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SECOND REPORT AND ORDER   AND SECOND ORDER ON RECONSIDERATION  X-   OF THE FIRST REPORT AND ORDER \  Xa-X` hp x (#%'0*,.8135@8: 18 yO -ԍ8 FCC Rcd 5631 (1993).> the Commission established initial regulations to implement  Xz- d(#the leased access provisions of the 1992 Cable Act.zB18 yOm -  iԍThe Commission's rules governing leased access are located at 47 C.F.R. 76.701, 76.970, 76.971, 76.975 and 76.977. The Commission adopted the "highest  d(#=implicit fee" formula as the method for setting maximum reasonable rates, and adopted various  d(#.standards governing access terms and conditions, tier placement, technical standards for use,  d(#technical support, security deposits, conditions based on program content, requirements for billing  X - d(#.and collection services, and procedures for the expedited resolution of disputes.Q 18 {Oi-ԍRate Order, 8 FCC Rcd at 59375964.Q In the Rate  X - d(#Order, the Commission also determined that leased access requirements were intended to apply  d(#to all systems regardless of the "effective competition" test that governs basic service tier ("BST")  X -and cable programming services tier ("CPST") rate regulation.+$ , 18 {O-  KԍId. at 59365937. The BST is defined as that tier of cable service which includes the local broadcast signals   and public, educational, and governmental ("PEG") access channels, and may include any additional programming   services the operator chooses to include. CPSTs include all video programming not included in the BST for which  {O-the operator does not charge the subscriber on a perprogram or perchannel basis.  Id. at 5637. +  X - 5.` ` In the Rate Order, the Commission stated that given the small number of  d(#comments received relating to leased access, "the rules we adopt should be understood as a  d(#starting point that will need refinement both through the rulemaking process and as we address  Xl- d(#issues on a casebycase basis.":l18 {O5 -ԍId. at 5936.: The Commission stated that it was aware that leasing issues  d(#\may need to be addressed in quite different ways depending upon the nature of the service  d(#involved whether the lease is for a pay channel, an advertisersupported channel intended for  d(#wide distribution, a channel for a narrow commercial purpose not relevant to the wide body of  d(#.cable subscribers, or for a single program or series of programs. Thus, the Commission stated  d(#that it was not attempting to resolve all the issues potentially involved, many of which could  X-better be resolved in a more concrete factual setting.118 {O='-ԍId.1"<,N(N(ZZ"Ԍ X- ԙ6.` ` In the Reconsideration Order and Further Notice, we addressed certain issues  d(#zpertaining to the highest implicit fee formula, the provision of certain leased access rate and  d(#Mchannel availability information to prospective leased access programmers, acceptable time  d(#xincrements and pricing for parttime leased access use, operator provision of billing and collection  d(#services for leased access programmers, security deposits, calculation of the leased access set X- d(#aside requirement and reporting requirements.18 {O-ԍReconsideration Order at paras. 2440, 4347, 5055 and 60. Further Notice at para. 102. We also reexamined the highest implicit fee  d(#formula from an economic perspective, and tentatively concluded that the highest implicit fee  d(#formula is likely to overcompensate cable operators and does not sufficiently promote the goals  d(#Lunderlying the leased access provisions. We proposed a cost/market rate approach to setting  d(#[maximum reasonable rates and requested comment on the approach and its implementation. In  d(#addition, we sought comment on: (a) parttime rates and an operator's obligation to open  d(#Ladditional leased access channels for parttime use, (b) the resale of leased access time, (c) tier  d(#and channel placement for leased access programming, (d) the placement of minority or  d(#zeducational programming when it is used as a substitute for leased access programming, (e)  d(#preferential treatment for certain types of leased access programmers, including notforprofit  d(#programmers, (f) the selection of leased access programmers, and (g) streamlined leased access dispute resolution procedures.  Xd- 7.` ` In this Order, we: (a)revise the maximum rate formulas for use of fulltime  d(#=leased access channels; (b)decline to impose a transition period for the implementation of our  d(#revised rate formulas; (c)maintain the current rules for maximum parttime rates and adopt a rule  d(#that cable operators are not required to open additional leased access channels for parttime use  d(#until all existing parttime leased access channels are substantially filled or until a programmer  d(#<requests a yearlong eighthour daily time slot that cannot otherwise be accommodated; (d)allow  d(#the resale of leased access time; (e)grant leased access programmers the right to demand access  d(#to a tier with a subscriber penetration of more than 50%; (f)stipulate that minority and  d(#educational programming does not qualify as a substitute for leased access programming unless  d(#Mit is carried on a tier with a subscriber penetration of more than 50%; (g)decline to mandate  d(#preferential treatment for certain types of leased access programmers; (h)require operators to  d(#accept leased access programmers on a nondiscriminatory basis so long as available leased access  d(#=capacity exceeds demand; (i)require that an independent accountant review an operator's rate  d(#=calculations prior to the filing of a rate complaint with the Commission; (j)establish a standard  d(#of reasonableness for certain contractual requirements; (k)specify when leased access  d(#programmers must pay for technical support; and (l)define the term "affiliate" for purposes of  d(#leased access. We also address several issues on reconsideration, including the exclusion of  d(#programming revenues from the maximum rate calculation, the maximum rate calculation for a  d(#la carte channels, cable operators' obligations to provide certain information to potential leased  d(#access programmers and the need for operators to comply with those obligations, time increments, the calculation of the leased access setaside requirement, and billing and collection services. "#Z,N(N(ZZe""Ԍ X- aII.REPORT AND ORDER  X- A.` ` Statutory and Policy Goals of Leased Access  X- 28.` ` As we explained in the Reconsideration Order, Section 612 expressly states that  d(#its purposes are twofold: to assure that the public has access to the widest possible diversity of  d(#zainformation sources carried on cable systems, and to promote competition in the delivery of  Xa- d(#diverse sources of video programming.^a18 yO-ԍCommunications Act  612(a), 47 U.S.C.  532(a).^ The United States Court of Appeals for the District of  d(#jColumbia Circuit recently affirmed that these purposes are "important governmental objectives  X3- d(#unrelated to the suppression of speech."|3X18 {O< -ԍTime Warner Entertainment Co., L.P. v. FCC, 93 F.3d 957, 969 (D.C. Cir. 1996).| The statute also states, however, that these goals must  X - d(#=be accomplished in a manner consistent with the growth and development of cable systems.^ 18 yO-ԍCommunications Act  612(a), 47 U.S.C.  532(a).^  d(#Thus, in implementing the leased access provisions, including the establishment of maximum  d(#Lreasonable rates, the Commission must seek to promote the goals of competition and diversity  d(#Zof programming sources, while doing so in a manner consistent with the growth and development  X -of cable systems.T z18 {O-ԍSee Reconsideration Order at para. 25.T  X- _9. ` ` Many commenters contend that the goals of diversity and competition have been  X{- d(#achieved in the marketplace,{ 18 yO8-  ԍAccording to Outdoor Life, et al., for example, nearly 100 new, mostly unaffiliated programming networks have   emerged since the Commission adopted its original rate rules. Outdoor Life, et al. Comments at 23, 1217 (leased   .access statutory goals have been accomplished through increased competition and the Commission's vertical  {O-  integration restrictions; niche programming offers subscribers significant choice of programming). See also, e.g.,   YLifetime Comments at 2, 10 (no current shortage of program services; approximately half of services now available   =are unaffiliated with cable operators); Viacom Comments at 8; CSPAN Comments at 5 (diversity of sources   jachieved through vigorous competition within and with the cable industry); Prevue Networks Comments at 9   (traditional programming industry responds to consumer demand); Penn. Cable Network Comments at 6 (cable   <operators are in the best position to respond to subscriber needs and interests); USA Networks Comments at 45   (program supplier market is robustly competitive); MPAA Comments at 2; Encore Comments at 2 (number of programming services is expanding rapidly); PBS Horizons Comments at 2; Rainbow Comments at 48. and that the Commission therefore need do nothing further to  Xd- d(#fulfill the purposes of Section 612.zdn18 {O"-  ԍSee, e.g., Viacom Comments at 2, 6 (no pricing reformulation is needed to meet the intent and purpose of   xSection 612 because nothing has changed since the Commission adopted its initial leased access rules, except that   more programming services exist today than four years ago); CSPAN Comments at 6 (new networks have effectively   fulfilled Congress' goals for leased access); E!, et al. Comments at 3, 6 (same as CSPAN); Penn. Cable Network   Comments at 12 (the leased access provisions are themselves counterproductive to the objective of achieving   diversity); Eternal Word Comments at 3 and n.2 (most operators already carry at least as many unaffiliated programmers as the number of leased access programmers they are subject to carry under their setaside requirement). We note, in this regard, that the Commission has found that"d,N(N(ZZh"  d(#the total number of nonvertically integrated programming services has increased in each of the  d(#\past three years and represents over half of the national programming services in operation  X- d(#<today.18 {OK-  ԍSee Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming in   CS Docket No. 9561, Third Annual Report, FCC 96496 (released January 2, 1997) at para. 142 (noting that during   the past year, the number of nonvertically integrated national programming services in operation increased from 63  {O-  of 129 services to 81 of 145 services). See also Annual Assessment of the Status of Competition in the Market for  {Oo-  the Delivery of Video Programming in CS Docket No. 9561, Second Annual Report, 11 FCC Rcd 2060, 2132 (1996). Notwithstanding this growth in unaffiliated programming services, we believe that there  d(#is an important distinction between such programming and leased access programming under  d(#Section 612. The cable operator generally exercises editorial judgment in choosing which  d(#unaffiliated nonleased access programming services to carry. Section 612, by contrast, is  d(#designed to provide a limited amount of channel capacity over which the cable operator has no  X_- d(#>editorial control.$_F18 {OV-  xԍSee 1984 House Report at 47 ("Leased access is 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  {O-  the program offerings he makes available to subscribers."). See also Telemiami Reply at 25; Denver Area Ed. Reply at 1011; VIPNA Reply at 3. It is this divorce of editorial control that differentiates the leased access  d(#provision from other provisions of the Communications Act that seek to promote diversity of  X1- d(#information sources, such as channel occupancy restrictions."12 18 {O-  jԍSee Communications Act  613(f)(1)(B), 47 U.S.C.  533(f)(1)(B). See also 47 C.F.R.  76.504. Cable   -systems with channel capacity up to 75 channels may not devote more than 40% of their activated channels to   ,national video programming services owned by the cable operator or in which the cable operator has an attributable interest. Congress was concerned not only  d(#<with ensuring access for unaffiliated programmers, but also with ensuring that cable operators do  d(#knot exercise editorial control in choosing which unaffiliated programmers obtain access to a  X -limited percentage of channel capacity." 18 yO-  ԍ1984 House Report at 4748. Section 612 provides two exceptions to this general rule by providing that a cable   Yoperator may consider the content of leased access programming for the limited purposes of setting the appropriate  {OI-  ,price for leased access use and to determine whether the programming is indecent or obscene. See Communications Act  612(c)(2), 47 U.S.C. 532(c)(2).  X - @ 10.` ` Indeed, the legislative history of Section 612 indicates that Congress was concerned  d(#that while cable operators have an incentive to provide a diversity of program services, they do  d(#not necessarily have the incentive to provide a diversity of programming sources, "especially  d(#when a particular program supplier's offering provides programming which represents a social  d(#Zor political viewpoint that a cable operator does not wish to disseminate, or the offering competes  XK- d(#ywith a program service already being provided by that cable system."@K18 yO%-ԍ1984 House Report at 48.@ The legislative history  d(#also states that leased access is intended to promote "competition by independent programmers  d(#Kto the services selected by the cable operator" and "public access to a wide variety of voices and",N(N(ZZ "  X- d(#kviewpoints."@18 yOy-ԍ1992 House Report at 40.@ Thus, we believe that our statutory mandate to implement Section 612 is not  d(#xobviated by an increase in diversity of programming services that are selected by cable operators;  X- d(#rather, our mandate is to promote a diversity of programming sources.m ZX18 {O-  ԍSee Time Warner, 93 F.3d at 968 (citing 1984 House Report at 48) ("Diversity,' as the 1984 [Cable] Act used   the term, referred not to the substantive content of the program on a leased access channel, but to the entities the sources' responsible for making it available.").m We are mindful, in this  d(#regard, that mustcarry broadcast stations and public, educational, and governmental ("PEG")  d(#access channels have added to the diversity of programming services and sources, and that the  d(#jcurrent balance of diversity partly stems from cable operators' fulfillment of their obligations to carry these channels.  XH-  11.` ` In addition, we believe that in order to promote competition and diversity in a  d(#manner consistent with the growth and development of cable systems, we must consider the  d(#broader effects of our rules on the video programming delivery marketplace, including the effect  d(#our rules might have on a cable system's ability to compete with other multichannel video  X - d(#distribution systems.!$ z18 {O-  ԍSee A&E, et al. Comments at 27; ESPN Comments at 3; MPAA Comments at 2 (all stating that the  {O-  Commission should not promote leased access as an end to itself). See also A&E, et al. Comments at 19 (goals of   leased access must be accomplished in a manner consistent with the growth and development of cable systems and without disruption to cable program services). Section 612 itself provides that the "price, terms, and conditions" for  d(#leased access should "not adversely affect the operation, financial condition, or market  X - d(#development of the cable system."f" f 18 yO-ԍCommunications Act  612(c)(1), 47 U.S.C.  532(c)(1). f Similarly, the legislative history states that "[w]hile the  d(#overall intent of [Section 612] is to diversify the sources of programming available to the public,  d(#jthis is to be accomplished in a manner consistent with the financial viability of individual cable  Xy-systems."@#y 18 yO -ԍ1984 House Report at 50.@  XK-  12. ` ` Guided by these statutory and policy goals, we hereby modify our leased access rules as set forth below.  X- B.` ` Maximum Rate Formula for Leasing a Full Channel  W<` ` 1. Background   X- ~ 13.` ` Section 612 directs the Commission to determine the maximum reasonable rates  X- d(#that cable operators may charge for commercial leased access.$ 18 yO&-ԍCommunications Act 612(c)(4)(A)(i), 612(c)(4)(B), 47 U.S.C. 532(c)(4)(A)(i), 532(c)(4)(B). In the Rate Order, the"$,N(N(ZZ`"  d(#Commission adopted rules that establish maximum rates based on the highest implicit fee paid  d(#by nonleased access programming services distributed on a system. In the nonleased access  d(#context, cable operators generally pay programmers (e.g., a contractual license fee or a copyright  d(#>fee) for their programming services. Nevertheless, there is an implicit fee for carriage to the  d(#Lextent that the amount of subscriber revenue that the operator receives for the programming is  d(#greater than the fee that the operator pays to the programmer. In other words, the amount of  d(#ysubscriber revenue that the programmer forgoes to the operator represents an implicit payment  d(#for carriage. The Commission therefore determined that the implicit fee paid by a programmer  d(#is the average price per channel that a subscriber pays the operator minus the amount per  d(#subscriber that the operator pays the programmer. The highest of the implicit fees charged any  d(#unaffiliated nonleased access programmer is the maximum rate per subscriber that a cable  X -operator may charge a leased access programmer.L% 18 {O| -ԍRate Order, 8 FCC Rcd at 5950.L  X -  14.` ` Under the current formula, PEG access channels and broadcast stations carried  X - d(#pursuant to the mandatory carriage provisions of Sections 614 and 615 are excluded when  X - d(#jdetermining which channel results in the highest implicit fee.A& Z18 yO-ԍ47 C.F.R.  76.970(b).A In addition, cable operators are  d(#required to calculate the highest implicit fee for three programmer categories: (a) those charging  d(#subscribers directly on a perevent or perchannel basis, (b) those using a channel for more than  d(#50% of the time to sell products directly to customers (e.g., home shopping networks,  XK- d(#infomercials, etc.), and (c) all others.A'K18 yO-ԍ47 C.F.R.  76.970(f).A These three categories were intended to account for the  d(#fact that leasing issues may need to be addressed in different ways depending on the nature of  X- d(#the service involved.L(z18 {OH-ԍRate Order, 8 FCC Rcd at 5936.L For leased access channels that are carried on a programming services tier,  d(#Zoperators must calculate the highest implicit fee on a tierbytier basis; that is, if the leased access  d(#channel is carried on the BST, the calculation of the highest implicit fee should be based on the  d(#BST channels, and, if the leased access channel is carried on a CPST, the highest implicit fee  X-should be determined for the channels on that CPST.P) 18 {O~-ԍReconsideration Order at para. 36.P  X- 15.` ` The Commission's current rules also provide that for leased access channels carried  d(#on a programming services tier, the highest per subscriber implicit fee is multiplied by the  d(#=number of subscribers that subscribe to the tier on which the leased access channel is carried.  d(#For a la carte channels, the highest per subscriber implicit fee is multiplied by the average"N ),N(N(ZZ"  X- d(#number of subscribers that subscribe to the operator's a la carte services.{*\18 {Oy- d(#-ԍAs we stated in the Reconsideration Order, the average number of subscribers is used for a la carte channels  d(#;because using the actual number of subscribers would unfairly penalize the operator if the leased access programming  {O -had low subscribership. Id. at para. 39. { The implicit fee is  d(#=intended to recover only the value of the channel capacity and not any fees, stated or implied,  d(#for services other than the provision of channel capacity (e.g., billing and collection, marketing,  X- d(#or studio services).A+18 yOX-ԍ47 C.F.R.  76.970(c).A Accordingly, programming revenues (e.g., home shopping commissions)  d(#received by the operator from an unaffiliated programmer are not included in the highest implicit  X- d(#fee calculation.P,|18 {O -ԍReconsideration Order at para. 37.P Under our rules, cable operators are required to calculate the maximum rates  d(#for each programmer category annually based on the contracts with unaffiliated programmers in  X_-effect in the previous calendar year.W-_18 yO- d(#hԍ47 C.F.R.  76.970(d). Section 76.970(d) of the Commission's rules also states that maximum rates for shorter  d(#periods of time can be calculated by prorating the monthly maximum rate uniformly, or by developing a schedule  d(#of and applying different rates for different times of day, provided that the total of the rates for a 24hour period  d(#xdoes not exceed the maximum rate for one day of a fulltime leased access channel. See Section II.C. below for a discussion of parttime rates.W  X1- 316.` ` In the Reconsideration Order, we identified certain problems with the highest  d(#implicit fee formula. First, we stated that the highest implicit fee formula may overcompensate  d(#ycable operators because it appears to allow "double recovery" in that operators recover for the  d(#value of the channel capacity twice, once from the subscriber (included in the tier charge) and  X -again from the programmer (included in the leased access programmer charge).P. 18 {OF-ԍReconsideration Order at para. 29.P  X - 17.` ` Second, we expressed concern that the highest implicit fee allows an operator to  d(#.charge a leased access programmer a rate based on the channel with the highest markup over  d(#programming costs (i.e., the highest of the relevant implicit fees). We stated that because the  Xd- d(#implicit fee for many, if not most, nonleased access channels is by definition less than the  d(#Mhighest implicit fee, allowing the operator to charge leased access programmers the highest  d(#implicit fee is likely to overcompensate the operator in comparison to the amount the operator  X-is willing to accept for most nonleased access channels.>/P 18 {O "-ԍId. at para. 30.>  X-  18.` ` Third, we stated that the highest implicit fee formula is not based on the reasonable  d(#costs that leased access programming imposes on operators. We tentatively concluded that, when  d(#the setaside requirement is not met, the rate should be no higher than is necessary to recover all  d(#Mreasonable costs of leasing and a reasonable profit. In this way, leased access is promoted" /,N(N(ZZ"  d(#without placing a financial burden on the operator. We asserted that a higher rate unnecessarily  X-discourages leased access and rewards operators that do not meet the setaside requirement.>018 {Ob-ԍId. at para. 31.>  X- _19.` ` Given these limitations of the highest implicit fee formula, the Commission sought  d(#comment on a "cost/market rate formula," an alternative approach that we believed might better  X- d(#xpromote the goals of leased access.Q1Z18 {O-ԍSee Further Notice at paras. 6197.Q Under this proposed approach, the maximum rate for leased  d(#{access would depend on whether the cable operator is leasing its full statutory setaside  d(#zrequirement. When the full setaside capacity is not leased to unaffiliated programmers, the  d(#maximum rate would be based on the operator's reasonable and quantifiable costs (i.e., the costs  d(#of operating the cable system plus the additional costs related to leased access), including a  X - d(#reasonable profit.>2 18 {O-ԍId. at para. 66.> The operator would be allowed to use the subscriber revenue received from  X - d(#a leased access channel to offset the operating costs associated with the channel.>3 ~18 {O2-ԍId. at para. 77.> In addition,  d(#ythe operator would be allowed to charge the leased access programmer the reasonable costs of  X - d(#ybumping a programming service in order to accommodate the leased access programmer.L4\ 18 {O- d(#ԍId. at paras. 7989. The operator would also be permitted to charge parttime leased access programmers any  {O`- d(#additional costs associated with negotiating and administering parttime leased access programming contracts. Id. at para. 95.L We  X - d(#believed that this approach would promote leased access without giving programmers a subsidy.>5 4 18 {O-ԍId. at para. 68.>  d(#KOur intent in proposing the cost/market rate formula was not to raise or lower leased access rates,  X-but to ensure that they would be reasonable.G6 18 {O-ԍSee id. at paras. 63, 68.G  Xb- 20.` ` We tentatively concluded that once the operator met its setaside requirement, the  d(#costbased maximum rate could be replaced by a market rate. The operator would be allowed  d(#to negotiate higher rates for leased access as long as its setaside requirement continued to be met.  d(#\We believed that market rates would most effectively determine which programmers should  d(#ireceive leased access on the system when the operator's setaside is satisfied. We stated that the  d(#higher price that some leased access programmers may offer to pay for the channel capacity  d(#reflects the greater ability and willingness of consumers to pay for the programming to be carried  X- d(#\on each of these channels. Thus, we tentatively concluded that relying on market prices to" X 6,N(N(ZZ"  d(#allocate channel capacity provides consumers with an efficient mechanism to communicate their  X-preferences about which leased access programming should be carried by the operator.I718 {Ob-ԍId. at paras. 7073, 9697.I  X- `21.` ` We also tentatively concluded that this cost/market rate formula represented a  d(#pricing scheme that would establish a maximum reasonable rate without placing an unreasonable  X- d(#financial burden on operators. We stated that, with the possible exception of a preferential rate  d(#for notforprofit programmers, any maximum reasonable rate formula that we adopt, including  d(#the proposed cost/market rate formula, would not provide a subsidy for leased access  XH-programmers.>8HZ18 {OS -ԍId. at para. 68.>  W <` ` 2. Discussion  V -` `  a.Goals in Establishing Maximum Reasonable Rates  X - 22.` ` As described above, the purposes of Section 612 are "to promote competition in  d(#the delivery of diverse sources of video programming and to assure that the widest possible  d(#diversity of information sources are made available to the public from cable systems in a manner  Xy- d(#Lconsistent with growth and development of cable systems."^9y18 yO-ԍCommunications Act  612(a), 47 U.S.C.  532(a).^ Accordingly, we must focus on  d(#these statutory objectives in establishing maximum reasonable rates for leased access use. In  XK- d(#addition, because Section 612 also requires that the price, terms and conditions for leased access  d(#be "at least sufficient to assure that such use will not adversely affect the operation, financial  X- d(#condition or market development of the cable system,"d:|18 yOJ-ԍCommunications Act  612(c)(1), 47 U.S.C.  532(c)(1).d the Commission is faced with balancing  X-the interests of leased access programmers with those of cable operators.; 18 {O- d(#ԍSee Reconsideration Order at para. 26. We agree with Outdoor Life, et al. that providing certainty with respect  {O- d(#to rates was one reason Congress directed the Commission to establish maximum reasonable rates. See Outdoor Life,  d(#et al. Comments at 6, 8; 1992 House Report at 3940; 1992 Senate Report at 3132. We do not believe, however,  d(#that providing certainty was Congress' only purpose in requiring the Commission to set maximum reasonable rates.  {O- d(#wSee 1992 House Report at 3940; 1992 Senate Report at 3132 (stating that one purpose is "[t]o make leased access a more desirable alternative for programmers").  X-  X- A23. ` ` In the Reconsideration Order, we determined that as long as the maximum leased  d(#Zaccess rate is reasonable, a lack of demand for leased access channels would not indicate that the" ;,N(N(ZZ"  X- d(#rate should be lowered.<18 {Oy- d(#ԍReconsideration Order at para. 24. See also 130 Cong. Rec. H10441 (daily ed. Oct. 1, 1984) (colloquy in House proceedings); 130 Cong. Rec. S14288 (daily ed. Oct. 11, 1984) (reference to colloquy in House proceedings). We continue to believe that Congress did not intend that cable  X-operators subsidize leased access programmers.P="18 {O-ԍReconsideration Order at para. 27.P  X- 24.` ` We emphasize that our role with regard to leased access rates is to establish  d(#maximum reasonable rates, not a mandatory rate that must be charged to all leased access  d(#]programmers. Operators have the discretion to negotiate rates below the maximum rates  Xv- d(#yestablished by the Commission. The legislative history of the 1992 amendments to Section 612  X_- d(#lspecifically states that "the operator and the programmer can bargain for a lower rate.">_18 {O - d(#ԍ1992 Senate Report at 32. See also Rate Order, 8 FCC Rcd at 5951 ("lower rates could, of course, be negotiated").  d(#Furthermore, Section 612(c)(2) states that the operator may consider content to the minimum  X1- d(#Zextent necessary to establish a reasonable price,d?118 yO-ԍCommunications Act  612(c)(2), 47 U.S.C.  532(c)(2).d implying that the cable operator is not required  d(#jto charge the Commission's maximum reasonable rate. We confirm that operators are permitted  d(#jto differentiate with respect to price between one leased access programmer and another. This  d(#kdiscretion only pertains to rates below the maximum rate. For clarification purposes, we will  X - d(#Kadopt a rule that specifically states that cable operators are permitted under our rules to negotiate  X -rates below the maximum permissible rates.G@ 18 {O -ԍSee TCI Reply at 11 n.26.G  V-` `  b.Cost/Market Rate Formula  Xb- 25.` ` We stated in the Reconsideration Order and Further Notice that we believed that  d(#our proposed cost/market rate formula would further the goals of leased access and would  d(#Zappropriately balance the needs of programmers and operators. After reviewing the record in this  d(#proceeding and after considering and analyzing all of the options presented, we now conclude that  d(#the cost/market rate formula does not adequately account for certain factors which, if excluded,  d(#=would make the maximum leased access rates resulting from the formula unworkable in today's programming marketplace.  X- 326.` ` Although the proposed cost/market rate formula accounts for lost advertising  d(#revenue and lost commissions that would result from bumping existing programming, it does not  d(#account for negative effects that leased access programming might have on subscriber revenue  d(#K(i.e., lost subscriber revenue caused by subscribers dropping the tier or by requiring a lower price  XP- d(#ydue to a devaluation of the tier). In the Further Notice, we recognized this cost but tentatively  d(#concluded that the inability to quantify the specific effect on subscriber revenue caused by the  d(#replacement of current programming with leased access programming in the tiered programming"$ 0 @,N(N(ZZ"  d(#services context made it too speculative to include as an opportunity cost category in the  X- d(# cost/market rate formula.A"18 {Ob- d(#jԍFurther Notice at para. 86. We also noted that, for a la carte channels, this subscriber loss is included by  d(#allowing the operator to include as an opportunity cost an amount equal to the total subscriber revenue for the  d(#hbumped programming service. Thus, in the a la carte context, the effect on subscribership appears to be measurable. See Section II.B.2.d. regarding the calculation of maximum rates for a la carte channels. We nevertheless sought comment on how our cost/market rate  d(#.formula might measure changes in subscriber penetration due to the addition of leased access  X-programming.>B18 {O -ԍId. at para. 86.>  X- A27. ` ` Neither the Commission nor the commenters in this proceeding have been able to  d(#accurately quantify the effect that leased access programming carried on a programming services  d(#tier may have on subscribership or subscriber revenues to a degree specific enough to assign it  d(#La definite value in a formula. Nevertheless, we no longer believe that this effect is a factor that  d(#{reasonably can be ignored. Under the cost/market rate formula, the value of a channel is  d(#measured by subtracting the programming or license fee the operator pays for the channel from  d(#.the advertising revenues and commissions the operator receives for the channel. The formula  d(#xdoes not include the subscriber revenue received for the channel because, as explained above, we  d(#assumed that leased access programming would have no measurable impact on subscriber  d(#revenue. By ignoring the effect of leased access programming on subscriber revenue, the  d(#xcost/market rate formula assigns a negative value to a channel where the license fee is higher than  X- d(#the revenue collected from advertising and commissions.CD18 {O-ԍSee Daniels, et al. Comments at 89 (license fees are often higher than advertising revenues and commissions). For example, a programming service  Xy- d(#such as The Disney Channel, which carries no commercial advertising,LDy18 {O-ԍSee Disney Channel Reply at 2.L could have a negative  Xb- d(#=value under the cost/market rate formula and thus would yield a negative leased access rate.E bh 18 yO{- d(#ԍTCI, for example, applied the proposed cost/market rate formula to six of its cable systems and found that it  d(#would yield an overall negative leased access rate on all six systems. TCI Comments at 1415 and Attachment E.  d(#Cox provided three examples of cable systems for which the cost/market rate formula would generate negative leased  {O- d(#Jaccess rates. Cox Comments at 16. See also NCTA Comments at 1112 (using advertising revenues as the measure  d(#of a channel's worth understates the value of numerous programming services, such as CSPAN, Bravo, and Disney,  d(#that do not sell advertising); Daniels, et al. Comments at 89 (many programming services do not generate advertising  d(#Jrevenues or commissions); SCBA Comments at 57 (rates would be zero or negative for many small systems because  d(#-they rarely offer advertising insertion); Buckeye Comments at 56 (the system's minimal amount of advertising  yO!