[Federal Register: February 28, 2008 (Volume 73, Number 40)]
[Rules and Regulations]
[Page 10675-10696]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28fe08-15]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MB Docket No. 07-42; FCC 07-208]
Leased Commercial Access
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Commission modifies the leased access
rate formula; adopts customer service obligations that require minimal
standards and equal treatment of leased access programmers with other
programmers; eliminates the requirement for an independent accountant
to review leased access rates; requires annual reporting of leased
access statistics; adopts expedited time frames for resolution of
complaints and modifies the discovery process.
DATES: The amendments contained in this final rule are effective as
follows:
Revised Sec. 76.970 is effective May 28, 2008 except for paragraph
(j)(3) which contains information collection requirements that have not
been approved by the Office of Management and Budget (OMB). The Federal
Communications Commission will publish a document announcing the
effective date upon OMB approval of those collection requirements.
Section 76.972 is effective March 31, 2008 except for paragraphs
(a), (b), (c), (d), (e) and (g) which contain information collection
requirements that have not been approved by OMB and paragraph (f) which
contains requirements related to those information collection
requirements. The Federal Communications Commission will publish a
document announcing the effective date upon OMB approval of those
collection requirements.
Amendments to Sec. 76.975 are effective March 31, 2008 except for
paragraphs (d), (e), (g), and (h)(4) which contain information
collection requirements that have not been approved by OMB and
paragraphs (b), (c), and (f) which contain requirements related to
those information collection requirements. The Federal Communications
Commission will publish a document announcing the effective date upon
OMB approval of those collection requirements.
Section 76.978, as added in this rule, contains information
collection requirements that have not been approved by OMB. The Federal
Communications Commission will publish a document announcing the
effective date upon OMB approval of those collection requirements.
ADDRESSES: Federal Communications Commission, 445 12th Street, SW.,
Room TW-A325, Washington, DC 20554. In addition to filing comments with
the Office of the Secretary, a copy of any comments on the Paperwork
Reduction Act information collection requirements contained herein
should be submitted to Cathy Williams, Federal Communications
Commission, Room 1-C823, 445 12th Street, SW., Washington, DC 20554, or
via the Internet to PRA@fcc.gov. For additional information, see the
SUPPLEMENTARY INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: For additional information on this
proceeding, contact Steven Broeckaert, Steven.Broeckaert@fcc.gov; Katie
Costello, Katie.Costello@fcc.gov; or
[[Page 10676]]
David Konczal, David.Konczal@fcc.gov; of the Media Bureau, Policy
Division, (202) 418-2120. For additional information concerning the
Paperwork Reduction Act information collection requirements contained
in this document, contact Cathy Williams at 202-418-2918, or via the
Internet at PRA@fcc.gov.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order (``Order''), FCC 07-208, adopted on November 27, 2007, and
released on February 1, 2008. The full text of this document is
available for public inspection and copying during regular business
hours in the FCC Reference Center, Federal Communications Commission,
445 12th Street, SW., CY-A257, Washington, DC 20554. This document will
also be available via ECFS (http://www.fcc.gov/cgb/ecfs/). (Documents
will be available electronically in ASCII, Word 97, and/or Adobe
Acrobat.) The complete text may be purchased from the Commission's copy
contractor, 445 12th Street, SW., Room CY-B402, Washington, DC 20554.
To request this document in accessible formats (computer diskettes,
large print, audio recording, and Braille), send an e-mail to
fcc504@fcc.gov or call the Commission's Consumer and Governmental
Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).
In addition to filing comments with the Office of the Secretary, a
copy of any comments on the proposed information collection
requirements contained herein should be submitted to Cathy Williams,
Federal Communications Commission, 445 12th St., SW., Room 1-C823,
Washington, DC 20554, or via the Internet at PRA@fcc.gov.
Paperwork Reduction Act of 1995 Analysis
This document contains new and modified information collection
requirements. The Commission will send the requirements to OMB for
review. The Commission, as part of its continuing effort to reduce
paperwork burdens, will invite the general public to comment on the
information collection requirements as required by the Paperwork
Reduction Act of 1995, Public Law 104-13. In addition, pursuant to the
Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44
U.S.C. 3506(c)(4), we sought specific comment on how we might ``further
reduce the information collection burden for small business concerns
with fewer than 25 employees.'' In this present document, we have
assessed the potential effects of the various policy changes with
regard to information collection burdens on small business concerns,
and we find that these requirements will benefit many companies with
fewer than 25 employees by facilitating the use of leased access
channels and by promoting the fair and expeditious resolution of leased
access complaints.
Summary of the Report and Order
I. Introduction
1. In this Report and Order, we modify the Commission's leased
access rules. With respect to leased access, we modify the leased
access rate formula; adopt customer service obligations that require
minimal standards and equal treatment of leased access programmers with
other programmers; eliminate the requirement for an independent
accountant to review leased access rates; and require annual reporting
of leased access statistics. We also adopt expedited time frames for
resolution of complaints and improve the discovery process. Finally, we
seek comment in a Further Notice of Proposed Rulemaking on whether we
should apply our new rate methodology to programmers that predominantly
transmit sales presentations or program length commercials.
