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File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** FOR FCC RECORD ONLY $// Leased Commercial Access, FCC 96-122 //$ $// Amendment of Part 76, Subpart N, Cable Rate Regulation, FCC 96-122 //$ $/ 76.970 Commercial leased access rates /$ $/ 76.971 Commercial leased access terms and conditions /$ $/ 76.975 Commercial leased access dispute resolution /$ $/ 76.977 Minority and educational programming used in lieu of designated commercial leased access capacity /$ FCC 96-122 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Implementation of Sections of the ) Cable Television Consumer Protection ) MM Docket No. 92-266 and Competition Act of 1992: ) Rate Regulation ) ) Leased Commercial Access ) CS Docket No. 96-60 ORDER ON RECONSIDERATION OF THE FIRST REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING Adopted: March 21, 1996 Released: March 29, 1996 By the Commission: Comment Date: May 15, 1996 Reply Comment Date: May 31, 1996 Table of Contents Paragraph I. Introduction and Background . . . . . . . . . . . . . . . . . . . . .1 II. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 III. Order on Reconsideration . . . . . . . . . . . . . . . . . . . . . 14 A. Maximum Rate Formula . . . . . . . . . . . . . . . . . . . . . 14 B. Part-Time Rates. . . . . . . . . . . . . . . . . . . . . . . . 41 C. Time Increments . . . . . . . . . . . . . . . . . . . . . . . 46 D. Billing and Collection Services . . . . . . . . . . . . . . . 48 E. Security Deposits . . . . . . . . . . . . . . . . . . . . . . 52 F. Calculation of Statutory Set-Aside Requirements . . . . . . . 54 G. Reporting Requirements . . . . . . . . . . . . . . . . . . . . 56 IV. Further Notice of Proposed Rulemaking . . . . . . . . . . . . . . . 61 A. Maximum Rate Formula . . . . . . . . . . . . . . . . . . . . . 61 B. Part-Time Rates. . . . . . . . . . . . . . . . . . . . . . . .102 C. Preferential Access. . . . . . . . . . . . . . . . . . . . . .103 D. Tier and Channel Placement . . . . . . . . . . . . . . . . . .116 E. Obligation to Open New Channels and Bump Existing Non-Leased Access Services. . . . . . . . . . . . . .121 F. Selection of Programmers . . . . . . . . . . . . . . . . . . .127 G. Minority and Educational Programmers . . . . . . . . . . . . .130 H. Procedures for Resolution of Disputes. . . . . . . . . . . . .133 I. Resale of Leased Access Time . . . . . . . . . . . . . . . . .141 V. Regulatory Flexibility Analysis . . . . . . . . . . . . . . . . . .142 VI. Initial Paperwork Reduction Act of 1995 Analysis. . . . . . . . . .154 VII. Procedural Provisions . . . . . . . . . . . . . . . . . . . . . . .155 VIII. Ordering Clauses . . . . . . . . . . . . . . . . . . . . . . .159 Appendix A - Parties Appendix B - Calculation of the Proposed Cost Formula Appendix C - Components of the Proposed Cost/Market Rate Formula Appendix D - Numerical Illustration of the Proposed Cost Formula Appendix E - An Example Transition to the Proposed Cost Formula Appendix F - Revised Rules I. INTRODUCTION AND BACKGROUND 1. In this Order on Reconsideration and Further Notice of Proposed Rulemaking ("Order and Further Notice"), we address ten petitions for reconsideration of the cable television commercial leased access rules adopted in our Report and Order in MM Docket 92-266, pursuant to the provisions of the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), and request comment on many of the issues involved. 2. The statutory framework for commercial leased access was established by the 1984 Cable Act and amended by the 1992 Cable Act. The 1984 Cable Act established commercial leased access to assure access to the channel capacity of cable systems by parties unaffiliated with the cable operator who want to distribute video programming free of the editorial control of the cable operator. Channel set-aside requirements were established in proportion to a system's total activated channel capacity, in order to "assure that the widest possible diversity of information sources are made available to the public from cable systems in a manner consistent with the growth and development of cable systems." A cable system operator was permitted to use any unused leased access channel capacity for its own purposes, until such time as a written agreement for a leased channel use was obtained. Each system operator subject to this requirement was to establish "the price, terms, and conditions of such use which are at least sufficient to assure that such use will not adversely affect the operation, financial condition, or market development of the cable system." 3. The 1992 Cable Act amendments to Section 612 broadened the statutory purpose to include "the promotion of competition in the delivery of diverse sources of video programming," and the Commission was provided with expanded authority: (1) to determine the maximum reasonable rates that a cable operator may establish for leased access use, including the rate charged for the billing of subscribers and for the collection of revenue from subscribers by the cable operator for such use; (2) to establish reasonable terms and conditions for leased access, including those for billing and collection; and (3) to establish procedures for the expedited resolution of leased access disputes. The legislative history of the 1992 amendments expresses concern that some cable operators may have established unreasonable terms or may have had financial incentives to refuse to lease channel capacity to potential leased access users based on anticompetitive motives, especially if the operator had a financial interest in the programming services it carried. 4. In the Rate Order in this docket, the Commission established initial regulations to implement the leased access provisions of the 1992 Cable Act. The Commission adopted the highest implicit fee formula as the method to set maximum reasonable rates, and adopted various standards governing access terms and conditions, tier placement, technical standards for use, technical support, security deposits, conditions based on program content, and requirements for billing and collection service. Each of these is discussed in the appropriate sections below. Procedures for the expedited resolution of disputes were also established. In the Rate Order, the Commission also determined that leased access requirements were intended to apply to all systems regardless of the "effective competition" test that governs basic service tier ("BST") and cable programming service tier ("CPST") rate regulation. 5. In the Rate Order, the Commission stated, however, that, given the small number of comments received relating to leased access, "the rules we adopt should be understood as a starting point that will need refinement both through the rulemaking process and as we address issues on a case-by-case basis." The Commission stated that it was aware that leasing issues may need to be addressed in quite different fashions depending upon the nature of the service involved -- whether the lease is for a pay channel, an advertiser- supported channel intended for wide distribution, a channel for a narrow commercial purpose not relevant to the wide body of cable subscribers, or for a single program or series of programs. Thus, the Commission stated that it was not at that time attempting to resolve comprehensively all the issues potentially involved, many of which could better be resolved in a more specific concrete factual setting. II. SUMMARY 6. Cable operators and leased access programmers agree that relatively little leased access capacity is being used by unaffiliated programmers. They disagree on the reason for the lack of leased access programming. Programmers claim that the Commission's current maximum rate-setting mechanism, the highest implicit fee formula, results in rates which are prohibitively high, which makes leased access unaffordable to most programmers. In contrast, operators claim that the demand for leased access is weak regardless of the leased access rate, because, at least in part, programming production costs are high. Given these opposing views, we are re-examining the highest implicit fee formula from an economic perspective. The Commission believes that if the maximum rate for leased access is reasonable, the corresponding amount of leased access demand will also be reasonable. 7. The Commission tentatively concludes that the highest implicit fee formula is likely to overcompensate cable operators and does not sufficiently promote the goals underlying the leased access provisions. First, we believe that the highest implicit fee allows double recovery of subscriber revenues by the operator. These revenues may be recovered once from the subscriber (included in the tier charge) and again from the programmer (included in the implicit fee). 8. Second, we are concerned that the highest implicit fee allows an operator to charge a leased access programmer a fee based on the channel with the highest markup over programming costs (i.e, the highest implicit fee). Because the implicit fee for many, if not most, non-leased channels is by definition less than the highest implicit fee, the operator is willing to accept less than the highest implicit fee from non-leased access programmers. Charging the leased access programmer the highest implicit fee therefore allows the operator to set a higher rate than it accepts on non-leased access channels. Third, the Commission believes that the highest implicit fee is not based on the reasonable costs that leased access programming imposes on operators. 9. Given these limitations of the highest implicit fee, the Commission is proposing an alternative that we believe may better promote the goals of leased access. Under our proposed approach, the maximum rate for leased access would depend on whether or not the cable operator is leasing its full statutory set-aside requirement. When the full set- aside capacity is not leased to unaffiliated programmers, the maximum rate would be based on the operator's reasonable and quantifiable costs (i.e, the costs of operating the cable system plus the additional costs related to leased access), including a reasonable profit. The operator would be allowed to continue to use subscriber revenues (including the subscriber revenues associated with leased access channels) to offset the costs of the cable system. In addition, the operator would be allowed to charge the leased access programmer to cover the reasonable costs of bumping channels to accommodate leased access programmers. The operator would also be permitted to charge part-time leased access programmers any additional costs associated with negotiating and administering part-time leased access programming contracts. In our view, this approach would result in a rate that would better promote the statutory objective of diversity by encouraging unaffiliated programmers to lease the channel capacity. The purpose of the cost formula is not, however, to lower leased access rates. 10. On the other hand, we tentatively conclude that once the operator has met its set-aside requirement, the cost-based maximum rate could be replaced by a market rate. (Because the cost-based maximum rate may be replaced with a market rate, we refer to this proposed approach as the cost/market rate formula.) The operator could negotiate higher rates as long as its set-aside requirement continues to be met. We believe that market rates will most effectively determine which programmers should receive leased access on the system when the operator's set-aside is satisfied. Within the leased access market, those programmers who are able to pay the most for channel capacity would presumably be able to acquire the set-aside channels. The higher price that some leased access programmers may offer to pay for the channel capacity reflects the greater ability and willingness of consumers to pay for the programming to be carried on each of these channels. Thus, relying on market prices to allocate channel capacity provides consumers with an efficient mechanism to communicate their preferences about which leased access programming should be carried by the operator. 11. We recognize that market rates may rise above operators' costs; such prices, however, are the result of competition among unaffiliated programmers to use the statutory leased access channel capacity. We believe that, so long as the operator is accommodating leased access to the full extent required by Congress and Section 612, any price increase would be reasonable. After all, under our proposal, the operator cannot charge market rates if the number of channels leased falls below the number designated by the statute. Thus, a higher rate would reflect excess demand by programmers for the operator's statutory channel capacity. 12. We tentatively conclude that this cost/market rate formula represents a pricing scheme that would establish a maximum reasonable rate without placing an unreasonable financial burden on operators. It would not guarantee that leased access programming would increase. If the cost formula is adopted and does not increase the demand for leased access, we do not believe at this time that further modification of the cost formula would be appropriate. With the possible exception of a rate for not-for-profit programmers, any maximum reasonable rate formula that we adopt, including the proposed cost formula, will not provide a subsidy for leased access programmers. 13. Because our proposed cost/market rate formula is fundamentally different from our current implicit fee formula, we do not adopt the cost/market rate formula at this time. Instead, we seek comment on the issues raised by our proposal. Given our concerns about the current highest implicit fee formula, we expect to act on the comments received in response to this Further Notice as expeditiously as possible. In addition to proposing to modify the maximum rate formula, the Commission: (a) solicits comment on whether to provide preferential treatment for not-for-profit programmers requesting leased access; (b) tentatively concludes that leased access programmers have a right to be placed on a tier that most subscribers actually use; and (c) proposes to streamline its dispute resolution procedures. The Commission has also reconsidered several other issues relating to leased access, and, where appropriate, this Order sets forth rules regarding these issues. For example, we amend our rules to clarify that operators must provide certain leased access rate and channel availability information to prospective leased access programmers within seven business days of such programmers' request. III. ORDER ON RECONSIDERATION A. Maximum Rate Formula 1. Background 14. As indicated above, Section 612 of the Communications Act directs the Commission to determine the maximum reasonable rates that a cable operator may impose for leased commercial access. Previously, the Commission adopted rules that base the maximum rate on an "implicit" fee paid by non-leased access program services that are being distributed. In the non-leased access context, cable system operators generally receive a payment from subscribers and pay contractual license fees to programmers for the channels the operators distribute. The differences between these dollar amounts may be thought of as the implicit fees that the programmers pay to have their services distributed to subscribers. The Commission determined that the implicit fee is the price per channel each subscriber pays the operator minus the amount per subscriber the operator pays the programmer. Section 76.970(c) of the Commission's rules provides that this difference is multiplied by the percentage of subscribers able to receive the unaffiliated programmer's service. The implicit fee for a contracted service may not include fees, stated or implied, for services other than the provision of channel capacity (e.g., billing and collection, marketing, or studio services). Section 76.970(d) of the rules states that maximum rates for shorter periods of time can be calculated by prorating the monthly maximum rate. 15. This formula for the maximum rate was intended to avoid a burdensome "rate base, rate-of-return" type of rate calculation. A rate could be derived based on a simple calculation using as inputs only subscriber rates and programming contract prices. The highest implicit fee calculation was intended to avoid existing programming services migrating to leased access channels in a way that would not benefit subscribers or "diverse" entities seeking leased access. 16. Under our current rules, the maximum rate is the highest of the implicit fees charged any unaffiliated programmer within the same programmer category. Cable operators are required to calculate the highest implicit fee for each of the following programmer categories: (a) those charging subscribers directly on a per-event or per-channel basis; (b) those using a channel for more than 50 percent of the time to sell products directly to customers (e.g., home shopping networks, infomercials, etc.); and (c) all others. These three categories were intended to recognize that leasing issues may need to be addressed in quite different ways depending on the nature of the service involved. Under the rules, cable operators are required to calculate annually the maximum rates for each programmer category based on the contracts with unaffiliated programmers in effect in the previous calendar year. Operators are further required to provide rate schedules to prospective programmers upon request. 17. The implicit fee was intended to recover only the value of the channel capacity and not any fees paid by or to the operator for other services, such as billing and collection, marketing, or studio services. The Rate Order further concluded that the resulting rates "will not adversely affect the operation, financial condition or market development" of cable systems and will enable commercial leased access to become the source of program diversity and competition to the cable operators that Congress intended it to be. 2. Petitions 18. The majority of cable operators that filed pleadings in this reconsideration proceeding assert that the highest implicit fee approach is fair when it is applied to full-time channel leasing, although some operators challenge adoption of the highest implicit fee formula on the grounds that the resulting rates may not allow operators to recover all of their costs and do not account for the value of services to subscribers. 19. The programming interests and those representing existing and potential leased access channel users seeking reconsideration, however, generally contend that the highest implicit fee produces rates that are prohibitively high. The Center for Media Education, et al. ("CME"), states that application of the highest implicit fee formula defeats the statutory purpose of promoting diversity and competition. According to CME, the highest implicit fee instead simply mirrors the cable industry's current monopsony rates. CME contends that there is no evidence that cable operators need such rates in order to maintain financial health. Leased access programming will, according to CME, add value to the operator's system, thus producing revenues for the operator through increased penetration in addition to the payments received from leased access channel lessees. CME urges the Commission to establish maximum rates below the average implicit fee. Similarly, Videomaker Magazine ("Videomaker") asks that the Commission consider setting maximum rates at the average implicit fee. Videomaker asserts that such a methodology "has a better chance of fostering the new programmers Congress sought to encourage." Videomaker also states that "[s]ome would even argue that the [rate] ceiling should be set with the production of the lowest implicit value in the category to give new producers the greatest competitive opportunity." 