-insertion would result in nominal or zero rates). ģ  d(#The proposed cost/market rate formula therefore must not accurately represent at least some  d(#important factor in assessing the value of a channel because a wellestablished channel like The  X- d(#zDisney Channel is unlikely to have a negative value to the operator. The missing factor, we":E,N(N(ZZ "  d(#believe, is the subscriber revenue that an operator receives because it carries a particular  X- d(#channel.aF18 yOy- d(#ԍA number of commenters contend that by omitting the subscriber revenue for a channel, the proposed  {OA- d(#cost/market rate formula would understate the channel's value. See, e.g., NCTA Comments at 1214; TCI Comments  d(#at 1216; TCI Reply at 14; Time Warner Comments at 1112; Discovery Comments at 510; Liberty Sports  d(#Comments at 34; Faith & Values Comments at 23; Adelphia, et al. Comments at 1314; Buckeye Comments at 67; A&E, et al. Comments at 3032; Comcast/Cox Reply at 78.a In the case of a channel newly added to a tier, this subscriber revenue includes both  d(#the additional amount an operator can charge its existing subscribers when it adds a channel and also the full tier price paid by subscribers the channel attracts to the tier.  X- p28.` ` ValueVision proposes using interim proxies for subscriber loss of 1% of tier  d(#revenue for the first three leased access programmers added, 2% for the next three programmers,  X_- d(#Oand 3% for the next three programmers.[G_18 yO -ԍValueVision Ex Parte Letter, October 1, 1996, at 4.[ We decline to adopt this proposal because  d(#ValueVision's claim that this proxy would adequately compensate cable operators for any  d(#subscriber loss is based on only three anecdotal examples where one programming service was  X - d(#substituted for a very similar programming service.H !18 {O-ԍId. at 3 (one home shopping network was substituted for another home shopping network). We therefore find that ValueVision has not  d(#provided sufficient evidence allowing us to predict what the actual subscriber loss is likely to be  d(#Lfor a typical system, especially when the leased access programming substantially differs from  d(#the displaced programming. In addition, as described below, TCI and Continental allege that the  X - d(#actual subscriber loss would be 25% and 30%, respectively.CI 18 {O"-ԍSee Section II.B.2.c.C Given that these cable operators  d(#and ValueVision provided such divergent estimates of subscriber loss, we do not believe that we  d(#can determine with any precision the actual amount that should be factored into the cost/market rate formula to account for subscriber loss.  XK- 29. ` ` Because the cost/market rate formula does not adequately account for a significant  d(#benefit that cable operators receive from programming, we believe it may result in an unduly low  d(#rate that does not adequately capture the value of a channel. Such a rate would not adequately  d(# compensate the cable operator and would force cable operators to subsidize leased access  d(#[programmers, thereby impermissibly affecting the cable system's operation, financial condition  X- d(#or market development.J~E 18 {O - d(#ԍSee Communications Act  612(c)(1), 47 U.S.C.  532(c)(1). Numerous commenters claim that maximum rates  {O!- d(#<under the cost/market rate formula would constitute a subsidy for leased access programmers. See, e.g., Outdoor  d(#Life, at al. Comments at 1011; NCTA Comments at 1011; Daniels, et al. Comments at 1213; Prevue Networks  d(#Comments at 45; Faith & Values Comments at 23; MPAA Comments at 2; A&E, et al. Comments at 2829;  d(#Comcast Comments at 7; Cox Comments at 14; Comcast/Cox Reply at 78; Adelphia, et al. Reply at 3; Daniels, et  {O$- d(#al. Reply at 34; Disney Channel Reply 35; ESPN Comments at 23; ESPN Reply at 1. But see, e.g., Telemiami Reply at 2324 (cost/market rate formula would not provide a subsidy). Similarly, such a rate could impair a cable operator's ability to  d(#compete in the multichannel video distribution marketplace by requiring the operator to bump"J,N(N(ZZ"  d(#Kexisting programming in exchange for less than its actual value, which would be inconsistent with  X-the growth and development of cable systems.K"18 yOb- d(#;ԍNCTA Comments at 1415; U S West Reply at 2; Intermedia/Armstrong Comments at 78; Cox Comments at  {O*- d(#1415; TCI Comments at 11; Faith & Values Reply at 7. See also Viacom Comments at 56 (threat of being bumped  d(#for leased access will place the nonleased access programmer at a greater disadvantage in dealing with the cable operator).   X- 30.` ` We therefore conclude that the proposed cost/market rate formula would not  d(#Kaccurately establish reasonable maximum rates because, in its attempt to measure the opportunity  d(#costs of using a channel for leased access, it ignores a significant opportunity cost the effect  d(#on subscriber revenue. Because neither the Commission nor the commenters in this proceeding  d(#have been able to specifically quantify this effect, we are unable to revise our proposed formula  d(#>in a way that would allow us to adopt it as an appropriate method for determining maximum  X1-leased access rates.?Lf 118 yO- d(#ԍBecause we are not adopting the cost/market rate formula, we do not need to address other concerns raised by  d(#hcommenters regarding our proposal. We note, however, that several potential leased access programmers argue that  d(#xrate calculations under the cost/market rate formula would be complex, difficult to verify, and easily manipulated  {O- d(#by cable operators. See, e.g., CME, et al. Comments at 910; CBA Comments at 56; Viking Comments at 1;  d(#;Telemiami Comments at 513; Telemiami Reply at 2122; Denver Area Ed. Reply at 13. Other commenters claim  d(#that the Commission's proposal to require operators to identify which programming services would be bumped for  d(#leased access programming would make it difficult for those programmers to attract viewers, advertisers, investors,  {O- d(#xand thirdparty program suppliers. See, e.g., A&E, et al. Comments at 1315, 38; Continental Comments at 31;  d(#iESPN Comments at 8; ESPN Reply at 3. A number of commenters criticize the Commission's proposal to allow  {O- d(#Ja cable operator to charge market rates once it fulfills its setaside requirement. See, e.g., Viacom Comments at 13;  d(#Time Warner Comments at 21; Continental Comments at 32; Blab TV Comments at 810; A&E, et al. Comments at 34 n.94; Visual Media Comments at 7; Denver Area Ed. Reply at 14. ?  V - ,` v` `  c.` Maximum Rate for FullTime Leased Access Programming Carried  V -on a Programming Services Tier(#  X - B31.` ` Based on our review of the comments, we no longer believe that the proposed  X - d(#cost/market rate formula is a reasonable formula for determining maximum leased access rates.  d(#vInstead, we have decided to retain an implicit fee formula. We will, however, modify our current  Xy- d(#|formula to address the concerns set forth in the Further Notice and in the comments.  d(#-Specifically, as described below, we conclude that the maximum reasonable rate for leased access  XM- d(#-programming that is carried on a programming services tier should be the "average implicit fee."BMM18 yO!- d(#;ԍMany commenters support the adoption of a rate formula based on the average implicit fee if the Commission  {O"- d(#rejects the highest implicit fee formula. See, e.g., NCTA Comments at 2123; Lorilei Comments at 7; Discovery  d(#Comments at 1012; Adelphia, et al. Comments at 17; TCI Reply at 910; Continental Reply at 45; Comcast/Cox  d(#iReply at 1012; A&E, et al. Reply at 2; Daniels, et al. Reply at 8; Outdoor Life, et al. Reply at 67; ESPN Reply at 13.B  d(#We will, however, continue to monitor the availability of leased access channels and may revisit this issue if it appears that the average implicit fee formula no longer reflects a reasonable rate."M,N(N(ZZ"Ԍ`(#(#  X- $32. ` ` To determine the average implicit fee for a fulltime channel on a particular tier  d(#with a subscriber penetration over 50%, an operator must first calculate the total amount it  X- d(#receives in subscriber revenue per month for the programming on all such tier(s),N18 {O4- d(#ZԍSee Section II.E., below, for a discussion of leased access programmers' right to demand access to a tier with a subscriber penetration of more than 50%. and then  d(#zsubtract the total amount it pays in programming costs per month for such tier(s) (the "total  X- d(#[implicit fee calculation").O "18 yO` - d(#ԍWe reject the proposal of NCTA and TCI to allow multiple system operators to establish companywide average  d(#programming costs for purposes of the average implicit fee calculation. NCTA Comments at 2223; TCI Reply at  d(#10. Maximum leased access rates should be calculated on a persystem basis because Congress established leased access as a systembysystem requirement. A weighting scheme that accounts for differences in the number of  d(#subscribers and channels on all such tier(s) must be used to determine how much of the total  d(#implicit fee calculation will be recovered from any particular tier. The weighting scheme is  d(#Kdetermined in two steps. First, the number of subscribers is multiplied by the number of channels  d(#(the result is the number of "subscriberchannels") on each tier with subscriber penetration over  d(#50%. For instance, a tier with 10 channels and 1,000 subscribers would have 10,000 subscriber d(#]channels. Second, the subscriberchannels on each of these tiers is divided by the total  X - d(#subscriberchannels on all such tiers.P 18 yO- d(#ԍThis weighting scheme is also used in the FCC Form 393 to account for differences in the number of channels  {Oo-and subscribers. See FCC Form 393 at Line 106. Given the percent of subscriberchannels for the particular  d(#tier, the implicit fee for the tier is computed by multiplying the subscriberchannel percentage for  d(#the tier by the total implicit fee calculation. Finally, to calculate the average implicit fee per  d(#channel, the implicit fee for the tier must be divided by the corresponding number of channels  X- d(#on the tier.Qd 18 yO- d(#wԍThis result can also be reached by adding together the implicit fees on all tiers exceeding 50% penetration, after  d(#;adjusting the implicit fees for any lower penetration on CPST tier(s). This figure would then be divided by the total  d(#number of channels on the relevant tiers, again after adjusting for any lower penetration on CPST tier(s). Finally,  d(#Kto determine the maximum fulltime rate for a channel on a particular tier, this result would be multiplied by the actual number of subscribers on the tier on which the leased access programmer will be placed.  The final result is the maximum rate per month that the operator may charge the  Xy- d(#\leased access programmer for a fulltime channel on that particular tier.|Ry18 yO>-ԍA detailed example of an average implicit fee calculation is attached as Appendix C.| In the event of an  d(#agreement to lease capacity on a tier with less than 50% penetration, the average implicit fee  d(#.should be determined on the basis of subscriber revenues and programming costs for that tier alone.   X- ` 33.` ` In essence, the average implicit fee measures the average amount that fulltime  d(#programmers implicitly "pay" the cable operator for carriage. In other words, the average  d(#implicit fee represents the average amount of subscriber revenue that fulltime programmers cede  d(#to the operator to permit the operator to cover its costs and earn a profit. For instance, if  d(#"subscribers pay an average of $0.50 per channel for a particular tier, and the average"R,N(N(ZZp"  d(#programming or license fee on the tier is $0.10, then, on average, programmers on the tier are  d(#implicitly "paying" the operator $0.40 for carriage. We agree with Cox and Comcast that since  d(#fulltime lessees resemble, and will be competing with, fulltime cable networks, it is appropriate  d(#that the maximum fulltime leased access rate reflect the average marketplace terms and  X- d(#conditions under which cable networks are able to gain access to the cable system.`S18 {O-ԍSee Cox Comments at 2223; Comcast Comments at 16.` From the  d(#operator's standpoint, the average implicit fee represents the average value of a channel after  d(#Kprogramming acquisition costs are paid. As Encore argues, a formula based on the average value  d(#yof a channel may reflect the value of channel capacity more accurately than a formula based on  d(#the value of the programming bumped for leased access, such as the proposed cost/market rate  d(#formula, because programming that is bumped for leased access may not have had sufficient  X -opportunity to reach its full revenuegenerating potential.T Z18 {O% - d(#wԍSee Encore Reply at 7. See also Liberty Sports Comments at 4 (programming services deleted for leased access  d(#Kmay not have achieved their full revenuegenerating potential); Faith & Values Comments at 3 (same as Liberty  d(#;Sports); Continental Comments at 1718 (new programming typically takes several years to build a loyal audience).  {O- d(#But see CME, et al. Reply at 2425 (using the average rate, instead of a channelspecific rate, overcompensates cable operators because they will bump their least valuable programming services).   X - 2!34.` ` In addition, we are adopting an average implicit fee formula because it is possible  d(#jto determine the average value of a channel accurately, even when channels are sold as part of  d(#a package (i.e., a tier). A precise calculation of the average channel value is possible because  d(#the necessary components are known: in particular, what a subscriber pays for the tier and what  d(#the operator pays in total programming costs for all channels on the tier. By contrast, the  d(#\proposed cost/market rate formula and the highest implicit fee formula cannot provide such  d(#-accuracy because they attempt to measure the value of an individual channel on a tier. However,  d(#the value of an individual channel on a tier cannot be ascertained accurately because it is not  d(#zpossible to determine the subscriber revenue attributable to a particular channel that is sold  X- d(#-collectively with other channels as a single package.U18 {O- d(#iԍSee Comcast/Cox Reply at 10 (it is impossible to quantify the amount that subscribers pay for each channel on a tier). The same problem would be presented by an attempt to determine the lowest implicit fee.  X- C"35. ` ` We also believe that developments in the multichannel video programming  d(#zmarketplace are relevant to our decision to adopt the average implicit fee formula. As noted  d(#above, the number of nonvertically integrated national programming services has grown in each  X- d(#of the past three years.?Vh 18 {O#-ԍSee Section II.A.? We believe that a shift from a highest implicit fee formula to an  d(#average implicit fee formula may provide additional opportunities for diverse, unaffiliated"| V,N(N(ZZ"  d(#programmers to enter the marketplace, without creating a maximum rate that is artificially low  X-and putting the cable operator's operation, financial development or market development at risk.hWZ18 {Ob- d(#kԍSee id. (in implementing Section 612, including the establishment of maximum reasonable rates, the  d(#Commission must seek to promote the goals of competition and diversity of programming sources, while doing so in a manner consistent with the growth and development of cable systems).h  X- #36.` ` Moreover, we believe that the average implicit fee formula addresses the concerns  X- d(#zwith the highest implicit fee formula that we expressed in the Reconsideration Order. Most  d(#importantly, we do not believe that the average implicit fee formula permits the operator a  Xx- d(#"double recovery.">XZx18 {O - d(#ԍBut see Telemiami Reply at 1112 (average implicit fee formula does not eliminate double recovery problem,  d(#;does not improve the viability of leased access, and bears no greater relationship to reality than the highest implicit fee formula).> In the Reconsideration Order, we noted that the highest implicit fee formula  d(#overcompensates the operator because it appears to allow the value of the channel to be recovered  d(#twice once from the leased access programmer (the highest implicit fee), and once from  X5- d(#Zsubscribers (the average per channel subscriber charge).ZY5 18 {O-ԍSee Reconsideration Order at para. 29.Z For example, if the subscriber revenue  d(#1for a tier is an average of $0.50 per channel and the lowest license fee for unaffiliated  d(#programming on that tier is $0.05, the highest implicit fee for that tier would be $0.45. Because  d(#jwe assumed that the leased access programmer would pay up to $0.45 (the highest implicit fee)  d(#-and the subscriber would still pay $0.50 (the average per channel subscriber charge), we believed  X -that the operator was permitted to recover the value of the channel twice.DZX 18 yO- d(#ԍIn addition, we assumed that the operator was further overcompensated by also recovering from the subscriber  d(#the amount of the lowest license fee (the average per channel subscriber charge equals the highest implicit fee plus the lowest license fee). D  X- $37.` ` Our "double recovery" hypothesis was based on the assumption that operators  d(#ywould be able to charge subscribers the same amount for leased access programming that they  d(#ycharge on average for other programming on the same tier. Several commenters supported this  d(#assumption. For instance, the Game Show Network states that its programming had tested very  d(#favorably with consumers and that it tied The Discovery Channel and MTV in one ratings  X!- d(#survey. [! 18 {O - d(#ԍGame Show Network Comments at 34. See also CBA Reply at 5 (leased access is sought by many low power television stations that produce "large amounts of high quality local and regional television programming").  In addition, Blab TV and Telemiami cite themselves as examples of fulltime local  d(#Lleased access programming that has proven to be commercially successful over a lengthy time  X- d(#>span..\  18 yO$- d(#,ԍBlab TV Comments at 13 (Blab TV has been in business since 1984); Letter from Congressman Lincoln Diaz d(#Balart filed in conjunction with Telemiami Comments (Telemiami has been in business since 1988). Blab TV  d(#contends that its programming increases subscribership and has occasionally scored in terms of audience share at least  d(#as high as CNN, MTV, ESPN, The Discovery Channel, and Showtime. Blab TV Reply at 56 and Exhibit 1 (1986"'[,N(N(A'"  d(#Kletter from Group W Cable attributing the addition of 311 new subscribers to Blab TV) and Exhibits 23 (Neilsen  d(#data for several days in January 1986 and for a oneweek period in September 1987). Telemiami states that its  d(#Neilsen ratings are far higher than ratings for another Spanishlanguage cable channel owned by a cable operator that refuses to carry Telemiami except at "exorbitant" rates. Telemiami Reply at 18. . More generally, ValueVision argues that operators are not likely to lose subscriber"\,N(N(ZZ"  d(#revenue because they will substitute leased access programming with their least profitable  X-networks, which recent data show have virtually no audience.]$18 {OJ- d(#ԍValueVision Comments at 67 (citing Richard Katz, Cable Ratings Continued to Soar in 1Q, Multichannel  {O- d(#News, April 1, 1996, at 16). See also ValueVision Reply at 1819. But see International Channel Reply at 23  d(#(programming services that target relatively small "niche" markets play an important role in increasing subscriber penetration).  X- A%38.` ` Many commenters, however, assert that subscribers will not be willing to pay the  d(#-same amount for leased access programming because subscribers value it less than programming  X- d(#Kselected by the operator.^"18 {O- d(#ԍSee, e.g., NCTA Comments at 14; Cox Comments at 67; Comcast Comments at 1112; TCI Comments at 17 d(#19; Continental Comments at 812; Daniels, et al. Comments at 912; Time Warner Comments at 3233; Prevue  d(#Networks Comments at 67; NCTA Reply at 79; U S West Reply at 910; TCI Reply at 17; Outdoor Life, et al. Reply at 6. Cox and Comcast contend that the amount of subscriber revenue that  d(#/operators will be able to collect for most leased access channels will be close to or equal to  X_- d(#zero.-_Z_ 18 {O- d(#ԍCox Comments at 67; Comcast Comments at 1112. See also Time Warner Comments at 32 (over half of the  d(#subscribers responding to a Time Warner survey stated that they would not pay anything for leased access programming). - Several commenters claim that leased access programming will in fact diminish the value  d(#-of a tier because subscribers will find it so unappealing that viewership of the other programming  X1- d(#=on the tier will be adversely impacted.`"118 yO- d(#ԍTCI Comments at 1719; Continental Comments at 812; Comcast Comments at 6; Daniels, et al. Comments  {OR- d(#at 912; NCTA Reply at 79. See also Time Warner Comments at 3233 (consumers often place a negative value  d(#Yon leased access programming); Turner, et al. Comments at 1112 (leased access programming will create a negative spillover effect on the tier because fewer consumers will want to subscribe to a less attractive tier). They argue that this "neighborhood effect" will force  X - d(#operators either to lose subscribers or to reduce the price of the tier.a" 18 yO]- d(#ԍTCI Comments at 1719; Continental Comments at 812; Comcast Comments at 6; Daniels, et al. Comments  {O%- d(#;at 912; NCTA Reply at 79; Outdoor Life, et al. Reply at 6. See also, e.g., Turner, et al. Comments at 1112 (the  d(#"neighborhood effect" will also impact the nonleased access programmers on the tier because their license fee revenues and advertising revenues will decrease). Many commenters assert  d(#that due to the increasing threat of losing subscribers to other services that are not subject to  d(#leased access requirements, such as direct broadcast satellite services and wireless services, cable  d(#operators cannot afford to use scarce channel capacity for programming that subscribers value  X -negatively.b |18 {O%- d(#ԍSee NCTA Comments at 14; Continental Comments at 8; TCI Comments at 18; Daniels, et al. Comments at 912; Lifetime Comments at 8; U S West Comments at 9; Turner, et al. Comments at 1213. " b,N(N(ZZ "Ԍ X- nԙ&39. ` ` Continental attempts to quantify this "neighborhood effect," claiming that 60% of  d(#subscribers surveyed stated that replacing existing cable networks with leased access programming  d(#would lead to decreased satisfaction with the channels offered on the system and that 30% of  X- d(#those surveyed threatened to discontinue service.Dc18 yO4-ԍContinental Comments at 89.D Continental asserts that the impact of a lost  d(#subscriber extends far beyond the loss in value of a single channel, since subscribers must drop  X- d(#the entire tier.dX18 {O- d(#ԍId. at 1011. See also TCI Reply at 4 ("even a minor reduction in existing or potential subscribership would have major financial ramifications for cable operators"). For example, Continental alleges that a 1% drop in subscribership would  Xv- d(#[amount to a loss of $0.21 per subscriber per month for its typical system.eZv18 {O - d(#wԍContinental Comments at 11. See also Economic Analysis at 1920 attached to Time Warner Comments (for  d(#Time Warner's Tampa Bay system that has an average per subscriber revenue of $32 per month the national average a 2.5% subscribership loss would result in a loss of $0.57 per month per remaining subscriber).  Similarly, TCI cites  d(#survey results showing that 80% of the responding subscribers stated that leased access  d(#programming would lower the value of their cable service and that 25% claimed that they would  X1- d(#definitely cancel their service.f118 yO- d(#ԍTCI Comments at 1718. We share the concerns of several commenters that dispute the methodology used  d(#;in surveys by TCI and Continental to demonstrate the negative effects that leased access programming will have on  {OF- d(#Ksubscribership. See, e.g., Game Show Network Reply at 1315; ValueVision Reply at 2122; Telemiami Reply at  d(#<1517. For example, it does not appear that the surveys were based on random samples, that the questions were phrased objectively, or that the surveys were targeted to the relevant decisionmaker in each household. By contrast, as described above, ValueVision proposes using  d(#interim proxies for subscriber loss of 1% of tier revenue for the first three leased access  d(#Pprogrammers added, 2% for the next three programmers, and 3% for the next three  X -programmers.}gZ 18 {O#- d(#ԍSee Section II.B.2.b. Again, we decline to adopt this proposal because ValueVision's claim that this proxy  d(#would adequately compensate cable operators for any subscriber loss is based on only three anecdotal examples where one programming service was substituted for a very similar programming service.}  X - _'40.` ` Based on the record before us, we cannot conclude that operators, in general, will  d(#<be able to charge the same amount for a tier once leased access programming is added, especially  X- d(#since most leased access programming will be new and will not have an established audience.h18 {O-ԍSee Continental Comments at 14 (new programmers typically have no audience base).  d(#zWe cannot, however, predict with any certainty what the relative value of the leased access  Xb- d(#programming will be.viZb:18 {OM#- d(#.ԍSee Game Show Network Reply at 68 (prospective calculation of losses in subscriber revenue would be  d(#zinherently speculative and retrospective calculation would be unreliable because the effect of leased access programming on subscriber revenue could not be isolated from other causes for a loss).v It is possible that some leased access programming will be as profitable,  d(#[if not more so, than some of the operator's selected programming and that the effect on the tier"K\i,N(N(ZZ"  X- d(#charge will be neutral or positive.Cj 18 yOy- d(#ԍCox claims that operators choose not to carry leased access programming for "marketing reasons" because it  d(#;is of less value to subscribers. Cox Comments at 67. We will not automatically assume that the programming that  d(#-Congress sought to promote through leased access is necessarily of lesser value. In establishing the leased access  d(#Zprovisions in 1984 and amending them in 1992, Congress was concerned that unaffiliated programmers would be  d(#hdenied access to cable systems, not for "marketing reasons," but because of the cable operator's ability to restrict the  d(#editorial content of the unaffiliated entity's programming and to thwart competition to the operator's chosen  d(#Yprogramming. Therefore, operators may be unwilling to carry quality programming for anticompetitive reasons or  {O- d(#because of personal editorial preferences. See ValueVision Reply at 78 (despite endorsements of ValueVision's  d(#;programming by local cable system general managers, ValueVision lost access to 900,000 subscribers served by cable  d(#systems affiliated with competing home shopping services); Denver Area Ed. Reply at 56 (even though a survey  d(#commissioned by the operator showed that subscribers preferred the leased access channel over several other channels  d(#on the system, the operator raised the leased access rate to the point where the programmer was forced off the  d(#system); Game Show Network Reply at 1011 (due to scarce channel capacity, operators are reluctant to carry programming that has not been tested in the market even if it is of high quality). C On the other hand, it is also possible that some leased access  d(#programming will be less valuable than the operator's current programming, leading either to a  d(#loss of subscribers or to a loss of subscriber revenue if the operator lowers the tier price. For  d(#instance, subscribers whose subscriptions are due in large part to the nonleased access programming service that is bumped could drop the programming tier or the entire cable service.  Xv- ^(41.` ` We therefore find that the assumption underlying our "double recovery" hypothesis  d(#ԩ that leased access programming will always be equally valuable to the operator as its non d(#=leased access programming is not supported by the record. Neither the Commission nor the  d(#commenters, however, have been able to develop a reliable method for predicting what value, if  d(#<any, subscribers will place on leased access programming. In cases where subscribers are willing  d(#to pay some amount above zero for leased access programming, the operator will recover an  d(#[excess amount because the leased access programmer is already reasonably compensating the  d(#operator for the value of the channel. In cases where leased access programming causes a loss  d(#of subscriber revenue that exceeds the amount paid by the leased access programmer, the operator  d(#will be under compensated. Since the current record does not permit us to accurately assess the  d(#impact of leased access programming on the value of the tier, we cannot find that leased access  d(#programming will necessarily result in an excess recovery (let alone a "double" recovery) for the operator.  X4- })42. ` ` Moreover, we believe that any potential excess recovery generally will be minimal.  d(#[Based on what cable operators in a competitive environment are able to charge subscribers for  d(#the addition of a new channel, our "going forward" order allows operators to charge a subscriber  X- d(#$0.20 a month for an additional channel.Hk 18 yO"#- d(#ԍIn addition, operators are also permitted to charge subscribers an average of $0.05 a month for programming  d(#ycosts. Because operators do not pay programming costs for leased access programming, we have no evidence  d(#<demonstrating that the value of leased access programming to subscribers will reflect this additional $0.05 value.  {Oz%- d(#Sixth Order on Reconsideration, Fifth Report and Order, and Seventh Notice of Proposed Rulemaking in MM Docket  d(#KNos. 92266, 93215, 10 FCC Rcd 1226, 12511255 (1995). ESPN and Adelphia, et al. argue that leased access  {O '- d(#channels should not count against an operator's "going forward" cap. See ESPN Comments at 89; Adelphia, et al." 'j,N(N(K'"  d(#Comments at 25 n.14. We disagree. A newlyadded channel is not exempt from an operator's "going forward"  yOX-quota simply because it is a leased access channel. H We expect, however, that operators will recover less" k,N(N(ZZU"  d(#than $0.20 for a new leased access channel because we believe that, on average, subscribers will  d(#^not be willing to pay as much for new leased access programming as they do for new  d(#programming selected by the cable operator. In selecting its own programming, a cable operator  d(#>is able to take into account the particular mix of programming already on its system and the  d(#kparticular interests and demands of its subscribership. Thus, unlike with leased access, the operator can select programming that will maximize net subscriber revenue.  X_- *43.` ` Additional factors are likely to further reduce any potential excess recovery. For  d(#zone, the "going forward" rate is based on what operators can charge subscribers when new  d(#channels are added without displacing existing programming. Therefore, if leased access  d(#<programming displaces existing programming, any amount of subscriber revenue that an operator  d(#gains from a leased access channel may be offset by subscriber revenue lost from the displaced  d(#channel. In addition, we believe that subscriber revenue from a leased access channel will be  d(#further offset by lost advertising revenues since leased access programmers, unlike other  d(#/programmers, generally will not provide advertising slots to the cable operator. Subscriber  X - d(#irevenue will also be offset by additional administrative costs imposed by leasing,l" 18 yOx- d(#ԍA number of commenters argue that parttime leased access contracts impose additional administrative costs  {O@- d(#=because operators must negotiate with numerous programmers, which increases transaction costs. See SCBA  d(#Comments at 1011; Daniels, et al. Comments at 21; Comcast Comments at 1415; Cox Comments at 2122; TCI Comments at 30; Time Warner Reply at 19. which are not  X- d(#=recovered through the average implicit fee formula.m 18 yOK- d(#ԍIn light of these offsets, we will not adopt the proposal advanced by NCTA and others to permit operators to  d(#;further "markup" the leased access rate as compensation for lost advertising revenues and administrative costs that  {O- d(#Kare not reflected in the average implicit fee. NCTA Comments at 23. See also TCI Reply at 810; Continental  d(#Reply at 45; Comcast/Cox Reply at 11 (all supporting NCTA's 11.25% markup proposal). We find that the  d(# examples NCTA cites where the Commission has allowed markups in other rate regulation contexts are  d(#distinguishable in that they relate to marking up a costbased rate which does not already include profit for the  d(#hoperator. For example, NCTA cites the fact that operators are permitted to charge subscribers equipment costs plus  d(#Zan 11.25% markup. The average implicit fee formula, however, is not a strictly costbased formula. Because it  d(#represents the average "value" of channel capacity to the operator, the average implicit fee formula inherently includes the operator's profit and a further markup is not justified. For all of the above reasons, we believe  d(#that any excess recovery for a leased access channel will be significantly less than the $0.20 that an operator is allowed to charge subscribers for a new channel.  