II. Commercial Leased Access Rules
A. Background
2. The commercial leased access requirements are set forth in
Section 612 of the Communications Act of 1934, as amended
(``Communications Act''). The statute and corresponding leased access
rules require a cable operator to set aside channel capacity for
commercial use by unaffiliated video programmers. In implementing the
statutory directive to determine maximum reasonable rates for leased
access, the Commission adopted a maximum rate formula for full-time
carriage on programming tiers based on the ``average implicit fee''
that other programmers are implicitly charged for carriage to permit
the operator to recover its costs and earn a profit. The Commission
also adopted a maximum rate for a la carte services based on the
``highest implicit fee'' that other a la carte services implicitly pay,
and a prorated rate for part-time programming.
B. Customer Service Standards and Equitable Contract Terms
3. In this Order, we adopt uniform customer service standards to
address the treatment of leased access programmers and potential leased
access programmers by cable system operators. In order to make the
leased access carriage process more efficient, we adopt new customer
service standards, in addition to the existing standards. These
standards are designed to ensure that leased access programmers are not
discouraged from pursuing their statutory right to the designated
commercial leased access channels, to facilitate communication of these
rights and obligations to potential programmers, and to ensure a smooth
process for gaining information about a cable system's available
channels. We require cable system operators to maintain a contact name,
telephone number and e-mail address on its website, and make available
by telephone, a designated person to respond to requests for
information about leased access channels. We also require cable system
operators to maintain a brief explanation of the leased access statute
and regulations on its website. Within three business days of a request
for information, a cable system operator shall provide the prospective
leased access programmers with the following information: (1) The
process for requesting leased access channels; (2) The geographic
levels of service that are technically possible; (3) The number and
location and time periods available for each leased access channel; (4)
Whether the leased access channel is currently being occupied; (5) A
complete schedule of the operator's statutory maximum full-time and
part-time leased access rates; (6) A comprehensive schedule showing how
those rates were calculated; (7) Rates associated with technical and
studio costs; (8) Electronic programming guide information; (9) The
available methods of programming delivery and the instructions,
technical requirements and costs for each method; (10) A comprehensive
sample leased access contract that includes uniform terms and
conditions such as tier and channel placement, contract terms and
conditions, insurance requirements, length of contract, termination
provisions and electronic guide availability; and (11) Information
regarding prospective launch dates for the leased access programming.
In addition to the customer service standards, we adopt penalties for
ensuring compliance with these standards. We emphasize that the leased
access customer service standards adopted herein are ``minimum''
standards. We cannot anticipate each and every instance of interaction
between cable operators and leased access programmers.
[[Page 10677]]
4. Maintenance of Contact Information. We require every cable
system operator to maintain, on its website, a contact name, telephone
number, and e-mail of an individual designated by the cable system
operator to respond to requests for information about leased access
channels. One of the more basic elements necessary to permit potential
programmers reasonable access to cable systems is ready availability of
a contact name, telephone number, and e-mail address of a cable system
operator that the programmer can use to reach the appropriate person in
the cable system to begin the process for requesting access to the
system. While the physical location of a person designated as the
leased access contact should not be critical in the relationship
between the potential programmer and the cable system operator, the
identity of that person and the ease of access to him are critical.
Other aspects of the rules we adopt here deal with expeditious and full
responses to leased access requests. The fact that the designated
person is located some distance away should not affect the timeliness
and substance of responses.
5. Timing for Response. We amend our rules to require a cable
system operator to respond to a request for information from a leased
access programmer within three business days. We retain the 30-day
response period currently provided in Section 76.970(i)(2) of the
Commission's rules for cable systems that have been granted small
system special relief. The identity of a designated person by the cable
system operator who the potential programmer can contact is important
only if that person replies quickly and fully to the requests of the
programmer. Our current rules provide for a 15 day response by cable
system operators to a request by a potential programmer. That response
must include information on channel capacity available, the applicable
rates, and a sample contract if requested. That response time is
unnecessarily long and, as discussed below, the information is
inadequate. Cable operators must have leased access channel information
available in order to be able to comply with the statute and our rules.
It does not take 15 days to provide a copy of that information to a
potential leased access programmer. Three business days to reply to a
request for such information is more than adequate. Accordingly, we are
amending the response time permitted a cable system operator to three
business days. We are also providing a more detailed list of
information the operator must provide upon request within that time
period. All of the information required to be provided is necessary for
a potential leased access programmer to be able to file a bona fide
request for carriage. There is no reason to delay providing the leased
access programmer with the information it needs to take the necessary
steps to obtain access.
6. Process for Requesting Leased Access Channels. We require a
cable system operator within three business days of a request to
provide a prospective leased access programmer with the process for
requesting leased access channels. One element of the information the
cable system operator must make available to the potential programmer
within three business days of a request is an explanation of the cable
system operator's process for requesting leased access channels.
Accordingly, we are requiring that the cable system operator include an
explanation of the operator's process and procedures for requesting
leased access channels.