20. Paradise Television Network, Inc. ("Paradise"), a leased access programmer, states that application of the highest implicit fee formula to a full-time channel lease produces a maximum rate that does not allow a programmer to compete for advertising revenues. According to Paradise, the high lease rate requires advertiser-supported programmers to charge higher advertising rates to cover the cost of the lease, which turns advertisers away from the leased access programming. Paradise proposes that the Commission mandate a fixed maximum rate of $.30 per subscriber per month, at least for advertiser-supported programmers. Paradise estimates that this figure is approximately the "break-even" point for a leased access user and that it would not adversely affect cable operators who, according to Paradise, have little if any overhead associated with carrying the leased access signal. A Spanish language leased access programmer, SUR Corporation ("SUR"), states that deriving leased access rates from the most commercially appealing programming is not likely to result in diverse programming. SUR also questions whether the Commission's current formula recognizes that SUR's audience is only 15 percent of the general audience. SUR believes it should not have to pay the same rates as other premium services because its potential audience is much smaller. Community Broadcasters Association ("CBA"), filing on behalf of the low power television station industry, submits that cost should be the fundamental basis for establishing rates for commercial leased access. To the extent that cost cannot be established, CBA proposes to derive the leased access rate by use of the arithmetic mean of all the implicit charges made to unaffiliated program suppliers for a given programming category, plus a five percent incremental charge. 21. A home shopping programmer, ValueVision International, Inc. ("ValueVision"), believes that the implicit fee formula is unnecessary for home shopping channels because an explicit pattern of charges for home shopping programming already exists on non-leased access channels. ValueVision asserts that the existing market rate for non-leased access home shopping programming is the appropriate fee, and that this fee should not be added to the implicit fee for a total charge. ValueVision further contends that use of the market rate alone will, as Congress intended, encourage the widest possible diversity of programming sources and competition in the delivery of video programming. 22. With regard to the programmer categories adopted by the Commission, certain cable operators believe that categories are unnecessary. For example, Time Warner Entertainment Company, L.P. ("Time Warner"), supports elimination of the existing three categories on the grounds that differences in programming do not justify different rates. Time Warner believes that the value of each leased access channel "is the opportunity cost imposed on the operator from the lost chance to program these channels." Therefore, Time Warner argues, the operator should be able to charge the highest implicit fee for all of its non-leased access programming. Cablevision Industries Corporation, et al. ("CVI"), states that, with the possible exception of per-event and per-channel programming, there is no compelling reason or legal basis for establishing classes of programmers. According to CVI, the distinctions only serve to subsidize underfunded programmers. 23. On the other hand, programming interests assert that further refinement of the programmer categories is necessary. CME, for instance, supports establishment of still more categories. CME states that combining per-event and per-channel programming leads to absurd results, and that the "all other" category will not result in affordable rates for most programmers because it lumps programmers together that face different economics. This is especially true, CME asserts, with regard to advertiser-supported and non-advertiser supported programming. SUR argues that further refinement of the categories is "absolutely essential" if leased access is to succeed in improving diversity and competition in cable programming. Paradise asks the Commission to establish a separate category for advertiser-supported programmers. Two home shopping programmers take opposite positions on this issue: the Home Shopping Network, Inc. ("HSN"), supports elimination of the separate category for direct sales programming, while ValueVision opposes its elimination based on the fundamentally different economics of the home shopping market. 3. Discussion a. Statutory Objectives 24. Many of the parties seeking reconsideration of the Commission's maximum rate formula generally contend that the existing rate formula results in rates that are too high. Their contention appears to be partially based on a belief that if channels are not in fact being leased up to the statutory requirement, or if the resulting rates render certain leased access services unprofitable or nonviable, then the rates are not reasonable and should be lowered until such time as more leasing occurs. This understanding of Congress' objectives in establishing the leased access channel requirement is, we think, incorrect. To the contrary, as long as the maximum leased access rate is reasonable, we believe that minimal use of leased access channels would not indicate that the rate should be lowered. 25. The original objective of the leased access requirement as established by the 1984 Cable Act was not to deprive the system operator of the economic value it might otherwise extract from the channel, but to divorce the cable operator from editorial control over the content of the channel. By amending the leased access requirement in the 1992 Cable Act, Congress added another objective: "to promote competition in the delivery of diverse sources of video programming." The Senate Report on the 1992 Cable Act states that, in addition to the First Amendment rationale behind the original leased access provision, the 1992 amendments were designed "to remedy market power in the cable industry" and to act as "an important safety valve for anticompetitive practices" by the cable operator. The 1992 amendments did not, however, eliminate the purposes established by the 1984 Cable Act (i.e., to promote diversity of programming sources "in a manner consistent with growth and development of cable systems.") The Commission must therefore seek to promote competition and diversity of programming sources on the one hand, as well as to further the growth and development of cable systems on the other. 26. These disparate policy goals are described further in the legislative history of the 1992 Cable Act. The 1992 House Report states that the Commission should set maximum reasonable rates in order to "make leased access a more desirable alternative for programmers" and indicates that the Committee believed that the principal reason for leased access not being effective was that the original provisions empowered cable operators to control the price and conditions for use of leased access channels. The 1992 Senate Report also indicates that rates are one reason that leased access has hardly been used, but states that "[t]he cable industry has a sound argument in claiming that the economics of leased access are not conducive to its use." These sections of the legislative history would seem to indicate that the goal for the Commission in setting maximum rates should be to lower rates. Yet, when Congress amended Section 612, it retained the provisions which state that the cable operator shall establish the price, terms and conditions for use of leased access channel capacity which are "at least sufficient to assure that such use will not adversely affect the operation, financial condition, or market development of the cable system" and such price, terms and conditions shall be presumed reasonable. Therefore, the Commission is faced with balancing the needs of programmers with the needs of cable operators. As explained below, we believe that the cost/market rate formula described herein, appropriately balances those interests. 27. We do not believe that Congress intended that cable operators subsidize programmers who seek access to their system through the provisions of Section 612. Other provisions of law mandate that system operators provide access to channels for the distribution of communications without charge or at reduced rates, including channels for the distribution of local broadcast signals under the mandatory broadcast signal carriage rules and for public, educational, and governmental ("PEG") access. Leased access, however, was established as a separate requirement to promote competition between and diversity of programming sources. We believe that, by setting a maximum rate which covers the operator's quantifiable costs associated with leased access and allows the operator to recover a reasonable profit, our proposed cost/market rate formula, described below, would not require operators to subsidize leased access. b. Problems with the Highest Implicit Fee Formula 28. We believe that our goal in determining a maximum reasonable rate should be to promote the statutory objectives of competition and diversity in programming sources without financially burdening the operators, rather than to develop a price that will necessarily be lower or higher than the highest implicit fee. We believe that, if the maximum rate for leased access is reasonable, the resulting demand for leased access channels will also be reasonable. It is in this context that the Commission is re-examining the highest implicit fee formula. 29. We believe that the highest implicit fee formula is likely to overcompensate cable operators and does not sufficiently promote the goals underlying the leased access provisions. First, the highest implicit fee appears to allow double recovery of subscriber revenues (or "double billing") by the operator. The implicit fee is based on the average per channel revenue for the tier on which the leased access programming will be carried. Thus, if the subscriber tier charge for a tier with 20 channels is $10, the average per channel revenue is $.50 (=$10/20). The channel with the highest implicit fee is the channel with the lowest programming charge (i.e., the lowest license fee). Continuing our example, if the programming charge is zero on one of these 20 channels, that channel would have the highest implicit fee equal to $.50. Allowing the operator to charge the leased access programmer the highest implicit fee of $.50 and then collect the $.50 again from the subscriber in the $10 tier charge is what is commonly referred to as "double billing." The highest implicit fee formula therefore permits the operator to recover revenues for carrying the programming once from the subscriber (included in the tier charge) and again from the programmer (included in the implicit fee). 30. Second, we are concerned that the highest implicit fee allows an operator to charge a leased access programmer a fee based on the channel with the highest markup over programming costs (i.e, the highest implicit fee). Because the implicit fee for many, if not most, non-leased channels is by definition less than the highest implicit fee, the operator is accepting less than the highest implicit fee from many non-leased access programmers. Charging the leased access programmer the highest implicit fee therefore is likely to overcompensate the operator compared to the amount the operator is willing to accept. 31. Third, we believe that the highest implicit fee formula is not based on the reasonable costs that leased access programming imposes on operators. When the set-aside requirement is not met, the rate should be high enough to recover all reasonable costs of leasing and a reasonable profit, but no higher. In this way, leased access is promoted without placing a financial burden on the operator. A higher rate unnecessarily discourages leased access and rewards operators who do not meet the set-aside requirement. 32. Given these limitations of the highest implicit fee, the Commission has developed an alternative proposal (which we refer to as the cost/market rate formula), that it believes may better promote the goals of leased access. However, because our proposed cost/market rate formula is a significant departure from the highest implicit fee formula, and to avoid any unintended consequences, we are not adopting the cost/market rate formula at this time and are instead seeking comment on our proposal in the Further Notice below. Because the cost/market rate formula is not being adopted at this time, the highest implicit fee will remain in effect in the interim period until our rules are revised. c. Clarifications for Calculating the Highest Implicit Fee 33. Through the Commission's complaint process as well as this reconsideration proceeding, it has come to the Commission's attention that the highest implicit fee formula may be unclear in some respects. Because the highest implicit fee formula will continue to be in effect on an interim basis until new rules developed in response to the Further Notice become effective, we will clarify certain issues regarding the application of the highest implicit fee formula. We do not, however, believe that these clarifications will in any way solve the conceptual problems we perceive to be present with the highest implicit fee. 34. As a preliminary matter, we will modify Section 76.970(c) to correct certain errors contained therein so that the calculation of the implicit fee is clear and easy to follow. Specifically, the rule states that the subscriber revenue is deducted from the program license fee when, in fact, the program license fee is supposed to be deducted from the average subscriber revenue. We will therefore correct the language in the rule accordingly. We will also correct the title of Section 76.977 of the Commission's rules. 35. In addition, we believe that the highest implicit fee calculation should not include the implicit fee for non-retransmission consent broadcast signal and PEG access channels in determining which channel has the highest implicit fee. For the carriage of local "must carry" broadcast signals, cable operators typically collect a fee from subscribers, but pay no direct charge for the programming. Because there is no sharing of subscriber revenues between the system operator and the programmer, the channel appears to be the most highly valued, i.e., the programmer is willing to permit the cable operator to retain the entire value of the channel and so these channels are often the basis for the highest implicit fee calculation. Because of the mandatory carriage rules and the compulsory copyright licensing system, this does not now seem to be a calculation that reflects a marketplace decision as to the value of the channel. Similarly, where an operator is required by the local franchising authority to carry PEG channels, the cable operator has not made a marketplace decision to carry the channels. Accordingly, we conclude that the implicit fee for each must carry broadcast signal channel and PEG access channel should not be considered for purposes of determining which implicit fee is the highest. These channels should, however, be used to determine the monthly average subscriber revenue per channel for all the channels on the tier. 36. Furthermore, we believe that operators should calculate the highest implicit fees on a tier-by-tier basis; that is, if the leased access channel is to be on the BST, the calculation of the highest implicit fee should be based on the BST channels, and, if the leased access channel is to be on a CPST, the implicit fees should be determined for the channels on that CPST. 37. We also clarify that programming revenues received by the operator from an unaffiliated programmer, as opposed to programming costs paid by the operator to the unaffiliated programmer, should not be included in the highest implicit fee calculation. In certain circumstances, such as with direct sales or "home shopping" channels, the programmer pays the cable operator a percentage of its revenues, rather than the operator paying the programmer a license fee. We did not address in the Rate Order whether these payments from the programmer to the operator should be added into the implicit fee calculation. We conclude that these payments should not be included because the highest implicit fee is intended to recover only the value of channel capacity and therefore should not include the value of services, such as marketing, other than the provision of channel capacity. 38. We have also been asked to clarify how to compute the implicit fee on a per channel basis. The issue relates to whether the number of subscribers used in the calculation should be the current number of subscribers before a premium channel is leased or the number of subscribers on the premium channel who take the new leased access programming. We have been asked to permit leased access programmers who offer their programming on a per-channel or per-event basis to be allowed to multiply the per-subscriber rate by the number of subscribers who will receive their new service, rather than the number of subscribers that currently receive the non-leased access service. Conversely, we have been asked to clarify that the per-subscriber fee in the highest implicit fee formula should be multiplied by the number of subscribers currently on the system, not the number of subscribers who will receive the new leased access service. 