X4- +44.` ` Although we no longer believe that our "double recovery" concern was a valid  d(#reason for rejecting the highest implicit fee formula, we nonetheless believe that the average  d(#implicit fee formula is a more appropriate method for determining the maximum leased access  d(#rate. First, as discussed above, the average implicit fee is based on a more logical calculation  d(#than the highest implicit fee, because it is derived from values that can be measured subscriber  d(#revenue for the tier(s) and programming costs for the tier(s) to arrive at an average amount of  d(#subscriber revenue that programmers cede to the operator in exchange for carriage. The highest"m,N(N(ZZ"  d(#.implicit fee formula, by contrast, attempts to measure the implicit fee of a particular channel by  d(#using one verifiable figure (the actual programming cost) and one proxy (the average per channel  d(#subscriber revenue), since the actual amount that subscribers pay for any particular channel on  d(#a tier cannot be determined. Second, the average implicit fee mitigates our previous concern that  X- d(#the highest implicit fee may overcompensate operators by permitting them to charge the highest  X- d(#\markup over programming costs (i.e., the highest of the implicit fees).Pn18 {O-ԍReconsideration Order at para. 30.P While the average  d(#implicit fee formula does not allow the operator to recover its highest markup over programming  d(#costs, it also does not restrict the operator to charging the lowest markup over programming  XH- d(#costs. Although we stated in the Rate Order that using the highest market value of channel  X3- d(#capacity is fair,Lo3Z18 {O> -ԍRate Order, 8 FCC Rcd at 5951.L we believe that basing the maximum rate on the average markup over  d(#programming costs more appropriately balances the interests of cable operators and leased access programmers.  X - ,45.` ` Third, we also expressed concern in the Reconsideration Order that an implicit fee  X - d(#formula is not based on the operator's reasonable costs.Pp 18 {O_-ԍReconsideration Order at para. 31.P We now believe, however, that an  d(#implicit fee formula may better reflect the value of the channel capacity, since a formula based  d(#strictly on quantifiable costs cannot account for lost subscriber revenue and therefore may not  X}- d(#adequately compensate the operator.q}~18 {O- d(#ԍSee Section II.B.2.b. See also Comcast Comments at 2 (an implicit fee approach is superior to a costbased approach because it more accurately reflects the market value of a channel); Cox Comments at 34 (same). Given that the maximum rate should not adversely affect  d(#the operation, financial condition or market development of the cable system, it is entirely  d(#appropriate to consider these nonquantifiable costs, such as any negative effects leased access programming may have on the value of the tier, in establishing the market value of a channel.  X -  p-46.` ` We will also make a few other changes to the manner in which the maximum  X- d(#[leased access rate is calculated for tiered channels.r\18 yO|- d(#ԍIn light of pending petitions for reconsideration in this proceeding, the Commission retains jurisdiction to  {OD- d(#Yreconsider its rules on its own motion. See Communications Act  405, 47 U.S.C.  405; 47 C.F.R.  1.108; Central  {O -Florida Enterprises v. FCC, 598 F.2d 37, 48 n.51 (D.C. Cir. 1978), cert. dismissed, 441 U.S. 957 (1979). First, we will depart from the current rule  X- d(#requiring rate calculations to be made on a tierbytier basis.s\ 18 {O"- d(#ԍReconsideration Order at para. 36. See NCTA Comments at 22 (arguing that the average implicit fee should  {OS#- d(#be calculated by averaging across all channels carried on basic and expanded tiers). But see A&E, et al. Reply at 910 (averaging across tiers fails to take into account the value of tier placement). As described below in Section  d(#yII.E., we have determined that leased access programmers have the right to demand access to a  d(#tier with more than 50% subscriber penetration. We believe that subscribers generally perceive  d(#these highly penetrated tiers as a single programming package, not as separate products. " s,N(N(ZZo"  d(#Consistent with this view, we believe that operators should calculate the average implicit fee  d(#using all channels carried on any tier with more than 50% subscriber penetration. In addition,  d(#we note that our rate regulation rules generally are based on the principle of tier neutrality, which  d(#<requires cable operators to charge the same per channel rate regardless of the programming costs  X- d(#0incurred on a particular tier.t$18 {O- d(#ԍSee Rate Order, 8 FCC Rcd at 5746. Although the Commission is now exploring giving operators additional  d(#-flexibility in pricing their tiers, all of the proposals under consideration are grounded in the principle of revenue  {O- d(#neutrality. See Memorandum Opinion and Order and Notice of Proposed Rulemaking in MM Docket No. 92266 and CS Docket No. 96157, FCC 96316 (released August 15, 1996). Prior to rate regulation, we believe that tier prices did not  d(#/necessarily follow this tier neutrality principle. Similarly, because the Communications Act  d(#Zrequires cable operators to transmit mustcarry and PEG access channels on the basic service tier,  d(#.the average programming cost on that tier will tend to be lower than it would be absent such a  XH- d(#carriage requirement.nuH18 {O -ԍSee Communications Act  623(b)(7), 47 U.S.C.  543(b)(7).n Since, as a result of regulation, individual tier prices may not be directly  d(#correlated with their underlying programming costs, we believe that it is appropriate to permit cable operators to assess these costs more accurately by averaging across highly penetrated tiers.  X - ~.47.` ` Second, we believe that the maximum rate calculation should no longer exclude  d(#channels devoted to mustcarry broadcast signals or PEG access programming. In the  X - d(#Reconsideration Order, we stated that mustcarry and PEG access channels should be excluded  d(#from consideration because the lack of program license fees for those channels does not represent  X- d(#a marketplace decision, but is the result of statutory mandates.PvF18 {O-ԍReconsideration Order at para. 35.P Under the highest implicit fee  d(#yapproach, the inclusion of channels with zero license fees, such as must carry and PEG access  d(#channels, would virtually ensure that every cable system had a commensurately high leased access  d(#rate. Now, with the average implicit fee formula, because all of the programming costs are  d(#averaged together, it is appropriate to include mustcarry and PEG access channels in calculating  X- d(#ythe maximum leased access rate.w18 {O- d(#ԍSee NCTA Comments at 2122 (proposing that average programming costs be based on all channels carried on basic and expanded tiers); Comcast/Cox Reply at 11 (supporting NCTA's proposal). Although the lack of programming costs for these channels  d(#makes it inappropriate to use them as the sole determinant of maximum rates, these channels are  d(#\relevant to a calculation that is based on the value of the relevant tier(s). Since the average  d(#\implicit fee is derived from the total value of the tier(s) being considered, it is appropriate to  d(#account for the effect of all of the channels on the tier(s). Moreover, as with all individual  d(#ychannels on a tier, it would not be possible to ascertain how much the total subscriber revenue for the tier should be reduced if mustcarry and PEG access channels were excluded.  Xg- /48. ` ` For the same reason we also conclude that the maximum rate calculation should  XP- d(#no longer exclude channels devoted to affiliated programming. In the Rate Order, we determined  d(#\that affiliated programming should not be considered in determining the highest implicit fee  d(#Obecause to do so could affect the operator's right to charge affiliated and unaffiliated"$2 w,N(N(ZZ"  X- d(#Lprogrammers different rates.Ux18 {Oy-ԍRate Order, 8FCC Rcd at 5943 n.1294. U However, in addition to the necessity of including all channels  d(#on the relevant tier(s) in an average implicit fee calculation, we believe that requiring cable  d(#}operators to base an implicit fee calculation only on unaffiliated programming may  d(#inappropriately result in different maximum leased access rates for systems that are identical but  d(#for their affiliation with certain programmers. We believe that adopting a standard similar to that  d(#adopted with regard to our affiliate transaction rules will resolve this disparity without interfering  Xv- d(#with the operator's right to establish different rates for affiliated and unaffiliated programmers.yvZ18 {O - d(#ԍSee Second Report and Order, First Order on Reconsideration, and Further Notice of Proposed RulemakingĄ  yOK -in MM Docket No. 93215/CS Docket No. 9428, 11 FCC Rcd 2220, 22772278 (1995).   d(#0We will therefore modify our rules to require that, in calculating the average implicit fee,  d(#Moperators must use programming costs for affiliated programming that reflect the prevailing  d(#company prices offered in the marketplace to third parties. If a prevailing company price does  d(#znot exist, the programming should be priced at the lower of the programmer's cost or the fair  d(#market value. Because these objective measurements are based on factors outside affiliated  d(#transactions, the requirement to use them as proxies for the actual programming costs does not  X - d(#|conflict with our conclusion in the Rate Order that the Commission is precluded from  X -establishing rates based on transactions with affiliates.Uz 18 {O%-ԍRate Order, 8FCC Rcd at 5943 n.1294. U  X- p049.` ` Finally, we believe that it is appropriate to eliminate our current programmer  d(#categories for determining maximum rates for leased access programming that is carried on a tier.  Xd- d(#KIn the Rate Order, the Commission stated that the programmer categories were intended to reflect  d(#the different economies faced by the different types of programmers. We now believe, however,  d(#that basing maximum rates on the average value of the channel capacity is a more appropriate  d(#<approach to implementing Section 612 than making distinctions based on the different economies  d(#among leased access programmers. For this reason, and also because an average implicit fee  d(#calculation must include all channels on the relevant tier(s), we will abolish the mandatory  X- d(#distinction between the rate charged to direct sales programmers and "all others."{"F18 yO- d(#-ԍA few commenters argue that maintaining a separate category for direct sales programming would prevent  d(#home shopping networks and infomercial programmers, which can afford higher rates, from dominating leased access  {Oc- d(# capacity. See Telemiami Comments at 1314; Telemiami Reply at 2223; VIPNA Comments at 1011; VIPNA Reply at 5; Adelphia, et al. Comments at 18. Therefore,  d(#lall leased access programmers carried on a cable system's tier will be subject to the same  d(#maximum rate, which will be derived using all channels on the relevant tier(s), including channels  d(# devoted to direct sales programming (e.g., home shopping networks and infomercials). As  d(#described below in Section II.B.2.d, cable operators will still be required to calculate different  d(#Lrates for programming services sold on a perchannel, or a la carte, basis. We will maintain the  d(#distinction between leased access programming carried on a tier and leased access programming  d(#offered as an a la carte service, not because of their "different economies," but because of the";0 {,N(N(ZZ"  d(#practical differences involved in implementing a maximum leased access rate for a la carte services.  X-  V- ,` ` `  d.` Maximum Rate for FullTime Leased Access Programming Carried  V-as an A La Carte Service(#  Xv- $150.` ` Despite our conclusion that the average implicit fee formula is the appropriate  d(#method for setting maximum reasonable rates for leased access programming carried on a tier,  d(#we conclude that the highest implicit fee formula remains the best approach for setting maximum  d(#=reasonable rates for leased access programming offered to subscribers as an a la carte service.  X - d(#yBecause the subscriber revenue for an a la carte service is known, an a la carte programmer can  d(#readily determine how much it is implicitly paying the operator for carriage. If an unaffiliated  d(#a la carte programmer is implicitly paying more than the maximum leased access rate for  d(#jcarriage, the a la carte programmer could obtain a larger share of the subscriber revenue simply  d(#\by demanding a lease. This potential disruption to operators' negotiated relationships with  d(#unaffiliated a la carte programmers could adversely impact the operation, financial condition, and  X- d(#market development of cable systems.n|18 {O -ԍSee Communications Act  612(c)(1), 47 U.S.C.  532(c)(1).n The highest implicit fee for a la carte services protects  d(#operators from this potential adverse effect because, unlike the average implicit fee, it represents  d(#the maximum amount that any a la carte programmer is implicitly paying for carriage. The  d(#Laverage implicit fee does not pose such a risk for tiered services because the actual subscriber  d(#revenue for individual channels is not known. Even if the actual subscriber revenue for a  d(#particular tiered service could be determined, a nonleased access programmer implicitly paying  d(#more than the average implicit fee would have little reason to switch to leased access because  d(#-subscriber revenue is not passed through to leased access programmers that are carried on a tier.  d(#Nonleased access programmers that are carried on a tier are unlikely to switch from an  d(#xarrangement where they receive a license fee to an arrangement where they pay the cable operator but receive no subscriber revenue.  X|-  251.` ` In addition, because in the a la carte context we are able to determine the actual  d(#subscriber revenue derived from particular programming services, we do not need to use the  d(# average implicit fee formula. Moreover, there can be no "double recovery" in the a la carte  d(#context because any subscriber revenues for a leased access channel carried as an a la carte  X - d(#service are readily ascertainable and can be passed through to the leased access programmer.Z}Z Z18 {O+!- d(#ԍSee NCTA Comments at 23 n.61 (there is no issue of double recovery with respect to the highest implicit fee  d(#formula for a la carte services); Cox Comments at 5 (operators do not retain the subscriber revenues for leased access channels carried on an a la carte basis).Z  d(#lIn order to protect against any over recovery, we will modify our rules to clarify that any  d(#-subscriber revenue from an a la carte leased access service must be passed through to the leased  d(#access programmer. As with the average implicit fee, we will require operators to include  d(#\affiliated a la carte services in their highest implicit fee calculation using the rules described" |},N(N(ZZ"  X- d(#above for determining programming costs for affiliated programming.~18 {Oy- d(#ԍSee Section II.B.2.c. (The inclusion of affiliated programming will prevent the occurrence of different maximum rates for essentially identical cable systems.). As discussed below in  d(#Section III.A.2, we will also make one modification regarding the calculation of the highest implicit fee for a la carte programming services.  V-` `  e.Proposals for a Flat Rate  Xv- B352.` ` We received a broad range of proposals from commenters suggesting that the  d(#maximum leased access rate should be a flat rate. Based on its cost of service, Continental  XH- d(#]suggests a maximum monthly flat rate per subscriber of $0.87 to $0.89.eH"18 {O -ԍSee Continental Comments at 23; Continental Reply at 4.e Adelphia, et al.  d(#[propose a minimum $1.00 monthly per subscriber rate for channel capacity on small systems to  X - d(#account for their higher air time costs relative to larger systems.R 18 {O-ԍSee Adelphia, et al. Comments at 19.R Paradise claims that a per  d(#subscriber monthly rate of $0.30 would be a reasonable maximum rate that would avoid complex  X - d(#accounting disputes and costly arbitration and litigation.H F18 {O-ԍSee Paradise Reply at 12.H By contrast, we received several  d(#proposals for a lower monthly per subscriber flat rate from ValueVision ($0.10), Telemiami  d(#k($0.01 to $0.05), Blab TV ($0.04 to $0.08), CBA ($0.03) and Broadcasting Systems ($0.0025 to  X -$0.03, depending on channel location).)$ 18 {O0- d(#ԍSee ValueVision Reply at 2526; Telemiami Comments at 1920; Blab TV Comments at 67; Blab TV Reply  d(#at 8; CBA Comments at 3; Broadcasting Systems Comments at 2. Several of these commenters argue that a higher  d(#xrate should only be allowed if a cable operator can demonstrate that the maximum rate would not cover its costs.  {O-See ValueVision Reply at 26; Telemiami Comments at 1920; Blab TV Comments at 67, Blab TV Reply at 89. )  Xy- 453.` ` The attractiveness of a flat rate is its simplicity. After carefully considering each  d(#?proposal for a flat rate, however, it is clear that the fundamental limitation with a flat rate  d(#approach is selecting a maximum rate that is appropriate for all cable systems. None of the  d(#=commenters provided sufficient empirical evidence demonstrating how their proposed flat rate  d(#-would promote the statutory objectives of diversity and competition, while also guarding against  X- d(#an adverse effect on cable systems' operation, financial condition, and market development. 18 yO{!- d(#<ԍSeveral commenters argue that leased access programmers provided no bases to support their proposed flat  {OC"-rates. See, e.g., NCTA Reply at 1011; TCI Reply at 7; SCBA Reply at 3; Time Warner Reply at 12. We therefore decline to adopt a flat rate approach.  X-  ",N(N(ZZ"Ԍ V- D">: a D">: ` `  f.Transition Period  X-` `  (1)hhCBackground  X- 554.` ` In the Further Notice, we asked whether operators should be required to implement  d(# the proposed cost/market rate formula immediately or whether a transition period would be  Xx- d(# D">: a D">: appropriate.Mx18 {O-ԍFurther Notice at paras. 9899.M At that time, we noted that when nonleased access programming is placed on a  d(#-channel designated for leased access, the operator and the programmer generally assume the risk  d(#that the programming may have to be displaced for a leased access programmer. We were  d(#concerned, however, that the Commission's immediate adoption of an entirely new formula might  d(#Lunduly penalize operators and programmers for decisions to use designated channels for non d(#leased access programming, when those decisions had been based on conditions created by the  X - d(#Commission's rules. We also wished to avoid any abrupt and unnecessary disruption to subscribers due to changes in programming lineups.  X - 655.` ` In the Further Notice, we tentatively concluded that the appropriateness of a  d(#transition period should depend on whether a cable system had any unused channel capacity (i.e.,  X}- d(#xdark channels).1}Z18 {O-ԍId.1 We tentatively concluded that a transition period would not be appropriate for:  d(#K(a)programmers already leasing channel capacity on a cable system and (b)programmers seeking  d(#xleased access on a cable system with unused channel capacity. On the other hand, if the operator  d(#would be forced to bump existing programming to accommodate a leased access request, we  d(#sought comment on whether transition relief might be appropriate. We asked commenters to  d(#explain how any proposed transition period would be consistent with the Commission's obligation to establish maximum reasonable rates for leased access.  X-` `  (2)hhCDiscussion  X-  P756.` ` We received numerous proposals regarding an appropriate transition mechanism,  X- d(#including: no transition period;%18 {O- d(#iԍSee Adirondack Comments at 4; Asiavision Comments at 2; Beach TV Comments at 2; CBA Comments at  d(#10; CME, et al. Comments at 30; Game Show Network Comments at 1518; Game Show Network Reply at 1920;  d(#YRK Production Comments at 11; Erwin Scala Comments at 3; Sherjan Comments at 3; Telemiami Comments at 15;  d(#ValueVision Comments at 1622; ValueVision Reply at 2628; VIPNA Comments at 1314; VIPNA Reply at 7; WBGNTV Comments at 23.% a multiyear transition period;18 {O#- d(#ԍSee, e.g., Visual Media Comments at 8 and Disney Reply at 67 (threeyear transition); Daniels, et al. Reply  d(#at 13 (fouryear transition); E!, et al. Comments at 7, Buckeye Comments at 910, and Lifetime Reply at 7 (fiveyear  yOa%- d(#transition); E!, et al. Reply at 67 (three to five year transition); Discovery Comments at 1314 (fiveyear transition  d(#if leased access programming duplicates programming already on the system); Outdoor Life, et al. Reply at 815 (six d(#year transition); Faith & Values Reply at 8, Liberty Sports Comments at 67, Liberty Sports Reply at 67,"&,N(N(&'"  d(#JInternational Channel Comments at 5, SCBA Comments at 2426, and TeleMedia Comments at 1215 (multiyear transition). a transition period that" ,N(N(ZZ"  X- d(#coincides with the expansion of channel capacity;0Z 18 {O- d(#ԍSee NCTA Comments at 28; ESPN Comments at 7; A&E, et al. Comments at 15, 5859; Lifetime Reply at  d(#w6; Outdoor Life, et al. Comments at 38; Rainbow Comments at 1113; Travel Channel Comments at 1619; Viacom Comments at 910. 0 a transition period that permits the cable  X- d(#operator to continue to charge the highest implicit fee if existing programming is bumped;B18 {O-ԍSee Adelphia, et al. Comments at 21; Travel Channel Comments at 1819; Viacom Reply at 5. and  d(#La transition period that prohibits bumping except upon expiration of the incumbent nonleased  X-access programmers' contracts. "18 {O@ - d(#ԍSee Continental Comments at 2931 (an average of four years before its carriage contracts expire); US West  d(# Comments at 1113, Encore Comments at 7, MPAA Comments at 7, and Travel Channel Comments at 1921 (multi d(#hyear transition based, in part, on length of programming licensing commitments); Intermedia/Armstrong Comments  yO-at 21 (existing leased access contracts should not be revised to account for a new rate method).   X- _857.` ` After careful consideration of the above proposals, we have decided not to adopt  Xv- d(#a transition mechanism. In the Rate Order, the Commission clearly stated that "the rules we  d(#adopt should be understood as a starting point that will need refinement both through the  XJ- d(#rulemaking process and as we address issues on a casebycase basis."$J 18 {O- d(#ԍRate Order, 8 FCC Rcd at 5936. In addition, the strong possibility that the Commission might change its  {O-maximum rate formula was clearly suggested in the Further Notice, which was released on March 29, 1996.$ Thus, we agree with  d(#commenters that argue that cable operators and nonleased access programmers have had ample  X - d(#notice that the rate formula was subject to change. 18 {O- d(#ԍSee Telemiami Comments at 15; VIPNA Comments at 13; Sherjan Comments at 3; ValueVision Comments at 1617; Game Show Network Comments at 1617. Both operators and programmers alike  d(#understand that a reduction in the maximum rate could increase the demand for leased access,  X -thereby increasing the possibility that bumping might occur.Z t18 {O- d(#ԍSee, e.g., NCTA Comments at 2; TCI Comments at i; ESPN Comments at 3; Time Warner Comments at 3;  d(#Travel Channel Comments at 6; Outdoor Life, et al. Comments at 2; CSPAN Reply at 45; Discovery Comments at ii.  X - o958.` ` We believe that operators and programmers that negotiate to place nonleased  d(#?access programming on a channel designated for leased access assume the risk that the  d(#programming might have to be bumped for a leased access programmer. Section 612 explicitly  d(#provides that operators may no longer use unused leased access capacity once a written agreement  Xd- d(#is obtained by a leased access programmer.dd18 yO%-ԍCommunications Act  612(b)(4), 47 U.S.C.  532(b)(4).d We do not believe that an operator's contractual"d&,N(N(ZZ"  X- d(#obligations with nonleased access programmers excuse it from its statutory obligation to  X-accommodate leased access programmers.C18 yOb- d(#hԍSeveral commenters asked the Commission to clarify that compliance with the leased access requirements does  {O*- d(#not entitle cable operators to abrogate existing programming contracts. See ESPN Comments at 8; Discovery  d(#Comments at 14; E!, et al. Comments at 67; MPAA Comments at 7; Lifetime Comments at 4; Lifetime Reply at  d(#x6; Viacom Comments at 67; Viacom Reply at 4. We decline to address this issue because it exceeds the scope of this proceeding.C  X- C.` ` PartTime Leased Access Programming and Maximum PartTime Rates (#`  W< ` ` 1. Background " X_- 2":59.` ` Under the Commission's rules, cable operators are required to accommodate part XH- d(#[time leased access requests, but need not accommodate requests of less than one half hour.Hz18 {Os- d(#;ԍReconsideration Order at para. 47. Two petitions for reconsideration were filed with regard to this rule; these petitions are addressed in Section III.C.  d(#With respect to rates for parttime leased access programming, the Commission's rules permit  d(#cable operators to charge different timeofday rates, provided that: (a) the total of the rates for  d(#a day's schedule (i.e., a 24hour block) does not exceed the maximum rate for one day of a full d(#time leased access channel prorated evenly from the monthly rate; (b) the overall pattern of time d(#ofday rates is otherwise reasonable; and (c) the timeofday rates are not intended to  X - d(# unreasonably limit leased access use.  18 {OC- d(#ԍId. at para. 44. In order to ensure that operators' parttime rates do not exceed the maximum rate, operators are required to establish a schedule of rates, or a rate card, for different times of the day.  We stated in the Reconsideration Order that this  d(#kapproach recognizes that different time slots have different values. In addition, timeofday  d(#pricing furthers the statutory goal of promoting diverse programming sources because  d(#programmers that could not afford rates based on uniform pro rata pricing may be able to afford  Xd- d(#Llower nonprime time rates.2d. 18 {OC-ԍId. 2 Making nonprime time slots less expensive, and therefore more  d(#attractive, to programmers may also help promote the maximum use of parttime leased access channels.  X- S;60. ` ` The Further Notice sought comment on a cable operator's obligation to  d(#accommodate a parttime leased access programmer by opening a new channel for leased access  d(#use, and on the calculation of maximum rates for parttime use. On the issue of accommodation,  X- d(#ithe Further Notice sought comment on whether there is any compelling reason to depart from the  X- d(#rule set forth in TV24 Sarasota, Inc. v. Comcast 18 {O!%-ԍTV24 Sarasota, Inc. v. Comcast, 10 FCC Rcd 3512, 3518 (Cable Serv. Bur., December 27, 1994).  that a cable operator is not required to open  X- d(#Zan additional channel for parttime leased access use if the operator can reasonably accommodate"R ,N(N(ZZ`"  d(#the leased access request by providing comparable time slots on an existing leased access  X- d(#channel.L18 {Oy-ԍFurther Notice at para. 124. L We tentatively concluded that where an operator cannot reasonably accommodate a  d(#request with an existing leased access channel, it should only be required to open an additional  X- d(#leased access channel if the programmer guarantees a minimum time increment of eight hours  X- d(#within a 24hour period.1q18 {O-ԍId.1 We also tentatively concluded that this rule should apply even when  X-a dark channel (i.e., activated but without programming) is available.?18 {OA -ԍId. at para. 125.?  X_- a<61.` ` In addition, the Further Notice requested comment on whether timeofday  d(#proration would be appropriate under our proposed cost/market rate formula, and if so, whether  d(#the restriction that the sum of the parttime rates for a 24hour time period total no more than  X - d(#the maximum daily rate would also be appropriate.? 18 {Ob-ԍId. at para. 102.? We also sought comment on whether an  d(#yentirely different method of calculating the maximum reasonable rate for parttime use would be  X -more appropriate under the cost/market rate formula.1 '18 {O-ԍId.1  W < ` ` 2. Discussion  X-` `  a.Accommodation of Requests for PartTime Leased Access  Xf- =62.` ` As an initial matter, we affirm our current rule requiring cable operators to lease  d(#time in halfhour increments. We recognize that parttime leasing is not expressly required by  d(#the statute, that it may impose additional administrative and other costs on cable operators, and  d(#.that it may pose the risk of capacity being underused. As noted above, if cable operators are  X - d(#not adequately compensated for their capacity, it may constitute a violation of Section 612.n 18 {Ot-ԍSee Communications Act  612(c)(1), 47 U.S.C.  532(c)(1).n  d(#!We also recognize, however, that the statute does not restrict leased access to fulltime  d(#programming and that parttime programming currently represents a significant share of the leased  d(#access marketplace, thereby providing much of the competition and diversity of programming  X- d(#{sources that Section 612 was intended to promote.IK 18 {O"-ԍSee Lorilei Comments at 13.I Therefore, rather than permit cable  d(#yoperators to exclude parttime leased access programming, we will permit cable operators to set  d(#reasonable limits on when and how parttime programming must be accommodated, as set forth below. "R ,N(N(ZZ?"Ԍ X-  }>63. ` ` First, we affirm the holding in TV24 Sarasota that a cable operator is not required  d(#to open an additional leased access channel if a programmer's request can be accommodated in  X- d(#-a comparable time slot on an existing leased access channel.tZ18 {OM- d(#.ԍSeveral commenters support the rule set forth in TV24 Sarasota. See Cox Comments at 25; Comcast  d(#Comments at 21; Adelphia, et al. Comments at 25; Multimedia/Susquehanna Comments at 7; Viacom Comments at 13; Lifetime Comments at 1112; Prime Radiant Comments at 9; E!, et al. Reply at 6. t We believe that the comparability  d(#jof time slots can be determined by a number of objective factors, such as day of the week, time  X- d(#of day, and audience share.18 {OA -ԍBut see RK Production Comments at 12 ("there are no comparable' time periods"). We also adopt our tentative conclusion that a cable operator should  d(#not be required to make even a dark channel available for leased access, so long as the  d(#0programmer's request can be accommodated in a comparable time slot on a programmed  Xa-channel.ca|18 {O -ԍSee Cox Comments at 26; Comcast Comments at 22.c  X3- &?64. ` ` In addition, we will extend TV24 Sarasota to permit a cable operator to  d(#accommodate a parttime leased access request by offering the programmer a comparable time  X - d(#slot on a channel otherwise carrying nonleased access programming." 18 {O- d(#iԍSee RK Production Comments at 1213 (it is not necessary to dislocate a fulltime programmer in order to  d(#-accommodate a parttime leased access request); Visual Media Comments at 9 (same as RK Production); Car TV  d(#hComments at 2 (placement on a wellestablished channel is preferable to placement on a newlyopened channel that is mostly dark). We believe that the  X - d(#above measures based on TV24 Sarasota will promote the statutory objectives of competition  d(#and diversity by providing parttime programmers with a reasonable opportunity to obtain  d(#\carriage, while protecting the operator, subscribers and existing programming services from  X - d(#unnecessary disruption. As we stated in the Further Notice, to require operators to disrupt  d(#Kexisting programming when adequate and comparable capacity is available on an existing channel  d(#would be incompatible with the statutory objective to promote diversity in a manner consistent  Xj-with the growth and development of cable systems.AZj 18 {O- d(#ԍFurther Notice at para. 124 (citing TV24 Sarasota, 10 FCC Rcd at 3518). See Faith & Values Comments  d(#at 7 (the phrase "adequate and comparable capacity" should be broadly construed to minimize disruption to existing programming).A  X<- A@65. ` ` Furthermore, we conclude that cable operators should not be required to open an  d(#additional channel for use by parttime leased access programmers until existing parttime leased  d(#-access channels are substantially filled with leased access programming. For these purposes, we  d(#zwill consider a channel to be "substantially filled" with leased access programming if leased  d(#access programming occupies 75% or more of its programming day. In other words, cable  d(#operators do not have to open a second channel for parttime use until the first parttime channel  d(#has at least 18 hours of programming every day. Likewise, a third channel for parttime use does"!,N(N(ZZp"  d(#not have to be made available until the second channel has at least 18 hours of programming every day, and so on.  