7. Geographic Levels of Service that Are Technically Possible. We
require a cable system operator within three business days of a request
to provide a prospective leased access programmer with the geographic
levels of service that are technically possible. Commenters complain
that cable system operators make available only limited levels of
service. Typically, the service offered is defined by the size of the
headend. We will not require, at this time, the operator to allow the
leased access programmer to serve discrete communities smaller than the
area served by a headend if they are not doing the same with other
programmers. We acknowledge that with the consolidation of headends,
programmers may be forced to purchase larger areas at higher costs than
they would prefer. We will monitor developments in this area, and may
revisit this issue if circumstances warrant. However, we will require
cable system operators to clearly set out in their responses to
programmers what geographic and subscriber levels of service they
offer.
8. Number, Location, and Time Periods Available for Each Leased
Access Channel. We require a cable system operator within three
business days of a request to provide a prospective leased access
programmer with the number, location, and time periods available for
each leased access channel. Our current leased access channel placement
standards provide that programmers be given access to tiers that have
subscriber penetration of more than 50 percent. 47 CFR 76.971(a)(1) We
will not change that requirement, but we will expand on the current
requirement relating to capacity in Section 76.970(i) to require cable
system operators to provide, in their replies to requests from
programmers, the specific number and location and time periods
available for each leased access channel. This greater degree of
certainty should assist programmers in their evaluations.
9. Explanation of Currently Available and Occupied Leased Access
Channels. We require a cable system operator within three business days
of a request to provide a prospective leased access programmer with an
explanation of currently available and occupied leased access channels.
Section 612 of the Communications Act imposes specific requirements on
cable operators with regard to leased access. 47 U.S.C. 532. It is
inherent in these obligations to be able to provide timely and accurate
information to prospective leased access programmers. Within three
business days of a request by a current or potential leased access
programmer, a cable operator shall provide information documenting: (1)
The number of channels that the cable operator is required to designate
for commercial leased access use pursuant to Section 612(b)(1); (2) the
current availability of those channels for leased access programming on
a full- or part-time basis; (3) the tier on which each leased access
channel is located; (4) the number of customers subscribing to each
tier containing leased access channels; (5) whether those channels are
currently programmed with non-leased access programming; and (6) how
quickly leased access channel capacity can be made available to the
prospective leased access programmer. We believe this information is
vital to enable leased access programmers to make an informed decision
regarding whether to pursue leased access negotiations with a cable
operator. Provision of this information will also benefit cable
operators by timely informing leased access programmers of current
leased access timing and availability, and thereby eliminating leased
access requests that cannot be accommodated by existing leased access
availability.
10. Schedule and Calculation of Leased Access Rates. We require a
cable system operator within three business days of a request to
provide a prospective leased access programmer with a schedule and
calculation of its leased access rates. As with information regarding
available and occupied leased access channels, we believe Section 612
imposes on cable operators the obligation to provide a timely and
accurate explanation of its leased access
[[Page 10678]]
rates to prospective leased access programmers. Accordingly, within
three business days of a request by a current or potential leased
access programmer, a cable operator shall provide information
documenting the schedule of all leased access rates (full- and part-
time) available on the cable system. Cable operators must attach to
this schedule a separate calculation detailing how each rate was
derived pursuant to the revised rate formula adopted herein. This
information will assist leased access programmers in determining
whether leased access capacity on a given cable system is economically
feasible. In addition, the rate calculations will further assist leased
access programmers in determining whether particular cable operators
are complying with their leased access obligations.
11. Explanation of Any Rates Associated with Technical or Studio
Costs. Included in the customer standards we are adopting today is a
requirement that a cable operator provide a prospective leased access
programmer, within three business days of a request, with a list of
fees for providing technical support or studio assistance to the leased
access programmer along with an explanation of such fees and how they
were calculated. We note that our rules require leased access providers
to reimburse cable operators ``for the reasonable cost of any technical
support the operators actually provide.'' 47 CFR 76.971(c) Further, our
rate calculation includes technical costs common to all programmers so
that cable operators may not impose a separate charge for technical
support they already provide to non-leased access programmers. Second
Report and Order, 12 FCC Rcd at 5324, para. 114. At this time, we will
not prescribe an hourly rate for technical support, but instead will
monitor the effectiveness of the new customer standards that require
that cable operators list up front any technical fees along with an
explanation of the fee calculation. If leased access programmers have
continued problems with high technical or studio cost, we will consider
implementing a more specific solution.
12. Programming Guide Information. We require a cable system
operator within three business days of a request to provide a
prospective leased access programmer with all relevant information for
obtaining carriage on the program guide(s) provided on the operator's
system. Moreover, we expressly require that, if a cable operator does
not charge non-leased access programmers for carriage of their program
information on a programming guide, the cable operator cannot charge
leased access programmers for such service. Because of the dynamic
nature of leased access programming, we believe that it would be
impracticable to impose a requirement on cable operators to include all
leased access listings in their programming guides. However, we believe
that, in situations where time permits and the leased access
programming information is submitted as reasonably required by the
cable operators, cable operators must ensure that leased access
programming information is incorporated in its program guide to the
same extent that it does so for non-leased access programmers. In order
to accomplish this, cable operators are required to provide potential
leased access programmers with all relevant information for obtaining
carriage on the program guide(s) provided on the operator's system.