39. The Rate Order specifies that the difference between the rate per month that the cable operator pays the programmer and the rate that the subscriber pays per month for the programming should be multiplied by the percentage of subscribers able to receive that channel or programming. Neither the Rate Order nor our current rule explicitly states that this number must then be multiplied by the number of subscribers on the system. We will modify our rule to clarify that, for leased access programming on either the BST or a CPST, the highest per-subscriber implicit fee should be multiplied by the number of current subscribers who actually subscribe to the tier on which the leased access channel will be placed. However, for leased access programming in the per-channel/per-event program category, the highest per-subscriber implicit fee should be multiplied by the average number of subscribers that subscribe to the operator's premium services. Requiring the highest per- subscriber implicit fee to be multiplied by the actual number of subscribers to a leased access premium service would unfairly penalize the operator for low subscribership to the leased access programming. Using the average number of subscribers that subscribe to the operator's premium services derives an approximation that is equally fair for both the operator and the leased access programmer. d. Provision of Rate Information 40. Section 76.970(e) of the Commission's rules provides that a schedule of commercial leased access rates shall be provided to prospective leased access programmers upon request. Our leased access complaint process has revealed that rate information is often not provided in a timely manner. In an effort to facilitate the provision of leased access information to potential leased access programmers, we clarify that our intent in establishing this rule was to insure that the initial information a potential programmer might need to decide whether to pursue leased access be provided as soon as practicable. We will therefore modify our rule to require an operator to provide to a prospective leased access programmer within seven business days of such programmer's request: (a) a complete schedule of the operator's full and part time leased access rates; (b) how much of its set-aside capacity is available; (c) rates associated with technical and studio costs; and (d) if specifically requested, a sample leased access contract. We believe that operators should have this information readily available and therefore providing it to prospective programmers within seven business days will impose no hardship on operators. Requests can be made by any reasonable means (in person, by telephone, by facsimile, or by mail), and the information will be deemed provided when the operator sends or gives the information to the programmer. Because this information must be provided within seven business days of the request, operators may not require that prospective programmers first provide any information (e.g., fill out an application) before the information listed above is provided. In this context, we affirm that, as stated in the Rate Order, the Commission has the authority to, among other things, issue forfeitures for violations of the leased access statute and rules. Failure to provide the above information within the seven business day period will constitute a violation of our rules. B. Part-Time Rates 1. Background and Petitions 41. The Rate Order stated that maximum rates for leasing less than a full-time channel could be calculated by prorating the monthly maximum rate. The Rate Order did not, however, address whether operators would be permitted to charge higher rates for part- time use during more desirable "prime time" viewing hours. In TV-24 Sarasota, Inc. v. Comcast Cablevision of West Florida, Inc., for example, the Cable Services Bureau stated that such time of day pricing is permitted. 42. While the majority of cable operators that filed in this reconsideration proceeding assert that the highest implicit fee approach is fair when it is applied to full-time channel leasing, some operators challenge adoption of the highest implicit fee formula on the grounds that the resulting rates may not allow operators to recover all of their costs and do not account for the value of services to subscribers. Several cable operators complain that the highest implicit fee results in part-time rates that are too low. For example, Bend Cable Communications, Inc., et al. ("Bend"), and Continental Cablevision, Inc. ("Continental"), argue that the highest implicit fee approach is fair, but that part-time leases invite abuse due to unusually low cost hourly rates that do not reflect the value of certain time slots or the additional administrative, technical and lost-opportunity costs of part-time leases. Others agree that a straight proration for part-time use produces artificially low rates and that such proration will not cover costs. Bend recommends that the implicit fee be used for part-time leases only if no "market" rate exists, while Cablevision Systems Corporation ("CSC") proposes that the uniform maximum part-time leased access rate should be one cent per subscriber per hour. Other operators contend that a straight proration of the maximum rate for leased access ignores the different values that different day-parts have and that part-time rates would be appropriate if operators were allowed to charge different rates for different times of day. CME states that it does not oppose "de-averaging" lease rates to account for the value of prime time. 2. Discussion 43. Although the statute does not specifically address the question of rates for part- time use, our initial rules permit prorating the maximum monthly rate as one method of deriving rates for shorter periods. The only restriction on cable operators' rates under the current rules is that they may not exceed the maximum monthly rate as calculated on a monthly basis from the highest implicit fee. We also recognize that the media industry places different values on the different hours of the day in recognition of the different values that different hours of the day have in the television marketplace (i.e., "prime time" and "non- prime time"). 44. We therefore affirm the Cable Services Bureau's rulings in the TV-24 Sarasota cases referenced above and will not construe our rule as requiring a cable operator to adhere to a rigid formula for determining its hourly leased access rate by prorating its maximum rate for a full-time channel into equal hourly amounts. We conclude that cable operators may charge different time-of-day rates, provided that the total of the rates for a day's schedule (i.e., a 24 hour block) does not exceed the maximum rate for one day of a full-time leased channel (prorated from the monthly rate) and provided that the overall pattern of time of day rates is otherwise reasonable and not intended to unreasonably limit leased access use. A reasonable time-of-day rate structure that is appropriately related to time-of-day pricing in the media industry and does not frustrate leased access channel use would not conflict with our rules. We believe that this approach will recognize the generally different values for different time slots, and will further the statutory goal of promoting diverse programming sources, because programmers that could not afford rates based on uniform pro rata pricing may be able to afford lower non-prime time rates. In addition, allowing time-of-day part-time pricing may help promote full use of a designated channel by making non-prime time slots more attractive to programmers (i.e., less expensive), thus alleviating some of the need for operators to open new channels before current channels are fully utilized. 45. Accordingly, the rules we adopt on reconsideration provide that operators may establish reasonable time-of-day pricing schedules. In order to ensure that operators' part- time rates do not exceed the maximum rate, we will require operators to establish a schedule of rates, or rate card, for different times of day, pursuant to which, if all times were used, the sum of the part-time charges for any single leased access channel within a 24-hour period would not exceed its maximum rate for the leased access channel if the daily rate were prorated evenly from the monthly maximum rate and were calculated in accordance with Section 76.970 of our rules. The Further Notice below requests comment on whether proration generally and time of day pricing specifically are appropriate methods for determining part-time rates under the proposed cost formula. C. Time Increments 46. In the Rate Order, we concluded that cable operators should be required to accommodate leases of any time increment (e.g., leasing an hour on a regular leased channel, leasing a whole channel, or leasing for use a subscription service) in a reasonable manner because neither Section 612, its legislative history nor the record indicated any reason to prevent part-time leased access. Some cable operators have requested that we require leased access on a full-time, full-channel basis only. Comcast Cable Communications, Inc. ("Comcast"), expressed concern that trying to accommodate one hour leases will leave channels underutilized and will be burdensome to negotiate. 47. On reconsideration, we reaffirm our conclusion that cable operators should be required to accommodate both full and part-time leases. This conclusion is consistent with Congress' intent that leased access provide programmers a "genuine outlet" for their product. We recognize the legitimate concern of cable operators that negotiating contracts for numerous small time intervals may be an administrative and financial burden, which the proposed cost formula takes into account. As a practical matter, however, the most common programming time increment is typically one half to one hour. Imposing a full-time only requirement could effectively preclude most leased access programmers from obtaining access. Thus, in order to balance these competing interests, we will not require operators to accept leases which are for less than a one-half hour interval. This requirement will allow programmers to lease time in relatively small increments, but will avoid the administrative burden of providing leased access in very small increments, such as one or two minutes. Although not required to do so, operators may accept requests for less than one-half hour. D. Billing and Collection Services 1. Background 48. Section 612(c)(4)(A)(ii) of the statute requires the Commission to establish reasonable terms and conditions for billing of rates to subscribers and for the collection of revenue from subscribers for leased access channels. The subscriber revenue at issue here does not include revenue generated from the sale of products promoted on leased access programs (e.g., home shopping programs or infomercials). In the Rate Order, we required cable operators to provide billing and collection services to leased access programmers unless operators could demonstrate the existence of third party billing and collection services which, in terms of cost and accessibility, offer leased access programmers an alternative substantially equivalent to that offered to comparable non-leased access programmers. We did not adopt rules governing the rates for billing and/or collection services. We stated that competition, where it exists in the provision of these services, will set an upper limit on charges by cable operators. If a dispute arises, however, we stated that we will address what constitutes a maximum rate for billing and collection on a case-by-case basis, bearing in mind the statutory objectives and individual circumstances, such as the number of subscribers to be billed, implicit charges to non-leased access services for comparable billing and collection, and prices charged by competitive billing and collection providers. 2. Petitions 49. Cable operators argue that there is no statutory obligation to provide billing and collection services to leased access programmers. They maintain that the statute only requires that those operators who choose to provide such services must do so at rates consistent with the maximum rates established by the Commission. They also argue that there are many third party providers of billing and collection services in the marketplace, such as credit card companies. Other petitioners argue that the Commission must require operators to provide billing and collection services in order to ensure the viability of leased access programming. CME also argues that the Commission should regulate the rates for these services because if no competition exists for billing and collection services, the cable operator has no incentive to charge competitive rates and may charge higher rates if it views the lessee as a competitor or it would otherwise prefer not to put the lessee on its system. 3. Discussion 50. We find that the arguments raised by petitioners on this issue were fully considered and rejected in the Rate Order and need not be analyzed again. The record before us now, as in the Rate Order, contains little specific data on the existence of, or information about, competitive providers of billing and collection services, except to state that there are credit card companies in the marketplace that provide such services. We note that the mere existence of third party billing and collection providers does not relieve the operator of its obligation to provide these services. Rather, the critical issue is whether, in terms of cost and accessibility, these alternatives are substantially equivalent, to what the operator offers non-leased access programmers. Operators have not demonstrated to us that such alternatives exist to such an extent that we should change our requirements adopted in the Rate Order. We remain convinced, therefore, that pursuant to Section 612(c)(4)(A)(ii), we have the authority to require cable operators to provide billing and collection services for leased access cable programmers and that there is a need for cable operators to provide such services. 51. In the Rate Order, we did not adopt specific rules relating to the rates that might be charged for billing and/or collection services. We stated that competition, where it exists, in the provision of services of this type will set an upper limit on charges by cable operators. On reconsideration, we do not believe that the adoption of specific rate rules at this time is warranted. Cable operators should have the incentive to quote reasonable and competitive rates in order to obtain the additional revenues that billing and collection services could generate for them. As we stated in the Rate Order, if a dispute arises, we will address what constitutes a maximum rate for billing and collection services on a case-by-case basis. E. Security Deposits 52. In the Rate Order, we agreed with cable operators that they should have discretion to require reasonable security deposits or other assurances from programmers that are unable to prepay in full for leased access channel capacity. We agreed that it would be unfair to require operators to bear the financial risk of carrying leased access programming without the provision of suitable guarantees. We further stated that our rules would strive to preserve the financial integrity of the operator by allowing for flexible negotiations between the parties. CME states in its petition for reconsideration that, while we have held that cable operators should have the discretion to require reasonable security deposits, we have failed to define the term "reasonable." CME maintains that defining this term is particularly important because, if the security deposit is too high, it can create a barrier to entry onto a system and defeat the purpose of the leased access provisions. 53. On reconsideration, we decline to set specific monetary guidelines in this area and believe that it is sufficient to state that the term "reasonable" should be interpreted in relation to the objective of such a deposit. That is, it should be sufficient to insure the payment of lease rates, without discouraging leased access. As we indicated in the Rate Order, this approach will allow for flexible negotiations between the parties. We will, however, clarify that operators may not demand a security deposit for channel time from a programmer that pays the full rate in advance. If carriage is not purchased for discreet or individual time spots, but is leased on a full-time or periodic basis, the full rate will be considered the full monthly rate (or whatever period of time is relevant if the programming is periodic). Determinations of what is a "reasonable" security deposit will be made on a case- by-case basis, taking into consideration the past relationship between the operator and the programmer, the amount of time to be leased, the credit history of the leased access programmer, the operator's practices with respect to security deposits in other, similar contexts, and any other relevant factors. F. Calculation of Statutory Set-Aside Requirements 54. As indicated, Section 612 of the Communications Act requires a cable system to set aside up to 15 percent of its activated channels for leased commercial access. The statutory set-aside requirements for leased commercial access channels are expressed as a percentage of "channels not otherwise required for use by federal law or regulation." The Rate Order did not specify what channels are considered as required for use by federal law or regulation. 55. We clarify that, for purposes of calculating the set-aside requirements, only must-carry channels are excluded, as these channels are required for use by federal law. Retransmission consent and PEG channels, on the other hand, are not required by federal law, although federal statutory provisions permit local authorities to require operators to provide PEG channels and also require operators to obtain retransmission consent in some cases. Our conclusion is directly supported by the legislative history of the 1984 Cable Act, which specifically addresses this point, stating that [PEG] channels, since they are not expressly required by federal law, are not subtracted from the total system's channel capacity in determining to what number the mandated percentage is applied. This same rationale applies to retransmission consent channels, in that they also are not expressly required by federal law. Therefore, we determine that retransmission consent and PEG channels will be included among activated channels for purposes of determining a systems' leased access set-aside requirements. G. Reporting Requirements 1. Background 56. In the Rate Order, we observed that, because few programmers had exercised their option to lease access since 1984, it is important to monitor the leased access market and to make timely adjustments to the rules if necessary. We noted, however, that the reporting requirements outlined in our initial Notice of Proposed Rulemaking (Notice) drew little comment. These proposed requirements included collecting information on the following: channel capacity required to be designated for leased use; percentage of set-aside capacity used; percentage used by not-for-profit programmers; and actual rates charged leased access users. Instead of adopting these specific reporting requirements, we stated that we would incorporate mechanisms for obtaining specific leased access information into our general reporting and monitoring process. Currently, the only official source for leased access information is the Annual Report of Cable Television Systems (FCC Form 325), which asks operators whether they are leasing any channels. 2. Petitions 57. In general, we received little comment from petitioners regarding leased access reporting requirements. CME advocates that the Commission adopt specific reporting requirements to ensure that Congress' goals for leased access are fulfilled. Specifically, CME urges the Commission to reconsider implementing the kind of data collection suggested in the Notice. CME also urges the Commission to require operators to file a rate schedule, along with supporting materials, on an annual basis. 58. CME's proposal, particularly its suggestion that operators file materials supporting calculation of their rates, is opposed by cable operators. Time Warner argues that a requirement that all information supporting the calculation of an operators' highest implicit rates be made public would cause the cable industry to suffer by giving competitors the ability to gain access to proprietary information and thereby decrease competition. It states that the Commission has recognized that this type of information should be maintained as confidential when submitted to the Commission pursuant to Sections 0.457, 0.459 of the Commission's Rules. CVI argues that a reporting requirement would violate the confidentiality provisions of many programming agreements, force cable operators to disclose extremely sensitive price information and wreak havoc in the programming marketplace. 59. Programmers note that operators have not been responsive to their requests for information about leasing capacity. United Broadcasting Corporation ("UBC") states that it has been unable to obtain documents and calculations substantiating proposed rates from TCI. Videomaker states that a lack of information about implicit fee rates makes it "virtually impossible" to make a clear and convincing case against an operator. CME states that, in addition to supporting a claim that a quoted rate is higher than the highest implicit fee, access to the data upon which the cable operator based its rate would enable a programmer to decide whether to file a complaint. 