May 23, 1995


Seth A. Davidson, Esq.                                           DA 95-1158
Fleischman and Walsh, L.L.P                         Released:  May 26, 1995
1400 Sixteenth Street, N.W.
Washington, D.C. 20036


Dear Mr. Davidson:

       This letter is in response to your request for clarification of Sections 76.922(e)(5) and
(e)(6) of the Commission's rules.  Specifically, you request confirmation that Sections
76.922(e)(5) and (6), which relate to the movement of channels between tiers and the
substitution of one programming service for another, are applicable to situations in which a
cable operator deletes a channel from one regulated tier of service in order to free up
capacity to add a new service to a different regulated tier.

       As your letter indicates, Section 76.922(e)(5) addresses how an operator is required to
adjust rates when it moves a channel from one regulated tier to another.  If an operator
moves a channel from one regulated tier to another, Section 76.922(e)(5) requires the
operator to subtract out both the programming costs and the residual associated with a shifted
channel.  The residual and programming fees associated with the shifted channel would then
be used as the residual and programming fees for the channel in its new regulated tier. 
However, an operator may not use the residual associated with a shifted cable programming
service ("CPS") channel that was added pursuant to the Sixth Order on Reconsideration
("Sixth Order") as the residual for a channel on the basic service tier ("BST").

       In addition, Section 76.922(e)(6) addresses how an operator is required to adjust rates
when the operator substitutes a new channel for an existing channel on the same regulated
tier.  Section 76.922(e)(6) requires that where an operator substitutes a new channel for an
existing channel on a regulated tier, no per channel adjustment may be made.  Operators also
must adjust for any programming fee decreases related to the channel substitution and may
adjust for any programming fee increases related to the channel substitution.

       The Commission's rules, however, do not directly address applicable rate adjustments
for an operator that drops a channel from one regulated tier and adds a new programming
channel on a different regulated tier.  You state that it is your understanding that where an
operator drops one channel on a regulated tier and adds a new programming service on a
different regulated tier Sections 76.922(e)(5) and (6) would apply in the following way. 
First, where a system drops a channel on one regulated tier to make room to add a new
channel on another regulated tier, Section 76.922(e)(5) would require a reduction of the rate
on the tier that lost a channel to reflect the decrease in programming costs and the residual
on that tier.  The residual for the dropped channel would then be shifted to the tier that wasgaining a channel.  Finally the programming costs for the new service channel would be
added to the rate for the tier that was adding a channel in accordance with Section
76.922(e)(6).

       We agree that your interpretation complies with the intent of these rules.  Therefore,
we find that where an operator drops a channel on a CPST (or BST) and simultaneously adds
a new channel with new programming on the BST (or CPST), the residual associated with
the dropped channel will serve as the residual for the tier adding a channel with new
programming.  While the total rate for both regulated tiers will not change, exclusive of the
licensing fee for the new programming, the individual regulated tiers will be adjusted to
account for the change in the number of channels on the tier.  However, the residual
associated with a dropped CPS channel that was added pursuant to the new channel
adjustment methodology adopted in the Sixth Order may not serve as the residual for a new
channel added simultaneously to the BST.  The Sixth Order provides operators with up to a
20 cents per channel adjustment for new programming added to the CPST only, unless the
operator is a single tier system.  Our rules prohibit shifting a 20 cents per channel adjustment
taken under the Sixth Order to the BST. 

       We believe that this interpretation provides operators with a simplified mechanism for
calculating the per channel adjustment for a channel when an operator drops a channel from
one regulated tier while simultaneously adding a different programming channel to another
regulated tier.  We believe that this approach is preferable to the alternative of applying
Sections 76.922(e)(5) and 76.922(e)(6) independently.  Under that alternative, an operator
would be required to shift the programming it wishes to drop to the new regulated tier in
order to retain the residual associated with that channel.  The operator then would be allowed
to substitute new programming for the old programming while retaining the residual
associated with the dropped channel.  The operator would not be able to simultaneously make
this switch.  The methodology would be administratively burdensome and exalt form over
substance.  This new interpretation of the interplay between Section 76.922(e)(5) and (6)
results in the same residual value that a literal interpretation of our rules currently provides
and an easier mechanism for shifting channels.

  
              Sincerely,



              Meredith J. Jones
              Chief, Cable Services Bureau