This information shall include the requirements necessary for a leased
access programmer to have its programming included in the programming
guide(s) that serve the tier of service on which the leased access
provider contracts for carriage. At a minimum, the cable operator must
provide: (1) The format in which leased access programming information
must be provided to the cable operator for inclusion in the appropriate
programming guide; (2) the content requirements for such information;
(3) the time by which such programming information must be received for
inclusion in the programming guide; and (4) the additional cost, if
any, related to carriage of the leased access programmer's information
on the programming guide. We expressly require that, if a cable
operator does not charge non-leased access programmers for carriage of
their program information on a programming guide, the cable operator
cannot charge leased access programmers for such service.
13. Methods of Programming Delivery. We require a cable system
operator within three business days of a request to provide a
prospective leased access programmer with available information
regarding all acceptable, standard methods for delivering leased access
programming to the cable operator. Because of the variable
circumstances experienced by each cable system, we cannot establish a
list of acceptable, standard delivery methods for leased access
programming applicable to all cable systems. However, we believe that
it incumbent upon a cable operator to provide prospective leased access
programmers with sufficient information to be able to gauge the
relative difficulty and expense of delivering its programming for
carriage by the cable operator. A cable operator must make available
information to leased access programmers regarding all acceptable,
standard methods for delivering leased access programming to the cable
operator. For each method of acceptable, standard delivery, the cable
operator shall provide detailed instructions for the timing of
delivery, the place of delivery, the cable operator employee(s)
responsible for receiving delivery of leased access programming, all
technical requirements and obligations imposed on the leased access
programmer, and the total cost involved with each acceptable, standard
delivery method that will be assessed by the cable operator. We
clarify, however, that cable operators must give reasonable
consideration to any delivery method suggested by a leased access
programmer. A leased access programmer that is denied the opportunity
to deliver its programming via a reasonable method may file a complaint
with the Commission. In such complaint proceeding, the burden of proof
shall be on the cable operator to demonstrate that its denial was
reasonable given the unique circumstances of its cable system.
14. Comprehensive Sample Leased Access Carriage Contract. We
require a cable system operator within three business days of a request
to provide a prospective leased access programmer with a comprehensive
sample leased access carriage contract. We also require a cable system
operator in its leased access carriage contract to apply the same
uniform standards, terms, and conditions to leased access programmers
as it applies to its other programmers.
15. We do not intend by this requirement to infringe the freedom of
contract of either party and expressly clarify that neither the cable
operator nor the prospective leased access programmer need abide by any
of the terms and conditions set forth in the sample contract. Instead,
we believe that the provision of such agreements by cable operators
serve to inform leased access programmers of terms and conditions that
are generally acceptable to the cable operator and will be a useful
first step in the initiation of leased access negotiations.
Accordingly, within three business days of a request by a current or
potential leased access programmer, a cable operator shall provide a
copy of a sample leased access carriage contract setting forth what the
cable operator considers to be the
[[Page 10679]]
standard terms and conditions for a leased access carriage agreement.
16. As discussed below, we also require cable system operators to
apply the same uniform standards, terms, and conditions to leased
access programmers as it applies to its other programmers. Rather than
dictate specific reasonable terms and conditions, we require that cable
system operators apply the same uniform standards, terms, and
conditions to leased access programmers as it applies to its other
programmers.
17. The Commission has stated in the past that the reasonableness
of specific terms and conditions will be determined on a case-by-case
basis, but set broad guidelines for tier placement and a general
standard of reasonableness for contract terms and conditions.
18. We will continue to address complaints about specific contract
terms and conditions on a case-by-case basis. We emphasize that in all
cases, the Commission will evaluate any complaints pursuant to a
reasonableness standard. We also clarify that a cable system operator
may not continue to include terms and conditions in new contracts that
previously have been held to be unreasonable by the Commission. Not
only are our orders binding on the affected parties to a leased access
complaint, but unless and until an order is stayed or reversed by the
Commission, a cable system operator is under an obligation to follow
the Commission's rules and precedent in setting its practices, terms,
and conditions.
19. Because we do not think that every potential leased access
programmer should be required to file a complaint to determine if every
term in its contract is reasonable, we will require the cable operator
to provide, along with its standard leased access contract, an
explanation and justification, including a cost breakdown, for any
terms and conditions that require the payment or deposit of funds. This
includes insurance and deposit requirements, any fees for handling or
delivery, and any other technical or equipment fees, such as tape
insertion fees. This will allow the leased access programmer to
determine whether the cost is reasonable and expedite any review by the
Commission. We believe that requiring a cable operator to provide an
explanation and justification for such a fee will encourage cable
operators to impose only reasonable fees or, at least, facilitate the
filing of a leased access complaint demonstrating that such a fee is
unreasonable.