3. Discussion 60. We decline to adopt on reconsideration CME's suggestion that we require cable operators to make the contracts underlying their leased access rates public. We believe that this could be unnecessarily intrusive on business relationships between operators and non- leased access programmers. However, we note that upon request from the Commission in the context of a leased access complaint, operators are required to justify fully their leased access rates, including by presentation of underlying contracts if necessary, subject to the operators' right under our rules to request confidentiality of this information. IV. FURTHER NOTICE OF PROPOSED RULEMAKING A. Maximum Rate Formula 1. The Cost Formula 61. Given the limitations of the highest implicit fee described above in the Order, the Commission has developed an alternative proposal that it believes may better promote the goals of leased access. We generally agree with Time Warner that the value of leased access channels "is the opportunity cost imposed on the operator from the lost chance to program these channels." We also agree with CBA when it asserts that cost should be the fundamental basis for establishing maximum leased access rates. In addition, we agree with UBC that the maximum rate could become a market rate when the statutory set-aside requirement is met. We tentatively conclude that we should base our maximum rate formula, which we call the cost/market rate formula, on these principles. 62. We do not agree, however, with ValueVision's argument that home shopping commissions, or what it calls the "explicit fee," should be the maximum rate for home shopping leased access channels. While we agree that home shopping commissions should be excluded from the implicit fee calculation, as discussed below, we do not accept ValueVision's "explicit fee" proposal. We do not believe that home shopping programmers should be treated differently from other programmers. We therefore reject ValueVision's proposal. 63. Our proposed cost/market rate formula, which is described below, would allow the operator to continue to recover its operating costs to the same extent it would without leasing, and to recover additional reasonable costs, including a reasonable profit, associated with leased access. We believe that the rate that would result from this proposed approach would provide both operators and programmers with sound economic incentives to use leased access. A cost-based formula is not an attempt to influence demand or supply in any particular way. To the contrary, it is an economically sound mechanism for determining the appropriate level of leased access demand. 64. Because our proposed cost/market rate formula is a significant departure from the highest implicit fee formula, and to avoid any unintended consequences, we are not adopting the cost/market rate formula at this time and are instead seeking comment on our proposal. In particular, we seek comment to develop a record on particular implementation concerns and solutions. However, given our concerns about the highest implicit fee formula, we expect to act on the comments received in response to this Further Notice as expeditiously as possible. a. Economic Justification 65. We tentatively conclude that the maximum rate for leased access should depend on whether a cable operator is leasing its full statutory set-aside requirement. We believe that the goal of the maximum rate should be to promote the use of the leased access set-aside channels without imposing an undue financial burden on the operator. We therefore tentatively conclude that our approach to setting a maximum rate should (a) encourage the use of the set-aside channels without giving programmers a subsidy, and (b) allocate the channels to the leased access programmers that value the channels most (i.e., are willing to pay the most) when the demand for leased access channels exceeds the statutory set-aside requirement. We request comment on these tentative conclusions. 66. We also tentatively conclude that, when the set-aside capacity is not leased to unaffiliated programmers (or minority or educational programmers pursuant to Section 612(i) of the Communications Act), the maximum rate should be based on the operator's reasonable costs (i.e., the costs of operating the cable system plus the additional costs related to leased access), including a reasonable profit. We request comment on this tentative conclusion. We believe that leased access can be promoted without providing a subsidy to programmers by establishing a pricing scheme that is based on costs. Programmers who cannot afford the rate will not and should not gain access because they would impose a financial burden on operators. We ask for comment on this conclusion. 67. Under the proposed cost formula, we believe that the operator would be compensated for reasonable costs associated with the leased access channels. In this context, the cost formula is not intended to guarantee that all operating costs will be fully recovered. The intent of the cost formula is to permit the operator to continue to recover the same proportion of operating costs from subscriber revenues as were recovered before the channel was used for leased access. Thus, under the proposed cost formula, the operator would not be adversely affected in terms of its ability to pay operating costs. 68. We believe that the proposed cost/market rate formula represents a pricing scheme that would promote leased access without giving programmers a subsidy. The purpose of the cost formula is not to lower rates. It does not guarantee that leased access programming will increase or that the maximum rate for leased access programmers will decrease. 69. The portion of the maximum rate for leased access channels included in a tier of programming which we propose be paid by the leased access programmer (the "programmer charge") would be based on the reasonable costs (including reasonable profits) that leased access imposes on the operator. These costs are specific to the channels designated for leased access. Some of these costs are associated with removing or "bumping" non-leased access programming to accommodate leased access programming; others are the direct costs associated with the specific leased access programmer or its programming. To simplify this discussion, we will refer to all of these costs as opportunity costs. As will be discussed below, our proposed cost formula would not allow the operator to recover all opportunity costs. Instead, the operator would be allowed to recover only those types of opportunity costs which can reasonably be attributed to carriage of the leased access programming and which are reasonably quantifiable. 70. On the other hand, we tentatively conclude that if the operator satisfies its set- aside requirement, the maximum rate should be a market rate determined by negotiation between the operator and the leased access programmer. We believe that market rates will most effectively determine which programmers should receive leased access on the system when the operator's set-aside is satisfied. Within the leased access market, those programmers who are able to pay the most for channel capacity would presumably be able to acquire the set-aside channels. The higher price which some leased access programmers may offer to pay for the channel capacity reflects the greater ability and willingness of consumers to pay for the programming to be carried on each of these channels. Thus, relying on market prices to allocate channel capacity provides consumers with an efficient mechanism to communicate their preferences about which leased access programming should be carried by the operator. 71. We recognize that the market rate may rise above the operator's costs; such prices, however, are the result of competition among unaffiliated programmers to use the statutory leased access channel capacity. We believe that, so long as the operator is accommodating leased access to the full extent required by Congress and Section 612, any price increase would be reasonable. After all, under our proposal, the operator cannot charge market rates if the number of channels leased falls below the number designated by the statute. Thus, a higher rate would reflect excess demand by programmers for the operator's statutory channel capacity. 72. In general, market power refers to the ability of a seller to restrict output below the desirable level and to set a price above costs (i.e., to set an unreasonable rate). In the leased access context, Congress has defined the appropriate level of output by establishing the set-aside requirement, and the operator cannot restrict the output below this level. Therefore, even if the market rate rises above the operator's costs, we do not believe that the operator is charging unreasonable rates since Congress has determined the appropriate level of output. We seek comment on these tentative conclusions. 73. We ask for comment on whether it is appropriate to allow the maximum leased access rate to be negotiated when the operator has fulfilled its set-aside requirement, as well as our rationale for doing so. We seek comment on the extent to which negotiated rates are adequate to address Congress' mandate that we set a maximum reasonable rate and the extent to which negotiated rates could be used to exercise editorial control over the leased access channels, contrary to Congress' intent. We also ask for comment on how operators may choose between competing programmers. For instance, we ask if operators should be required to select the highest bidder. We also seek comment on any alternatives for setting maximum rates when an operator is leasing its full set-aside capacity. 74. We do not propose to maintain the programmer categories established under the highest implicit fee formula under the proposed cost formula. Although operators are permitted to consider content of programming in determining the price, we believe that the Commission should not establish a separate maximum rate under the cost formula based on the content of the leased access programming. Our proposed cost formula is based purely on the operator's costs associated with its system and leased access programming. ValueVision's claim that home shopping programmers should be treated differently simply because of the "fundamentally different economics of the home shopping market" is unpersuasive. Under the proposed cost formula, we are not basing the maximum rate on the economics which the leased access programmer faces. We therefore do not believe that treating different programmers differently is appropriate under the cost formula. Similarly, we do not believe that there is a need to establish categories for advertiser-supported and non-advertiser supported programmers, as CME and Paradise propose. Accordingly, we tentatively conclude that we will not establish programmer categories for implementation of the cost formula. We request comment on this tentative conclusion. b. Designating Channels 75. We propose that the cost formula determine a maximum leased access rate based on the cost of the channels designated to be used for leased access by an operator. The opportunity costs would be derived from the programming that is actually bumped from the operator's programming line-up. If, for example, an operator plans to place leased access programming on channel 28, and move the programming currently carried on channel 28 to channel 32, the cost formula calculations should be based on the opportunity cost of the programming currently carried on channel 32. 76. To derive the channel cost under the proposed cost formula, an operator would first select the specific channels it would use for leased access programming, as demand arises, in order to meet its set-aside requirement. We propose that the operator would be required to place these channel designations, including the channel numbers and the programming carried on each channel at the time the operator calculates the maximum rate under the cost formula, in its public file. We request comment on this proposal. Operators would be permitted to revise their selections annually to permit them to revisit the decisions in light of any change in circumstances. The operator would be required to designate enough channels to satisfy its full set-aside requirement. Basing the rate on the actual designated channels would be attractive from an economic perspective because the compensation to the operator would be based on its actual costs of leasing the designated channels. We request comment on this proposal generally. We also request comment on how we might restrict an operator's ability to manipulate its designation of channels so as to derive a prohibitively high rate in an effort to impede leased access. For example, we ask whether there should be a presumption against an operator designating only its highest valued channels in such a way as to inflate its maximum leased access rate. We also ask whether operators should be permitted to base their maximum rate calculation on affiliated programming, if the operator designates channels that carry such affiliated programming. c. Operating Costs 77. The first component of the proposed cost formula is the operating costs. We tentatively define operating costs to include fixed and variable costs that the cable operator incurs regardless of what programming is carried over the channel. Commission data shows that, in the tier context, this component, including a reasonable rate of return, is substantially covered by the revenue the operator receives from subscribers. Using subscriber revenue as a proxy for the operating costs for tiered channels allows the operator to recover its operating costs to the same extent as it did with non-leased access programming on the channel. We therefore tentatively conclude that it is appropriate for purposes of the proposed cost formula to designate subscriber revenue as the operator's payment toward its operating costs. Thus, the operator would not need to calculate its operating costs for channels that are currently on programming tiers (or dark), and would instead use the amount representing the average subscriber revenue per channel as its operating costs per channel in calculating the cost formula. 78. Similarly, we propose that operators would not need to calculate their operating costs for channels that are currently carried as premium services or on unregulated programming tiers. As with channels carried on regulated programming tiers, we believe that using the subscriber revenue for an unregulated channel as its payment toward its operating costs will allow the operator to recover its operating costs to the same extent as it does with the non-leased access programming carried on the channel. We recognize that unregulated subscriber revenue might recover more than the operator's operating costs; however, we believe that any profit which is generated from subscriber revenue could be viewed as an opportunity cost imposed on the operator who forgoes these profits when this channel is used to carry leased access programming. For simplicity, we propose not to require the operator to deduct this lost profit from the operating cost portion of the formula simply to add it back to the opportunity cost portion. We seek comment on these tentative conclusions. d. Net Opportunity Costs 79. We propose that the second component of the cost formula, "net opportunity costs," would include the reasonable costs (or cost savings) that the operator incurs by leasing the channel to the leased access programmer that it would not have incurred had it continued with the current use of the channel. In other words, the net opportunity cost portion of the cost formula would include reasonably quantifiable costs (or savings) associated with carrying the leased access programming instead of other programming. We recognize that our proposed formula does not incorporate all opportunity costs. As discussed below, some costs are not easily quantified; others the Commission does not believe are appropriate to include in the leased access fee. In order to provide some uniformity in the calculation of opportunity costs, we propose to identify categories of quantifiable costs which operators may include in calculating the cost formula. 80. The first category of opportunity costs that the Commission proposes to allow recovery for is lost advertising revenues. This type of lost revenue would be a quantifiable opportunity cost when the operator is forced to bump a non-leased access programmer to accommodate the leased access programmer, or when the operator is forced to forego placing new programming on a dark channel. For example, if a channel designated for leased access is currently being used for non-leased access programming which is generating advertising revenues, the operator might be entitled to recover from the leased access programmer an amount equal to the current programming's advertising revenues. 81. We do not propose to reduce the opportunity cost for lost advertising revenue by the value of any advertising time the operator may receive from the leased access programmer. We believe that the leased access programmer is entitled to pay no more than the maximum rate, regardless of whether the operator receives advertising time. If the leased access programmer does not want to give the operator advertising time, we tentatively conclude that the programmer is not required to do so. On the other hand, if the programmer wishes to bargain for a lower rate in exchange for advertising time, we believe such bargaining is fully permitted by our rules and is a matter to be negotiated between the parties. 82. The Commission proposes that the second opportunity cost category should be lost commissions. If, for example, to accommodate a leased access channel, an operator were to bump a direct sales programmer from which the operator receives a percentage of the programmer's revenues, those commissions constitute a quantifiable opportunity cost which we propose be factored into the cost formula. 83. On the other hand, we also believe that any program license fee that the operator does not have to pay because the non-leased access programming is not being carried is a cost savings. We believe that such a cost savings should be factored into the calculation of the operator's net opportunity cost. For instance, if an operator designates a channel for leased access on which the operator currently carries a non-leased access programmer to which the operator pays $.02 per subscriber in license fees, that $.02 multiplied by the number of subscribers receiving that programming must be subtracted from the operator's opportunity costs for that channel. We tentatively conclude that cable operators should be required to deduct any license or programming fees that the operator does not have to pay due to the carriage of the leased access programming. Since license fees are likely to be substantial on premium channels, this opportunity cost is especially important for premium channels designated for leased access. One possible concern is the extent to which either the operator or the programmer can influence the license fees paid for non-leased access programming. We ask how, if at all, the operator or programmer can influence the programming license fee and how that influence might affect the Commission's measurement of programming cost savings under the proposed cost formula. 