X- A66.` ` Consistent with our tentative conclusion in the Further Notice, we will provide an  d(#exception to this rule and require operators to open an additional channel for parttime leased  d(#access use if a programmer (or collective) agrees to provide programming for a minimum of eight  Xx- d(#contiguous hours every day for at least one year.x18 {O- d(#ԍSee Further Notice at para. 124. See also Cox Comments at 2426 (eighthour minimum for at least a oneyear  d(#period should be required before an additional leased access channel must be opened); Comcast Comments at 2022  d(#(same as Cox); Daniels, et al. Comments at 22 (minimum lease term of one year should be required);  d(#Multimedia/Susquehanna Comments at 7 (minimum time commitment should be for at least eight hours a day);  d(#Adephia, et al. Comments at 25 (daily minimum time requirement should be for a certain number of days of the  d(#iweek and for a minimum number of weeks or months); Time Warner Reply at 20 (an eighthour requirement for  {O - d(#only one day a week would be unacceptable). But see Daniels, et al. Comments at 22 (minimum time commitment  d(#Zshould be 12 hours a day); Access TV Comments at 8 (daily minimum should be 12 hours); TCI Comments at 34  yO5- d(#(a daily minimum must be no lower than 18 hours); Adelphia, et al. Reply at 14 (minimum time requirement should  d(#-also apply to the opening of the first parttime leased access channel); Visual Media Comments at 9 (eighthour  yO-requirement should not be for every day).   The programmer may select any eighthour  Xa- d(#time period during the day, but the same eight hours must be used every day."Za, 18 {O>- d(#ԍBut see Daniels, et al. Comments at 22 (minimum time commitment should be between 11:00 am and 11:00  d(#xpm); Cox Comments at 25 (eighthour time span should include prime time); Comcast Comments at 21 (same as Cox)." Therefore, even  d(#if an operator has an existing parttime leased access channel that is not substantially filled with  d(#ileased access programming, the operator must open an additional parttime leased access channel  d(#if it cannot otherwise accommodate a programmer's request for a yearlong eighthour daily time  d(#slot. Once an operator has opened a vacant channel to accommodate such a request, our other  d(#leased access rules apply. If, however, the operator has accommodated such a request on a  d(#channel already carrying an existing fulltime nonleased access programmer, the operator does  d(#not have to accommodate other parttime requests of less than eight hours on that channel until  d(#zall other existing parttime leased access channels are substantially filled with leased access programming.  Xd- B67. ` ` By its nature, parttime programming poses a risk that channel capacity will not  d(#be fully used, and the cable operator may therefore be undercompensated if it is only paid for the  d(#Ktime programmed. We do not believe that we could assure that the operation, financial condition,  d(#Zor market development of cable systems would not be adversely affected were we to require cable  d(#operators to open additional channels for parttime programming without the limitations set forth  X- d(#!above.nN 18 {O#-ԍSee Communications Act  612(c)(1), 47 U.S.C.  532(c)(1).n The possibility of adverse effect would be especially likely if several fulltime  d(#programming services highly valued by subscribers were frequently disrupted by intermittent part"",N(N(ZZr"ԫ X- d(#time leased access use.R18 {Oy- d(#ԍSee, e.g., CSPAN Comments at 9 (describing how their networks have been "swiss cheesed" by parttime  d(#<leased access programming); NCTA Reply at 2122. A number of commenters argue that a fulltime nonleased  {O - d(#;access programmer should never be displaced for parttime leased access usage. See Eternal Word Comments at 12 d(#,13; A&E, et al. Comments at 60; Outdoor Life, et al. Comments at 3033; TCI Comments at 3334; Encore Reply  d(#Yat 10; International Channel Reply at 8; Liberty Sports Reply at 7; A&E, et al. Reply at 11; NCTA Reply at 2122;  {Oe- d(#,See also Faith & Values Comments at 7 (parttime leased access programmers should be required to lease a fulltime  {O/- d(#channel if their requests would bump existing programmers). But see VIPNA Comments at 14 (until the setaside  d(#is filled, operators should be required to open any channel designated for leased access); Lorilei Comments at 14  d(#(when a parttime request cannot be accommodated within one hour of the time requested, the operator should be required to open a new leased access channel if the request is for at least a 13week period).R We believe that an exception for a yearlong eighthour daily time slot  d(#yis reasonable because the length and regularity of the required time commitment does not pose  X- d(#similar risks. h 18 yO - d(#ԍAccess TV argues that the Commission should restrict the amount of repetitive programming that leased access  d(#programmers can provide during the minimum time required for opening an additional channel. Access TV  d(#Comments at 8. TCI argues that the Commission should generally require that leased access programming not be  d(#,repeated more than twice in one week, and that each month at least 50% of the total programming offered must be  {O - d(#nonrepetitive. TCI Comments at 3435. See also U S West Reply at 12 (supporting proposals of Access TV and  d(#TCI). We decline to restrict the amount of repetitive leased access programming. We agree with VIPNA that leased  d(#access programmers have an incentive to provide nonrepetitive programming in order to maximize its appeal to  {Oe- d(#isubscribers. See VIPNA Reply at 45. In addition, we believe that there are potential leased access programmers (e.g., tourist channels) for which a certain amount of repetition is an important element of their service. As we stated in the Further Notice, "there may be circumstances in which  d(#substantially greater harm to subscribers, the operator, and the nonleased access programmer may  d(#\result if the leased access request is accommodated than would result for the leased access  X- d(#Zprogrammer if the leased access request is not accommodated."J<18 {O|-ԍFurther Notice at para. 124.J If and when digital technology  d(#causes a dramatic increase in cable systems' available capacity, we may revisit the above conclusions.  X3- C68.` ` Parttime programmers are permitted to seek access on a collective basis. If part d(#time programmers request an entire channel on a collective basis, the operator must provide the  d(#channel regardless of any unused capacity on parttime leased access channels because we would  d(#not consider that a request for parttime programming. Similarly, parttime programmers that  d(#individually cannot meet the yearlong eighthour daily time commitment may demand access as  X - d(#a group in order to satisfy the requirement.Z 18 yO?!- d(#ԍWe believe at this time, however, that it would be unduly burdensome to require cable operators to maintain  d(#records identifying which programmers are denied access so that parttime programmers can more easily organize  {O"-a collective demand for access. But see Visual Media Comments at 9 (proposing such a recordkeeping rule).  Allowing collective requests will not impose any  d(#further burden on cable operators since the same request could have been made by an individual programmer.  Xd- D69. ` ` To summarize, we will modify our rules regarding parttime leased access  d(#programming as follows. Cable operators may accommodate parttime leased access requests by"M#,N(N(ZZ+"  d(#providing comparable time slots on nonleased access channels or on channels already being used  d(#for leased access on a parttime basis. Cable operators will not be required to make an additional  d(#channel available for parttime leased access use until all other parttime leased access channels  d(#=have at least 18 hours of leased access programming every day. So long as an operator has at  d(#least one channel designated for parttime leased access use that is not substantially filled by part d(#time programmers, the operator will not be required to open another parttime channel even if  d(#comparable time slots are no longer available on the parttime channel that is only partially  d(#programmed. However, if a leased access programmer (or collective) agrees, at a minimum, to  d(#provide programming during the same eighthour time slot every day for at least one year, an  d(#operator will be required to accommodate the request even if an existing parttime leased access  d(#xchannel is not substantially filled with leased access programming. We believe that this approach  d(#achieves the statutory objectives of competition and diversity of programming sources, while  X -doing so in a manner consistent with the growth and development of cable systems.n 18 {Oe -ԍSee Communications Act  612(a)(1), 47 U.S.C.  532(a)(1).n  X -  V -` `  b.Maximum PartTime Rates  X- PE70.` ` Because we are not adopting the proposed cost/market rate formula, and because  d(#the formulas for tiered and a la carte fulltime services that we are adopting are similar in kind  d(#to the existing approach for setting the maximum fulltime leased access rate, we affirm our  d(#decision to require that cable operators prorate their maximum fulltime rate when determining  d(#their maximum permitted parttime rate, and to allow operators to adjust parttime rates according  X- d(#Kto timeofday pricing. As we stated in the Reconsideration Order, we believe that this approach  d(#accounts for marketplace realities by recognizing that different time slots have different value,  d(#jfurthers the statutory goal of promoting a diversity of programming sources, and promotes the  d(#full use of leased access channels by making nonprime time slots less expensive than primetime  d(#[slots, and therefore more attractive, to programmers. We will permit cable operators to recover  d(#any additional technical costs that are attributable to parttime leased access programming in accordance with the rules we adopt in Section II.K. below.  Xg- nF71. ` ` Various commenters argue that the Commission should also allow cable operators  XP- d(#Lto impose a surcharge for parttime leased access use.~PZ18 {O[- d(#ԍSee, e.g., TCI Comments at 32; Intermedia/Armstrong Reply at 14; US West Comments at 10; Continental  {O% - d(#Comments at 29; Encore Comments at 8; Faith & Values Comments at 7; Liberty Sports Comments at 7. See also  d(#Penn. Cable Network Comments at 6 ("fragmentary use of a channel no matter how small severely discounts  d(#the value of the channel for optimum usage"); Daniels, et al. Comments at 21 and Time Warner Reply at 19 (the  {O"- d(#Jcosts of dealing with many parttime programmers exceed those associated with one 24hour programmer). But see  d(#WBGNTV Comments at 3 (parttime rates should not be more than 15% higher than the adjusted fulltime rate); CME, et al. Comments at 27 (parttime rates for a 24hour period should not exceed the maximum reasonable rate).  Specifically, some commenters argue  d(#Kthat a surcharge would account for the likelihood of programming "gaps" and unused time on the  d(#channel, or, to the extent the operator continues to use the remainder of the channel, the damage""$,N(N(ZZ\"  X- d(#to its fulltime programming of being "swiss cheesed" by parttime programming.D18 {Oy- d(#ԍSee Cox Comments at 22, 24 ("Parttime programmers' demands for distinct time slots almost invariably result  d(#in some gaps' in the programming day, time for which the cable operator receives no compensation."); Comcast  d(#Comments at 1516 (it is axiomatic that businesses that are concerned about "vacancies" and unused inventory such  {O- d(#<as hotels and car rental agencies will charge higher rates for shorter leases). See also CSPAN Comments at 9  d(#Z(describing how its prime time programming has been "swiss cheesed" by leased access; on one system, two hours  d(#-of its prime time programming were preempted for a real estate agency's "showcase of homes" program, and on  d(#another system its programming was bumped for a variety of commercial programming, including a local home shopping service). Commenters  d(#also argue that our current rules do not account for the full impact of parttime programming on  X- d(#.the value of the remaining channel time available to the operator.N18 {OW - d(#ԍSee TCI Comments at 3032 (arguing that the current formula does not compensate operators for the value  d(#of the time used, or the costs incurred when existing programming is displaced by sporadic and potentially  {O - d(#inconsistent or offensive programming); Intermedia/Armstrong Reply at 13 (same). See also NCTA Comments at  d(#32 (parttime leased access rates must adequately compensate operators for the loss of their ability to program a fulltime channel).N Finally, some commenters  d(#submit that when cable operators are required to accommodate parttime leased access requests,  d(#the value of the remaining channel time decreases because: (a) a majority of cable programmers  d(#seek only fulltime carriage on cable systems and have no interest in sharing channel space, (b)  d(#preemption of current programming results in subscriber confusion, and (c) leased access  d(#1programming that is incompatible with existing programming can result in the loss of  XH-subscribers.oH 18 {O-ԍSee TCI Comments at 31; Intermedia/Armstrong Reply at 13.  o  X - `G72.` ` We do not believe that application of a surcharge for parttime programming is  d(#appropriate. First, we believe that the current record contains insufficient evidence to support any  d(#particular surcharge. For example, TCI proposes that the Commission apply a 10% surcharge  d(#yon parttime programmers for every hour in a day that is not programmed (e.g., if only one hour  X - d(#a day is programmed, the surcharge would be 230%). 18 {O-ԍTCI Comments at 32.  See also Intermedia/Armstrong Reply at 14 (supporting TCI's proposal). TCI does not, however, indicate how  d(#it arrived at its 10% figure, and, more importantly, TCI's proposal would allow operators to  d(#recover more than the maximum rate for a fulltime channel when a channel has more than 10  d(#Lhours and less than 24 hours of programming per day. For example, because the surcharge for  d(#{14 hours of programming per day would be 100% (10% surcharge for each of the 10 non d(#=programmed hours on the channel), an operator could charge the equivalent of 28 hours a day for the channel.  X- H73.` ` In addition, we believe that with timeofday pricing and the conditions we have  d(#placed on the amount of parttime programming that must be accommodated, the financial impact  d(#of parttime programming on cable operators should be minimal, making any surcharge  d(#iunnecessary to adequately compensate cable operators as required by Section 612. According to  d(#our rules, operators will not be required to open additional channels for parttime leased access"%,N(N(ZZR"  d(#kuse (unless the request is for a yearlong eighthour daily time slot that the operator cannot  d(#jotherwise accommodate) until all other parttime leased access channels are substantially filled  d(#with leased access programming. Thus, potential disruption to fulltime programming and the  d(#problem of unused channel capacity will be limited. Timeof day pricing should also encourage the full use of parttime leased access channels and thus limit unused capacity.  Xv- DI74.` ` We reject several other proposals made by commenters. First, we reject  d(# Continental's proposal that the first parttime programmer must pay for the full value of the  XH- d(#channel, with its ratable share decreasing as more parttime programmers are added.lH18 {O -ԍContinental Comments at 29. See also US West Comments at 10.l In  d(#0addition to virtually ensuring that the rate to the first parttime programmer would be so  d(#xprohibitive that none ever appears, we believe that Continental overstates the impact on the value of the channel when the first parttime programmer obtains carriage.  X - J75. ` ` We also reject the suggestion of several commenters that parttime programmers  d(#]should pay for any dark portion of a leased access channel that is available for parttime  X - d(#\programming after parttime channel capacity has been leased. Z18 {O-ԍSee Liberty Sports Comments at 7; Faith & Values Comments at 7; Encore Comments at 8. Such a requirement could  X- d(#significantly discourage the use of leased access by parttime programmers."18 {O-- d(#ԍSee, e.g., Buckeye Comments at 12 ("[M]uch of the successful leased access usage on our system involves part d(#;time lessees rather than entities programming a full channel. . . . Thus far, we have been able to schedule such part d(#htime use so as to satisfy programmers' desire to reach certain audiences while making efficient use of limited channel capacity."). In addition, as  d(#Kdescribed below, we will permit the resale of leased access capacity, which may result in channels  Xb- d(#being more fully leased.?b18 {O-ԍSee Section II.D.? Resale will relieve operators of the cost and administrative burden  d(#of dealing with parttime programmers on such channels, while potentially assisting parttime programmers in obtaining carriage.  X- 3K76. ` ` Finally, we disagree with those commenters that propose that parttime leased  d(#access rates should be deregulated due to the existence of, or similarity to, commercial  X- d(#.advertising.$h 18 {O - d(#ԍSee Continental Comments at 27 (arguing that cable operators have no undue market power over advertising  d(#rates in markets where they face competition from local television broadcast stations and other video service  {O"- d(#providers); Intermedia/Armstrong Reply at 14 (same). See also Comcast Comments at 1617; Access TV Comments at 67. Commercial advertisers on cable systems are able to obtain carriage only at the  d(#sufferance of the cable operator; leased access, by contrast, is designed to afford carriage to those  d(#programmers that the cable operator, for whatever reason, may choose not to carry on its"&T ,N(N(ZZp"  X- d(#system.?18 {Oy-ԍSee Section II.A.? Deregulation of parttime leased access rates would afford parttime programmers no  X-protection at all against unreasonable rates, and we therefore decline to adopt the proposal.  X- D.` ` Resale of Leased Access Time#Xj\  P6G;9XP#  X-  W<` ` 1. Background   X_- L77.` ` In the Further Notice, we asked whether persons unaffiliated with the operator  d(#should be allowed to lease programming time from the operator and then sell it for a profit to  X3- d(#other unaffiliated persons.J3Z18 {O> -ԍFurther Notice at para. 141.J We sought comment on whether this type of resale service would  d(#benefit programmers by reducing transaction costs or by offering alternative ways for  X - d(#programmers to package their services.1 18 {O-ԍId.1 We expressed concern, however, that enabling resellers  d(#to charge unregulated rates for leased access time may conflict with the Commission's statutory  X - d(#xmandate to establish maximum leased access rates.1 ~18 {O-ԍId.1 We also asked whether an exception should  d(#apply for notforprofit leased access programmers, if the Commission were to prohibit the resale  X -of leased access time.1 18 {Oj-ԍId.1  W{<` ` 2. Discussion   XM- `M78.` ` Consistent with our authority to establish reasonable terms and conditions for  X6- d(#[leased access use,r618 yO-ԍCommunications Act  612(b)(4)(A)(ii), 47 U.S.C.  532(b)(4)(A)(ii).r we find that it would be unreasonable for an operator to prohibit a leased  d(#[access programmer from reselling leased access capacity to other persons unaffiliated with the  X- d(#{operator.2 18 yO- d(#.ԍIn the leased access context, we assume that what we call "resale" will in fact more closely resemble an  d(#Karrangement between a lessee and a sublessee than an actual "sale" of channel capacity because the entity leasing  d(#access from a cable operator does not actually "own" the channel capacity. We also reiterate our statement in the  {OC"- d(#Further Notice that the sale of traditional advertising time by leased access programmers does not qualify as resale  {O #-of leased access time. See Further Notice at para. 141. We note, as an initial matter, that resale is not a foreign concept in the cable  d(#industry. The record indicates that companies such as Access TV already make a business out  X-of reselling remnant time on cable systems.B18 yOq&-ԍAccess TV Comments at 13.B "'v,N(N(ZZ"Ԍ X- N79. ` ` We conclude that resale of leased access capacity to persons unaffiliated with the  d(#.operator should be permitted, subject to certain contractual conditions described below that a  d(#=cable operator may reasonably impose, because we believe that resale can provide substantial  X- d(#Mbenefits to leased access programmers without an adverse impact on cable operators.18 {O4-ԍSee ValueVision Reply at 3133; Telemiami Comments at 24; Telemiami Reply at 2526. In  X- d(#\particular, we believe that small and parttime programmers could benefit from resale.Z18 {O- d(#ԍSee, e.g., Blab TV Comments at 1314; ValueVision Reply at 3133; Telemiami Comments at 24; Telemiami Reply at 2526. For  d(#.instance, a reseller could bring together various parttime programmers to form a programming  Xv- d(#=package for an entire channel.Mv18 {O -ԍSee ValueVision Reply at 3233.M This service would not only relieve operators of much of the  X_- d(#\cost and burden of dealing with a large number of small programmers,e_F18 {OV-ԍSee Telemiami Reply at 26; Prime Radiant Comments at 9.e but would be more  d(#efficient, since a reseller's business would be devoted to this goal while cable operators typically  X1- d(#.devote little or no staff to promoting leased access.A118 yO-ԍTelemiami Comments at 24.A We believe that resale may prove to be  X -a crucial mechanism by which parttime programmers are able to obtain carriage.,$ h 18 {O3- d(#ԍSee, e.g., ValueVision Reply at 3133 (arguing that resale may be the only financially feasible means by which  {O- d(#small unaffiliated programmers can acquire small increments of time). But see Faith & Values Comments at 7  d(#(resale is unnecessary since operators are required to provide leased access in minimal time increments); Encore Comments at 8 n.3 (the requirement to lease access in minimal time increments obviates any need for resale).,  X - 2O80.` ` We are not persuaded that resale poses the dangers raised by some commenters.  X - d(#First, we disagree with those commenters that argue that resellers will charge excessive rates,| T 18 {O- d(#ԍSee NCTA Comments at 33 (resale would "force operators to give away channel capacity to middlemen, who  yO- d(#ican then turn around and profit on the use of that capacity"); Daniels, et al. Comments at 24 ("[r]esale will only  d(#iinvite profiteering by unnecessary middle men which will certainly increase leased access rates"); TCI Comments  d(#at 38 (resale "will not promote diverse programming sources, but will promote profit taking by leased access users  d(#kat the expense of the cable operator"); Visual Media Comments at 10 (resale would encourage speculative  {O- d(#Kprofiteering). But see Access TV Comments at 810 (resale of subsidized leased access capacity at belowmarket rates would unfairly disadvantage resellers of nonleased access capacity).ք  d(#or that the Commission would be violating its obligations under Section 612 if leased access  d(#zprogrammers are permitted to purchase time from a reseller at higher rates than the maximum  X- d(#rate established by the Commission.18 {O#- d(# ԍSee NCTA Comments at 33; Time Warner Reply at 17; Comcast Comments at 2223; Cox Comments at 3031; Adelphia, et al. Comments at 2728; Adelphia, et al. Reply at 19. Unlike a cable operator that may use unused leased access  d(#capacity for its own programming, a reseller unaffiliated with a cable operator does not have the"y(,N(N(ZZ"  X- d(#incentive or ability to discourage leased access by charging unaffordable rates.S\18 {Oy- d(#ԍSee ValueVision Reply at 32 n.99 (resellers unaffiliated with cable operators would have little incentive to  {OC- d(#resell capacity at unaffordable rates). See also Asiavision Comments at 2 (resellers should be allowed to charge market rates).S Because a  d(#reseller needs to attract leased access users, we believe that a payment exceeding our maximum  X-rate will reflect the reasonable value added by the reseller. 18 {Oo- d(#ԍBut see Comcast Comments at 2223 (resale at rates above the maximum would eliminate the benefits intended  d(#for leased access programmers and would improperly subsidize resellers); Cox Comments at 30 (same as Comcast);  d(#TeleMedia of Delaware Comments at 15 (unregulated resale rates would defeat the purpose of a rate formula); CME,  d(#et al. Comments at 2829 (by reselling limited leased access capacity at unregulated rates, resellers would be able  d(#to circumvent maximum leased access rates in violation of the Commission's mandate); Time Warner Reply at 18  d(#(since the reseller's markup would be unregulated, the availability of leased access capacity at regulated rates would  d(#Ybe unnecessarily decreased); Lorilei Comments at 16 (allowing a few resellers to control leased access capacity would  d(#block fair access for leased access programmers); U S West Comments at 13 (resale would "encourage brokering of prime leased access space and result in less choice for smaller programmers").  X- P81.` ` Second, we do not agree that resale would prevent cable operators from exercising  d(#their discretion under Section 612(c)(2) to consider "content to the minimum extent necessary to  Xv- d(#establish a reasonable price" for leased access.v 18 {O- d(#xԍCommunications Act  612(c)(2), 47 U.S.C.  532(c)(2). But see TCI Comments at 38; NCTA Comments at 33; Daniels, et al. Comments at 24; Time Warner Reply at 18. NCTA and TCI argue that allowing resale  d(#would ensure that operators would not enter into contracts for rates lower than the maximum  XH- d(#ypermitted by the Commission's rules.PH18 yO-ԍNCTA Comments at 33; TCI Comments at 38.P For instance, NCTA contends that an operator "would  d(#be loathe to enter into an agreement with a nonprofit organization for less than the maximum  X - d(#yrate if that organization were able to then sell its rights to the channel to the highest bidder."< 18 yOs-ԍNCTA Comments at 33.<  d(#To avoid discouraging cable operators from providing carriage to notforprofit entities and others  d(#at reduced rates, we find that it would be a reasonable term or condition of carriage for a cable  d(#Koperator to provide that if the lessee resells its capacity, the lessee must start paying the operator  X -at a rate which may be up to and including the maximum permissible rate. 818 {O- d(#ԍAs mentioned above, we asked in the Further Notice whether notforprofit leased access programmers should  {Oq - d(#be permitted to resell leased access capacity if the Commission otherwise prohibited resale. See Further Notice at  d(#para. 141. Because we permit resale generally, we need not consider whether a specific exception should be created  {O"- d(#for notforprofit leased access programmers. We note that Visual Media opposed an exception for notforprofit  {O"-programmers. See Visual Media Comments at 10. " ),N(N(ZZ "Ԍ X- Q82.` ` Third, we do not believe that resale would interfere with a cable operator's  X- d(#Ldiscretion to refuse to transmit programming containing obscenity or indecency.18 {Ob- d(#ԍTCI Comments at 38; Adelphia, et al. Reply at 19. See Communications Act 612(c)(2), 47 U.S.C. 532(c)(2). The cable  d(#operator's right to refuse to transmit such programming applies to any leased access program or  d(#portion of a leased access program, regardless of whether the programmer purchased leased access  d(#=capacity directly from the cable operator or through a reseller. Moreover, cable operators may  d(#provide in their leased access contracts that any sublessees are subject to the nonprice terms and  Xv-conditions that apply to the initial lessee.v"18 {OI - d(#ԍBut see U S West Comments at 13 (a sublessee may be able to circumvent the terms and conditions that bind the lessee).  X_-  XH- E.` ` Tier and Channel Placement  W <` ` 1. Background  X - R83. ` ` According to the legislative history of the 1992 amendments to Section 612, the  d(#jpurpose of leased access would be defeated if leased access programmers were placed on tiers  X - d(#ithat few subscribers access.A |18 yO-ԍ1992 Senate Report at 79.A The 1992 Senate Report states that "[t]he FCC should ensure that  d(#[leased access] programmers are carried on channel locations that most subscribers actually  X- d(#use."1 18 {OM-ԍId.1 It further states that "it is vital that the FCC use its authority to ensure that these  Xy-channels are a genuine outlet for programmers."1y18 {O-ԍId.1  XK- S84.` ` In the Further Notice, the Commission tentatively concluded that leased access  d(#programmers are entitled to placement either on the BST or on the CPST with the highest  d(#{subscriber penetration, unless technical or other compelling reasons weigh against such  X- d(#placement.O0 18 {O-ԍFurther Notice at paras. 118119.O We reasoned that the BST and the CPST with the highest subscriber penetration  X- d(#Jqualify as "genuine outlets" because "most subscribers actually use" them.? 18 {Od"-ԍId. at para. 119.? We sought comment  d(#on whether the term "most subscribers" should be interpreted to mean that any CPST that has a  X-subscriber penetration of more than 50% should also qualify as a "genuine outlet."1T 18 {O%-ԍId.1 "*,N(N(ZZ"Ԍ W<` ` 2. Discussion  X-  T85.` ` As stated in the Further Notice, we believe that we must ensure a "genuine outlet"  d(#for leased access programming in order to further the statutory goals of competition in the  d(#delivery of video programming sources and diversity of programming sources. To that end, we  X- d(#affirm our tentative conclusion that, absent a technical or other compelling reason,iX18 yO- d(#ԍFor example, to ease technical burdens, a cable operator may place a leased access channel that it is required  d(#wor permitted to scramble or trap out (such as channels that are devoted primarily to sexuallyoriented programming) with other programming that is also scrambled or trapped out.i leased access  Xx- d(#programmers have the right to demand access to a tier that most subscribers actually use. x18 {O - d(#xԍSee 1992 Senate Report at 79. See also Adelphia, et al. Comments at 2425; Telemiami Comments at 23; CME, et al. Comments at 26; CME, et al. Reply at 2223; ValueVision Reply at 29; WEVULP Comments at 2.   d(#Leased access programmers would not be assured access to most subscribers if cable operators  d(#were permitted to require leased access channels to be sold on an individual, or a la carte,  X3- d(#basis.\3B18 {O&- d(#ԍFurther Notice at para. 118. We therefore disagree with Daniels, et al. and Lifetime that cable operators  d(#should be permitted to force leased access programming onto channels that subscribers must purchase on an a la carte  {O-basis. See Daniels, et al. Comments at 20; Lifetime Comments at 10.  As discussed above, the value of being carried on a tier is accounted for in the average  X -implicit fee formula we are adopting for tiered services.C f 18 {O3-ԍSee Section II.B.2.c.C  X - U86.` ` Although we continue to believe that the BST and the CPST with the highest  X - d(#<subscriber penetration qualify as genuine outlets,0X 18 yO- d(#ԍAdelphia, et al. Comments at 24; Game Show Network Comments at 22; Telemiami Comments at 23;  d(#ValueVision Comments at 23 (all supporting placement of leased access channels on the BST or CPST with the highest subscriber penetration).0 we do not think it is necessary to restrict the  d(#placement of leased access programming to only those tiers. We believe that any tier with a  d(#[subscriber penetration over 50% should also qualify as a genuine outlet because it consists of  X- d(#!channel locations that "most subscribers actually use."18 {O[- d(#ԍBut see CME, et al. Comments at 26 (CPSTs should not qualify as genuine outlets unless they have a 90% or greater subscriber penetration). Therefore, if a leased access  d(#yprogrammer requests placement on a tier, we will allow the cable operator the flexibility to place  d(#Kthe programming on any tier that has a subscriber penetration of more than 50%. We believe that  d(#-this approach takes into account the "legitimate need of the cable operator to market its product"  X6- d(#kbecause it allows the operator to consider the marketing mix of different tiers.K6r18 {OY$-ԍSee 1992 Senate Report at 79.K The record  d(#reflects that some commenters would favor placing leased access channels on a separate tier"+,N(N(ZZV"  X- d(#.comprised primarily, if not exclusively, of leased access programming.o18 yOy-ԍEncore Comments at 6; ESPN Comments at 9; Liberty Sports Comments at 6.o We conclude that so  d(#>long as such a tier has a subscriber penetration of more than 50%, the cable operator is not precluded from developing a tier that predominantly features leased access programming.  X- AV87.