996. Written
comments must be submitted by OMB on the proposed and/or modified
information collections on or before 60 days after publication of the
Order and Further Notice in the Federal Register. In addition to filing
comments with the Secretary, a copy of any comments on the information
collections contained herein should be submitted to Dorothy Conway,
Federal Communications Commission, Room 234, 1919 M Street, NW.,
Washington, DC 20054, or via the Internet to dconway@fcc.gov, and to
Timothy Fain, OMB Desk Officer, 10236 NEOB, 725-17th Street, NW.,
Washington, DC 20503 or via the Internet to fain__t@al.eop.gov.
61. Accordingly, pursuant to Sections 4(i), 4(j) and 612 of the
Communications Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 154(j)
and 532, comment is sought regarding such proposals, discussion, and
statement of issues.
Paperwork Reduction Act
62. This Further Notice contains either a proposed or modified
information collection. The Commission, as part of its continuing
effort to reduce paperwork burdens, invites the general public and the
Office of Management and Budget (``OMB'') to comment on the information
collections contained in this Further Notice, as required by the
Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency
comments are due at the same time as other comments on this Further
Notice; OMB notification of action is due 60 days from date of
publication of this Further Notice in the Federal Register. Comments
should address: (a) Whether the proposed collection of information is
necessary for the proper performance of the functions of the
Commission, including whether the information shall have practical
utility; (b) the accuracy of the Commission's burden estimates; (c)
ways to enhance the quality, utility, and clarity of the information
collected; and (d) ways to minimize the burden of the collection of
information on the respondents, including the use of automated
collection techniques or other forms of information technology.
OMB Approval Number: 3060-0568.
Title: Section 76.970 Commercial leased access rates; 76.971
Commercial leased access terms and conditions.
Type of Review: Revision of existing collection.
Respondents: Business and other for profit.
Number of Respondents: 6,270 cable systems.
Estimated Time Per Response: 1 hour per respondent for
recordkeeping and sending the leased access schedule and other
information to prospective leased access programmers. 1 hour per
respondent to implement 76.971 third party disclosure requirements. 12
hours per respondent for completing the proposed ``cost schedule'',
instead of the existing ``maximum rate schedule''. If the proposed
``cost schedule'' is not adopted by the Commission, the burden for
completing the ``maximum rate schedule'' is 4 hours per respondent.
Total Annual Burden: 87,780 hours. If the proposed ``cost
schedule'' is not adopted, the Commission will further adjust the
burden for this collection from 12 hours per respondent in completing
the ``cost schedule'' to 4 hours per respondent to continue to use the
existing ``maximum rate schedule''. This would result in an adjustment
reduction of 50,160 hours (6,270 x 8 hours), leaving a total burden
of 87,780-50,160=37,620 hours.
Estimated costs per respondent: We estimate the postage and
stationery costs incurred by cable operators for record keeping
activities and for sending out leased access information to prospective
programmers, as required, to be roughly $4.00 per respondent. We
therefore report a total annual cost of $25,000 for all respondents.
Needs and Uses: The information collected is used by the
prospective leased access programmers and the Commission to verify rate
calculations for leased access channels. The Commission's leased access
requirements were designed to promote diversity of programming sources
and competition in programming delivery as required by Section 612 of
the Communications Act, and serve to eliminate uncertainty in
negotiations for leased commercial access.
List of Subjects in 47 CFR Part 76
Cable television.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-9195 Filed 4-12-96; 8:45 am]
BILLING CODE 6712-01-P