84. Another cost category which the Commission believes may be appropriate relates to technical costs (e.g., the cost of scrambling) incurred by the operator in offering leased access programming. If, for example, a programmer asks to lease channel capacity for a premium service, an operator may incur additional costs of limiting that programming to subscribers of the leased access service. An operator may also incur additional costs associated with scrambling if, for instance, the leased access programming is indecent and, under Section 505 of Telecommunications Act of 1996, the operator is required to fully scramble or fully block the leased access programming for those not subscribing to it. Thus, under our proposed cost formula, those costs could be included in calculating the maximum rate. We propose to distinguish these technical costs from those for technical support for which the operator is permitted to charge separately under Section 76.971(c). We request comment on these proposals. 85. Another potential opportunity cost category could be any reduction in the tier charge that the operator charges the subscriber when the reduction is caused by substituting the leased access programming for non-leased access programming. Under the Commission's going forward methodology, substituting the leased access programming for a non-leased access programmer on the same tier would not affect the subscriber rate. If the operator adds a channel to the BST to accommodate leased access, the operator is permitted to add a per-channel residual to the charge for the tier. If the operator elects the going forward option and adds a channel to a cable programming services tier, the operator would recover the same $.20 from subscribers that it would recover if it placed a new non-leased access channel on the tier. Under any of these circumstances, no lost subscriber revenue would be included in the calculation. However, we seek comment on how an operator might be able to demonstrate that its subscriber revenue is quantifiably reduced on a specific designated channel because of the leased access programming carried on that same channel, and, if this is possible, whether the operator should be permitted to include this loss in the cost formula. 86. We tentatively conclude that the cost formula should not explicitly include revenue lost because of a purported loss in subscribership to a particular tier because particular programming is dropped. We tentatively conclude that, in the tier context, any such subscriber loss is too speculative to measure accurately. In the premium context, however, we believe that this subscriber loss is included by allowing the operator to include an amount in the proposed cost formula equal to the total subscriber revenue for the bumped channel. In addition, operators would be able to consider any potential loss of subscribership in deciding which channels to designate for leased access. Nonetheless, we request comment on how our cost formula might measure changes in subscriber penetration due to the addition of leased access programming. Specifically, we seek comment on how such subscriber revenues could be calculated and on how the operator could demonstrate that lost subscriber revenues are attributable to a leased access programmer. 87. We also recognize that there may be opportunity costs associated with using a channel for leased access which does not currently carry programming, i.e., a dark channel. We believe that the presence of dark channels on a system does not necessarily indicate a lack of available programming. As an example, an operator might reserve a dark channel in anticipation of more desirable programming becoming available in the future. Since operators forego the opportunity to carry their own programming any time leased access programming is placed on a dark channel, we propose to allow operators to approximate the opportunity costs of dark channels by assigning these dark channels the per channel opportunity cost of the programmed channels on the system with opportunity costs that have the lowest positive values, not including programmed channels that the operators are required to carry such as must-carry, PEG, or any leased access channels already being carried, in order to satisfy the set-aside requirement. If the cost formula were based on designated leased access channels, the number of designated dark channels would determine how many programmed channels should be used. Specifically, under this proposal, if one designated channel is dark, it would be assigned the opportunity cost of the programmed channel on the system which has the opportunity cost with the lowest positive value. If an operator designates two dark channels for leased access, it would assign the opportunity cost of the two programmed channels on the system which have the lowest opportunity cost with a positive value, and so on. We seek comment on this proposal. 88. As stated above, we believe that it is necessary to use only channels with positive opportunity costs as proxies for dark channels. We believe that this is necessary because we do not believe that operators generally carry programming that has a negative economic benefit to them, which is what a negative opportunity cost value would indicate. We suspect that, if a channel has a negative net opportunity cost, it may be because the cost formula does not include an approximation of the value of subscriber penetration. Although we do not believe we can accurately measure loss in subscriber penetration that may be caused by substituting leased access programming for non-leased access programming for purposes of the cost formula, we tentatively conclude that using only those channels with a positive opportunity cost as proxies for dark channels will compensate for this limitation. As also stated above, however, we request comment on how we might measure changes in subscriber penetration due to the addition of leased access programming. We ask how we might identify which channels should not be deemed to have the lowest opportunity cost for purposes of approximating the opportunity costs of dark channels. 89. We believe that this method would yield the most reasonable approximation of opportunity costs for dark channels. We believe that, unless the operator has a programming contract in place, permitting the operator to estimate the opportunity costs of new programming that it may at some future time carry on a currently dark channel would allow for too much speculation. In addition, we believe that, when the new programming that the operator would have placed on the dark channel is available, the operator acting rationally would place the new programming on a channel with lower opportunity costs if the operator expects the new programming to be more profitable than the programming that is replaced. We therefore tentatively conclude that the opportunity costs of dark channels are most reasonably approximated by measuring the opportunity costs of the channels that are most likely to be bumped in order to accommodate new programming. We believe that the channels with the lowest opportunity costs are the most likely to be bumped but, as we explained above, we would not require the use of channels with a zero or negative opportunity cost value. We ask commenters to address the validity of these assumptions. e. Averaging the Per Channel Costs for All Designated Channels 90. Because the operator may select designated channels from the BST, any CPST, or premium services, we believe that the corresponding per channel costs will vary depending on the number of subscribers that receive each service. Consequently, we propose that all costs must be computed on a per channel basis rather than on a per subscriber basis. As discussed below, the per channel costs for each designated channel could then be used to determine the average channel costs of a designated channel. 91. We tentatively conclude that applying an average channel cost to leased access will promote fairness because all leased access programmers will therefore be subject to the same maximum rate. We note that an operator's designation of leased access channels is made independently of the leased access programmer's request for access. We do not believe that the operator should be required to bump the same type of service (i.e., a channel on the BST, a CPST, or a premium channel) that is requested by the leased access programmer. In other words, assuming there are no technical constraints, operators should not be required to bump a tiered channel when the leased access programmer asks to be carried on a tier. With this in mind, we also believe that averaging the channel costs would mitigate against the operator's ability to manipulate the cost formula by designating one high cost channel and requiring a particular leased access programmer that the operator wants to keep off its system to pay the opportunity costs for that particular programming. 92. Therefore, we propose that, after the operator has calculated the per channel opportunity costs and added the corresponding subscriber revenue (as a proxy for operating costs) to obtain a total per channel cost, the operator should average these per channel costs by adding them all together and dividing by the number of designated channels. The result would be the Commission's proposed cost-based maximum rate for a leased access channel if the operator has not fulfilled its leased access set-aside requirement. We seek comment on whether averaging the per channel costs is appropriate under the proposed cost formula. f. Calculating the Leased Access Programmer Charge 93. Under our proposed cost formula, once the operator determines the maximum rate as set forth above, the operator would determine how much of that maximum rate it could charge the leased access programmer. If the leased access programming is to be carried on a programming tier, the proposed cost formula would allow the operator to collect and retain revenue for that channel from the subscribers to the tier as payment for its operating costs. However, to avoid a double recovery by the operator like that discussed above in Section III.A.3.b., the operator would not be permitted to include these operating costs in computing the portion of the maximum rate that the operator may charge the leased access programmer. The operator would therefore be required to subtract the total subscriber revenue for the channel from the maximum rate. The difference would be the programmer charge, i.e., the maximum amount that the operator would be permitted to charge the leased access programmer directly. We request comment on this proposal. 94. We tentatively conclude that if a leased access channel is to be carried as a premium service, the full maximum rate derived from the cost formula could be charged to the leased access programmer, to the extent that all of the monthly subscriber revenue for the leased access channel flows to the leased access programmer. We believe that this is appropriate because we cannot assume that the leased access premium service will attract the same subscribership as the non-leased access programming. Thus, the operator would be allowed to charge the full maximum rate which recovers its costs. In return, the programmer would receive all the subscriber revenues from its premium service. We request comment on these tentative conclusions. g. Adjustment for Part-time Administrative Costs 95. Regardless of whether the leased access programming is carried on a tier or as a premium service, we recognize that there may be additional costs associated with part-time leases. We therefore tentatively conclude that operators should be permitted to charge a part-time leased access programmer the actual incurred costs of negotiating and administering the programmer's part-time contract which exceed what normally would be spent in negotiating and administering a full-time leased access programming contract. We do not believe that it is more expensive for an operator to negotiate and administer a full-time leased access programming contract than it is for them to negotiate and administer a full-time non- leased access programming contract. We therefore propose not to allow operators to charge full-time leased access programmers for administrative costs. Under our proposal, the additional costs associated with part-time leasing would be added to the programmer charge derived in accordance with the procedures described above for determining rates for leased access programming carried on a tier or as a premium service. We ask for comment on these tentative conclusions. 2. Market Rate as the Maximum Rate 96. As discussed above, we believe that, once an operator fulfills its set-aside requirement, the maximum cost-based rate would be replaced by a market based rate and not capped by the proposed cost formula. Under this proposal, the operator would be allowed to charge whatever rate it could negotiate with the leased access programmers, as long as the operator continues to meet its statutory set-aside requirement. Whether the operator retains the subscriber revenue would be a matter negotiated between the parties. Leased access programmers would then be forced to compete against each other for limited channel space, much the same as non-leased access programmers do. We tentatively conclude that the pressure on the operator to meet its set-aside requirement and the competition between the programmers seeking leased access will determine an appropriate market rate. 97. We propose that operators would be permitted to renegotiate the rate charged leased access programmers upon renewal of each programmer's contract, as long as the operator continues to fulfill its set-aside requirement. Thus, if the set-aside requirement has been filled, a current leased access programmer who gained access at the cost formula rate would have an opportunity at the end of its contract to bid against rival leased access programmers to obtain the right to continue to be carried on the system. If the amount of leased access programming being carried drops below the set-aside requirement, the operator would be required to return to the cost formula to determine the maximum rate on new programming contracts, as well as on contracts that are renewed at any time while the set- aside requirement is not met. Market rates contained in unexpired contracts would not need to be renegotiated. We seek comment on this proposal generally, and ask whether this proposal complies with our statutory mandate to establish maximum reasonable rates. We also seek comment on whether operators could exercise editorial control over leased access programmers contrary to Congress' intent, if rates for leased access were market based. In addition, we request comment on alternatives for setting maximum reasonable rates when an operator has satisfied its set-aside requirement. 3. Transition Period 98. We tentatively conclude that, on the effective date of the maximum rate-setting rules which we will adopt in response to this Further Notice, operators should be required to implement the adopted formula, whatever that may be, for (a) programmers that are currently leasing channel capacity from an operator and (b) programmers demanding leased access on a system that has unused (or dark) channel capacity. We request comment on this tentative conclusion. 99. We believe, however, that transition relief may be appropriate in the case of new leased access requests with respect to systems that do not have any dark channels, where operators would be forced to bump existing programming in order to accommodate a leased access request. We recognize that, when an operator places non-leased access programming on a channel designated for leased access, the operator and programmer generally assume the risk that the programming may have to be bumped for a leased access programmer. The risk of having to bump, however, may increase with the introduction of the cost formula, or whatever formula we adopt, depending on the extent to which rates using the adopted formula affect the utilization of leased access. A transition to the new formula might (a) avoid unduly penalizing operators and programmers for decisions to use designated channels for non-leased access programming that were reasonably based on circumstances created by the Commission's previous rules, and (b) mitigate against the sudden disruption to subscribers' programming line-ups. We therefore request comment on whether the Commission should phase in the proposed cost formula, or any other rate setting formula which the Commission may adopt, for those leased access requests that can only be accommodated by bumping existing non-leased access programming. We also ask whether such transition relief should be applied to dark channels for which the operator has programming contracts in place. We ask for comment on how a transition might be accomplished and the specific mechanism the Commission should employ. In this context, commenters should explain how any proposed transition period would be consistent with the Commission's obligation to establish maximum reasonable rates for leased access. One possible approach would be the transition procedure set forth in Appendix E hereto. We seek comment on this approach and on any alternative approaches. 4. Adjusting Leased Access Rates under the Cost Formula Over Time 100. As described above, the proposed cost formula would require operators to designate the specific channels they will use to satisfy their set-aside requirement. We propose that an operator's selections are binding and the designated channels must be the ones that are in fact used to accommodate leased access requests. We do not believe, however, that operators should be required to adhere to their initial designations indefinitely, since the popularity and profitability of a designated channel could unexpectedly increase and the operator might no longer want to use it for leased access. In order to account for change, including changes in the profitability of channels, we tentatively conclude that operators should be allowed to redesignate their unused leased access channel capacity on an annual basis. For example, if an operator originally had to designate five channels, and one year after the cost formula were to become effective, only three were being used for leased access programming, the operator could change its remaining two channel designations and select two different channels to use for leased access. We request comment on these tentative conclusions, and ask how an operator's maximum leased access rates should be adjusted over time. Our presumption in allowing operators this flexibility is that operators generally will want to use their least profitable channels for leased access, and so will redesignate a channel that is less profitable than the one that is being replaced. If an operator redesignates a channel that is significantly more profitable than the previously selected channel, and the redesignation would raise the operator's maximum rate, we tentatively conclude that the redesignation would be evidence of an attempt to inflate the maximum rate in contravention of the purposes of our rules and the statute. 