` ` We disagree with commenters that argue that the Commission should not impose  d(#ktier placement requirements since the Communications Act does not specifically require tier  Xv- d(#zplacement.XvX18 yO - d(#YԍDaniels, et al. Comments at 19; NCTA Comments at 29; Rainbow Comments at 13; TCI Comments at 2123;  d(#Travel Channel Comments at 22; Turner, et al. Comments at 10; Viacom Comments at 11; Time Warner Reply at 2627.  As described above, the legislative history supports a right to tier placement.  d(#Furthermore, the Communications Act authorizes the Commission to establish reasonable terms  XH- d(#and conditions for leased access.NXHx18 yOq- d(#ԍCommunications Act  612(c)(4)(A), 47 U.S.C.  532(c)(4)(A). The legislative history of Section 612 states  d(#that the "FCC is given broad discretion in establishing the maximum reasonable rate and reasonable terms and conditions." 1992 Senate Report at 79.N We believe that tier placement for leased access channels is  d(#a reasonable requirement that will promote the statutory goals of leased access by allowing leased  d(#[access programming to reach the majority of subscribers of a cable system, in accordance with Congress' intent.  X -  W88.` ` We therefore no longer believe that the issue of tier placement should be left solely  d(#to negotiation between the leased access programmer and the cable operator, as under our current  X - d(#rules.-Z 18 {O- d(#ԍRate Order, 8 FCC Rcd at 59395940. But see NCTA Reply at 16; Discovery Comments at 15; E!, et al.  d(#YComments at 7; Multimedia/Susquehanna Comments at 7; Turner, et al. Comments at 10; Outdoor Life, et al. Reply at 25.- That approach failed to account for the possibility that an operator might attempt to  d(#discourage leased access by placing leased access programming on unfavorable tiers if it competes  d(#with programming chosen by the operator. We disagree with commenters that argue that a right  d(#to tier placement provides leased access programmers with the benefits of tier placement without  XK- d(#compensating the operatorK 18 yO- d(#ԍDaniels, et al. Comments at 20; Lifetime Comments at 11; TCI Comments at 2425; Viacom Comments at 1112; USA Networks Comments at 23. and does not allow a cable operator to adjust the placement of  X4- d(#=programming for maximum subscriber appeal.y418 yO!-ԍTime Warner Comments at 18; Turner, et al. Comments at 10; Viacom Comments at 11.y Cable operators are adequately compensated  d(#]for the value associated with such tier placement under the maximum rate formula we are  X- d(#Kadopting,C18 {OY%-ԍSee Section II.B.2.c.C and the tier placement requirements we are adopting afford cable operators sufficient  d(#Lflexibility to determine the placement of leased access programming for the greatest subscriber appeal. ",4,N(N(ZZ"Ԍ X- ԙX89.` ` With regard to specific channel placement, we believe that the cable operator  d(#should have the discretion to select the channel location of a leased access channel, so long as  X- d(#-the operator's choice is reasonable.Z18 {OK-ԍBut see Game Show Network Comments at 1921.Z Because a determination of reasonable channel placement  d(#will depend on the particular circumstances of a situation, we will evaluate these types of disputes  d(#on a casebycase basis. We will take into consideration evidence that the operator deliberately  d(#interfered with potential viewership of the leased access programming in an effort to discourage  d(#Kcontinued carriage (e.g., by intentionally surrounding a leased access channel with dark channels  d(#jor by frequently shifting its channel location without sufficient justification). We do not agree  d(#with Lorilei that an operator should be required to space leased access channels evenly throughout  X1- d(#its system.>1Z18 yO< -ԍLorilei Comments at 9.> Once a cable operator has provided leased access programmers with a genuine  d(#outlet, we do not believe it is necessary to interfere with that operator's ability to structure  d(#channel lineups. Therefore, although a leased access programmer may demand access to a tier  d(#that has a subscribership of more than 50%, the cable operator is entitled to place the leased access programming on any reasonable channel location on any qualifying tier.  X - _F.` ` Minority and Educational Programmers  Wy<` ` 1. Background  XK- Y90.` ` Pursuant to Section 612(i), a cable operator may substitute programming from a  d(#qualified minority or educational programming source for up to 33% of its designated leased  X- d(#_access channels.V18 yO- d(#wԍCommunications Act  612(i), 47 U.S.C.  532(i). Section 612(i)(2) defines a qualified minority programming  d(#source as one that "devotes substantially all of its programming to coverage of minority viewpoints, or to  d(#programming directed at members of minority groups, and which is over 50 percent minorityowned, as the term  d(#'minority' is defined in Section 309(i)(3)(C)(ii)" of the Communications Act. Communications Act  612(i)(2), 47  yO- d(#U.S.C.  532(i)(2). Section 309(i)(3)(C)(ii) identifies Blacks, Hispanics, American Indians, Alaska Natives, Asians  yO- d(#and Pacific Islanders as minority groups. Communications Act  309(i)(3)(C)(ii), 47 U.S.C.  309(i)(3)(C)(ii).  d(#Section 612(i)(3) defines a qualified educational programming source as one that "devotes substantially all of its  d(#programming to educational or instructional programming that promotes public understanding of mathematics, the  d(#sciences, the humanities, and the arts and has a documented annual expenditure on programming exceeding  yO-$15,000,000." Communications Act  612(i)(3), 47 U.S.C.  532(i)(3).V In the Further Notice, the Commission sought comment on whether leased  d(# access requirements regarding tier and channel placement should also apply to minority or  X- d(#educational programming that is used as a substitute for leased access programming.J 18 {O$#-ԍFurther Notice at para. 132.J The  d(#Commission tentatively concluded that minority or educational programming should not qualify  d(#as a substitute for leased access programming unless it is carried on the BST or on a CPST that  X-qualifies as a genuine outlet.118 {Oq'-ԍId.1 "-,N(N(ZZa"Ԍ W<ԙ` `  2. Discussion   X- AZ91.` ` Applying the same tier placement standard we are adopting for leased access, we  d(#conclude that minority or educational programming will not qualify as a substitute for leased  d(#jaccess programming unless it is carried on a tier that has a subscriber penetration of more than  X- d(#50%.6$18 {O- d(#ԍSee Section II.E.  See also CME, et al. Comments at 2930; VIPNA Comments at 1415. In response to  d(#comments by Lorilei and Prime Radiant opposing the establishment of special programming categories based on race  d(#or programming content, we note that Section 612(i) specifically allows minority or educational programming to  {O` -serve as a substitute for leased access programming. See Lorilei Comments at 14; Prime Radiant Comments at 10. 6 The cable operator may select which qualifying tier to use for the substituted  Xv- d(#programming. As we noted in the Further Notice, neither the statute nor the legislative history  d(#specifically requires that most subscribers receive the substituted minority or educational  XJ- d(#Lprogramming.JJ18 {O -ԍFurther Notice at para. 132.J However, as we previously stated, the language of Section 612(i)(1) strongly  d(#=suggests that Congress envisioned that any substituted minority or educational programming  X - d(#0would be placed on the same channels that would have been used for leased access.1 F18 {O-ԍId.1  d(#Specifically, Section 612(i)(1) states that "a cable operator required by this section to designate  X - d(#channel capacity for commercial use may use any such channel capacity" to provide minority or  X - d(#educational programming.u 18 yOb-ԍCommunications Act612(i)(1), 47 U.S.C.532(i)(1) (emphasis added).u Furthermore, to allow a more lenient standard for minority or  d(#=educational programming could potentially diminish its value as a substitute for leased access  d(#programming. We will therefore impose the same tier and channel placement requirements on substitute minority or educational programming as we do on leased access programming.  Xf- G.` ` Preferential Access  W8<` ` 1. Background   X - [92.` ` In the Further Notice, we asked whether preferential treatment for notforprofit  d(#Lleased access programmers should be required "to assure that the widest possible diversity of  d(#information sources are made available to the public from cable systems in a manner consistent  X- d(#with growth and development of cable systems."h 18 {O!-ԍFurther Notice at paras. 111112 (quoting Communications Act  612(a), 47 U.S.C.  532(a)). To determine whether current leased access  d(#jrates restrict the diversity of programming sources, we asked that commenters provide specific  d(#zand concrete examples illustrating the extent to which notforprofit programmers can afford  X- d(#current leased access rates.? 18 {O-&-ԍId. at para. 112.? We sought comment on how to calculate preferential rates, if found". ,N(N(ZZP"  X- d(#to be necessary.?18 {Oy-ԍId. at para. 113.? We also asked whether cable operators should be required to give  d(#preferential access to notforprofit programmers by setting aside a certain percentage of their  X- d(#leased access capacity for such use (e.g., 25%).?Z18 {O-ԍId. at para. 114.? In addition, we sought comment on whether  d(#za "notforprofit programmer" should be defined as a programmer with Section 501(c)(3) tax X- d(#kexempt status.x18 {OA -ԍId. at para. 115 (citing Internal Revenue Code, 26 U.S.C.  501(c)(3)).x Commenters were also invited to demonstrate with specific evidence why  d(#Lpreferential treatment might be appropriate for certain types of forprofit programmers, such as  Xv-low power television ("LPTV") stations and minority and educational programmers.1v~18 {O -ԍId.1  WH<` ` 2. Discussion   X - P\93.` ` We do not believe that mandating preferential access or preferential rates for not d(#forprofit programmers is necessary or appropriate under Section 612. First, leased access is  d(#Zintended for "commercial use," which the Communications Act defines as "the provision of video  X - d(#^programming, whether or not for profit."d 18 yO-ԍCommunications Act  612(b)(5), 47 U.S.C.  532(b)(5).d The fact that notforprofit leased access  d(#yprogrammers are defined as commercial users for purposes of leased access indicates that they  X -should compete on equal terms with forprofit leased access programmers. 18 {O- d(#ԍSee, e.g., Outdoor Life, et al. Comments at 36; TCI Comments at 28; Liberty Sports Comments at 4; Time Warner Reply at 2526; NCTA Reply at 15; Telemiami Comments at 16.  Xy- ]94.` ` Second, we do not believe that requiring cable operators to offer preferential  d(#treatment to notforprofit programmers is necessary to serve the statutory purposes of Section  XK- d(#N612.oK 18 {O-ԍSee U S West Comments at 11; Outdoor Life, et al. Comments at 36.o Mandatory preferential treatment would not necessarily promote diversity since  d(#unaffiliated notforprofit programming sources are not inherently more diverse than unaffiliated  X- d(#forprofit programming sources. 18 {OZ!- d(#ԍSee Game Show Network Comments at 30; Outdoor Life, et al. Reply at 23; SCBA Reply at 5. But see CME,  d(#et al. Comments at 17 ("commercial programmers are far less likely to offer the sort of diverse, challenging material  d(#that Congress sought to cultivate when it created leased access"); CME, et al. Reply at 10 (diversity goal cannot be  d(#met if an entire category of programmers is excluded); HITN Comments at 1819 (preferential treatment for notforprofit leased access programmers would promote diversity and competition).  In fact, mandatory preferential treatment could potentially  d(#conflict with the statutory directive that leased access rates not "adversely affect the operation,"/>,N(N(ZZU"  X- d(#]financial condition, or market development of the cable system"6Z18 {Oy- d(#ԍCommunications Act  612(c)(1), 47 U.S.C.  532(c)(1). See Cox Comments at 27; Comcast Comments at  d(#24; Game Show Network Comments at 30; Penn. Cable Network Comments at 6; ESPN Comments at 9; Adelphia, et al. Reply at 1516.6 because a mandatory  d(#preferential rate below what the Commission has determined to be the maximum reasonable rate may be insufficient to compensate operators for leased access use.  X- 3^95.` ` Third, although CME, et al. argue that the economic structure of notforprofit  d(#programmers makes them "fundamentally incapable of competing with commercial entities for  Xv- d(#limited channel capacity,"v18 {O - d(#ԍCME, et al. Comments at 1617. See also Denver Area Ed. Reply at 13 ("by their very nature, nonprofits are supposed to function outside the market"). notforprofit status does not necessarily indicate a lack of financial  X_- d(#resources.l_D18 yOT-ԍESPN Comments at 9; NCTA Comments at 35; Time Warner Reply at 2425.l Outdoor Life, et al. note that many notforprofit entities have annual incomes that  XH- d(#zfar exceed those of most nascent programming networks.H18 yO- d(#ԍOutdoor Life, et al. Comments at 36 (stating, for example, that the National Rifle Association of America, Inc.  yO- d(#is the 33rd largest notforprofit organization in terms of annual income, with 1994 revenues of nearly $148 million).  {O]- d(#See also TCI Comments at 29 (the Howard Hughes Medical Institute, the largest notforprofit organization, has a  d(#net worth of $8.2 billion and an annual income of $423 million); Summit Comments at 3 ("Any nonprofit large  d(#xenough to meaningfully program a channel seven days a week, full time, should be considered in the same light as its competitors for channel space."). Moreover, while we agree with  X1- d(#[CME, et al. that Congress gave cable operators the flexibility to negotiate lower rates,1N 18 {O0-ԍCME, et al. Comments at 1516. See also Assn. of Public TV/PBS Comments at 34. Ć we do  d(#-not believe that operators' right to negotiate lower rates should be transformed into an obligation  X - d(# to provide affordable rates to notforprofit leased access programmers.M 18 {O-ԍSee Cox Comments at 28. M CME, et al. cite  d(#legislative history which states that "by establishing one rate for all leased access users, a price  d(#might be set which would render it impossible for certain classes of cable services, such as those  d(#offered by notforprofit entities, to have any reasonable expectation of obtaining leased access  X - d(#.to a cable system."q r18 yO-ԍCME, et al. Comments at 16 n.22 (citing 1984 House Report at 51). q Again, however, Congress' recognition that notforprofit programmers  d(#might benefit if cable operators are able to offer discriminatory rates does not translate into a  Xy-right to preferential treatment.y18 {O,#- d(#.ԍSee, e.g., Liberty Sports Comments at 4; Faith & Values Comments at 3; Encore Comments at 5; Cox Comments at 2628; Adelphia, et al. Comments at 2425.  XK- Q_96.` ` In addition, we reject HITN's recommendation to require cable operators to set  d(#=aside 33% of their leased access capacity, at nominal rates, for notforprofit programmers that"40\,N(N(ZZ"  X- d(#qualify as minority or educational programmers under Section 612(i)(2) or (3).$18 {Oy- d(#YԍHITN Comments at 22. See also HITN Reply at 78 (notforprofit leased access programmers will be denied  {OC- d(#meaningful access if forced to compete with forprofit leased access programmers). See also Communications Act  d(#z 612(i)(2) and (3), 47 U.S.C.  532(i)(2) and (3). The definitions of qualifying minority and educational programmers are provided in Section II.F. Congress chose  d(#to encourage minority and educational programming by allowing it to be used as a substitute for  X- d(#leased access, regardless of its profit status.n18 {O7-ԍSee Communications Act  612(i)(1), 47 U.S.C.  532(i)(1).n HITN cites no evidence that Congress intended  d(#!the Commission to create an additional mechanism to promote notforprofit minority or  d(#educational programming through preferential rates and setasides. We therefore decline to adopt HITN's proposal.  X_- }`97.` ` Furthermore, we disagree with Assn. of Public TV/PBS that there is a current need  d(#=for preferential rates and setasides for educational and community programming services that  X1- d(#public television stations may wish to offer in addition to their primary overtheair signals.O1F18 yO(-ԍAssn. of Public TV/PBS Comments at 38.O  d(#We also decline to adopt commenters' recommendation to require cable operators to provide  X - d(#.preferential leased access treatment to LPTV stations.-  18 {O- d(#JԍSee CBA Comments at 1011 (no preference should be given to notforprofit leased access programmers, but  d(#[cable operators should be required to set aside 25% of their leased access capacity for LPTV stations); Viking  d(#JComments at 2 (preferential leased access rates for LPTV stations would help mitigate the lack of mustcarry status  d(#and would promote diversity); WBQPLP Comments at 45 (LPTV stations, especially minorityowned LPTV  d(#stations, should pay a fixed rate of $0.05 a subscriber and receive first priority for leased access); Vacation Channel  d(#Comments at 3 (LPTV stations should pay a fixed rate of $0.10 per subscriber per month); Beach TV Comments  d(#at 2 (without preferences for LPTV stations, cable operators will protect their local markets by carrying leased access  d(#programmers that do not compete with them in advertising sales); BCB Broadcasting Comments at 1 (as licensees  d(#of the federal government, LPTV stations are required to act in the public interest); Island Broadcasting Comments  d(#at 2 (having effectively denied mustcarry rights for LPTV stations, the Commission should take this opportunity  d(#to promote the survival of LPTV stations by giving them first preference for fulltime leasing); WZBN TV25  d(#Comments at 23 (a monthly rate higher than $0.05 per subscriber would prevent most LPTV stations from obtaining  d(#leased access, due to their expenses beyond the creation of programming); WBGNTV Comments at 2 (LPTV  d(#stations should receive a 50% discount on leased access rates and should get first consideration for leased access  d(#channels); South Central Reply at 78 (commenters have provided sufficient evidence in this proceeding to demonstrate that preferential leased access treatment for local LPTV stations is warranted).- Congress provided public television  X -stations and LPTV stations the preferences it deemed necessary.$ 18 {O!- d(#iԍSee Communications Act  614(c), 615, 47 U.S.C.  534(c), 535. See also Telemiami Comments at 16;  {O"- d(#.Encore Comments at 5; Faith & Values Comments at 3 n.2; Daniels, et al. Reply at 89; Outdoor Life, et al.  d(#Comments at 36 n.13; Prime Radiant Comments at 9; NCTA Reply at 11; U S West Reply at 1011; CSPAN Reply at 4; Outdoor Life, et al. Reply at 2324; Time Warner Reply at 2122; SCBA Reply at 5.  " 1 ,N(N(ZZ "Ԍ X-  D">=  D">=  H.` ` Selection of Leased Access Programmers  W<` ` 1. Background  X- a98. ` ` In the Further Notice, the Commission proposed rules to govern a cable operator's  X- d(#-selection of leased access programmers.N18 {O-ԍFurther Notice at paras. 12729.N We tentatively concluded that an operator should be  d(# D">=  D">= required to select leased access programmers on a firstcome, firstserved basis as long as the  Xa- d(#operator's available leased access capacity is sufficient to accommodate all incoming requests.?aZ18 {Ol -ԍId. at para. 128.?  d(#NWe sought comment on whether an operator should be allowed to accept leased access  d(#programmers on any other basis if its system's available leased access capacity is insufficient to  X - d(#accommodate all pending requests.1 18 {O-ԍId.1 Specifically, we noted that where demand for leased access  d(#channels exceeds the available supply, it may be appropriate to allow an operator to make  d(#contentneutral selections in order to avoid situations that could "adversely affect the operation,  X - d(#financial condition, or market development of the cable system."x ~18 {O-ԍId. (quoting Communications Act 612(c)(1), 47 U.S.C.  532(c)(1)).x We asked whether it would  d(#be appropriate, when two or more leased access programmers simultaneously demand the last  d(#yavailable leased access space, to allow the cable operator to select a leased access programmer  X- d(#based on the amount of time requested (e.g., a fulltime request versus a parttime request).?18 {OS-ԍId. at para. 129.?  d(#We also sought comment on whether operators should be permitted to base their selections on  Xd-any contentneutral criteria other than the amount of time requested by the programmers.1d18 {O-ԍId.1  W6<` ` 2. Discussion  X- ob99.` ` We conclude that, so long as an operator's available leased access capacity is  d(#sufficient to satisfy the current demand for leased access, all leased access requests must be  d(#!accommodated as expeditiously as possible, unless the operator refuses to transmit the  X- d(#programming because it contains obscenity or indecency.n4 18 {O"-ԍSee Communications Act  612(c)(2), 47 U.S.C.  532(c)(2).n We believe that such an approach  X- d(#Lis the most appropriate method of assuring that cable operators comply with Section 612(c)(2),"2 ,N(N(ZZ"  d(#_which explicitly restricts operators' exercise of editorial control over leased access  X- d(#programming.18 {Oy- d(#ZԍId. The record reflects that many commenters are in favor of controlling an operator's selection of leased  {OC- d(#;access programming through some variation of a firstcome, firstserved approach. See Asiavision Comments at 1;  d(#CME, et al. Comments at 25; Game Show Network Comments at 2326; Intermedia/Armstrong Comments at 1314;  {O- d(#hTelemiami Comments at 22; ValueVision Comments at 1314; Viacom Comments at 13. But see NCTA Comments at 3132; Outdoor Life, et al. Comments at 37; TCI Comments at 3637; Daniels, et al. Reply at 10. Section 612(c)(2) provides that "a cable operator shall not exercise any editorial  d(#\control over any video programming provided pursuant to this section, or in any other way  d(#consider the content of such programming," except in the case of programming containing  X- d(#obscenity or indecency, or to the minimum extent necessary to set a reasonable price.d18 yO -ԍCommunications Act612(c)(2), 47U.S.C.532(c)(2).d We  X- d(#believe that requiring operators to accommodate all leased access requests when the programming  d(#does not contain obscenity or indecency, so long as there is available capacity, will most  d(#-effectively restrict operators' exercise of editorial control, without impinging upon their discretion  d(#with regard to price and sexuallyoriented programming. We also believe that such an approach  d(#will further the statutory objective to promote competition because it will reduce an operator's ability to select leased access programming based on anticompetitive motives.  X - c100. ` ` We believe, however, that an operator should be allowed to make objective,  d(#contentneutral selections from among leased access programmers when the operator's available  d(#{leased access channel capacity is insufficient to accommodate all pending leased access  X - d(#requests.J %18 {O}-ԍFurther Notice at para. 128.J In the fulltime channel context, this situation would arise if two or more leased  d(#zaccess programmers requested the remaining available leased access space; in the parttime  d(#context, this situation could arise, for example, if two or more programmers requested the 8:00  d(#.p.m. to 9:00 p.m. time slot on the system's parttime leased access channel. In such situations,  d(#we believe that the cable operator should be allowed to make an objective, contentneutral  X4- d(#selection among the competing programmers. For example, the operator could hold a lottery.i418 {O-ԍSee Visual Media Comments at 7; CME, et al. Comments at 25.i  X- d(#Or, the operator could base its decision on other objective, contentneutral criteria such as a  X- d(#programmer's nonprofit status,W I 18 {O-ԍSee, e.g., CME, et al. Comments at 2526.W the amount of time a programmer is willing to lease,E Z 18 yO - d(#ԍSeveral commenters support a preference for fulltime programmers or programmers requesting the greatest  {OZ!- d(#,total usage of channel capacity. See A&E, et al. Comments at 5960; Lorilei Comments at 15; Outdoor Life, et al. Comments at 37. E or a  X- d(#programmer's willingness to pay the highest reasonable price for the capacity at issue.R  18 {O$-ԍBut see Viacom Comments at 13.R "3 ,N(N(ZZ"  d(#=Allowing flexibility within this limited context will better enable operators to assure the growth  X-and development of their cable systems. 18 {Ob- d(#ԍSee Daniels, et al. Comments at 23; NCTA Comments at 3132; Outdoor Life, et al. Comments at 37; TCI Comments at 3637; Time Warner Comments at 18; Travel Channel Comments at 23.  X-  X- I.` ` Procedures for Resolution of Disputes  W<` ` 1. Background  X_- 1d101. ` ` In the Further Notice, the Commission proposed to streamline its complaint process  d(#by establishing a rule that a leased access programmer may not file a complaint alleging that a  X3- d(#Mleased access rate is unreasonable until an independent accountant has reviewed the cable  X - d(#operator's calculations and made a determination of the maximum rate.J  "18 {O -ԍFurther Notice at para. 137.J We proposed to allow  X - d(#the operator to select the independent accountant when the parties cannot agree on a mutually  X - d(#-acceptable accountant.1 18 {OS-ԍId.1 Our proposal required the accountant's review to be conducted within  X -60 days of the leased access programmer's request to the operator for a review.1 F18 {O-ԍId.1  X - e102.` ` The Commission solicited comment on whether, in the absence of any evidence  d(#zto the contrary, a determination by the accountant that the cable operator's rate exceeds the  d(#permissible rate should satisfy the complainant's burden to rebut, with clear and convincing  Xd- d(#Levidence, the statutory presumption that an operator's rates are reasonable.xd18 {O-ԍId. See also Communications Act  612(f), 47 U.S.C.  532(f).x In addition, we  d(#-tentatively concluded that the accountant's final report should be filed in the cable system's local  X6- d(#public file in order to provide notice to other potential leased access programmers.J6j 18 {OQ-ԍFurther Notice at para. 138.J We asked  d(#ywhether, in the alternative, we should require operators to provide the accountant's final report  X- d(#kto other leased access programmers upon request.1 18 {O -ԍId.1 We sought comment on what type of  d(#information should be included in the accountant's final report and what type of information  X- d(#should remain confidential.2 18 {O$-ԍId. 2 We also asked whether the responsibility for paying the  d(#accountant's expenses should be shared equally by both parties or borne only by the party proven"4 ,N(N(ZZ"  X- d(#incorrect by the accountant's report.218 {Oy-ԍId. 2 We also supported the use of alternative dispute resolution  X-("ADR") in cases where disputes are not resolved as a result of the accountant's final report.?Z18 {O-ԍId. at para. 139.?  W<` ` 2. Discussion  X-  X- f103.` ` We affirm our proposal to streamline the complaint process by requiring that an  d(#independent accountant make a determination of the cable operator's maximum permitted rate  X_- d(#prior to the filing of any complaint alleging that the operator's rate is unreasonable.g~_18 {O - d(#ԍSee id. at para. 137. Several commenters favor an independent review of the cable operator's rate calculations.  {O - d(#See Adelphia, et al. Comments at 27; Blab TV Comments at 10; WBGNTV Comments at 2; Buckeye Comments  d(#at 1213; CBA Comments at 12; Game Show Network Comments at 3334; Landmark Comments at 2; Sherjan  {OX- d(#Comments at 2; VIPNA Comments at 15; Visual Media Comments at 910; TCI Reply at 13. But see CME, et al.  d(# Comments at 3132; HITN Comments at 25; Intermedia/Armstrong Comments at 1921; Lorilei Comments at 1516;  d(#;Paradise Reply at 2; Prime Radiant Comments at 10; RK Production Comments at 1315; Telemiami Comments at 2527; Daniels, et al Reply at 1213. g We  d(#[believe that such a requirement will preserve Commission resources by reducing the likelihood  d(#that unsubstantiated claims will be filed with the Commission. In the event that a complaint is  d(#filed with the Commission because the dispute remains unresolved despite the accountant's final  X - d(#[report, there will be a rebuttable presumption that the accountant's findings are correct. 2 18 yO- d(#ԍAdelphia, et al. Comments at 27 (there should be a rebuttable presumption that the accountant's findings are  {O-correct).   We  d(#[disagree with the Game Show Network that both parties should be prohibited from challenging  d(#1the accountant's final report because such a rule would conflict with a leased access  X -programmer's statutory right to file a complaint. 18 {O-ԍGame Show Network Comments at 33. See Communications Act  612(d), (e)(1), 47 U.S.C.  532(d), (e)(1).  X-  g104.` ` We will not adopt our proposal in the Further Notice to allow the cable operator  d(#Kto select an independent accountant in the event that the operator and leased access programmer  Xd- d(#fail to agree on a mutually acceptable accountant.Jd18 {O3 -ԍFurther Notice at para. 137.J We agree with commenters that argue that  d(#such an approach may be unfair to the leased access programmer because it does not encourage  X6- d(#the operator to find a mutually acceptable accountant.618 yO#- d(#ZԍCME, et al. Comments at 31; Game Show Network Comments at 34; Telemiami Comments at 26; VIPNA Comments at 15. Following the suggestion of the Game  d(#Show Network, we will require that if the parties cannot agree on a mutually acceptable  d(#jaccountant within five business days of the programmer's request for a review, they must each"5,N(N(ZZ7"  X- d(#<select an independent accountant on the sixth business day.7Z18 {Oy- d(#ԍSee Game Show Network Comments at 34 (if the parties cannot agree on an accountant within five business  d(#days, the operator's and the programmer's designated accountants should select a neutral third accountant to perform the review).7 These two accountants will then  d(#have five business days to select a third independent accountant to perform the review. To  d(#account for their more limited resources, operators of systems entitled to small system relief will  X- d(#have 14 business days to select an independent accountant when no agreement can be reached.a18 yOV- d(#KԍFor this purpose, a cable system operator will have 14 business days to select an independent accountant if  {O - d(#its system qualifies for small system relief under the standards adopted in the Sixth Report and Order and Eleventh  {O - d(# Order on Reconsideration in MM Docket Nos. 92266 and 93215, 10 FCC Rcd 7393, 7406, 741213 (1995) ("Small  {O - d(#System Order") (a cable system is entitled to small system relief if it either: (a) serves 15,000 or fewer subscribers  d(#-and is owned by a small cable company serving a total of 400,000 or fewer subscribers over all of its systems, or  {OD -(b)has been granted special relief as provided for in the Small System Order). a  d(#The final accountant report must be completed within 60 days of when the final accountant is  X- d(#selected to perform the review.Nj 18 {O-ԍSee Further Notice at para. 137.N We will amend our current rule requiring complaints to be  Xv- d(#\filed within 60 days of the alleged violation to provide instead that complaints must be filed  X_-within 60 days of the completion of the final accountant report.K_ 18 {O -ԍSee 47 C.F.R.  76.975(d).K  X1-  5h105.` ` We will require the operator to pay the full cost of the review if the final  d(#accountant report shows that the operator's rate exceeds the maximum permitted rate by more  X - d(#kthan a de minimis amount.  18 yOB- d(#ԍSeveral commenters argue that a cable operator should not be required to pay the accountant's fees unless the  d(#operator's rate is found to exceed the maximum permitted rate by more than 10% or 15%, thus indicating that the  d(#operator did not act in good faith. Adelphia, et al. Comments at 27; Buckeye Comments at 13; CBA Comments at 12; Game Show Network Comments at 3334; Landmark Comments at 2; Sherjan Comments at 2; TCI Reply at 14.  Otherwise, each party will pay their own expenses incurred in  d(#making the review and will split the cost of the final accountant's review. We believe that this  d(#approach is appropriate because, unlike the leased access programmer, the cable operator  d(#possesses all the information necessary to calculate its rates accurately and knows, or should know, whether its rates are excessive.  X{- i106.` ` The Commission adopts its tentative conclusion that the final accountant report  Xd- d(#should be filed in the cable system's local public file.J dv18 {O"-ԍFurther Notice at para. 138.J Intermedia/Armstrong suggest that the  d(#|information contained in the public file should be limited to a onesentence statement  X6- d(#summarizing the ultimate conclusion.L!618 yO%-ԍIntermedia/Armstrong Comments at 21.L We believe, however, that if the information is to serve  d(#as adequate notice to other potential leased access programmers, the final accountant report must,"6!,N(N(ZZG"  d(#!at a minimum, state the maximum permitted rate and explain, as fully as possible without  X- d(#yrevealing proprietary information,J"18 {Ob-ԍSee, e.g., NCTA Reply at 24.J how it was determined. The report must be signed, dated, and certified by the accountant.  X-  @j107.