20. With regard to non-monetary terms and conditions, such as
channel and tier placement, targeted programming, access to electronic
program guides, VOD, etc., we similarly require the cable operator to
provide, along with its standard leased access contract, an explanation
and justification of its policy. For example, with regard to the
geographic scope of carriage, if a leased access programmer requests to
have its programming targeted to a finite group of subscribers based on
community location, unless the operator agrees to the request, it must
not provide such limited carriage to other programmers or channels. To
the extent the cable operator denies the request for limited carriage,
the cable operator must provide an explanation as to why it is
technically infeasible to provide such carriage. If limited carriage is
technically feasible, the cable operator must provide a fee and cost
breakdown for such carriage for comparison with similar coverage
provided for non-leased access programmers.
21. Similarly, with regard to tier placement and channel location,
we require the cable operator to provide, along with its standard
leased access contract, an explanation and justification of its policy
regarding placement of a leased access programmer on a particular
channel as well as an explanation and justification for the cable
operator's policy for relocating leased access channels. To the extent
a request for a particular channel is denied, the cable operator must
provide a detailed explanation and justification for its decision.
22. Launch Date. We require a cable system operator within three
business days of a request to provide a prospective leased access
programmer with information regarding prospective launch dates for the
leased access programmer. Moreover, we require cable operators to
launch leased access programmers within a reasonable amount of time. We
consider 35-60 days after the negotiation is finalized to be a
reasonable amount of time for launch of a programmer, unless the
parties come to a different agreement. We note that this time frame
affords cable operators sufficient time to satisfy the requirement, if
applicable, to provide subscribers with 30-days written notice in
advance of any changes in programming services or channel positions.
C. Response to Bona Fide Proposals for Leased Access
23. We adopt rules to ensure that cable system operators respond to
proposals for leased access in a timely manner and do not unreasonably
delay negotiations for leased access. To address this concern, after
the cable system operator provides the information requested above, in
order to be considered for carriage on a leased access channel, we
require a leased access programmer to submit a proposal for carriage by
submitting a written proposal that includes the following information:
(1) The desired length of a contract term; (2) The tier, channel and
time slot desired; (3) The anticipated commencement date for carriage;
(4) The nature of the programming; (5) The geographic and subscriber
level of service requested; and (6) Proposed changes to the sample
contract. The cable system operator must respond to the proposal by
accepting the proposed terms or offering alternative terms within 10
days. This same response deadline will apply until an agreement is
reached or negotiations fail.
24. Failure to provide the requested information will result in the
issuance of a notice of apparent liability (``NAL'') including a
forfeiture in the amount of $500.00 per day. A potential leased access
programmer need not file a formal leased access complaint pursuant to
Section 76.975 of the Commission's rules in order to bring a violation
of our customer service standards to our attention. Rather, the
programmer may notify the Commission either orally or in writing, and
where necessary the Commission will submit a Letter of Inquiry
(``LOI'') to the cable operator to obtain additional information. A
cable system which is found to have failed to respond on time with the
required information will be issued an NAL. The same process and
forfeiture amount will apply for the failure to timely respond to a
proposal as for the failure to comply with an information request. We
rely on our general enforcement authority under Section 503 of the
Communications Act to impose forfeitures in appropriate cases. See 47
U.S.C. 503
D. Leased Access Rates
1. Maximum Rate for Leasing a Full Channel
25. Background. The Commission's current rules calculate leased
access rates for all tiers that have subscriber penetration of more
than 50 percent. Upon request, cable operators generally must place
leased access programmers on such a tier. To determine the average
implicit fee for a full-time channel on a tier with a subscriber
penetration over 50 percent, an operator first calculates the total
amount it receives in subscriber revenue per month for the
[[Page 10680]]
programming on all such tiers, and then subtracts the total amount it
pays in programming costs per month for such tiers (the ``implicit fee
calculation''). A weighting scheme that accounts for differences in the
number of subscribers and channels on all such tier(s) is used to
determine how much of the total will be recovered from a particular
tier. To calculate the average implicit fee per channel, the implicit
fee for the tier is divided by the number of channels on the tier. The
final result is the rate per month that the operator may charge the
leased access programmer for a full-time channel on that tier. Where
the leased access programmer agrees to carriage on a tier with less
than 50 percent penetration, the average implicit fee is determined
using subscriber revenues and programming costs for only that tier. The
implicit fee for full-time channel placement as an a la carte service
is based upon the revenue received by the cable operator for non-leased
access a la carte channels on its system.
26. In this Order we modify the method for determining the leased
access rate for full-time carriage on a tier. We harmonize the rate
methodology for carriage on tiers with more than 50% subscriber
penetration and carriage on tiers with lower levels of penetration by
calculating the leased access rate based upon the characteristics of
the tier on which the leased access programming will be placed. Cable
operators will calculate a leased access rate for each cable system on
a tier-by-tier basis which will adequately compensate the operator for
the net revenue that is lost when a leased access programmer displaces
an existing program channel on the cable system. In addition, the Order
sets a maximum allowable leased access rate of $0.10 per subscriber per
month to ensure that leased access remains a viable outlet for
programmers. At this time we leave the method for calculating rates for
a la carte carriage unchanged.