101. In addition to permitting redesignation of leased access channels, we tentatively conclude that operators should be permitted to recalculate their maximum rates annually, in order to account for changes in the allowable opportunity costs of designated channels that currently are not being used for leased access. We request comment on whether this annual recalculation is appropriate, and on whether it should occur on the anniversary of the effective date of our modified rules, each calendar year, or on some anniversary which is most appropriate for an individual operator (to coincide with its annual audits, for example). We believe that allowing an operator to update its rates will better approximate the operator's changing costs of satisfying its leased access requirement. We request comment on whether our maximum rate should be cumulative over the life of the leased access contract so that an operator and a leased access programmer have the option, if mutually agreed upon, to establish a rate below the maximum rate during the first part of the contract term and a rate above the maximum rate during a subsequent part of the contract term. We also seek comment on whether such an option would provide operators with the opportunity to evade the maximum rate. B. Part-Time Rates 102. As stated above in Section III.B., we conclude that proration of the maximum rate with time of day pricing is an appropriate method for establishing part-time rates under the highest implicit fee formula, at least for this interim time period. We request comment, however, on whether such proration is appropriate under our proposed cost formula, and, more specifically, if it is, whether the restriction that the part-time rates for a 24 hour time period total no more than the maximum rate is appropriate under the proposed cost formula. We seek comment on whether, if the cost/market rate formula were to be adopted for full- time leased access use, an entirely different method of calculating the maximum reasonable rate for part-time use would be more appropriate. If so, we request comment on how to define part-time leased access use, e.g., leases for less than a 24 hour channel, for 12 hours, for eight hours, or fewer. C. Preferential Access 1. Background 103. In the Rate Order, we declined to establish a special rate category for not-for- profit programmers, and we also declined to require cable operators to set aside separate leased access channel capacity for not-for-profit programmers. Since we expected our rules to result in rates adequate to attract potential not-for-profit programmers, we stated that the procedure we were adopting for determining the maximum leased access rates would reduce the need to specify any preferential rates for not-for-profit organizations. In addition, we noted that Section 611 of the Communications Act, regarding PEG access, adequately provided for not-for-profit programming, thus precluding the need for any set-aside for such programming. 2. Petitions 104. CME urges the Commission to reconsider its decision not to establish lower maximum rates for not-for-profit channel lessees. CME claims that the rates required by the Commission's rules result in unreasonably high rates for even major national not-for-profit organizations. CME requests that the Commission therefore establish reduced rates for not- for-profit programmers. In its pleadings, CME requests that we set the not-for-profit rate at a nominal charge, such as one tenth of a cent ($.001) per subscriber or three percent of the programmer's revenue derived from carriage, whichever is greater. For a hypothetical system with 50,000 subscribers, a one tenth of a cent per subscriber charge would result in a rate of $50 per month for a full-time channel. CME subsequently suggested that not-for- profits be charged the "incremental cost" of adding a not-for-profit channel to the cable system, which it determines to be $783 annually (or $65.25 a month) per system, regardless of the system's channel capacity, technical make-up, or number of subscribers. 105. CME also urges the Commission to reconsider its decision not to establish a set-aside for not-for-profit programming. CME argues that the Commission erroneously concluded that Section 611 of the Communications Act provides adequate access for not-for- profits. CME points out that Section 611 does not require local franchising authorities to provide PEG channels and claims that few operators make them available. CME further contends that most not-for-profits do not qualify for use of PEG channels. CME asserts that a temporary set-aside would give not-for-profits additional time to organize and raise the funds needed to launch a new programming service. 106. Other parties have also sought preferential rate and set-aside treatment under the leased access rules. For example, SUR states that per-event or per-channel pay programmers serving minority or educational needs, as defined in Section 612(i)(2) and (3), should receive a substantial discount on the maximum rate calculated for a general interest programmer such as HBO. The discount should, according to SUR, reflect the size of the potential minority or educational interest to be served. SUR further argues that, when an operator is confronted with greater demand for leased access than it can accommodate, the operator should be required to allow first use for "diversity enhancing and Congressionally favored program offerings" which, according to SUR, include minority and educational programming. In addition, Engle Broadcasting ("Engle"), licensee of a low power television ("LPTV") station, asks that preferential leased access rates be accorded to all LPTV stations. According to Engle, LPTVs are supported entirely by local advertisers (in other words, they do not receive any revenues from viewers or subscribers), which means that they cannot afford the rates required by the Commission's rules. Engle contends that the Commission should encourage LPTV carriage on leased access because, among other things, LPTVs generally provide local, community-oriented programming which serves the public interest. 107. Cable operators object to these requests for preferential treatment. Bend, for example, contends that reduced leased access rates for some programmers are not essential to program diversity. In opposition to CME's request, Bend claims that PEG channels serve as outlets for not-for-profit entities or other non-commercial programmers. Bend notes that Congress granted local franchising authorities discretion to decide whether cable system revenue or other resources should be used to promote PEG access. Bend further asserts that cable operators provide a variety of programming that caters to special needs and interests. 108. Continental also objects to the preferential treatment requested by various programmers and points out that CME's request for lower rates and channel set-asides for not-for-profits is "largely a rehash of arguments previously considered and properly rejected by the Commission." Continental stresses that what is at issue are the rates for leased access. According to Continental, educational entities have ample subsidized access both on cable systems (i.e., through must carry, PEG, Section 612(i)) and through other media outlets (i.e., ITFS). Continental claims that "minority programmers receive special preferences in broadcast licensing with PEG and the Section 612(i) minority provisions providing more than adequate subsidized minority outlets." Thus, Continental insists, there is no basis for setting special lower rates for these, or any, programmers. 109. CVI contends that there is no rationale or legal basis for the Commission to prescribe lower rates for special classes of programmers. CVI argues that Congress modified the leased access provision "to promote competition in the delivery of diverse sources of video programming," not to force cable operators to subsidize underfunded programmers. With respect to CME's request for temporary set-aside capacity, CVI asserts that not only is a set-aside confiscatory, it is inconsistent with the framework of the legislation. Similarly, Cox Cable Communications, Inc. ("Cox") states that it strongly opposes mandatory, separate, lower rates for not-for-profit organizations. Cox contends that operators should not be forced to give up their property (i.e., channel capacity) for less than a fair market return. Cox instead supports allowing operators, at their discretion, to negotiate more favorable rates for not-for-profit programmers. 110. Time Warner claims that attempts to create additional categories of programming based on the nature of the speaker or content of its speech results in content- based regulation that cannot survive scrutiny under the First Amendment. Further, Time Warner argues that such categorization is inconsistent with the Congressional admonition that cable operators not exercise editorial discretion on leased access channels. Time Warner claims that, contrary to CME's argument, most subscribers are served by systems offering PEG channels. Time Warner also claims that CME offers no evidence to support its claim that most non-profit programmers will not qualify to use public access channels. 3. Discussion 111. In adopting the 1984 Cable Act, Congress contemplated that operators would be permitted to offer preferential leased access rates to not-for-profit entities. The House Committee stated that: [i]t is important to note, though, that [Section 612(f)] does contemplate permitting the cable operator to establish rates, terms, and conditions which are discriminatory. . . . [B]y establishing one rate for all leased access users, a price might be set which would render it impossible for certain classes of cable services, such as those offered by not-for-profit entities, to have any reasonable expectation of obtaining leased access to a cable system. Furthermore, one of the statutory purposes of the leased access provisions is "to assure that the widest possible diversity of information sources are made available to the public from cable systems in a manner consistent with growth and development of cable systems." Diversity might be hampered if, as CME argues, even the largest not-for-profit organizations cannot afford the maximum leased access rates allowed by the Commission's rules. The Commission is concerned that not-for-profit programmers are being excluded from leased access, but lacks sufficient evidence in the record to make a determination whether the goal of diversity is being achieved and, if it is not being achieved, whether one of the reasons is that rates are unaffordable for not-for-profit entities. 112. The Commission invites interested parties to demonstrate, with specific examples, whether current leased access programming sources are sufficiently diverse and whether preferential treatment for not-for-profit programmers would significantly affect the diversity of current programming sources. In order to determine the extent to which current rates may be restricting the diversity of programmers, the Commission requests commenters to provide precise data indicating whether or not rates charged to leased access programmers are affordable for not-for-profit entities. In other words, we solicit commenters to furnish examples that are specific and concrete. Commenters in support of preferential treatment for not-for-profit programmers should explain their position within the context of our previously stated belief that operators should not have to subsidize leased access programmers and the statutory requirement that leased access use should not "adversely affect the operation, financial condition, or market development of the cable system." Those commenters should also address the extent to which preferential treatment is necessary given that public access is already provided for under current PEG requirements. 113. If we conclude that some form of preferential treatment is appropriate, we seek comment on whether a lower maximum rate should apply to not-for-profit leased access programmers. For example, if a nominal rate should be set, we seek specific evidence demonstrating what rate should apply and why. Alternatively, if the proposed cost formula is adopted, we seek comment on whether operators should be required to exclude lost advertising revenues or lost commissions from maximum rates charged to not-for-profit leased access programmers. In addition, we solicit comment on whether not-for-profit leased access programmers should be entitled to preferential rates during any transition period that might be adopted for the cost formula. 114. Preferential rates, if adopted, would provide no relief if not-for-profit leased access programmers are denied access to a system because the operator has met its set-aside requirement. We seek comment on whether the statute would permit us to consider a set- aside requirement for not-for-profit programmers. If so, would the public interest be served by such a set-aside requirement and how should it be structured? For example, would a reservation of 25 percent of leased access capacity be appropriate? Should a set-aside requirement be temporary or permanent, and if temporary, what length of time would be appropriate? Furthermore, if the proposed cost formula were adopted, how would the need for a set-aside requirement be affected, given that the formula allows market rates to prevail when demand for leased access exceeds an operator's set-aside requirement? If a such a set- aside requirement were imposed, we would stipulate that until a not-for-profit leased access programmer demanded access to a not-for-profit set-aside channel, the operator must use the channel for for-profit leased access programming, unless no demand exists, in which case it may use it for its own programming. 115. We also seek comment on whether preferential treatment should be limited to not-for-profit programmers or whether certain types of for-profit programmers should also receive preferential treatment. We believe that there is insufficient evidence on the record for us to adopt the recommendations of SUR and Engle that LPTV stations and minority and educational programmers should receive preferential treatment, but we invite commenters to demonstrate with specific evidence why a preference for certain types of for-profit programmers may be appropriate. We also seek comment on whether a "not-for-profit programmer" should be defined as a programmer with Section 501(c)(3) tax-exempt status or whether another classification should apply. D. Tier and Channel Placement 1. Background 116. Congress did not mandate specific tier or channel location for leased access, as it did for PEG channels. Thus, in the Rate Order, the Commission declined to establish requirements for placing leased access on particular tiers or channels. Instead, we determined that these issues are best left in the first instance to negotiations between the parties. 2. Petitions 117. CME urges the Commission to reconsider its decision not to establish terms regarding channel location and tier access. According to CME, the statute directs the Commission to "establish reasonable terms and conditions for such use [of leased access]," and one of the terms to be established is channel placement. CME relies on the legislative history of the 1992 Cable Act, which states that the Commission "should ensure that these [leased access] programmers are carried on channel locations that most subscribers actually use." Thus, CME argues that, in order to fulfill Congressional intent, the Commission should establish reasonable terms and conditions involving channel placement. ValueVision supports CME's position on tier and channel placement. Videomaker also urges the Commission not to give operators discretion as to tier and channel location for leased access because the operator may place the programmer on a tier that very few subscribers receive, or at less desirable time slots. Videomaker asserts that placement of a lessee's programming is crucial to its success, and thus an uncooperative operator could effectively stifle the lessee's chances of success if the operator has the ability to control leased access tier and channel placement. Cable operators, on the other hand, have not asked us to reconsider the initial determination that channel placement and tier access will be influenced by individual circumstances and are best resolved through the negotiation process in the first instance. 3. Discussion 118. The statutory commercial leased access provisions are intended to provide programmers with a "genuine outlet" for their programming. According to the legislative history of the 1992 amendments to Section 612, the Commission should ensure that programmers are carried on channel locations that "most subscribers actually use," a guideline that should be interpreted in light of the statutory provision that leased access use should not adversely affect the market development of a cable system. We tentatively conclude that, absent some compelling reason (such as technical considerations), leased access programmers have the right to be placed on a tier, as opposed to being carried as a premium service. We believe that, if an operator were permitted to force leased access programming to be offered as a premium service, the programmer would not be assured access to most subscribers. 119. Our 1995 Competition Report states that a large percentage of subscribers (more than 90 percent) receive CPSTs. We tentatively conclude that both the BST and the CPST with the highest subscriber penetration qualify as genuine outlets because "most subscribers actually use" them. However, we seek comment on whether a CPST that does not boast the highest subscriber penetration could qualify as a genuine outlet, and under what circumstances. For example, should we interpret the term "most subscribers" as greater than 50 percent? In order to permit flexibility in the market development of an operator's cable system, we would allow the operator to decide whether it is appropriate for its particular system to carry the leased access channel on the BST or on a CPST that qualifies as a genuine outlet. An exception would apply for programming that the operator is required or permitted to scramble or trap out, such as channels that are primarily dedicated to sexually- oriented programming. To ease technical burdens, operators would be permitted to place such programming with other programming that is also scrambled or trapped out. 120. Our discussion of tier and channel placement in the Rate Order was intended to recognize that there are likely to be issues related to access control equipment which could affect a system's channel placements. The core requirement is that the operator place the leased access programming on the system. Depending on the current use of the channels the operator designates for leased access, retrapping might be required to provide full access or converter boxes might be required by subscribers without "cable ready" television sets. For example, a system providing a BST containing only mandated services (local must-carry signals and PEG access channels) and controlling subscriber access through a trapping system would have to change out the traps of all basic subscribers to afford them access to a new leased channel service. We propose to allow operators to consider these concerns when deciding whether to place leased access programming on either the BST or a CPST that qualifies as a genuine outlet. However, as stated above, it would be the operator's prerogative to place programming that is required or permitted to be scrambled or trapped out with other programming that is scrambled or trapped out. E. Obligation to Open New Channels and Bump Existing Non-Leased Access Services 1. Background 121. In the Rate Order, we did not specify the extent to which cable operators are required to remove current non-leased access programming to make capacity available for leased access programming when the operator does not have unused capacity available to otherwise accommodate the request. We also did not address whether operators are required to open up a second set-aside channel that is dark (i.e., activated but without programming) in order to accommodate a leased access request when the first set-aside channel is not fully leased. 