` ` As stated in the Further Notice, we strongly encourage parties to use ADR to settle  X- d(#Kdisputes that are not resolved by the final accountant report.#Z18 {O- d(#ԍFurther Notice at para. 139. See Prime Radiant Comments at 10 (the early use of ADR may help resolve disputes prior to Commission review). We disagree with RKProduction  d(#that ADR would be ineffectual because only the cable operator knows the pertinent facts of the  Xa- d(#case.E$a18 yO -ԍRKProduction Comments at 14.E The cable operator has an incentive to provide the information necessary to resolve the  d(#Ndispute informally because, if the leased access programmer believes the operator is not  d(#cooperating fully, it can terminate the ADR proceedings and file its complaint with the  d(#>Commission. Moreover, we note that some ADR processes e.g., a commercial arbitration  X - d(#under the rules of the American Arbitration Association% D18 {O- d(#ԍSee Rule 10 of the Commercial Arbitration Rules of the American Arbitration Association, as amended and effective July 1, 1996. contain provisions for discovery.  d(#If parties attempt, but fail, to settle their dispute through ADR, we will make an exception to our  d(#requirement that complaints must be filed within 60 days of the completion of the final  d(#=accountant report, provided that the leased access programmer certifies that its complaint was  d(#.filed within 60 days of the termination of the ADR proceedings. The cable operator may rebut such a certification.  Xd- J.` ` Contractual Issues  W6<` ` 1. Background  X- k108.` ` Section 612(c)(4) grants the Commission the authority to establish reasonable terms  X- d(#and conditions for leased access use.d&18 yO@-ԍCommunications Act  612(c)(4), 47 U.S.C.  532(c)(4).d A few commenters have asked that we address certain  d(#contractual issues that arise in the negotiation of leased access contracts. Ambassadors for Christ  d(#Institute asserts that allowing operators to include contract termination provisions that allow the  d(#iparties to terminate the contract for any reason leaves the leased access programmer unprotected.  d(#NIt claims that a minimum contract length of at least one year is necessary to justify other  X~- d(#necessary business expenses, such as building leases and equipment purchases.]'~. 18 yO]%-ԍAmbassadors for Christ Institute Comments at 1.] CBA and Blab"~7 ',N(N(ZZA"  X- d(#5TV urge the Commission to require fiveyear leases.(18 {Oy- d(#ԍCBA Comments at 9; Blab TV Reply at 11. See also CME, et al. Comments at 24; Asiavision Comments at 1. Paradise argues  X-that longterm security is necessary to obtain financing.x)"18 {O-ԍParadise Reply at 3. See also Blab TV Reply at 11; Telemiami Reply at 27.x  X- l109.` ` Strategic Video and Lorilei ask that the Commission address the issue of insurance  X- d(#requirements imposed by cable operators on leased access programmers.]*18 yO -ԍStrategic Video Comments at 2; Lorilei Comments at 2.] Strategic Video  d(#[argues that the cost of general liability and errors and omissions ("E&O") insurance (typically,  d(#according to Strategic Video, costing $4000 or more annually) represents a significant barrier to  d(#small independent producers. Strategic Video asks the Commission to limit the required amount  d(#=of general liability insurance to no more than $250,000 or an amount no more than the operator  d(#[is required to have by the local franchising authority, whichever is less, and that operators not  X - d(#kbe permitted to require E&O insurance in any amount.L+ D18 yO-ԍStrategic Video Comments at 2.L Lorilei claims that operators often  X - d(#require $1 million to $5 million of coverage, which is very costly and difficult to obtain.>, 18 yO-ԍLorilei Comments at 2.>  d(#-Lorilei argues that operators are sufficiently protected by their own insurance policies and by the  X -indemnification provisions they impose on leased access programmers.1- d 18 {O-ԍId.1  W <_` ` 2. Discussion  Vy-` `  a.Minimum Contract Length  XK- m110.` ` We find that the record before us is insufficient to determine what a reasonable  d(# minimum contract length would be. We recognize that the lack of longterm security could  d(#y_create difficulties for leased access programmers that need to obtain financing or to make long d(#term investments in leases and equipment. However, our rule that operators must accommodate  d(#all leased access requests so long as capacity exceeds demand guarantees that a leased access  d(#<programmer will be assured of continued access at least until the operator's setaside requirement  X- d(#is met.?. 18 {Oh#-ԍSee Section II.H.? We agree with Ambassadors for Christ Institute that operators should not be allowed  X- d(#to terminate leased access contracts for simply any reason asserted by the cable operator.a/ 18 {O%-ԍSee Ambassadors for Christ Institute Comments at 1.a  d(#KTermination provisions of leased access contracts must be commercially reasonable. Because we"8/,N(N(ZZ"  X- d(#believe that this requirement affords leased access programmers adequate security, we decline at this time to establish a minimum contract length.  X- Qn111.` ` We will, however, require that operators not unreasonably limit the length of a  d(#ycontract with a leased access programmer. In assessing reasonableness in this context, we will  d(#Mweigh heavily the contract lengths that the operator enters into with the nonleased access  Xv-programming services on its system.0\v18 yO- d(#ԍWe note that in our open video system rules, an open video system operator is required to allocate open  {O- d(#channel capacity, if any is available, at least once every three years. See Second Report and Order in CS Docket  {O -No. 9646, FCC 96249 (released June 3, 1996) at para. 92. See also Telemiami Comments at 22.  VH-` `  b.Insurance Requirements  X - o112.` ` At the outset, we note that the Cable Services Bureau recently confirmed an  d(#operator's right to require reasonable liability insurance coverage for leased access  X - d(#/programming.1 18 {O- d(#ԍSee Anthony Giannotti v. Cablevision Systems Corporation, 11 FCC Rcd 10441 (Cable Serv. Bur., September 6, 1996). We decline to adopt specific conditions or limits regarding the amount of  d(#coverage or the type of insurance policy that operators may require because we believe that a  d(#specific restriction might not be appropriate for all situations. Instead, we will adopt a standard  d(#comparable to the standard that applies in the context of security deposits for leased access  X- d(#programming.P2F18 {O-ԍReconsideration Order at para. 53.P That is, insurance requirements must be reasonable in relation to the objective  d(#of the requirement. Cable operators will bear the burden of proof in establishing reasonableness.  d(#Similar to the rule for security deposits, insurance requirements may be sufficient to insure  d(#adequate coverage. Determinations of what is a "reasonable" insurance requirement will be based  d(#<on the operator's practices with respect to insurance requirements imposed on nonleased access  X- d(#\programmers,K318 {O-ԍSee Telemiami Comments at 22.K the likelihood that the nature of the leased access programming will pose a  d(# liability risk for the operator, previous instances of litigation arising from the leased access programming, and any other relevant factors.  X- K.` ` Technical Equipment Costs  W<` ` 1. Background  X|-  Xe- "p113.` ` In the Further Notice, we sought comment on our proposal to include any technical  d(#costs incurred by the cable operator in offering leased access programming, such as the cost of  X9- d(#scrambling, as an opportunity cost that could be included in calculating the maximum rate under"99j 3,N(N(ZZ"  X- d(#Kour proposed cost/market rate formula.I418 {Oy-ԍFurther Notice at para. 84.I No commenter objected to this proposal, although one  d(#-commenter cautions that "programmers should be responsible for only those technical costs that  X- d(#are truly new and incremental costs to the particular leased access programmer."5 Z18 yO- d(#ԍTelemiami Comments at 11. Prime Radiant notes that, under the 1996 Telecommunications Act, all  d(#,programmers will be required to provide "closed captioning" as part of their programming in 1997 and recommends  d(#Ythat the Commission adopt rules that clarify the requirements for leased access programmers and the associated cost of providing this capability. Prime Radiant Comments at 6. Two  d(#commenters, SCBA and TeleMedia of Delaware, point out that small cable systems may not  d(#already possess the equipment necessary to carry the programming of a particular leased access  X- d(#programmer. These commenters both recommend that the Commission require the leased access  d(#programmer to pay the costs of any equipment that the operator must obtain in order to carry the  X_-leased access programming on the cable system.|6_B18 {OR- d(#ԍSee TeleMedia of Delaware Comments at 89; SCBA Comments at 1415. TeleMedia of Delaware also  d(#expresses concern about the cost to small operators of having to provide technical support to leased access  {O- d(#Jprogrammers. We note that the Rate Order provides that "leased access programmers must reimburse operators for  {O- d(#Jthe reasonable cost of any technical support that operators actually provide." Rate Order, 8 FCC Rcd at 5941. See  {Ox-also 47 C.F.R.  74.|  W1<` `  2. Discussion   X -  X - q114.` ` The Commission's rules provide that cable operators must provide "the minimal  d(#level of technical support necessary for [leased access] users to present their material on the air  X - d(#. . . provided however, that leased access providers must reimburse operators for the reasonable  X - d(#cost of any technical support that operators actually provide."A7 18 yOk-ԍ47 C.F.R.  76.971(c).A We clarify that this provision  d(#entitles cable operators to charge an additional fee only for the reasonable cost of providing  d(#technical support to a leased access programmer that is not also provided to nonleased access  d(#Kprogrammers on the system. Cable operators may not impose a separate charge for the same kind  d(#.of technical support that they already provide to nonleased access programmers because the  d(#Lmaximum leased access rate represents what nonleased access programmers implicitly pay for  d(#carriage, including their technical costs. In other words, the maximum leased access rate already  d(#=includes technical costs common to all programmers. Similarly, the operator cannot impose an  d(#additional charge on the leased access programmer to purchase additional equipment (e.g., when  d(#the current equipment is fully utilized) if the same type of equipment is used to serve nonleased  d(#[access programmers. For example, the operator cannot add a charge for the costs of providing  d(#a satellite dish if it provides that type of technical support to nonleased access programmers at  d(#no additional charge. In contrast, the operator is entitled to add a charge to recover the costs of  d(#providing, for instance, a tape recorder or a camera if such technical equipment would be  d(#[provided to nonleased access programmers for the same additional charge. The operator may  d(#also charge the leased access programmer for the use of technical equipment that is provided at"g: 7,N(N(ZZ"  d(#>no charge for PEG access programming, provided that the franchise agreement requires the  d(#operator to provide the equipment, the equipment is not being used for any other nonleased access programming, and the operator's franchise agreement does not preclude such use.  X- ` r115.` ` If, in order to accommodate a leased access programmer, a cable operator must  d(#purchase technical equipment that is not of a type used by nonleased access programmers on the  d(# system, we believe that the operator should have the option of requiring the leased access  d(#programmer to pay the full purchase price of the equipment. Should the cable operator exercise  XH- d(#[this option, the leased access programmer will have all rights of ownership associated with the  d(#Kequipment under applicable state and local law. If, on the other hand, the operator prefers to own  d(#the technical equipment, it may purchase the equipment for itself and lease it to leased access  d(#>programmers at a reasonable rate. We believe that this approach will protect leased access  d(#programmers, while assuring that the cable system's operation, financial condition or market  X -development are not adversely affected.n8 18 {ON-ԍSee Communications Act  612(c)(1), 47 U.S.C.  532(c)(1).n  X - L.` ` Definition of Affiliate  Wy<` ` 1. Background   XK- s116.` ` Section 612(b)(1) states that "[a] cable operator shall designate channel capacity  X4- d(#for commercial use by persons unaffiliated with the cable operator."d94Z18 yO?-ԍCommunications Act  612(b)(1), 47 U.S.C.  532(b)(1).d We note that the  X- d(#Telecommunications Act of 1996:18 yO- d(#;ԍTelecommunications Act of 1996, Pub. L. No. 104104, 110 Stat. 56, approved February 8, 1996 (the "1996 Act"). added a new definition of "affiliate" in Section 3 of Title I  d(#of the Communications Act. This new provision defined "affiliate" for purposes of the Communications Act, unless the context otherwise requires, as:  v |Xa person that (directly or indirectly) owns or controls, is owned or controlled by, or is  v under common ownership or control with, another person. For purposes of this  v paragraph, the term "own" means to "own an equity interest (or the equivalent thereof)  X|-of more than 10 percent."\;|B18 yOo!-ԍCommunications Act  3(1), 47 U.S.C.  153(1).\ (#  d(#We also note, however, that Congress did not alter the separate definition of "affiliate" set forth  X7- d(#under Title VI. Under Title VI, the term "affiliate" is defined, when used in relation to any"7;;,N(N(ZZ"  d(#=person, to mean "another person who owns or controls, is owned or controlled by, or is under  X-common ownership or control with, such person."^<18 yOb-ԍCommunications Act  602(2), 47 U.S.C.  522(2).^  X- #t117.` ` Although the Further Notice did not specifically seek comment pertaining to the  d(#definition of affiliate, ValueVision urges the Commission to further define the term for purposes  X- d(#of leased access.E=X18 yO-ԍValueVision Comments at 912.E ValueVision claims that, in order to prevent evasion of leased access  Xx- d(#obligations, the definition of affiliate should include "any financial or business relationships, by  d(#contract or otherwise, directly or indirectly, between the cable operator and a cable programmer,  d(#which result in the potential ability of the cable operator to control or influence the programmer's  X3- d(#business affairs."8>318 {O -ԍId. at 10.8 In response, several commenters argue that ValueVision's definition is overly  X - d(#broad and without support in the Commission's rules.;?X z18 yOG- d(#,ԍNCTA Reply at 2324; Adelphia, et al. Reply at 56; Outdoor Life, et al. Reply at 1819 (proposing adoption  d(#of the attribution criteria in Section 73.3555 of the Commission's rules); Time Warner Reply at 1617 (proposing a "control" standard).; In addition, Outdoor Life, et al. contend  d(#Nthat a leased access programmer must be unaffiliated only with the cable operator of the  X -particular cable system on which carriage is sought, not with any cable operator.L@ 18 yO9-ԍOutdoor Life, et al. Reply at 1617.L  W <` ` 2. Discussion   X- u118.` ` The Commission has already decided in other proceedings that the Title I definition  X{- d(#=of affiliate does not strictly apply to Title VI.XA\{* 18 {OV- d(#ԍSee Third Report and Order and Second Order on Reconsideration in CS Docket No. 9646, FCC 96334  {O - d(#(released Aug. 8, 1996) at para. 12; Order and Notice of Proposed Rulemaking in CS Docket No. 9685, FCC 96154 (released April 9, 1996) at para. 77.X For purposes of Section 612, we will adopt the  d(#definition of affiliate that applies in the context of our program access rules under Section 628  XM- d(#<and our open video system rules under Section 653.B^MN 18 {OL - d(#-ԍSee Third Report and Order and Second Order on Reconsideration in CS Docket No. 9646, FCC 96334  {O!- d(#(released Aug. 8, 1996) at para. 13 (open video system standard); First Report and Order in MM Docket No. 92265,  {O!-8 FCC Rcd 3359, 337071 (1993) (program access standard). See also 47 C.F.R.  76.1000(b). As we do in those contexts, we will apply  d(#the definitions contained in the notes to 47 C.F.R.  76.501 (which reflect the broadcast  d(#attribution rules contained in the notes to 47 C.F.R.  73.3555), with certain modifications.  d(#Specifically, in contrast to the broadcast attribution rules reflected in 76.501: (a) we will  d(#yconsider an entity to be a cable operator's affiliate if the cable operator holds 5% or more of the  X- d(#entity's stock, whether voting or nonvoting; (b) we will not adopt a single majority shareholder"<tB,N(N(ZZ"  X- d(#Lexception;CZ18 yOy- d(#.ԍUnder the single majority shareholder exception, where there is a single holder of more than 50% of a  d(#xcorporation's outstanding voting stock, minority voting stock interests in the corporation are not attributable to  {O -shareholders irrespective of whether they exceed the 5% benchmark. See 47 C.F.R.  73.3555 note 2. and (c) all limited partnership interests of 5% or greater will qualify, regardless of  X- d(#insulation.LD18 {O-ԍSee 47 C.F.R.  76.1000(b).L In addition, actual working control, in whatever manner exercised, will also be  X-deemed a cognizable interest.KE|18 {O- d(#iԍSee 47 C.F.R.  73.3555 note 1, 76.501 note 1. There is substantial case law interpreting the meaning of  {O - d(#"control" under the broadcast attribution rules that we will apply here.  See, e.g., Benjamin L. Dubb, 16 FCC 274,  {O - d(#h289 (1951); WWIZ, Inc., 36 FCC 562 (1964), recon. denied, 37 FCC 685 (1964), aff'd sub nom. Lorain Journal Co.  {O] - d(#v. FCC, 351 F.2d 824, 82829 (D.C. Cir. 1965), cert. denied, 383 US 967 (1966); Stereo Broadcasters, Inc., 55 FCC  {O' - d(#2d 819, 821 (1975), modified, 59 FCC 2d 1002 (1976); Southwest Texas Public Broadcasting Council, 85 FCC 2d  {O - d(#713, 715 (1981); Metromedia, Inc., 98 FCC 2d 300, 306 (1984), recon. denied, 56 RR2d 1198 (1985), appeal  {O -dismissed sub nom., California Association of the Physically Handicapped v. FCC, 778 F.2d 823 (D.C. Cir. 1985).K  X- v119.` ` Section 612 is designed to promote diversity of programming sources and to reduce  X- d(#ythe ability of cable operators to discriminate against unaffiliated programming services for anti d(#competitive reasons. Because these dual objectives are analogous to the objectives of the program  X_- d(#access and open video system rules,F_ 18 {O-ԍSee, e.g., Communications Act  653(b)(1)(A), 653(b)(1)(E), 47 U.S.C.  573(b)(1)(A), 573(b)(1)(E). adoption of a similar affiliation standard is warranted.  d(#Moreover, by adopting a definition of affiliate for leased access that is consistent with the  d(#program access standard, we avoid the possibility that a programmer will be considered a cable  d(#yoperator's affiliate for one purpose but not for another. We therefore decline to adopt Outdoor Life, et al.'s suggestion that we apply the broadcast attribution rules without modification.  X - 4w120.` ` We believe that the certainty provided by the definition we adopt above is  X - d(#preferable to the ad hoc inquiry proposed by ValueVision into whether a cable operator could  d(#control or influence a programmer's business affairs. We decline to adopt Time Warner's  X- d(#N"control" standard on similar grounds. We also decline to adopt the Title I definition of  d(#"affiliate." As described above, we believe that our program access standard is the appropriate  d(#ystandard for identifying the interests at issue here. No commenter has proposed that we adopt  d(#[the Title I standard, or provided any record evidence that would support such a standard. We  d(#have no basis to find that the Title I standard would identify the interests at issue as well as our program access standard.  X- x121.` ` We also clarify that leased access programmers are required to be unaffiliated only  d(#with the operator of the cable system on which they seek carriage. As discussed above, Section  d(#612(b)(1) provides that leased access channel capacity shall be designated for use by programmers  X- d(#"unaffiliated with the cable operator."dG\ 18 yO&-ԍCommunications Act  612(b)(1), 47 U.S.C.  532(b)(1).d We agree with Outdoor Life, et al. that use of the term"=G,N(N(ZZR"  d(#"the" to modify "cable operator" clearly indicates that Congress was referring only to the cable  X- d(#Koperator of the particular system in question.WHZ18 yOb- d(#hԍOutdoor Life, et al. Reply at 1617. Moreover, the term "the" modifies "operator" repeatedly throughout the  {O*- d(#lleased access provisions. See, e.g., Communications Act 612(b)(1)(D), (b)(4), and (c)(1), 47 U.S.C. 532(b)(1)(D), (b)(4), and (c)(1).W We believe that if Congress feared that affiliated  d(#Lprogrammers have an advantage in acquiring carriage from even rival cable operators, it would  X- d(#have disqualified all affiliated programmers by using "a" or "any" to modify "cable operator."I$18 yOV- d(#ԍAs Outdoor Life, et al. note, Congress has indeed used a broader modifier to indicate when affiliation with  {O - d(#[any cable operator is its intended meaning. Outdoor Life, et al. Reply at 16. See, e.g., Communications Act  {O - d(#x628(b), 47 U.S.C.  548(b) ("a satellite cable programming vendor in which a cable operator has an attributable interest") (emphasis added).  d(#Furthermore, allowing a broader category of programmers to use leased access will advance the statutory purposes of promoting competition and diversity.  X_- III.ORDER ON RECONSIDERATION  X1- A.` ` Maximum Rate Formula  W <` `  1. Exclusion of Programming Revenues   X - y122.` ` In the Reconsideration Order, we clarified that programming revenues received  d(#by the operator from nonleased access programmers, such as sales commissions from home  X - d(#jshopping networks, should not be included in the highest implicit fee calculation.PJ 18 {O0-ԍReconsideration Order at para. 37.P Since the  d(#Lhighest implicit fee was intended to recover only the value of channel capacity, we determined  d(#that its calculation should not include the value of services, such as marketing, other than the  Xd-provision of channel capacity.1Kdh 18 {O}-ԍId.1  X6- 2z123.` ` TCI contends that excluding sales commissions that cable operators receive from  d(#.home shopping services will lead to low rates that will encourage migration of home shopping  X- d(#networks from existing cable channels to leased access.L 18 {O - d(#ԍTCI Petition for Reconsideration at 4748. See also Adelphia, et al. Comments at 18 (the exclusion of sales commissions undercompensates cable operators). We find that the effect of excluding  X- d(#sales commissions on future maximum leased access rates will be minimal given that this Order:  d(#(a)adopts the average implicit fee for tiered services which, unlike the highest implicit fee, is  d(#derived using all channels on the relevant tier(s), and (b)eliminates direct sales programming as  X- d(#a separate category for setting rates. We are therefore not persuaded that excluding sales  d(#commissions will result in the migration of home shopping networks to leased access. ">T L,N(N(ZZ`"  d(#Accordingly, we decline to change our previous determination that such programming revenues should be excluded from the computation of maximum leased access rates.  W<` ` 2. Averaging Subscriber Penetration for A La Carte Channels  X- {124.` ` The Reconsideration Order clarified that in order to calculate the maximum rate  d(#=when leased access programming is offered as an a la carte service, the highest persubscriber  d(#kimplicit fee should be multiplied by the average number of subscribers that subscribe to the  XJ- d(#[operator's a la carte services.PMJ18 {O -ԍReconsideration Order at para. 39.P Our reasoning was that operators would be unfairly penalized  d(#for low subscribership to a leased access programmer's a la carte service if we required the  d(#Mhighest persubscriber implicit fee to be multiplied by the actual number of subscribers that  X - d(#purchased the leased access programming.1N Z18 {O-ԍId.1 TCI and NCTA seem to assert that, for a la carte  d(#xservices, the highest persubscriber implicit fee should be multiplied by the number of subscribers  X - d(#that subscribe to the operator's a la carte service with the highest subscriber penetration.lO 18 yOt-ԍTCI Petition for Reconsideration at 4748; NCTA Comments at 23 n.61.l TCI  d(#and NCTA's rationale is that the higher rate will discourage certain a la carte services from  X -migrating to leased access.mP |18 yO-ԍTCI Petition for Reconsideration at 4748; NCTA Commments at 23 n.61.m  X{- |125.` ` As discussed above in Section II.B.2.d., we will continue to permit cable operators  d(#]to use the highest implicit fee formula to set maximum reasonable rates for leased access  d(#Nprogramming that is carried as an a la carte service. We believe, however, that it is most  d(#Lappropriate to require operators to determine on an aggregate basis for a single channel which  d(#\of their a la carte services has the highest implicit fee. For example, if Channel A on a given  d(#cable system has a persubscriber implicit fee of $1.00 and has 2000 subscribers, its aggregate  d(#implicit fee is $2000. If Channel B has a persubscriber implicit fee of $1.50 and 1000  d(#subscribers, its aggregate implicit fee is $1500. Of these channels, Channel A has the highest  d(#kaggregate implicit fee even though it has a lower persubscriber implicit fee than Channel B.  d(#Therefore, assuming these two channels are the only channels offered on an a la carte basis, the  d(#amount that is implicitly paid for Channel A would be the maximum rate that the operator may charge a leased access programmer that wishes to be carried as an a la carte service.  XP- }126.` ` We believe that this formulation accurately represents the highest amount that a  d(#nonleased access programmer has agreed to implicitly pay the operator for carriage as an a la  d(#carte service. Thus, it will discourage existing a la carte services from migrating to leased access,  X - d(#{but it will also avoid artificially inflating the maximum rate as we believe TCI and NCTA's  d(#=apparent proposal has the potential to do. Accordingly, on reconsideration, we conclude that  d(#xoperators should not be required to multiply the highest persubscriber implicit fee by the average"? P,N(N(ZZJ"  d(#<number of subscribers that subscribe to the operator's a la carte services. We will instead require  d(#operators to determine which a la carte service has the highest implicit fee by comparing their implicit fees on an aggregate basis.  X- B.` ` Provision of Initial Leased Access Information  Wv< ` ` 1. Response Period  XH- ~127.` ` In the Reconsideration Order, we stated that our leased access complaint process  d(#>had revealed that cable operators often did not provide rate information in a timely manner,  d(#despite our rule requiring a schedule of rates to be provided to prospective leased access  X - d(#programmers upon request.RQ 18 {O~ -ԍReconsideration Order at para. 40. R We clarified that the purpose of the rule was to insure that the  d(# initial information a potential programmer might need in order to pursue leased access on a  X - d(#particular cable system be provided as soon as practicable.1R Z18 {O-ԍId.1 In order to facilitate the provision  d(#of such information to potential leased access programmers, we required an operator to provide  d(#the following information within seven business days of a request regarding leased access: (a)  d(#ja complete schedule of the operator's fulltime and parttime leased access rates; (b) how much  X{- d(#of the cable operator's leased access setaside capacity is available;S{18 yO- d(#jԍWe wish to remind operators that the relevant information is how much of their leased access setaside requirement remains unfilled, not how much open capacity remains on their system. (c)rates associated with  Xd-technical and studio costs; and (d) if specifically requested, a sample leased access contract.TdD18 {OY-ԍReconsideration Order at para. 40. See also 47 C.F.R.  76.970(e).  X6- 128.` ` Several commenters argue that an extension of the cable operator's response period  d(#from seven business days to 15 business days would greatly assist cable operators without unduly  X- d(#\burdening potential leased access programmers.U18 yO- d(#ԍTCI Petition for Reconsideration at 49; Daniels, et al. Petition for Reconsideration at 25; NCTA Comments on Information Collection Requirements at 23. Intermedia/Armstrong propose that the  d(#Kresponse time should be 30 days, arguing that operators receiving leased access requests by mail  d(#have less than seven business days to respond because the Commission's rules measure the  X- d(#response period from the date the request is made.kV. 18 {O"-ԍSee Intermedia/Armstrong Petition for Reconsideration at 24.k SCBA recommends that the Commission  d(#yallow operators of small cable systems 30 days to provide a written response stating whether it  X- d(#-has unused channel capacity available.<W 18 yO&-ԍSCBA Comments at 29.< SCBA also asks the Commission to allow operators of  d(#ysmall systems a response time of 60 days to provide the other leased access information that is"~@P W,N(N(ZZ}"  X- d(#.required by the Commission's rules.X18 {Oy-ԍSee SCBA Comments at 32; SCBA Comments on Information Collection Requirements at 67. SCBA contends that a sevenday response period will  d(#force operators of small systems to prepare the required information prior to receiving an inquiry  X- d(#concerning leased access.zYZ18 yO-ԍSCBA Comments at 3132; SCBA Comments on Information Collection Requirements at 6.z SCBA claims that this preparation will require a significant diversion  d(#of management time and the likely use of outside counsel and/or consultants, which is  X- d(#iunwarranted in light of the fact that virtually no small system operator has ever received a request  X- d(#for leased access information.zZ18 yO( -ԍSCBA Comments at 3132; SCBA Comments on Information Collection Requirements at 6.z Programmers such as ValueVision and HITN, however, oppose  d(#Zany change in the seven business day rule, arguing that the rule is necessary to ensure that cable  X_-operators provide leased access information in a timely manner.h[_z18 {O -ԍSee ValueVision Opposition at 12; HITN Comments at 2224.h  X1- 3129.` ` As an initial matter, we wish to stress our expectation that cable operators will  d(#respond to all leased access requests in a complete and timely manner. While we recognize the  d(#importance of prompt disclosure of the required information by cable operators, we nevertheless  d(#believe that an extension of the response period is justified. We will therefore modify our rule  d(#<to require operators to respond to a leased access request within 15 calendar days of the date the  d(#leased access programmer makes the request. Such an extension should insure that operators have  d(#a reasonable length of time to process leased access requests even when those requests are  d(#received through the mail. In order to provide more certainty regarding the date of a request, we  d(#zwill also modify our rule to require that all requests for leased access be made in writing and  Xb-specify the date they are sent to the operator.\"b 18 yO- d(#ԍWe note that our previous rule allowing requests to be made by telephone was not approved by the Office of  d(#Management and Budget. Several commenters agree that the Commission should require leased access requests to  {O- d(#<be in writing. See Daniels, et al. Petition for Reconsideration at 25; TCI Petition for Reconsideration at 4849; NCTA Comments on Information Collection Requirements at 12.  X4- 130.` ` We agree with SCBA that it is appropriate to grant certain operators of small  d(#jsystems additional time in which to provide the required information to potential leased access  d(#zprogrammers. We therefore will allow operators of systems subject to small system relief 30  d(#-calendar days from the date of a leased access request to provide the required information, rather  X- d(#ythan the 15 calendar days in which other operators must respond.`]& 18 {O"- d(#ԍFor this purpose, systems subject to small system relief are described under the standards adopted in the Small  {OI#- d(#JSystem Order, 10 FCC Rcd at 7406, 741213 (a cable system is entitled to small system relief if it either: (a) serves  d(#15,000 or fewer subscribers and is owned by a small cable company serving a total of 400,000 or fewer subscribers  {O$-over all of its systems, or (b) has been granted special relief as provided for in the Small System Order). ` Thus, in accordance with  d(#SCBA's request, we will allow the operators of systems subject to small system relief 30 calendar  d(#-days to specify how much leased access setaside capacity is available. We decline, however, to"A],N(N(ZZ"  d(#adopt SCBA's proposal to provide such operators 60 calendar days from the date of a request to  d(#xprovide the other required leased access information. We believe that by allowing such operators  d(#la full 30 days to compile the required information, the rule we adopt should minimize any  d(#potential need for these operators to prepare the information in advance of a leased access request  d(#while ensuring that potential leased access programmers receive the required information in a timely fashion.  