27. As an initial matter, we conclude that we will not apply this
new rate methodology to programmers that predominantly transmit sales
presentations or program length commercials. These programmers often
``pay'' for carriage--either directly or through some form of revenue
sharing with the cable operator. In our previous Order, we set the
leased access rate for a la carte programmers at the ``highest implicit
fee'' partly out of a concern that lower rates would simply lead these
programmers to migrate to leased access if it were less expensive than
what they are currently ``paying'' for carriage. Such a migration would
not add to the diversity of voices and would potentially financially
harm the cable system. Similarly, we do not wish to set the leased
access rates at a point at which programmers that predominantly
transmit sales presentations or program length commercials simply
migrate to leased access because it is less expensive than their
current commercial arrangements. We will seek comment in the Further
Notice of Proposed Rulemaking on whether leased access is affordable at
current rates to programmers that predominantly transmit sales
presentations or program length commercials and whether reduced rates
would simply cause migration of existing services to leased access.
2. The Marginal Implicit Fee
28. The purposes of Section 612 are ``to promote competition in the
delivery of diverse sources of video programming and to assure that the
widest possible diversity of information sources are made available to
the public from cable systems in a manner consistent with growth and
development of cable systems.'' Because Section 612 also requires that
the price, terms and conditions for leased access be ``at least
sufficient to assure that such use will not adversely affect the
operation, financial condition or market development of the cable
system,'' the Commission is faced with balancing the interests of
leased access programmers with those of cable operators. We believe
that our method provides a cable operator with a leased access rate
that will allow the operator to replace an existing channel from its
cable system with a leased access channel without experiencing a loss
in net revenue. While we do not believe that our method for determining
leased access rates will result in cable operators experiencing any
loss in net revenue, the relevant statutory provision does not require
such a finding. As explained above, Section 612(c)(1) provides that the
``prices, terms and conditions'' of use must be ``at least sufficient
to assure that such use will not adversely affect the operation,
financial condition, or market development of the cable system.'' We
interpret this provision to restrict ``prices, terms, and conditions''
of leased access use that materially affect the financial health of a
cable system. We do not interpret the provision to require that cable
operators experience no loss in revenue whatsoever as a result of
leased access use. Thus, even if we were to conclude that our method
for determining leased access rates would have some impact on cable
operators' revenue, we would still adopt this method because we are
confident that any impact on operators'' revenue would not be of
sufficient magnitude to materially affect the financial health of cable
systems. In addition, since we are required to balance the revenue
requirement of cable operators and that of leased access programmers,
we will assume that the cable operator will elect to replace a channel
which does not generate a significant amount of the total net revenue
of the system. We refer to this channel as the marginal channel and use
the marginal implicit fee to determine leased access rates. Our method
was intended to promote the goals of competition and diversity of
programming sources while doing so in a manner consistent with growth
and development of cable systems.
29. Based on the wide variance between the actual use of leased
access and the goals stated in the law, it appears that the current
``average implicit fee'' formula for tiered leased access channels
yields fees that are higher than the statute mandates, resulting in an
underutilization of leased access channels. According to the
Commission's most recent annual cable price survey, cable systems on
average carry only 0.7 leased access channels. Because our Rules are
not achieving their intended purpose, we are revisiting decisions made
in the Second Report and Order establishing the maximum leased access
rates in order to make the leased access channels a more viable outlet
for programming. Throughout its implementation of Section 612, the
Commission has recognized that the Rules adopted would need refinement
as specifics regarding how the leased access rules were functioning
became available.
30. Due to the variances in channel line-ups and tier prices of
cable systems, in most instances, a flat rate would either over- or
undercompensate cable operators. As discussed below, however, we will
set a cap on the maximum rate that cable operators may charge in order
to prevent the construction of tiers in a manner that makes leased
access rates excessively high.
31. We agree with Shop NBC's assertion that the average implicit
fee overcompensates cable operators because it reflects the average
value of a channel to the cable operator instead of the value of the
channel replaced. We will make adjustments to the rate calculations
that should lower prices by using the marginal implicit fee rather than
the average. The result is intended to promote the goals of leased
access by providing more affordable opportunities
[[Page 10681]]
for programmers without creating an artificially low rate.
32. The legislative history provides that the leased access
provisions are ``aimed at assuring that cable channels are available to
enable program suppliers to furnish programming when the cable operator
may elect not to provide that service as part of the program offerings
he makes available to subscribers'' To promote this legislative purpose
the Commission should set the leased access rates as low as possible
consistent with the requirement to avoid any negative financial impact
on the cable operator. One may assume that the cable operator, faced
with a requirement to free up a channel for leased access, would have
its own incentives to elect to replace one of the channels with the
lowest implicit fee. But even if this is not the case, the discussion
above suggests that the Commission should set its rules to encourage
such a result. This dictates, at least in principle, the use of the
lowest implicit fee, which we refer to as the ``marginal implicit
fee.'' And it supports the conclusion that the current ``average
implicit fee'' criterion for tiered channels is higher than warranted
by the statute and may be impeding, rather than promoting, the goals of
competition and diversity of programming sources. These rules provide
cable operators a higher return for lost channel capacity than the
value the cable operator would have received if the channel was not
used for leased access programming. The ``average implicit fee'' is
calculated based on the average value of all of the channels in a tier
instead of the value of the channels most likely to be replaced. We
will adopt a method which eliminates this excess recovery. This method
remains faithful to the statutory requirements while more appropriately
balancing the interests of cable operators and leased access
programmers.