122. In TV-24 Sarasota, Inc. v. Comcast, the programmer argued that the cable operator should be required to open up an additional leased access channel, even though the first channel set-aside was not fully leased, in order to accommodate its request for a particular two-hour time slot twice a week. The programmer complained that the operator should not be able to prevent it from obtaining a specific time of day slot that may already be taken on the first channel. The programmer's argument was rejected because the operator could reasonably accommodate the programmer's request by providing comparable time slots on the existing leased access channel. 2. Petitions 123. In its petition, which was filed before the release of the TV-24 Sarasota, Inc. v. Comcast decision, Continental asked us to clarify on reconsideration that cable operators are not required to make a specific time available to a lessee if it would require the use of a second designated leased access channel, so long as time remains on the first designated channel already used for commercial leasing. 3. Discussion 124. Cable operators that have not fulfilled their statutory requirements for leased access generally should be required to accommodate requests for leased access time. However, we recognize that there may be circumstances in which substantially greater harm to the subscribers, the operator, and the non-leased access programmer may result if the leased access request is accommodated than would result for the leased access programmer if the leased access request is not accommodated. As was the case in TV-24 Sarasota, Inc. v. Comcast, a programmer may request a specific leased access time slot for only a few hours per week at a time which is currently being used by another leased access programmer. We seek comment on whether there is any compelling reason to depart from this precedent and require the operator to open up another leased access channel, thereby dislocating a full-time programmer, even if the operator can otherwise reasonably accommodate the leased access request in a comparable time slot. As stated in TV-24 Sarasota, Inc. v. Comcast, "we believe that a possible disruption of existing programming in order to accommodate only a few hours of leased access demand, where adequate and comparable capacity is available on an existing leased access channel, will not advance the goal of assuring 'that the widest possible diversity of information sources are made available to the public from cable systems in a manner consistent with the growth and development of cable systems.'" However, we solicit comment on whether it is sufficient to require a "reasonable accommodation in a comparable time slot" or whether the standard should be further defined, such as a comparable time slot where the audience is of similar size and profile. We also seek comment on whether the operator should be required to remove an existing full-channel programmer if the leased access programmer agrees to a minimum time increment. We tentatively conclude that the guarantee of a minimum time increment of eight hours within a 24-hour period would be a reasonable pre-condition for requiring an operator to open up an additional channel for leased access. 125. We also tentatively conclude that operators should not be required to open up an additional channel even if it is dark, provided that the programmer can otherwise be reasonably accommodated or does not agree to a minimum time increment of eight hours within a 24-hour period. We believe that essentially the same opportunity costs are involved regardless of whether the operator is forced to dislocate existing programming or is precluded from carrying new programming. 126. We remind operators of their obligation to negotiate with programmers in good faith and in a timely manner to accommodate reasonable leased access requests. The goals of promoting diversity of programming sources consistent with the growth and development of cable systems, while also minimizing the amount of program disruption to subscribers, will be considered in evaluating the reasonableness of an operator's accommodation of a leased access request. F. Selection of Programmers 127. The Commission has not specifically addressed the manner in which lessees are to be selected for placement on leased access channels. We stated in the Rate Order that each lessee will only be allowed to lease up to one channel if there are other leased access programmers demanding use of the additional designated channels. We further stated that this rule is not intended to permit adverse effects on the operation, financial condition, or market development of the cable system. In their petitions, ValueVision and CME propose that leased access channels be provided on a first-come, first-served basis. According to ValueVision, without this scheme, cable operators will impermissibly look to content as a means of allocating scarce leased access channel capacity. HSN, on the other hand, argues that first-come, first-served is not necessary because most operators are looking to elevate revenue potential and not to scrutinize content. CVI and Continental also oppose a first- come, first-served approach because they argue that it will not necessarily promote diversity and in fact may lead to home shopping channels occupying the majority of the leased access channels available. 128. We tentatively conclude that a first-come, first-served approach is preferable so long as available leased access channel capacity is sufficient to accommodate incoming leased access requests. However, if an operator's available leased access channel capacity is insufficient to accommodate all pending leased access requests, we seek comment on whether operators should be allowed to accept leased access programmers on a basis other than one that is strictly first-come, first-served. We believe that allowing cable operators limited ability to make content-neutral selections from among leased access programmers may be appropriate in order to enable them to avoid certain situations that might "adversely affect the operation, financial condition, or market development of the cable system." 129. For example, operators may wish to give priority to leased access programmers that request a full-time lease over a programmer seeking to lease only part-time, thus minimizing the disruption to the subscriber, as well as easing the administrative burdens on the operator. We are not suggesting that an operator would be allowed to completely refuse part-time requests for leased access. The issue here is, when two applicants request leased access time and the operator cannot accommodate them both within the set-aside requirement, should the operator be allowed to select the full-time applicant over the part-time applicant. At the same time, we are concerned that allowing a preference for full-time programmers may not further the statutory goal of promoting the widest possible diversity of programming sources, since encouraging part-time use could result in a wider variety of programmers. To that end, we seek comment on whether certain circumstances favor shifting the preference to the competing part-time applicant, for example if the part-time applicant is a not-for-profit entity. Alternatively, instead of allowing a preference for the last available leased access channel, we seek comment on whether we should require one or two leased access channels to be used exclusively for part-time use. We further seek comment on whether we should allow operators to base their selections on any content-neutral criteria other than the full- time/part-time distinction. G. Minority and Educational Programmers 1. Background 130. Section 612(i) of the Communications Act permits a cable operator to place programming from a qualified minority or educational programming source on up to 33 percent of the cable system's designated leased access channels. In the Rate Order, we stated that we would reflect the provisions of Section 612(i) in our rules. For purposes of the minority programming provision, we concluded that programming that covers "minority viewpoints" or is "directed at members of minority groups" must cover the viewpoints of, or be targeted to, members of minority groups, as defined in Section 309(i)(3)(c)(ii) of the Communications Act. Regarding the appropriate proportion of programming that must be devoted to coverage of minority or educational programming to qualify as "substantially all" under the statute, we stated that programming sources that devote 90 percent or more of their programming to such purposes may qualify as a statutory source of minority or educational programming. 2. Petitions 131. Discovery Communications, Inc. ("Discovery") and Black Entertainment Television, Inc. ("BET") ask for further refinement of the rules allowing minority and educational programming to substitute for leased access programs as permitted under Section 612(i). According to Discovery and BET, if qualified minority and educational programming is relegated to a la carte distribution or a CPST with low subscriber penetration, its use as a substitute for commercial leased access will not fulfill the purpose Congress intended. Thus, Discovery and BET request that we require, as a further condition to this "substitution" provision, that programming must be made available as part of either the BST or a CPST with high subscriber penetration in order to qualify as leased access programming. 3. Discussion 132. We seek comment on whether the requirements for tier and channel placement, as proposed above in Section IV.D., should apply to minority and educational programming that is carried as a substitute for leased access programming. Specifically, should operators be required to carry minority and educational programming on the BST or a CPST that qualifies as a genuine outlet, if they are claiming it as a substitute for leased access? Discovery and BET have not provided specific evidence that these types of programmers are unable to negotiate for placement on the tier of their choice. Nor is there explicit language in the statute or legislative history stipulating that minority and educational programming should be received by most subscribers. However, language used in the leased access provisions suggests that Congress envisioned that the same channels that would have been used for leased access should be used for any substituted minority and educational programming. Specifically, Section 612(i)(1) provides that "a cable operator required by this section to designate channel capacity for commercial use may use any such channel capacity" for minority and educational programming (emphasis added). Moreover, to allow a less stringent standard for minority and educational programming would seem to defeat the use of such programming as a substitute for leased access. Therefore, we tentatively conclude that minority and educational programming should not qualify as a replacement for leased access programming unless it is carried on the BST or a CPST that qualifies as a genuine outlet. As with leased access, the operator could choose on which qualifying tier to carry the programming. H. Procedures for Resolution of Disputes 1. Background 133. In the Rate Order, the Commission established that disputes over leased access rates or terms and conditions would be resolved through the complaint process. Complaints must be filed with the Commission within 60 days of the alleged violation, must state concisely the facts constituting a violation of the leased access rules and cite the specific rule or regulation allegedly violated. An operator has 30 days from the petition filing date to respond. In the case of a rate dispute, a complaint need only allege that a given rate is higher than the maximum rate permitted under our rules; the operator is then required to submit data showing that the rate charged was not higher than the maximum rate it charged. In order for relief to be granted, the complainant must ultimately show, by clear and convincing evidence, that the cable operator violated our leased access rules or otherwise acted unreasonably or in bad faith. 2. Petitions 134. CME urges the Commission to reconsider its procedures for resolving leased access disputes because it asserts that the procedures adopted in the Rate Order will not protect against patterns of abuse or facilitate dispute resolution. CME argues that the Commission's rules impose an overly burdensome standard of proof on leased access complainants and set no time limit in which complaints must be decided by the Commission. Specifically, CME argues that adoption of the "clear and convincing" burden of proof comes from the Commission's misinterpretation of Section 612(f) of the Communications Act. CME argues that, while prior to the 1992 Cable Act a cable operator's rates, terms and conditions were presumed reasonable and a lessee could only rebut the presumption with a clear and convincing showing that the operator's demands were unreasonable, the 1992 Cable Act directs the Commission to "determine the maximum reasonable rates" and "establish reasonable terms and conditions" for leased access. CME states that the need to rebut applies only if there is a presumption and, because there is no longer a presumption that a cable operator's rates, terms and conditions are reasonable, there is no longer any need for the lessee to show anything by clear and convincing evidence. CME also argues that Commission rules do not give lessees access to information they may need to make a prima facie complaint because the Commission appears to be treating the data on which a cable operator relies to set maximum rates as proprietary. CME maintains that, without such data, it will be "virtually impossible" for the lessee to make out a prima facie case, much less to prove a violation by clear and convincing evidence. Finally, CME maintains that the leased access rules adopted will not result in the expeditious resolution of disputes because operators are given too much time to respond to complaints. CME argues that the operators' response periods should be shortened from 30 days to 10 to 15 days. 135. In opposition, Continental argues that the dispute resolution procedure for leased access is not burdensome to complainants. Continental asserts that CME misconstrues the burden of proof imposed on lessees. Continental interprets the rules to require that a complainant need only allege that the rate is excessive to satisfy its burden, with the burden then shifting to the cable operator to demonstrate compliance. CVI agrees and states that the Rate Order suggests that the pleading requirements for a programmer, at least in the rate dispute context, are not strict. CVI also calls CME's proposal for shortening operators' response time unfair and unnecessary. 3. Discussion 136. The statutory presumption is that rates, terms, and conditions for leased access are reasonable unless the complainant demonstrates clear and convincing evidence to the contrary. However, as we indicated in the Rate Order, in the case of a rate dispute, a complainant is required only to allege that a given rate is higher than the maximum rate permitted under our rules. After the complaint is filed and served on the operator, the operator then has 30 days to submit data showing that the rate charged was not higher than the permitted maximum rate. After all evidence has been submitted, complainants that are able to demonstrate clear and convincing evidence of a violation have recourse to a variety of relief measures, including refunds, injunctive relief, and even forfeitures. As stated in the Rate Order, the availability of refund relief will help a leased access programmer obtain access while a dispute is pending, since any overcharges will be repaid. 137. In order to streamline the complaint process before the Commission, we propose to stipulate that a leased access programmer may not file a complaint alleging that an operator's maximum rate was calculated incorrectly unless an independent certified public accountant has first reviewed the operator's calculations and made an independent determination of the maximum rate. If the operator and leased access programmer cannot agree on a mutually acceptable accountant, the operator may select any independent certified public accountant. The review must be conducted within 60 days of the leased access programmer's request to the operator for a review. The operator would be expected to provide the accountant with all information necessary to support its rate calculation, including an explanation of how the rate was calculated. The findings of the accountant would be certified in a final report and provided to both parties. We seek comment on whether, in the absence of any evidence to the contrary, we should consider a determination by the accountant that the operator's rate exceeds the permissible rate to constitute clear and convincing evidence that the rate is unreasonable. 138. We tentatively conclude that, in order to provide notice to other potential leased access programmers, the accountant's final report should be filed in the cable system's local public file. We seek comment on this proposal. Alternatively, we seek comment on whether operators should be required to provide the report upon request to potential leased access programmers. We seek comment on what type of information should be contained in the accountant's final report and what type of information would be proprietary and thus kept confidential. We also seek comment on how the accountant's expenses should be paid. For example, should the parties share the expenses equally or should the full amount be paid by the party that the accountant's report proved was incorrect? 139. We strongly recommend the use of alternative dispute resolution ("ADR") to settle disputes that are not resolved as a result of the accountant's report. ADR is especially suited to resolving leased access disputes since the rate calculations are based largely on questions of fact. Furthermore, ADR could well provide the parties faster relief than agency adjudication. We therefore urge parties to bring complaints to the Commission only as last resort, after all attempts at informal settlement have failed. 