W_<` ` 2. Preconditions To Providing Initial Leased Access Information (#   X1- 131.` ` In the Reconsideration Order, we stated that because cable operators must provide  d(#Kleased access information to programmers within seven business days of a programmer's request,  X - d(#operators may not impose preconditions to supplying the information.P^ 18 {O~ -ԍReconsideration Order at para. 40.P We believed that this  d(#rule was necessary because, in the past, some operators had required that prospective  d(#programmers supply extensive financial or other data before the operators would provide any  X -leased access information to a programmer, thus discouraging leased access use.  X- 132.` ` Intermedia/Armstrong seek reconsideration of this rule, arguing that if cable  d(#-operators were allowed to request some basic information from the programmer, they could avoid  d(#compiling and providing unnecessary information and would be able to provide better service to  XM- d(#programmers.a_MZ18 yOX-ԍIntermedia/Armstrong Petition for Reconsideration at 56.a In particular, Intermedia/Armstrong argue that operators should be permitted to  d(#\ask on which cable system and on which tier the programmer seeks access and whether the  X- d(#programming could be considered indecent.1`18 {O-ԍId.1 SCBA recommends that the Commission require  d(#operators of small cable systems to provide leased access information only in response to "bona  X- d(#[fide" leased access requests.?a|18 yO-ԍSCBA Comments at 2730.? SCBA defines such requests as those accompanied by a $500  d(#deposit intended to defray any costs the small system operator may incur while negotiating with  X- d(#the programmer and computing the leased access rates.;b 18 {O-ԍId. at 2930.; ValueVision, on the other hand, argues  d(#that Intermedia/Armstrong provide no rational basis for conditioning the provision of leased  X- d(#yaccess information on programmers supplying information to the operator.Hc18 yO"-ԍValueVision Opposition at 2 n.2.H ValueVision also  d(#[notes that Intermedia/Armstrong in particular have failed to respond to ValueVision's repeated  Xg-requests for leased access information.?dg. 18 {OF&-ԍId. at 2 and n.1.? "PB d,N(N(ZZ?"Ԍ X- ~133.` ` Because we remain concerned that requests for programmer information will be  d(#used by operators to discourage leased access use, we will not allow operators to ask for any  d(#information before responding to a leased access request unless the information is necessary to  d(#yprepare the required response. For instance, we clarify that if a leased access request does not  d(#specify for which cable system access is sought, the cable operator may ask the programmer for  d(#-this information because maximum rates are calculated on a persystem basis. On the other hand,  Xv- d(#we do not believe that information from the programmer regarding its tier preference is necessary  d(#for the operator to provide the required information, since the operator may place a programmer  XH- d(#.demanding access to a tier on any tier with more than 50% subscriber penetration.?eH18 {O -ԍSee Section II.E.? We also  d(#believe that operators should not be entitled to inquire about the content of the programming  d(#before responding to a request because such information is not relevant to the required rate and capacity information.  X -  X - o134.` ` We will, however, allow an exception for systems subject to small system relief  X - d(#<because their initial costs of providing this information may be higher than other systems.^f& Z18 {O- d(#ԍFor this purpose, systems subject to small system relief are described under the standards adopted in the Small  {O- d(#JSystem Order, 10 FCC Rcd at 7406, 741213 (a cable system is entitled to small system relief if it either: (a) serves  d(#15,000 or fewer subscribers and is owned by a small cable company serving a total of 400,000 or fewer subscribers  {O%-over all of its systems, or (b) has been granted special relief as provided for in the Small System Order).^ We  d(#agree with SCBA that certain operators of small systems should only be required to respond to  X- d(#Z"bona fide" leased access requests. Therefore, we find that operators of systems subject to small  d(#system relief do not have to provide the required information until the leased access programmer  d(#ksupplies the following information: (a)desired length of contract term, (b)time slot desired,  d(#(c)anticipated commencement date for carriage, and (d) thenature of the programming. Because  d(#we believe that such information sufficiently demonstrates an intent to obtain access, we do not  d(#agree with SCBA that operators of small systems may require leased access programmers to pay  X-a $500 deposit in order to defray operators' negotiation and rate computation expenses.?gH18 yO-ԍSCBA Comments at 2930.?  W< z ` ` 3. Obligation to Provide Information Regarding the Amount of Available  W<Leased Access Capacity (#  X- p135.` ` TCI and NCTA ask the Commission to reconsider its requirement that cable  d(#zoperators provide potential leased access users with information about how much setaside  d(#-capacity is available on their systems because providing such information is unduly burdensome  XN- d(#iand unnecessary.hN18 yO$-ԍTCI Petition for Reconsideration at 4950; NCTA Comments on Information Collection Requirements at 2. Both commenters argue that potential leased access programmers only need  d(#to know whether there is at least one channel available for their use and do not need to know"7Ch h,N(N(ZZ"  X- d(#jhow many other leased access channels remain available.i18 yOy-ԍTCI Petition for Reconsideration at 4950; NCTA Comments on Information Collection Requirements at 2. In addition, TCI and NCTA allege  d(#that supplying the information would be unduly burdensome because the formula used to  d(#Kcalculate the setaside requirement is complex and that changing circumstances continually affect  X- d(#the calculation.jX18 yO-ԍTCI Petition for Reconsideration at 4950; NCTA Comments on Information Collection Requirements at 2. We disagree. We believe that information concerning overall available channel  d(#capacity may be of use to a potential leased access programmer in deciding which cable system  X- d(#/best meets its needs, particularly if the programmer wishes to lease more than one channel.  d(#>Moreover, we do not believe that calculating a system's available leased access capacity is  d(#-difficult, particularly with the clarifications of our rules regarding the methodology for calculating  XH- d(#jsetaside requirements.kH18 {O - d(#ԍSee ValueVision Opposition at 3 (the amount of available leased access capacity is readily known to the operator and easy to provide). Finally, we have granted cable operators additional time in which to  d(#zsupply the information, and this additional time should make supplying the information less  X -burdensome.Cl B18 {O -ԍSee Section III.B.1. C We therefore decline to amend our rules as TCI and NCTA suggest.  X - !C.` ` Time Increments  X - "136.` ` In the Reconsideration Order, we stated that we will not require operators to accept  X - d(#yleases that are for less than halfhour intervals.Pm 18 {O.-ԍReconsideration Order at para. 47.P TCI asserts that the Commission should not  d(#!require cable operators to accept parttime leased access contracts in halfhour increments because  X{- d(#>this rule will result in a proliferation of infomercials and 900 number programming.\nX{f 18 yO- d(#ԍTCI Petition for Reconsideration at 4446 (arguing that infomercial programming will adversely affect cable  d(#operators' market development and the existing commercial marketplace, and will harm existing programmers that are preempted by small increments of leased access time).\ Other  d(#commenters propose that cable operators should be permitted to impose a twohour minimum for  XM- d(#leased access programming.oM 18 yO-ԍDaniels, et al. Petition for Reconsideration at 2526; E!, et al. Reply Comments at 6.  We find that commenters have presented no compelling new  d(#arguments or evidence on this issue, and we therefore decline to alter our current rule. As we  d(#noted above, parttime leased access programming provides much of the competition and diversity  X- d(#of programming sources that Section 612 was intended to promote.9p18 yO#-ԍSection II.C.2.a.9 As we stated in the  X- d(#LReconsideration Order, the most common programming time increment is typically onehalf to  X- d(#-one hour.Pq18 {O3'-ԍReconsideration Order at para. 47.P We therefore continue to believe that permitting operators to exclude leased access"D8q,N(N(ZZ"  d(#programming seeking halfhour increments would unfairly deny access to a substantial number  d(#Lof potential programmers. Moreover, we believe that the rules we adopt above regarding part d(#time use address TCI's concern that a halfhour minimum will cause excessive migration of  d(#^current infomercial programming to leased access channels and will lead to excessive  X- d(#displacement of existing nonleased access programmers.?r18 {O-ԍSee Section II.C.? We clarify that the leased access rate  d(#for a halfhour program must be prorated to reflect the length of the program (i.e., hourly rates cannot be charged for halfhour programs).  XH- D.` ` Calculation of Statutory SetAside Requirement  X -  137.` ` Section 612 requires a cable system to set aside up to 15% of its activated channels  d(#for leased access. For operators with 100 or fewer activated channels, the statutory setaside  d(#requirements for leased access channels are expressed as a percentage of "channels not otherwise  X - d(#required for use by federal law or regulation."ds Z18 yO-ԍCommunications Act  612(b)(1), 47 U.S.C.  532(b)(1).d In the Reconsideration Order, we clarified that  d(#for purposes of calculating the setaside requirements, channels carrying retransmission consent  d(#stations must be included in the calculation because they are not "required by federal law or  X- d(#zregulation."Pt18 {O--ԍReconsideration Order at para. 55.P TCI and Daniels, et al. argue that retransmission consent stations should be  d(#excluded because they are the functional equivalent of mustcarry stations, and given that cable  d(#operators have no control over the choice between retransmission consent and mustcarry, they  d(#must proceed under the assumption that each qualified local television station will elect must X6- d(#carry.u6|18 {Oc-ԍSee TCI Petition for Reconsideration at 4647; Daniels, et al. Petition for Reconsideration at 26. Ę We decline to adopt this proposed change. The carriage of stations electing  X- d(#iretransmission consent is not required by federal law or regulation.v18 {O- d(#;ԍSee ValueVision Opposition at 3 (federal law does not compel cable operators to carry retransmission consent stations in fact, Section 325(b) prohibits carriage without a station's consent). So long as a cable operator  d(#Zdecides to carry a local television station on a voluntary, retransmission consent basis, we do not  d(#=believe that the station's unexercised must carry rights make it the equivalent of a station that  d(#=invoked its mustcarry rights to obtain carriage. We will, however, clarify that channels which  d(#cannot be used due to technical and safety regulations of the federal government, such as  d(#aeronautical channels, should be excluded when calculating the setaside requirement for cable  X-systems that have 100 channels or less.wh 18 yO#-ԍ1984 House Report at 4849 (specifying the exclusion of these channels for systems with 100 channels or less). "~E w,N(N(ZZP"Ԍ X- D">@  D">@  E. ` ` Billing and Collection Services  X- 138.` ` Section 612(c)(4)(A)(ii) grants the Commission the authority to establish reasonable  d(#terms and conditions for the billing of rates to subscribers and for the collection of revenue from  X- d(# D">@  D">@ subscribers for leased access channels.rx18 yO-ԍCommunications Act  612(c)(4)(A)(ii), 47 U.S.C.  532(c)(4)(A)(ii).r In the Rate Order, we required cable operators to  d(#provide billing and collection services to leased access programmers unless operators could  d(#idemonstrate the existence of thirdparty billing and collection services which, in terms of cost and  d(#accessibility, offer leased access programmers an alternative substantially equivalent to that  XJ- d(#offered to comparable nonleased access programmers.QyJX18 {OS -ԍRate Order, 8 FCC Rcd at 59445945.Q In both the Rate Order and the  X5-Reconsideration Order, we declined to adopt specific rules regarding rates for such services.yz518 {O -ԍSee Rate Order, 8 FCC Rcd at 5945; Reconsideration Order at para. 51.y  X - 139.` ` VIPNA and HITN argue that the Commission should establish specific rules  X - d(#relating to the rates that cable operators can charge for billing and collection services.[{ |18 {O-ԍSee VIPNA Comments at 6; HITN Comments at 24.[ These  d(#Kcommenters, however, do not present any specific guidelines for establishing rates for billing and  d(#.collection services. Moreover, their arguments regarding this issue were fully considered and  X -rejected in the Reconsideration Order.T| 18 {Ol-ԍSee Reconsideration Order at para. 51.T We therefore decline to modify our current rule.  X- #&d HhW7 XH## Xj\  P6G;9XP# IV.MARKET ENTRY ANALYSIS  Xj-  XS- A140.` ` We note that Section 257 of the Communications Act requires the Commission to  d(#complete a proceeding to identify and eliminate market entry barriers for entrepreneurs and other  X%- d(#small businesses in the telecommunications industry.^}%18 yOv-ԍCommunications Act  257(a), 47 U.S.C.  257(a).^ The Commission is directed to promote  X- d(#a diversity of media voices and vigorous economic competition, among other things.^~0 18 yO-ԍCommunications Act  257(b), 47 U.S.C.  257(b).^ We  X- d(#-believe that this Order is consistent with the objectives of Section 257 in that it establishes rates,  d(#terms, and conditions for leased access that are intended to promote diversity and competition.  d(#xWe also believe that our provisions for parttime leased access are especially suited to allow small  d(#or entrepreneurial leased access programmers to enter the telecommunications programming marketplace. "F ~,N(N(ZZn"Ԍ X-  D">B  D">B V. FINAL REGULATORY FLEXIBILITY ANALYSIS  X- a141.` ` As required by Section 603 of the Regulatory Flexibility Act, 5 U.S.C.  603,  X- d(#("RFA"), an Initial Regulatory Flexibility Analysis ("IRFA") was incorporated in the Further  X- d(# D">B  D">B Notice.Z18 yO- d(#ԍThe IRFA was drafted prior to when the RFA was amended by the Contract with America Advancement Act  d(#[of 1996, Pub. L. No. 104121, 110 Stat. 847 (1996) ("CWAAA"). Subtitle II of the CWAAA is "The Small  {O-Business Regulatory Enforcement Fairness Act of 1996," codified at 5 U.S.C.  601 et seq. (1996) ("SBREFA"). The Commission sought written public comments on the proposals in the Further  X- d(#jNotice, including comments on the IRFA. This Final Regulatory Flexibility Analysis ("FRFA") conforms to the RFA, as amended.  XN- A.` ` Need for Action and Objectives of the Rule  X - $142.` ` Section 612 of the Communications Act requires the Commission to establish  d(#-reasonable terms and conditions, including maximum reasonable rates, for leased access on cable  d(#<systems. The purpose of this action is to amend the Commission's rules regarding leased access,  d(#including the rules for calculating maximum reasonable rates. The statutory objectives of the  d(#leased access provisions are to promote competition in the delivery of diverse programming  d(#sources and to assure the widest possible diversity of programming sources in a manner that is consistent with the growth and development of cable systems.  Xh- v B.` ` Summary of Issues Raised by the Public Comments in Response to the Initial  XQ-Regulatory Flexibility Analysis (#`  X#- 143.` ` In response to the IRFA, SCBA filed comments criticizing the Commission for  d(#failing to estimate the number of small cable systems and small cable operators that would be  X- d(#vaffected by the regulations proposed in the Further Notice.I18 yO-ԍSCBA Comments on the IRFA at 34.I SCBA argues that, as reflected in  X- d(#ithe Small System Order, the Commission has extensive data regarding the existence of small cable  X- d(#entities.3z18 {O-ԍId. 3 SCBA also claims the Commission neither sought specific comment regarding the  X- d(#impact of its proposals on small cable entities nor asked for alternatives.7 18 {Oq -ԍId. at 4.7 SCBA urges the  d(#Commission to adopt the alternatives for small cable systems that it has proposed in this  X-proceeding.118 {O#-ԍId.1 In its filings, SCBA raises the following issues and alternatives.   XX- 144.` ` Information Collection Issues. As discussed above in Section III.B.1., SCBA  XC- d(#argues that the Commission's seven businessday response time for providing leased access"CG0 ,N(N(ZZ"  X- d(#information imposes significant burdens on small cable systems.|18 yOy-ԍSCBA Comments at 3132; SCBA Comments on Information Collection Requirements at 57.| SCBA recommends that the  X- d(#Commission allow small system operators 30 days to provide a written response stating whether  d(#unused leased access capacity is available and 60 days to provide the remaining required  X- d(#information.X18 yO-ԍSCBA Comments at 29, 3132; SCBA Comments on Information Collection Requirements at 67. SCBA also requests that the Commission allow small system operators to respond  X-only to "bona fide" leased access requests.z18 yO= -ԍSCBA Comments at 2730; SCBA Comments on Information Collection Requirements at 7.z  Xv- 145. ` ` Rate Issues. SCBA argues that the Commission's proposed cost/market rate  Xa-formula would not adequately compensate small system operators for the following reasons:ax18 yO -ԍWe note that, to a large extent, TeleMedia of Delaware's Comments mirror SCBA's Comments.  XJ- z ` ` (a) FullTime Rates. SCBA contends that because small system operators  Aoften receive no advertising revenues, the Commission's cost/market rate formula  X -  #could result in leased access rates of zero or less.^ 18 {O-ԍSCBA Comments at 57. See also SCBA Reply at 2.^ Among other things, SCBA  #suggests that the Commission revise the proposed formula to allow small system  ooperators to recover all operating costs reflected on FCC Form 1230, instead of  X - using subscriber revenue as a surrogate for such costs.? 18 yO$-ԍSCBA Comments at 1920.? Alternatively, SCBA  _proposes allowing operators of small systems to charge market rates for all leased  $access programmers regardless of demand, particularly if the party requesting  Saccess is affiliated with the provider of a competing multichannel video  X}-programming service.;}* 18 {OX-ԍId. at 2122.;(#`  XO- z 7` ` (b) PartTime Rates. SCBA argues that if the fulltime rate under the  proposed cost/market rate formula is prorated, the per hour or halfhour rates for  X#- small systems would be lower than advertising rates, which would create a flood  X -of requests for parttime leased access.7  18 {Oy!-ԍId. at 8.7(#`  X- z b` ` (c) Transaction Costs. SCBA contends that leased access contracts create  higher transaction costs than other programming contracts because leased access  X- agreements are negotiated more frequently and must be negotiated on a systemby"HN ,N(N(ZZ"ԫ X- system basis.:18 {Oy-ԍId. at 911.: SCBA proposes that the Commission remedy this problem for  Bsmall system operators by allowing them to include an additional amount of at  X-least $1,000 in their leased access rate calculations.8Z18 {O-ԍId. at 18.8(#`  X-  X- z a ` ` (d) Technical Costs. SCBA argues that additional headend equipment used to  add leased access channels will result in high persubscriber costs for small  Xx- systems.8x18 {O -ԍId. at 14.8 SCBA proposes that the Commission allow small system operators to  charge leased access programmers for all technology costs related to leased  XJ-access.BJ~18 {Oy-ԍId. at 1415, 1819.B(#` ` ` (#`  X - z &` ` (e) Transition Period. SCBA argues that the Commission should phase in  leased access obligations for small cable systems to avoid the disruption to current  X -programming lineups that the proposed cost/market rate formula would create.; 18 {O-ԍId. at 2226.;(#`  X - z ` ` (f) Advance Channel Designations. The Further Notice proposed that a cable   }operator must place in its public file a list of the specific channels it intends to use  X- for leased access programming.S18 {O-ԍSee Further Notice at para. 76.S SCBA argues that small system operators  should only be required to provide the required leased access information  Xh-following receipt of a "bona fide" request.<h4 18 yOM-ԍSCBA Comments at 32.<(#`  X:- _146.` ` In reviewing the record before us, we have identified issues that may impact small  d(#[leased access programmers, such as maximum rate calculations, parttime use of leased access,  d(#resale, tier and channel placement, preferential access, dispute resolution procedures, certain  X- d(#contractual issues, technical equipment costs, and the definition of affiliate. In this Order, we have addressed comments from leased access programmers regarding these issues. "I ,N(N(ZZ"Ԍ X- D">D  D">D  C.` ` Description and Estimate of the Number of Small Entities Impacted.   X- 147.` ` The RFA directs the Commission to provide a description of and, where feasible,  X- d(#an estimate of the number of small entities that will be affected by the proposed rules.A18 yO4-ԍ5 U.S.C.  604(a)(3). A The  d(# D">D  D">D RFA defines the term "small entity" as having the same meaning as the terms "small business,"  d(#L"small organization," and "small governmental jurisdiction," and the same meaning as the term  Xv- d(#"small business concern" under Section 3 of the Small Business Act.=vX18 yO -ԍ5 U.S.C.  601(3).= Under the Small Business  d(#jAct, a "small business concern" is one which: (a)is independently owned and operated; (b)is  d(#not dominant in its field of operation; and (c)satisfies any additional criteria established by the  X1- d(#Small Business Administration ("SBA").;118 yO -ԍ15 U.S.C.  632.; The rules we adopt in this Order will affect cable systems and cable programmers.  X -  148.` ` Cable Systems: The SBA has developed a definition of small entities for cable and  d(#Lother pay television services, which includes all such companies generating $11 million or less  X - d(#in revenue annually.J x18 yO-ԍ13 C.F.R. Part 121.201 (SIC 4841).J While this definition includes small cable entities, it also includes closed  d(#circuit television services, direct broadcast satellite services, multipoint distribution systems,  d(#satellite master antenna systems and subscription television services. Thus, the definition includes  d(#Lmany small entities that will not be directly impacted by our leased access rules. According to  d(#-the Census Bureau, there were 1,423 such cable and other pay television services generating less  XO- d(#Mthan $11 million in revenue that were in operation for at least one year at the end of 1992.O18 yO- d(#-ԍ1992 Economic Census Industry and Enterprise Receipts Size Report, Table 2D, SIC 4841 (U.S. Bureau of the Census data under contract to the Office of Advocacy of the U.S. Small Business Administration).  d(#<We note that not only does this estimate include small entities other than small cable entities, but  d(#the majority of the small cable systems included within this estimate have less than 36 channels  d(#/and therefore are not subject to the Commission's leased access regulations. We therefore  d(#{estimate that, based on the SBA definition, the number of small cable entities likely to be impacted by our rules will be significantly less than 1,423 entities.  X- 149.` ` The Commission has developed its own definition of a small cable system for  d(#purposes of rate regulation. Under the Commission's rules, cable systems serving fewer than  d(#15,000 subscribers are considered small systems, and small systems owned by small cable  Xi- d(#companies serving fewer than 400,000 subscribers nationwide are entitled to small system"iJ` ,N(N(ZZ"  X- d(#relief.;(18 {Oy- d(#ԍ47 C.F.R.  76.901(c), (e). See also Small System Order, 10 FCC Rcd at 74067413. In addition, qualifying  {OC- d(#<cable systems may also be granted small system relief, as provided for in the Small System Order. Small System  {O - d(#Order, 10 FCC Rcd at 74127413. For purposes of leased access, SCBA supports using the Commission's definition  {O-of small systems in the Small System Order. SCBA Comments at 1718, 2021. ; This definition is both broader and narrower than that of the SBA. The definition is  X- d(#broader in that it includes larger cable systems than the SBA definition.18 yOR- d(#ԍ The Commission developed this definition based on its determination that a small cable system operator is  {O-one with annual revenues of $100 million or less. Small System Order at 10 FCC Rcd 74097410. It is narrower in that,  d(#unlike the SBA definition, it does not include closed circuit television services, direct broadcast  d(#satellite services, multipoint distribution systems, satellite master antenna systems, or subscription  d(#?television services. Our most recent information indicates that, under the Commission's  X- d(#definition, there were 1,439 systems entitled to small system relief at the end of 1995."18 {OP - d(#ԍPaul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on figures for December 30, 1995).  d(#;Since then, some of those companies may have grown to serve over 400,000 subscribers, and others may have been  d(#involved in transactions that caused them to be combined with other cable operators. Consequently, there may be fewer than 1,439 systems entitled to small system relief. Of these  d(#ysystems, we estimate that approximately 614 systems offer more than 36 channels, and thus are subject to our leased access rules.  X1- R150.` ` The Communications Act also contains a definition of a small cable system  d(#operator, which is "a cable operator that, directly or through an affiliate, serves in the aggregate  d(#.fewer than 1 percent of all subscribers in the United States and is not affiliated with any entity  X - d(#or entities whose gross annual revenues in the aggregate exceed $250,000,000."d 18 yO-ԍCommunications Act  623(m)(2), 47 U.S.C.  543(m)(2).d The  d(#<Commission has determined that there are 61,700,000 subscribers in the United States. Therefore,  d(#we found that an operator serving fewer than 617,000 subscribers shall be deemed a small  d(#operator if its annual revenues, when combined with the total annual revenues of all of its  X- d(#affiliates, do not exceed $250 million in the aggregate.B 18 yO-ԍ47 C.F.R.  76.1403(b).B Based on available data, we find that  Xy- d(#the number of cable operators serving 617,000 subscribers or less totals 1,450.y18 {OF-ԍPaul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on figures for December 30, 1995). Although it  d(#seems certain that some of these cable system operators are affiliated with entities whose gross  d(#annual revenues exceed $250 million, we are unable at this time to estimate with greater precision  d(#\the number of cable system operators that would qualify as small cable operators under the  X-definition in the Communications Act.    X- 151.` ` Cable Programmers: We anticipate that both small leased access programmers and  d(#?small nonleased access programmers may be impacted by our leased access rules. The  d(#Commission has not developed a definition of small entities applicable to producers or  X- d(#distributors of cable television programs. Therefore, we will utilize the SBA classifications of"K,N(N(ZZ"  X- d(# Motion Picture and Video Tape Production (SIC 7812),q18 yOy- d(#Yԍ"Establishments primarily engaged in the production of theatrical and nontheatrical motion pictures and video  d(#tapes for exhibition or sale, including educational, industrial, and religious films. Included in the industry are  d(#establishments engaged in both production and distribution. Producers of live radio and television programs are  d(#,classified in Industry 7922." Standard Industrial Classification Manual, SIC 7812, Executive Office of the President, Office of Management and Budget (1987) (OMB SIC Manual). q and Theatrical Producers (Except  X- d(#Motion Pictures) and Miscellaneous Theatrical Services (SIC 7922).3Xx18 yO- d(#ԍ"Establishments primarily engaged in providing live theatrical presentations, such as road companies and  d(#Lsummer theaters. . . . Also included in this industry are producers of . . . live television programs." OMB SIC Manual, SIC 7922.3 These SBA definitions  d(#provide that a small entity in the cable television programming industry is an entity with $21.5  d(#million or less in annual receipts for SIC 7812, and $5 million or less in annual receipts for SIC  X- d(#M7922.f18 yO -ԍ13 C.F.R.  121.201.#x6X@`7 iX@#f Census Bureau data indicate the following: (a) there were 7,265 firms in the United  d(#zStates classified as Motion Picture and Video Production (SIC 7812), and that 6,987 of these  Xv- d(#firms had $16.999 million or less in annual receipts and 7,002 of these firms had $24.999 million  X_- d(#>or less in annual receipts;_( 18 yO8- d(#-ԍU.S. Small Business Administration 1992 Economic Census Industry and Enterprise Report, Table 2D, SIC  d(#7812, (U.S. Bureau of the Census data adapted by the Office of Advocacy of the U.S. Small Business  d(#YAdministration) ("SBA 1992 Census Report"). Because the Census data do not include a category for $21.5 million,  d(#we have reported the closest increment below and above the $21.5 million threshold. There is a difference of 15  d(#firms between the $16,999 and $24,999 million annual receipt categories. It is possible that these 15 firms could have annual receipts of $21.5 million or less and would therefore be classified as small businesses. and (b) there were 5,671 firms in the United States classified as  d(#Theatrical Producers and Services (SIC 7922), and that 5627 of these firms had $4.999 million  X1-or less in annual receipts.I118 yO-ԍSBA 1992 Census Report, SIC 7922.I  X -  152.` ` Each of these SIC categories is very broad and includes firms that may be engaged  d(#in various industries, including cable programming. Specific figures are not available regarding  d(#how many of these firms exclusively produce and/or distribute programming for cable television  d(#Kor how many are independently owned and operated. Thus, we estimate that our rules may affect  d(#iapproximately 6,987 small entities that produce and distribute taped cable television programs and  d(#N5,627 small producers of live programs. In addition, as of May 31, 1996, there were 1,880  Xy-LPTV stations that may also be affected by our rules.y018 {OZ"- d(#ԍFCC News Release, Broadcast Station Totals as of May 31, 1996, Mimeo No. 63298 (released June 6, 1996). Given the nature of LPTV stations, we will presume that all LPTVs qualify as small entities.  XK-   D.` ` Reporting, Recordkeeping, and Other Compliance Requirements.  This section  d(#specifies the reporting, recordkeeping and other related requirements of the regulations adopted,  X-amended, modified, or clarified in this Order."L,N(N(ZZ)"Ԍ X- ԙ153.` ` Maximum Rate Calculations: Operators of cable systems subject to leased access  d(#requirements must calculate their maximum leased access rates in accordance with the rate  d(#\formulas we have established herein. We do not believe that operators will need additional professional skills to perform these calculations.  X-  154.` ` Accountant Reports: A final accountant report that is completed as a result of a dispute concerning an operator's rate calculations must be filed in the operator's local public file.  XL- 155.` ` Provision of Initial Leased Access Information: Within 15 calendar days of a  d(#-leased access request, cable operators are required to provide the following types of information:  d(#z(a) a complete schedule of the operator's fulltime and parttime leased access rates, (b) how  d(#much of the cable operator's leased access setaside capacity is available, (c)rates associated with  X - d(#technical and studio costs, and (d) if specifically requested, a sample leased access contract. An  d(#exception is provided for operators of systems entitled to small system relief, which are allowed  d(#30 calendar days to provide the required information. In addition, these operators are not  d(#required to respond to a leased access request if the programmer does not provide the following  d(#information: (a)desired length of contract term, (b)time slot desired, (c)anticipated commencement date for carriage, and (d) thenature of the programming.  XQ- n156.` ` Requirements for Leased Access Requests: Leased access requests must be made in writing and must specify the date the request was sent to the operator.  X-  N E.` ` Significant Alternatives and Steps Taken to Minimize the Significant  d(#: Economic Impact on a Substantial Number of Small Entities Consistent with the Stated  X- d(#zObjectives.  This section analyzes the impact on small entities of the regulations adopted,  X-amended, modified, or clarified in this Order.  X- 157.` ` Information Collection Issues. We are allowing operators of systems entitled to  d(#small system relief to respond to leased access requests within 30 calendar days, instead of the  d(#LN15 calendar days required of other operators. In addition, we are not requiring these operators  d(#to respond to leased access requests unless the programmer provides the following information:  d(#j(a)desired length of contract term, (b)time slot desired, (c)anticipated commencement date for  d(#carriage, and (d) thenature of the programming. These modifications to the Commission's rules  d(#=should mitigate any disproportionate burdens that responding to a leased access request may create for small system operators.  