3. The Cable Operator's Net Revenue From a Cable Channel
33. Cable channels are sold in bundles of channels known as tiers.
It is therefore not possible to directly observe the revenue per
subscriber a cable operator earns from carrying an individual channel
included in a tier. We therefore approximate the revenue earned by
those channels on the tier. To do so we assume that the revenue
generated by each channel is directly proportional to the per
subscriber affiliation fee paid by the cable operator to the
programmer. The first step in the calculation is to determine this
factor of proportionality which we refer to as the mark-up. To do so,
the cable operator will take the total subscriber revenue for the
programming tier at issue and divide by the total of the affiliation
fees that the cable operator pays to the programmers for the channels
on that tier. For the purposes of defining the price of a tier and the
channels on the tier we adopt the incremental approach in cases where
the cost and channels of one tier are implicitly incorporated into
larger tiers. For example, when the expanded basic tier incorporates
the basic tier, the expanded basic tier price is the retail price of
the expanded basic tier less the retail price of the basic tier and the
channels on the expanded basic tier are those that are not available on
the basic tier. A similar adjustment is required of other tiers which
are not sold on an incremental basis. This calculation will generate
the mark-up of channels that are sold on the tier. The gross revenue
per subscriber due to carriage of a specific channel on the tier is
then simply the per subscriber affiliation fee paid to the programmer
for the specific channel multiplied by the mark-up. It is our
understanding that some programming contracts specify a single rate for
a group, or bundle, of channels. In these cases, for the purposes of
determining the per subscriber affiliation fee for one of the bundled
channels, the fee in the contract shall be allocated in its entirety to
the highest rated network in the bundle. The net revenue per subscriber
earned by the cable operator from the channel is the difference between
the gross revenue per subscriber and the per subscriber affiliation fee
paid by the cable operator. This value represents the implicit fee for
the channel.
4. The Net Revenue of the Marginal Channel
34. The net revenue per subscriber is the reduction in profit a
cable operator would experience if it did not carry the channel in
question. In our previous method for calculating leased access rates
the calculation was based the average net revenue of all channels
carried by the cable operator. In our new method, we base the leased
access rate on the net revenue of the least profitable channels
voluntarily carried by the cable operators on the tier where the leased
access programming will be carried. We do so because this represents an
approximation of the minimum net revenue a network must generate in
order for the cable operator to consider carrying it on the tier. As
mentioned, we examine the net revenue of channels that are voluntarily
carried by the cable operator. From this calculation we exclude
channels whose carriage is mandated by statute, regulation, or
franchise agreement. These mandated channels consist of broadcast
stations that are subject to the must-carry rules as well as public,
educational, and governmental (``PEG'') channels that are carried
pursuant to a franchise agreement. In addition, broadcaster's multi-
cast channels are also excluded from the marginal channels. Our goal is
to base the leased access rate on the net revenue of channels which are
subject to free market negotiations over the carriage decision and
affiliation fee. It is the net revenue of these types of channels which
provides an indication of the net revenue that would be forgone when a
cable operator devotes channel capacity to a leased access programmer
since the cable operator would be unable to displace a broadcast
station or PEG channel.
35. We identify the least profitable, or marginal, channels using
the fraction of activated channels that a cable operator is statutorily
required to make available for commercial leased access. The leased
access rate is the mean value of net revenue earned by the lowest
earning channels on the tier, up to the designated leased access
fraction of qualifying channels on the tier. For example, in the case
of a cable system with 100 activated channels and 40 channels on the
expanded basic tier, the mean value of the net revenue of the 6
channels with the lowest net revenue will be the leased access rate for
carriage on the expanded basic tier. We use the mean rather than the
minimum value because use of the minimum would undercompensate the
cable operator if more than one leased access channel was carried
because, presumably, all channels other than the minimum earn higher
net revenues. Use of the mean ensures that if the cable operator
carries the statutory maximum number of leased access channels by
displacing the lowest earning channels on its system, the cable
operator will be fully compensated for lost revenue.
36. Appendix B of this Order presents an example of the calculation
of the leased access rates for a hypothetical cable system.
5. Determining the Maximum Allowable Leased Access Rate
37. We recognize that our tier-based calculation method may lead to
inequitable results in situations when a tier carries only a few non-
mandated programming networks in combination with a large amount of
mandated programming. This may create incentives among cable operators
to design programming tiers that are unaffordable for leased access
[[Page 10682]]
programmers. Such an outcome would contravene our statutory directive.
Therefore we institute a maximum allowable rate based upon industry-
wide cable operator programming costs and revenues. This will ensure
that leased access programmers can reach consumers in all areas of the
country. We will permit cable operators to seek a waiver of the maximum
allowable rate to ensure no unreasonable financial burden is put on any
cable operator. The maximum allowable leased access rate will apply to
carriage on any tier in which the operator-specific leased access rate
for the tier exceeds the maximum allowable rate.