140. In light of the streamlining proposed above, and contrary to CME's contention, we do not believe that it is necessary for the Commission to set a time limit within which complaints will be decided by the Commission. Each leased access complaint proceeding differs in complexity and requires varying amounts of Commission time and resources. In addition, we believe that shortening the operator's response period would be unfair to the operator. I. Resale of Leased Access Time 141. We seek comment on whether we should permit leased access time to be resold by the lessee. Leased access programmers are of course entitled to sell time to advertisers. The question here is whether we should allow persons unaffiliated with the operator to lease time from the operator and then sell it as programming time to other unaffiliated persons for a profit. This type of resale service might provide substantial benefit to programmers with limited time and resources to conduct transactions directly with operators. In addition, a "mini-tier" that would compete directly with the operator's tiers could be created if several channels were resold by the lessee. On the other hand, it may be just as burdensome for the leased access programmer to conduct business with the lessee as it is with the operator. Also, since the operator lacks editorial discretion over the content of leased access programming, the leased access channels could already be considered a mini-tier that provides competition to the operator's programming. Furthermore, permitting the resale of leased access time may defeat the Commission's mandate to establish maximum leased access rates if lessees were able to extract unreasonable rates for limited leased access space. Given these conflicting considerations, we seek comment on the advisability of allowing the resale of leased access time. If the Commission were to prohibit resale, we ask whether an exception should apply for not-for-profit leased access programmers. V. REGULATORY FLEXIBILITY ANALYSIS A. Final Regulatory Flexibility Act Analysis for the Order on Reconsideration 142. Pursuant to the Regulatory Flexibility Act of 1980, Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C.  601-612 ("Regulatory Flexibility Act"), the Commission's final analysis with respect to this Order on Reconsideration is as follows: 143. Need and purpose of this action. The Commission, in compliance with Section 9 of the Cable Television Consumer Protection and Competition Act of 1992, 47 U.S.C.  532 (1992), pertaining to leased commercial access, is required to adopt rules and procedures intended to ensure the availability of and accessibility to leased commercial access on cable systems. 144. Summary of issues raised by the public in response to the Initial Regulatory Flexibility Analysis. There were no comments submitted in response to the Initial Regulatory Flexibility Analysis. 145. Significant alternatives considered and rejected. Petitioners for reconsideration did not submit comments analyzing the administrative burden of the leased access rules pursuant to the Regulatory Flexibility Act. The Commission nonetheless has attempted to minimize such burdens. B. Initial Regulatory Flexibility Act Analysis for the Further Notice of Proposed Rulemaking 146. Pursuant to Section 603 of the Regulatory Flexibility Act, the Commission has prepared the following initial regulatory flexibility analysis ("IRFA") of the expected impact of these proposed policies and rules on small entities. Written public comments are requested on the IRFA. These comments must be filed in accordance with the same filing deadlines as comments on the rest of the Further Notice, but they must have a separate and distinct heading designating them as responses to the regulatory flexibility analysis. The Secretary shall send a copy of the Further Notice, including the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with Section 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C.  601 et seq. (1981). 147. Reason for Action. Section 612 of the Communications Act of 1934, as amended, 47 U.S.C.  532, requires the Commission to prescribe rules and regulations regarding commercial use of channel capacity for unaffiliated persons. The Commission is using this Further Notice to seek comment on various issues concerning implementation of this statute. 148. Objectives. To propose rules which implement Section 612 of the Communications Act of 1934, as amended, 47 U.S.C.  532, and further its goals of promoting competition in the delivery of diverse sources of video programming and to assure that the widest possible diversity of information sources are made available to the public from cable systems in a manner consistent with the growth and development of cable systems. 149. Legal Basis. Action as proposed for this rulemaking is contained in Sections 1, 4(i), 4(j) and 612 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i), 154(j) and 532. 150. Description, Potential Impact and Number of Small Entities Affected. We anticipate a possible impact on small entities, as defined in Section 601(3) of the Regulatory Flexibility Act, including cable operators and leased access programmers, but we do not currently have information pertaining to the extent of such impact or the number of small entities that may be affected. 151. Reporting, Recordkeeping and Other Compliance Requirements. Action as proposed in this rulemaking may impose new reporting requirements on cable operators. 152. Federal Rules which Overlap, Duplicate or Conflict with these Rules. None. 153. Any Significant Alternatives Minimizing Impact on Small Entities and Consistent with Stated Objectives. The Further Notice solicits comments on alternatives. VI. INITIAL PAPERWORK REDUCTION ACT OF 1995 ANALYSIS 154. This Order on Reconsideration and Further Notice of Proposed Rulemaking ("Order and Further Notice") contains either a proposed or modified information collection. As part of our continuing effort to reduce paperwork burdens, we invite the general public and the Office of Management and Budget ("OMB") to take this opportunity to comment on the information collections contained in this Order and Further Notice, as required by the Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency comments are due at the same time as other comments on the Further Notice; OMB comments are due 60 days from the date of publication of this Order and Further Notice in the Federal Register. Comments should address: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. VII. PROCEDURAL PROVISIONS 155. Redesignation of Docket. We believe that it would facilitate consideration of leased commercial access issues by the Commission if they were separated from MM Docket 92-266 and redesignated as a separate docket. Accordingly, we are redesignating the Commission's consideration of leased commercial access issues as CS Docket No. 96-60. Parties are required to caption filings in response to this Order and Further Notice under this new docket number. 156. Ex parte Rules - Non-Restricted Proceeding. This is a non-restricted notice and comment rulemaking proceeding. Ex parte presentations are permitted, except during the Sunshine Agenda period, provided that they are disclosed as provided in Commission's rules. See generally 47 C.F.R.  1.1202, 1.1203, and 1.1206(a). 157. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's Rules, 47 C.F.R.  1.415 and 1.419, interested parties may file comments on or before May 15, 1996 and reply comments on or before May 31, 1996. To file formally in this proceeding, you must file an original plus six copies of all comments, reply comments, and supporting comments. If you want each Commissioner to receive a personal copy of your comments and reply comments, you must file an original plus eleven copies. You should send comments and reply comments to Office of the Secretary, Federal Communications Commission, 1919 M Street, N.W., Washington, D.C. 20554. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Center, Room 239, Federal Communications Commission, 1919 M Street, N.W., Washington D.C. 20554. 158. Written comments by the public on the proposed and/or modified information collections are due on or before May 15, 1996. Written comments must be submitted by OMB on the proposed and/or modified information collections on or before 60 days after publication of the Order and Further Notice in the Federal Register. In addition to filing comments with the Secretary, a copy of any comments on the information collections contained herein should be submitted to Dorothy Conway, Federal Communications Commission, Room 234, 1919 M Street, N.W., Washington, D.C. 20054, or via the Internet to dconway@fcc.gov, and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725-17th Street, N.W., Washington, D.C. 20503 or via the Internet to fain_t@al.eop.gov. VIII. ORDERING CLAUSES 159. Accordingly, IT IS ORDERED that the Petitions for Reconsideration in MM Docket No. 92-266 which pertain to commercial leased access are GRANTED IN PART and DENIED IN PART, as provided above herein. 160. IT IS FURTHER ORDERED that Part 76 of the Commission's rules IS HEREBY AMENDED as shown in Appendix F. The amendments to 47 C.F.R.  76.970(a), (b), (c), (d), 76.971(g) and 76.977 shall go into effect 30 days following publication of this Order on Reconsideration in the Federal Register. The amendments to 47 C.F.R.  76.970(e) impose information collections, and will therefore not go into effect until approved by the Office of Management and Budget. 161. IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 4(j) and 612 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j) and 532, NOTICE IS HEREBY GIVEN of proposed amendments to Part 76, in accordance with the proposals, discussions, and statement of issues in this Further Notice of Proposed Rulemaking, and that COMMENT IS SOUGHT regarding such proposals, discussion, and statement of issues. 162. IT IS FURTHER ORDERED that the Secretary shall send a copy of this Order on Reconsideration and Further Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with paragraph 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C.  601 et seq. (1981). FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A Petitions for Reconsideration: Booth American Company, et. al. Cablevision Systems Corporation Center for Media Education, et. al. Comcast Cable Communications, Inc. Community Broadcasters Association Continental Cablevision, Inc. Paradise Television Network, Inc. SUR Corporation Time Warner Entertainment Company, L.P. ValueVision International, Inc. Oppositions to Petitions: Bend Cable Communications, Inc., et. al. Cablevision Industries Corporation, et. al. Center for Media Education, et. al. Continental Cablevision, Inc. Home Shopping Network, Inc. Time Warner Entertainment Company, L.P. ValueVision International, Inc. Videomaker Magazine Replies to Oppositions: Cablevision Systems Corporation Center for Media Education, et. al. Continental Cablevision, Inc. Engle Broadcasting Paradise Television Network, Inc. SUR Corporation Time Warner Entertainment Company, L.P. ValueVision International, Inc. APPENDIX B Calculation of Proposed Cost Formula Step 1: Designate Leased Access Channels Designate specific channels to be used as leased access channels. The number of channels designated must be at least equal to the system's set-aside requirement set forth in Section 612(a). The channels that are designated for purposes of calculating this formula must be those that the operator actually intends to use for leased access if demand exists. Any type of channels (e.g., those on programming tiers, those offered as premium services, those currently carrying no programming, those carrying non- leased access programming, and those carrying leased access programming) may be designated. Step 2: Calculate the Per Channel Cost for Each Designated Channel Presently on a Tier (a) Divide the monthly tier subscriber charge for the relevant tier by the number of channels on that tier to obtain the monthly "average subscriber revenue." This number represents the "operating costs" of the system that are allocated to each channel on the system, regardless of whether leased access or non-leased access programming is carried on the channel. (b) Calculate the "net opportunity costs" for the channel on a per subscriber per month basis. (c) Add the average subscriber revenue from Step 2(a) to the net opportunity costs from Step 2(b), and multiply the total by the number of subscribers receiving the relevant tier. The result is the Per Channel Cost. Step 3: Calculate the Per Channel Cost for Each Designated Channel Presently Carried as a Premium Service (a) Subtract the per subscriber license fee paid by the operator to the programmer from the revenue received by the operator from each subscriber. This net revenue is presumed to cover all operating and opportunity costs; however, if it does not, add any additional opportunity costs associated with leasing the channel. (b) Multiply this amount derived in Step 3(a) by the number of subscribers currently subscribing to the premium service. The result is the Per Channel Cost. Step 4: Average the Per Channel Cost of All the Designated Channels Total the Per Channel Cost of all of the designated channels (including tiered and premium programming services) and divide by the number of channels. The result is the Maximum Monthly Rate for a full-time leased access channel on the system, assuming that the system's leased access set-aside requirement is not being fully used by leased access programmers. Step 5: Calculate the Amount to Be Charged to the Leased Access Programmer (a) If a leased access programmer requests a full-time channel on a tier, subtract the total subscriber revenue (the average subscriber revenue from Step 2(a) multiplied by the number of subscribers) for the tier on which the leased access programming is to be carried from the Maximum Monthly Rate in Step 4. The difference is the portion of the Maximum Monthly Rate that the operator may charge the leased access programmer directly. (b) If a leased access programmer requests that its programming be carried as a premium service, the full Maximum Monthly Rate may be charged to the leased access programmer, as long as all of the monthly subscriber revenue for the channel flows to the leased access programmer. (c) If a leased access programmer requests less than a full-time channel (i.e., part-time use), the tiered and premium service rates from Steps 5(a) and 5(b) may be prorated (evenly or based on time of day pricing, at the operator's option) to calculate the appropriate rate. APPENDIX E An Example Transition to the Proposed Cost Formula The following is one example of how a transition to the cost formula could be implemented. For the first year of the transition from the highest implicit fee to the cost formula, the maximum charge to the leased access programmer would be the highest implicit fee reduced by one-fourth of the difference between the highest implicit fee and the programmer charge using the cost formula. For the second year, the maximum charge would be the highest implicit fee reduced by one-half of the difference between the highest implicit fee and the programmer charge using the cost formula. For the third year, the maximum charge would be the highest implicit fee reduced by three-fourths of the difference between the highest implicit fee and the programmer charge using the cost formula. Beginning on April 1, 1999, the maximum programmer charge would be derived using the cost formula. In other words, the per channel transition rates would be as follows (where HIF = highest implicit fee multiplied by the applicable number of subscribers, and CF = programmer charge using the cost formula): Effective date of revised rules to March 31, 1997 = HIF - [.25 x (HIF - CF)] April 1, 1997 to March 31, 1998 = HIF - [.50 x (HIF - CF)] April 1, 1998 to March 31, 1999 = HIF - [.75 x (HIF - CF)] April 1, 1999 and thereafter = CF APPENDIX F Revised Rules Part 76 of Title 47 of the Code of Federal Regulations is amended as follows: PART 76 -- CABLE TELEVISION SERVICE 1. The authority citation for Part 76 continues to read as follows: AUTHORITY: Secs. 2, 3, 4, 301, 303, 307, 308, 309, 48 Stat. as amended, 1064, 1065, 1066, 1081, 1082, 1083, 1084, 1085, 1101; 47 U.S.C. Secs. 152, 153, 154, 301, 303, 307, 308, 309, 532, 535, 542, 543, 552, as amended, 106 Stat. 1460. 2. Section 76.970 is amended by revising paragraphs (a), (b), (c), (d), and (e) to read as follows:  76.970 Commercial leased access rates. (a) Cable operators shall designate channel capacity for commercial use by persons unaffiliated with the operator in accordance with the requirement of 47 U.S.C. 532. For purposes of 47 U.S.C. 532(b)(1)(A) and (B), only those channels that must be carried pursuant to 47 U.S.C. 534 and 535 qualify as channels that are required for use by Federal law or regulation. (b) The maximum commercial leased access rate that a cable operator may charge is the highest implicit fee charged any unaffiliated programmer (excluding leased access programmers, non-retransmission consent broadcasters and public, educational and governmental access programmers) within the same programming category. (c) The per subscriber implicit fee charged an unaffiliated programmer shall be calculated by determining the monthly price a subscriber pays to view the programming of the unaffiliated programmer and subtracting the monthly price per subscriber that the operator pays to carry the programming of the unaffiliated programmer. The implicit fee is determined by multiplying the per subscriber implicit fee by: (1) If the leased access programming is carried on a programming tier, the number of subscribers that subscribe to the programming tier on which the leased access programming is carried; or (2) If the leased access programming is carried as a premium service, the average number of subscribers that subscribe to unaffiliated non-leased access programming services that are carried as premium services. The implicit fee for a contracted service may not include fees, stated or implied, for services other than the provision of channel capacity (e.g., billing and collection, marketing, or studio services). (d) For each of the three programming categories as defined in paragraph (f) of this section, the highest implicit fee charged any unaffiliated programmer (excluding leased access programmers, non-retransmission consent broadcasters and public, educational and governmental access programmers) in each category shall be the maximum monthly leased access rate per subscriber that the operator could charge a commercial leased access programmer in the same category. The highest implicit fee shall be based on contracts in effect in the previous calendar year. Maximum rates for shorter periods can be calculated either by prorating the monthly maximum rate uniformly, or by developing a schedule of and applying different rates for different times of day, provided that the total of the rates for a 24- hour period does not exceed the maximum rate for one day of a full-time leased access channel (prorated evenly from the monthly rate derived in accordance with paragraphs (b), (c), and (d) of this section). (e) Within seven business days of a prospective leased access programmer's request, a cable system operator must provide such programmer with the following information: (1) a complete schedule of the operator's full-time and part-time leased access rates; (2) how much of the operator's leased access set-aside capacity is available; (3) rates associated with technical and studio costs; and (4) if specifically requested, a sample leased access contract. Requests under this paragraph (e) may be made by any reasonable means (e.g., in person, by telephone, by facsimile or by mail), and the information shall be deemed provided when the operator sends or gives the information to the programmer. Operators shall maintain, for Commission inspections, sufficient supporting documentation to justify the scheduled rates, including supporting contracts, calculations of the implicit fees, and justifications for all adjustments. ***** 3. Section 76.971 is amended by adding new paragraph (g) to read as follows:  76.971 Commercial leased access terms and conditions. ***** (g) Operators are not required to accept leases which are for less than a one-half hour interval. 4. Section 76.977 is amended by revising the heading to read as follows:  76.977 Minority and educational programming used in lieu of designated commercial leased access capacity. *****