X -  ~158.` ` Rate Issues. We do not believe that either fulltime or parttime rates under our  d(#=maximum rate formula will impose disproportionate burdens on small system operators. When  d(#calculated for a particular cable system, both the average implicit fee (for tiered services) and the  d(#ihighest implicit fee (for a la carte services) represent what current nonleased access programmers  d(#are implicitly paying for carriage on that system. Because the maximum rates under an implicit  Xa%- d(#zfee formula are tailored to each individual system, we disagree with SCBA that small system"a%M,N(N(ZZ $"  X- d(#Moperators should be allowed to charge market prices.Z18 yOy- d(#ԍSCBA Comments at 2122. Since we are adopting an implicit fee formula, we do not need to address SCBA's  d(#argument that the proposed cost/market rate formula should allow small system operators to recover all operating  {O -costs reflected on FCC Form 1230, instead of using subscriber revenue as a surrogate for such costs. Id. at 1920. For the following reasons, we also  d(#\disagree with SCBA's various other proposals to modify the maximum rate formula for small systems.  X-  X- z ` ` (a) Transaction Costs. We do not agree with SCBA that small system   operators should be allowed to include in their rates an additional sum of at least  2$1,000 as compensation for transaction costs imposed by leased access because,  as discussed in Section II.B.2.c., we believe that the recovery that operators may  gain from subscriber revenue for leased access programming will sufficiently  X3-offset any additional transaction costs.:318 {O -ԍId. at 913.: (#`  X - z ` ` (b) Technical Costs. We decline to adopt modified rules for small system  X - |operators regarding the recovery of technical costs associated with leased access.B |18 {O-ԍId. at 1415, 1819.B  BWe believe that the rules described in Section II.K. will not disproportionately  Aimpact small system operators because the rules enable them to recover technical costs that are specific to leasing.(#` ` ` (#`  X}- z &` ` (c) Transition Period. SCBA argues that the Commission should phase in  leased access obligations for small cable systems in order to minimize the  XQ- displacement of existing programming services.;Q18 {O-ԍId. at 2226.; We disagree. In light of our  Padoption of the average implicit fee methodology and our accommodations of the  }special needs of small systems, we believe that a transition period is unnecessary. (#`  X- z ` ` (d) Advance Channel Designations. SCBA argues that the Commission should  2not require small system operators to publicly file a list of their designated leased  X- #access channels.818 {O"-ԍId. at 32.8 The Commission is not adopting such a requirement for any cable systems.(#`  Xm- 159.` ` Dispute Resolution Procedures. To account for their more limited resources, we  d(#are allowing operators of systems entitled to small system relief 14 business days to select an  d(#independent accountant when an operator and a leased access programmer fail to agree on a  d(#<mutually acceptable accountant to review the operator's rate calculations in the case of a dispute. "*N2 ,N(N(ZZ"  d(#zThe general rule is that the parties must each select an independent accountant on the sixth  d(#Kbusiness day if they cannot agree on a mutually acceptable accountant within five business days of the programmer's request for a review.  X-  X- A160.` ` Impact on Cable Programmers. Leased access may impact existing programmers  d(#>to the extent that operators displace them in order to accommodate leased access requests.  d(#However, we believe that displacement of existing programmers is inherent in Section 612(b)(4),  d(#Lwhich provides that a cable operator may no longer use unused leased access capacity once a  XJ- d(#.written agreement is obtained by a leased access programmer.dJ18 yO -ԍCommunications Act  612(b)(4), 47 U.S.C.  532(b)(4).d In addition, since it is within  d(#xan operator's discretion to select which nonleased access programmers to carry (aside from must d(#carry and PEG access channels), our rules do not create a disproportionate impact on small non d(#[leased access programmers. With respect to small leased access programmers, we believe that  d(#the impact of our revised rules generally will be positive, particularly since our rules will result  d(#in lower maximum rates for tiered services, permit resale, grant access to highly penetrated tiers,  d(#Land require parttime rates to be prorated without a surcharge. Although permissible costs for  d(#insurance policies, technical equipment, and accountant reviews of rate calculations may impose  d(#a burden on small leased access programmers, we believe that such impacts are the normal costs of being a leased access programmer, and that no modifications are warranted.  XM- F.` ` Report to Congress  X- 161.` ` The Commission shall send a copy of this Final Regulatory Flexibility Analysis,  X- d(#along with this Order, in a report to Congress pursuant to the Small Business Regulatory  d(#\Enforcement Fairness Act of 1996, 5 U.S.C. 801(a)(1)(A). A copy of this FRFA will also be published in the Federal Register.  X- VI.PAPERWORK REDUCTION ACT OF 1995 ANALYSIS  X- 162.` ` The requirements adopted in this Order have been analyzed with respect to the  d(#{Paperwork Reduction Act of 1995 (the "1995 Act") and found to impose new or modified  d(#information collection requirements on the public. Implementation of any new or modified  d(#requirement will be subject to approval by the Office of Management and Budget ("OMB") as  d(#prescribed by the 1995 Act. The Commission, as part of its continuing effort to reduce  d(#0paperwork burdens, invites the general public and OMB to comment on the information  X- d(#[collections contained in this Order as required by the 1995 Act.;X18 yO#-ԍPub. L. No. 10413.; OMB comments are due 60  X- d(#ydays from date of publication of this Order in the Federal Register. Comments should address:  d(#-(1) whether the proposed collection of information is necessary for the proper performance of the  d(#=functions of the Commission, including whether the information shall have practical utility; (2)  d(#the accuracy of the Commission's burden estimates; (3) ways to enhance the quality, utility, and""O,N(N(ZZ!"  d(#clarity of information collected; and (4) ways to minimize the burden of collection of information  d(#\on the respondents, including the use of automated collection techniques or other forms of information technology.  X- 3163.` ` Written comments by the public on the proposed and/or modified information  X- d(#=collections are due on or before 30 days after publication of this Order in the Federal Register.  d(#Written comments must be submitted by OMB on the proposed and/or modified information  d(#[collections on or before 60 days after publication of this Order in the Federal Register. A copy  d(#iof any comments on the information collections contained herein should be submitted to Dorothy  d(#Conway, Federal Communications Commission, Room 234, 1919 M Street, N.W., Washington,  d(#DC 20554, or via the Internet to dconway@fcc.gov and to Timothy Fain, OMB Desk Officer,  d(#10236, NEOB, 72517th Street, N.W., Washington, D.C. 20502 or via the Internet to  d(#fain_t@al.eop.gov For additional information concerning the information collections contained herein contact Dorothy Conway at 2024180217, or via the Internet at dconway@fcc.gov.  X - VII.ORDERING CLAUSES  X-  X{- #164.` ` Accordingly, IT IS ORDERED that, pursuant to the authority granted in Sections  d(#\4(i), 4(j), and 612 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j)  d(#yand 532, the Petitions for Reconsideration in CS Docket No. 9960 are GRANTED IN PART and DENIED IN PART, as provided herein.  X- Q165.` ` IT IS FURTHER ORDERED that, pursuant to the authority granted in Sections  d(#\4(i), 4(j), and 612 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j)  d(#and 532, Part 76 of the Commission's rules IS HEREBY AMENDED as shown in Appendix D.  X- d(#The amendments set forth in Appendix D shall become effective 30 days after publication in the  d(#Federal Register, except those that impose information collection requirements shall become  d(#yeffective upon approval by the Office of Management and Budget, but no sooner than 30 days after publication in the Federal Register.  XP- 166.` ` IT IS FURTHER ORDERED that the Secretary shall send a copy of this Order,  d(#including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the  d(#Small Business Administration in accordance with paragraph 603(a) of the Regulatory Flexibility  X -Act, Pub. L. No. 96354, 94 Stat. 1164, 5 U.S.C.  601 et seq. (1981). ` ` hhCFEDERAL COMMUNICATIONS COMMISSION ` ` hhCWilliam F. Caton ` ` hhCActing Secretary ">&P,N(N(ZZ$"  X-] APPENDIX A ă  X- Comments: A&E Television Networks, The Courtroom Television Network, NBC Cable, Ovation ("A&E, et al.") Access Television Network ("Access TV") Adelphia Communications Corp., Century Communications Corp., Falcon Holding Group, L.P., Insight Communications, Inc., Lenfest Communications, Inc. ("Adelphia, et al.") Adirondack Television Corporation ("Adirondack") Ambassadors for Christ Institute Asiavision, Inc. ("Asiavision") Association of America's Public Television Stations and the Public Broadcasting Service ("Assn. of Public TV/PBS") BCB Broadcasting, Inc. ("BCB Broadcasting") Beach TV Properties, Inc. ("Beach TV") Blab Television Network, Inc. ("Blab TV") Broadcasting Systems, Inc. ("Broadcasting Systems") Bruno Goodworth Network, Inc. d/b/a WBGNTV ("WBGNTV") Buckeye Cablevision, Inc. ("Buckeye") Car TV Productions, Inc. ("Car TV") Center for Media Education, Alliance for Community Media, Association of Independent Video and Filmmakers, Consumer Federation of America, National Association of Artists' Organizations, United States Catholic Conference ("CME, et al.") Comcast Cable Communications, Inc. ("Comcast") Community Broadcasters Association ("CBA") Continental Cablevision, Inc. ("Continental") Cox Communications, Inc. ("Cox") Daniels Communications, Inc., Greater Media, Inc., Helicon Corporation, Marcus Cable Partners, L.P., Prime Cable, Scripps Howard Cable Company, TCA Cable TV, Inc., Texas Cable and Telecommunications Association, Allen's TV Cable Service, Inc.,  X7-Halcyon Communications Partners, James Cable Partners, L.P., Moffat xxXCommunications Limited ("Daniels, et al.") The Honorable Lincoln DiazBalart, U.S. House of Representatives Discovery Communications, Inc. ("Discovery")  X- E! Entertainment Television, Inc., Television Food Network, America's Health Network, NorthWest Cable News, The Providence Journal Company ("E!, et al.") Encore Media Corporation ("Encore") Erwin Scala Broadcasting Corporation ("Erwin Scala") ESPN, Inc. ("ESPN") Eternal Word Television Network ("Eternal Word") The Faith & Values Channel ("Faith & Values") The Game Show Network, L.P. ("Game Show Network")  X#'- Hispanic Information and Telecommunications Network, Inc. ("HITN") Home & Garden Television ("Home & Garden") Intermedia Partners and Armstrong Utilities, Inc. ("Intermedia/Armstrong")"(Q,))ZZ'"ԌThe International Cable Channel Partnership, Ltd. ("International Channel") Island Broadcasting Co. ("Island Broadcasting") Mark Kliem Landmark Broadcasting Ltd. ("Landmark") Liberty Sports, Inc. ("Liberty Sports") Lifetime Television ("Lifetime") Lorilei Communications, Inc. ("Lorilei") Metropolitan Dade County, Florida ("Dade County") The Motion Picture Association of America, Inc. ("MPAA") Multimedia Cablevision, Inc. and Susquehanna Cable Co. ("Multimedia/Susquehanna") National Cable Satellite Corporation (CSPAN and CSPAN 2) ("CSPAN") National Cable Television Association, Inc. ("NCTA") Outdoor Life Network, Speedvision Network, The Golf Channel, BET on Jazz ("Outdoor Life, et al.") PBS Horizons Cable ("PBS Horizons")  X - Pennsylvania Cable Network ("Penn. Cable Network") Plunkett Family Prevue Networks, Inc. ("Prevue Networks") Prime Radiant Productions, Inc. ("Prime Radiant") R.K. Production Company ("RK Production")  X4- Rainbow Programming Holdings, Inc. ("Rainbow") Sherjan Broadcasting Co., Inc. ("Sherjan") Shop at Home, Inc. ("Shop at Home") Small Cable Business Association ("SCBA") Strategic Video Summit Communications, Inc. ("Summit") Sunbelt Video, Inc. ("Sunbelt") TeleCommunications, Inc. ("TCI") TeleMedia Corporation of Delaware ("TeleMedia of Delaware") Time Warner Cable ("Time Warner") The Travel Channel ("Travel Channel") Turner Broadcasting System, Inc., News Corporation, Ltd., CSpan ("Turner, et al.") TV61 San Diego, Inc. ("TV61") U S West USA Networks United Broadcasting Corporation, d/b/a Telemiami ("Telemiami") The Vacation Channel, Inc. ("Vacation Channel") ValueVision International, Inc. ("ValueVision") Viacom Inc. ("Viacom") Video Information Providers for Nondiscriminatory Access ("VIPNA") Viking Communications, Inc. ("Viking") Visual Media Productions, Inc. ("Visual Media") Vernon Watson WBOP TV12 (WBQPLP) ("WBQPLP") WEVULP (Tamiami Ft. Myers, Inc.) ("WEVULP") WZBN TV25 (W25AW) ("WZBN TV25") "(R,))ZZ'"Ԍ X-ԙ Reply Comments: A&E Television Networks, The Courtroom Television Network, NBC Cable, Ovation ("A&E, et al.") Adelphia Communications Corp., Century Communications Corp., Falcon Holding Group, L.P., Insight Communications, Inc. & Suburban Cable TV Co., Inc. (Adelphia, et al.") Blab Television Network, Inc. ("Blab TV") Center for Media Education, Alliance for Community Media, Association of Independent XVideo and Filmmakers, Consumer Federation of America, Consumer Project on Technology, Media Access Project, National Alliance for Media Arts and Culture, National Association of Artists' Organizations, National Council on La Raza, Office of  X -Communication of the United Church of Christ, People for the American Way ("CME, et al.")(# Comcast Cable Communications, Inc. and Cox Communications, Inc. ("Comcast/Cox") Community Broadcasters Association ("CBA") Continental Cablevision, Inc. ("Continental") Daniels Communications, Inc., Greater Media, Inc., Helicon Corporation, Marcus Cable XPartners, L.P., Prime Cable, Scripps Howard Cable Company, TCA Cable TV, Inc., Texas Cable and Telecommunications Association, Allen's TV Cable Service Inc., Community Antenna Systems, Fibervision, Inc., Halcyon Communications, Inc., James Cable Partners, L.P., Moffat Communications Limited ("Daniels, et al.")(# Denver Area Educational Telecommunications Consortium, Inc. ("Denver Area Ed.") The Disney Channel ("Disney Channel") E! Entertainment Television, Inc., Television Food Network, America's Health Network, XNorthWest Cable News, The Providence Journal Company ("E!, et al.)(# Encore Media Corporation ("Encore") ESPN, Inc. ("ESPN") The Faith & Values Channel ("Faith & Values") The Game Show Network, L.P. ("Game Show Network") General Instrument Corporation ("General Instrument") Hispanic Information and Telecommunications Network, Inc. ("HITN") Intermedia Partners and Armstrong Utilities, Inc. ("Intermedia/Armstrong") International Cable Channel Partnership, LTD. ("International Channel") Liberty Sports, Inc. ("Liberty Sports") Lifetime Television ("Lifetime") National Cable Satellite Corporation (CSPAN & CSPAN 2) ("CSPAN") National Cable Television Assoc., Inc. ("NCTA") Outdoor Life Network, Speedvision Network, The Golf Channel, BET on Jazz X("Outdoor Life, et al.")(# Paradise Television Network, Inc. ("Paradise") Sherjan Broadcasting Co., Inc. ("Sherjan") Small Cable Business Association ("SCBA") South Central Communications Corp. ("South Central") TeleCommunications, Inc. ("TCI") Time Warner Cable ("Time Warner") The Travel Channel ("Travel Channel")"(S,))ZZ'"ԌTurner Broadcasting System, Inc., News Corporation, LTD., CSpan ("Turner, et al.") U S West USA Networks United Broadcasting Corporation, d/b/a/ Telemiami ("Telemiami") ValueVision International, Inc. ("ValueVision") Viacom Inc. ("Viacom") Video Information Providers for Nondiscriminatory Access ("VIPNA")  X1- Comments on the Initial Regulatory Flexibility Act Analysis: Small Cable Business Association ("SCBA")  X - Comments on Information Collection Requirements:  X- National Cable Television Assoc., Inc. ("NCTA")  Xy- Small Cable Business Association ("SCBA")"yT,))ZZ"  X-] APPENDIX B ă  X- Petitions for Reconsideration: Daniels Communications, Inc., Greater Media, Inc., Helicon Corporation, Marcus Cable XPartners, L.P., Prime Cable, Scripps Howard Cable Company, TCA Cable TV, Inc., Texas Cable and Telecommunications Association, Allen's TV Cable Service Inc., Community Antenna Systems, Fibervision, Inc., Halcyon Communications, James Cable Partners, L.P., Moffat Communications Limited ("Daniels, et al.")(# Intermedia Partners and Armstrong Utilities, Inc. ("Intermedia/Armstrong") TeleCommunications, Inc. ("TCI") Note: Daniels, et al. and TCI each combined their comments and petition for reconsideration into one document. When referencing these documents, we separately designate their subparts as "Comments" or "Petition for Reconsideration," depending on the context.  Xb- Oppositions to Petitions for Reconsideration: ValueVision International, Inc. ("ValueVision")"4U,))ZZ"  X-@@` ` ] APPENDIX C ă`(#(#  X-  X-; Example of Average Implicit Fee Calculation ă  Xv-` `  hhCq  BST  ) CPST T ddx !ddx_V@ T      Subscriber Tier Charge >R$15.00 M$10.00 q _ h  X` hp x (#%'0*,.8135@8:on the tier. The final result is the maximum rate per month that the operator may charge the  d(#leased access programmer for a fulltime channel on that particular tier. The average implicit fee  d(#zshall be calculated by using all channels carried on any tier exceeding 50 percent subscriber  d(#penetration (including channels devoted to affiliated programming, mustcarry and public,  d(#jeducational and government access channels). In the event of an agreement to lease capacity  d(#on a tier with less than 50% penetration, the average implicit fee should be determined on the  d(#basis of subscriber revenues and programming costs for that tier alone. The license fees for  d(#affiliated channels used in determining the average implicit fee shall reflect the prevailing  d(#company prices offered in the marketplace to third parties. If a prevailing company price does  d(#not exist, the license fee for that programming shall be priced at the programmer's cost or the  d(#fair market value, whichever is lower. The average implicit fee shall be based on contracts in  d(#effect in the previous calendar year. The implicit fee for a contracted service may not include  d(#fees, stated or implied, for services other than the provision of channel capacity (e.g., billing and collection, marketing, or studio services).  v ^(e) The maximum commercial leased access rate that a cable operator may charge for  d(#fulltime channel placement as an a la carte service is the highest implicit fee on an aggregate basis for fulltime channel placement as an a la carte service.  v (f) The highest implicit fee on an aggregate basis for fulltime channel placement as an  d(#a la carte service shall be calculated by first determining the total amount received by the  d(#operator in subscriber revenue per month for each nonleased access a la carte channel on its  d(#>system (including affiliated a la carte channels) and deducting the total amount paid by the  d(#-operator in programming costs (including license and copyright fees) per month for programming  d(#on such individual channels. This calculation will result in implicit fees determined on an  d(#aggregate basis, and the highest of these implicit fees shall be the maximum rate per month that  d(#zthe operator may charge the leased access programmer for placement as a fulltime a la carte  d(#channel. The license fees for affiliated channels used in determining the highest implicit fee shall  d(#=reflect the prevailing company prices offered in the marketplace to third parties. If a prevailing  d(#?company price does not exist, the license fee for that programming shall be priced at the  d(#programmer's cost or the fair market value, whichever is lower. The highest implicit fee shall"#'Y,-(-(ZZ%} "  d(#.be based on contracts in effect in the previous calendar year. The implicit fee for a contracted  d(#service may not include fees, stated or implied, for services other than the provision of channel  d(#capacity (e.g., billing and collection, marketing, or studio services). Any subscriber revenue  d(#<received by a cable operator for an a la carte leased access service shall be passed through to the leased access programmer.  v m(g) The maximum commercial leased access rate that a cable operator may charge for  d(#parttime channel placement shall be determined by either prorating the maximum fulltime rate  d(#yuniformly, or by developing a schedule of and applying different rates for different times of the  d(#day, provided that the total of the rates for a 24hour period does not exceed the maximum daily  X -leased access rate.  v /(h) Cable system operators shall provide prospective leased access programmers with the  d(#Lfollowing information within 15 calendar days of the date on which a request for leased access  d(#<information is made: (1)how much of the operator's leased access setaside capacity is available;  d(#(2) a complete schedule of the operator's fulltime and parttime leased access rates; (3) rates  d(#associated with technical and studio costs; and (4) if specifically requested, a sample leased access  d(#-contract. Operators of systems subject to small system relief shall provide the above information  d(#-within 30 calendar days of a bona fide request from a prospective leased access programmer. For  d(#these purposes, systems subject to small system relief are systems that either (1) qualify as small  d(#^systems under 76.901(c) and are owned by a small cable company as defined under  d(#76.901(e), or (2) have been granted special relief. All requests for leased access must be made  d(#in writing and must specify the date on which the request was sent to the operator. Bona fide  d(#requests, as used in this section, are defined as requests from potential leased access programmers  d(#that have provided the following information: (1) the desired length of a contract term; (2) the  d(#=time slot desired; (3) the anticipated commencement date for carriage; and (4) the nature of the  d(#programming. Operators shall maintain, for Commission inspection, sufficient supporting  d(#documentation to justify the scheduled rates, including supporting contracts, calculations of the implicit fees, and justifications for all adjustments.  XN-  3.` ` Section 76.971 is amended by revising paragraphs (a), (c), (d), (f) and (g) and adding paragraph (h) to read as follows: Sec. 76.971 Commercial leased access terms and conditions.  v (a) (1) Cable operators shall place leased access programmers that request access to a  d(#tier actually used by most subscribers on any tier that has a subscriber penetration of more than 50 percent, unless there are technical or other compelling reasons for denying access to such tiers.  v (2) Cable operators shall be permitted to make reasonable selections when placing leased  d(#access channels at specific channel locations. The Commission will evaluate disputes involving  d(#channel placement on a casebycase basis and will consider any evidence that an operator has acted unreasonably in this regard. "#'Z,-(-(ZZ%} "Ԍ v (3) On systems with available leased access capacity sufficient to satisfy current leased  d(#Kaccess demand, cable operators shall be required to accommodate as expeditiously as possible all  d(#leased access requests for programming that is not obscene or indecent. On systems with  d(#Minsufficient available leased access capacity to satisfy current leased access demand, cable  d(#.operators shall be permitted to select from among leased access programmers using objective,  X-contentneutral criteria.  v \(4) Cable operators that have not satisfied their statutory leased access requirements shall  d(#accommodate parttime leased access requests as set forth in this paragraph. Cable operators shall  d(#Znot be required to accept leases for less than one halfhour of programming. Cable operators may  d(#accommodate parttime leased access requests by opening additional channels for parttime use  d(#jor providing comparable time slots on channels currently carrying leased or nonleased access  d(#jprogramming. The comparability of time slots shall be determined by objective factors such as  d(#.day of the week, time of day, and audience share. A cable operator that is unable to provide a  d(#comparable time slot to accommodate a parttime programming request shall be required to open  d(#an additional channel for parttime use unless such operator has at least one channel designated  d(#for parttime leased access use that is programmed with less than 18 hours of parttime leased  d(#access programming every day. However, regardless of the availability of partially programmed  d(#Kparttime leased access channels, a cable operator shall be required to open an additional channel  d(#to accommodate any request for parttime leased access for at least eight contiguous hours, for  d(#the same time period every day, for at least a year. Once an operator has opened a vacant  d(#.channel to accommodate such a request, our other leased access rules apply. If, however, the  d(#operator has accommodated such a request on a channel already carrying an existing fulltime  d(#knonleased access programmer, the operator does not have to accommodate other parttime  d(#requests of less than eight hours on that channel until all other existing parttime leased access channels are substantially filled with leased access programming. * * * * *  v ?(c) Cable operators are required to provide unaffiliated leased access users the minimal  d(#level of technical support necessary for users to present their material on the air, and may not  d(#unreasonably refuse to cooperate with a leased access user in order to prevent that user from  d(#obtaining channel capacity. Leased access users must reimburse operators for the reasonable cost  d(#of any technical support actually provided by the operator that is beyond that provided for non d(#leased access programmers on the system. A cable operator may charge leased access  d(#Nprogrammers for the use of technical equipment that is provided at no charge for public,  d(#educational and governmental access programming, provided that the operator's franchise  d(#agreement requires it to provide the equipment and does not preclude such use, and the equipment  d(#is not being used for any other nonleased access programming. Cable operators that are required  d(#-to purchase technical equipment in order to accommodate a leased access programmer shall have  d(#the option of either requiring the leased access programmer to pay the full purchase price of the  d(#equipment, or purchasing the equipment and leasing it to the leased access programmer at a  d(#[reasonable rate. Leased access programmers that are required to pay the full purchase price of":&[,-(-(ZZ$} "  d(#additional equipment shall have all rights of ownership associated with the equipment under applicable state and local law.  v O(d) * * * Cable operators may impose reasonable insurance requirements on leased  d(#access programmers. Cable operators shall bear the burden of proof in establishing reasonableness. * * * * *  v (f) (1) A cable operator shall provide billing and collection services for commercial  d(#leased access cable programmers, unless the operator demonstrates the existence of third party  d(#billing and collection services which in terms of cost and accessibility, offer leased access  d(#programmers an alternative substantially equivalent to that offered to comparable nonleased access programmers.  X -(2)` ` * * *  v (g) Cable operators shall not unreasonably limit the length of leased access contracts.  d(#The termination provisions of leased access contracts shall be commercially reasonable and may  XK-not allow operators to terminate leased access contracts without a reasonable basis.  v m(h) Cable operators may not prohibit the resale of leased access capacity to persons  d(#unaffiliated with the operator, but may provide in their leased access contracts that any sublessees  d(#[will be subject to the nonprice terms and conditions that apply to the initial lessee, and that, if the capacity is resold, the rate for the capacity shall be the maximum permissible rate.  X-  4.` ` Section 76.975 is amended by revising paragraphs (b), (c), (d) and (e) to read as follows: Sec. 76.975 Commercial leased access dispute resolution. * * * * *  v _(b) (1) Any person aggrieved by the failure or refusal of a cable operator to make  d(#<commercial channel capacity available or to charge rates for such capacity in accordance with the  d(#provisions of Title VI of the Communications Act, or our implementing regulations, Sections  d(#M76.970 and 76.971, may file a petition for relief with the Commission. Persons alleging that a  d(#cable operator's leased access rate is unreasonable must receive a determination of the cable  d(#=operator's maximum permitted rate from an independent accountant prior to filing a petition for relief with the Commission.  v !(2) Parties to a dispute over leased access rates shall have five business days to agree  d(#on a mutually acceptable accountant from the date on which the programmer provides the cable  d(#operator with a written request for a review of its leased access rates. Parties that fail to agree"#'\,-(-(ZZ%} "  d(#yon a mutually acceptable accountant within five business days of the programmer's request for  d(#ja review shall each be required to select an independent accountant on the sixth business day.  d(#The two accountants selected shall have five business days to select a third independent  d(#accountant to perform the review. Operators of systems subject to small system relief shall have  d(#14 business days to select an independent accountant when an agreement cannot be reached. For  d(#these purposes, systems subject to small system relief are systems that either (1) qualify as small  d(#^systems under 76.901(c) and are owned by a small cable company as defined under  d(#{76.901(e), or (2) have been granted special relief. The final accountant's report must be  d(#completed within 60 days of the date on which the final accountant is selected to perform the  d(#Mreview. The final accountant's report must, at a minimum, state the maximum permitted rate,  d(#.and explain how it was determined without revealing proprietary information. The report must  d(#be signed, dated and certified by the accountant. Such information shall be filed in the cable system's local public file.  v (3) If the accountant's report indicates that the cable operator's leased access rate  X - d(#exceeds the maximum permitted rate by more than a de minimis amount, the cable operator shall  X- d(#=be required to pay the full cost of the review. If the final accountant's report does not indicate  d(#[that the cable operator's leased access rate exceeds the maximum permitted rate by more than a  Xd- d(#de minimis amount, each party shall be required to split the cost of the final accountant's review, and to pay its own expenses incurred in making the review.  v (4) Parties may use alternative dispute resolution (ADR) processes to settle disputes that are not resolved by the final accountant's report.  v N(c) * * * Where a petition is based on allegations that a cable operator's leased access  d(#rates are unreasonable, the petitioner must attach a copy of the final accountant's report. In  d(#]proceedings before the Commission, there will be a rebuttable presumption that the final accountant's report is correct.  v (d) A petition must be filed within 60 days of completion of the final accountant's  d(#report, or within 60 days of the termination of ADR proceedings. Aggrieved parties must certify  d(#that their petition was filed within 60 days of the termination of ADR proceedings in order to file  d(#a petition later than 60 days after completion of the final accountant's report. Cable operators may rebut such certifications.  v (e) The cable operator or other respondent will have 30 days from the filing of the  d(#jpetition to file a response. If a leased access rate is disputed, the response must show that the  d(#rate charged is not higher than the maximum permitted rate for such leased access, and must be  d(#supported by the affidavit of a responsible company official. If, after a response is submitted,  d(#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. * * * * * "''],-(-(ZZ%} "Ԍ X- 5.` ` Section 76.977 is amended by revising the second sentence of paragraph (a) to read as follows:  d(#jSec. 76.977 Minority or educational programming used in lieu of designated commercial leased access capacity.  v (a) * * * The channel capacity used to provide programming from a qualified minority  d(#programming source or from any qualified educational programming source pursuant to this  d(#Section may not exceed 33 percent of the channel capacity designated pursuant to 47 U.S.C. 532 and must be located on a tier with more than 50 percent subscriber penetration. * * * * *  X -