38. We take several approaches to calculating this maximum rate.
For example, we calculate the maximum rate utilizing a methodology
based on per-subscriber affiliation fees that compensates systems that
must vacate a channel in order to provide capacity to a commercial
leased access programmer. We also calculate the maximum allowable
leased access rate using a method that follows the one used to
calculate the system-specific rates. In both cases, maximum rates for
each of the analog and digital tiers are no greater than $0.10 per
subscriber per month. The methods are detailed in Appendix B.
Therefore, the maximum leased access rate will not exceed $0.10 per
subscriber per month for any cable system.
39. Cable operators may petition the Commission to exceed the
maximum allowable leased access rates. A petition for relief must
present specific facts justifying the system's specific leased access
rate and provide an alternative rate which equitably balances the
revenue requirements of the cable operator with the public interest
goals of the leased access statute. Our presumption is that the mean
value of the net revenue of the marginal networks, including those
currently earning no license fee, provides the most reasonable
approximation of the revenue which is forgone when a cable operator
carries leased access programming.
6. Effective Date of New Rate Regulations
40. We recognize that the industry should receive an appropriate
amount of time to review and to take steps to comply with the new rate
regulations set forth above. Section 76.970(j)(3), which contains new
or modified information collection requirements that have not been
approved by the Office of Management and Budget (OMB), is effective
upon OMB approval. Section 76.970 is effective May 28, 2008 or upon OMB
approval of Sec. 76.970(j)(3), whichever is later. After OMB approval
is received, the Commission will publish a document in the Federal
Register announcing the effective date of the rules requiring OMB
approval and those whose effective date was delayed pending OMB
approval of other rules.
E. Expedited Process
41. As explained below, we do not change the current pleading cycle
for leased access complaints set forth in Section 76.975 of the
Commission's rules, which requires the complaint to be filed with the
Commission within 60 days of any alleged violation and the cable
operator to submit a response within 30 days from the date of the
complaint. The Media Bureau will resolve all leased access complaints
within 90 days of the close of the pleading cycle, obtaining additional
discovery from the parties as necessary to quickly resolve complaints.
Finally, we eliminate the requirement that a complainant alleging that
a leased access rate is unreasonable must first receive a determination
of the cable operator's maximum permitted rate from an independent
accountant.
42. Discussion. We retain our existing pleading cycle for
resolution of leased access complaints set forth in Section 76.975 of
the Commission's rules, which requires the complaint to be filed with
the Commission within 60 days of any alleged violation and the cable
operator to submit a response within 30 days from the date of the
complaint. We find that our current pleading cycle is not too lengthy,
as it is imperative that we receive all the necessary information to
resolve the dispute. Although we retain the existing time limits on
filing of complaints, we add an exception that the time limit on filing
complaints will be suspended if the complainant files a notice with the
Commission prior to the expiration of the filing period, stating that
it seeks an extension of the filing deadline in order to pursue active
negotiations with the cable operator. The cable operator must agree to
the extension.
43. The Media Bureau will resolve all leased access complaints
within 90 days of the close of the pleading cycle, obtaining additional
discovery from the parties as necessary to quickly resolve complaints.
As part of the remedy phase of the leased access complaint process, the
Media Bureau will have discretion to request that the parties file
their best and final offer proposals for the prices, terms, or
conditions in dispute. The Commission will have the discretion to adopt
one of the proposals or choose to fashion its own remedy. We believe
that this expedited process will help to resolve leased access disputes
quickly and efficiently and create a body of precedent to encourage
private negotiations and the settlement of disputes. If the Media
Bureau concludes that the complainant is entitled to access a leased
access channel, the Media Bureau's resolution of the complaint will
include a launch date for the programming.
44. Elimination of Independent Accountant Requirement. We eliminate
the requirement for a complainant alleging that a leased access rate is
unreasonable to first obtain a determination of the cable operator's
maximum permitted rate from an independent accountant prior to filing a
petition for relief with the Commission. While the Commission adopted
the independent accountant requirement as a means to ``streamline'' the
leased access complaint process, the record reflects that this
requirement has not worked as intended. We conclude that the expense,
delay, and uncertainty for leased access programmers resulting from the
requirement to obtain a determination from an independent accountant
are not what the Commission envisioned in attempting to ``streamline''
the leased access complaint process. Furthermore, we believe the new
rate methodology we have adopted, along with the requirement to provide
rate information and an explanation of how rates were calculated, will
result in a simpler and transparent process for leased access rates. We
also believe the expedited complaint process and expanded discovery we
adopt herein provide leased access programmers with a more efficient
process for challenging the commercial leased access rates charged by
cable operators. While cable operators argue that the use of an
independent accountant is important to protect commercially sensitive
financial information, the Protective Order we adopt below will
sufficiently safeguard such information.
F. Discovery
45. As discussed below, we adopt expanded discovery rules for
leased access complaints to improve the quality and efficiency of the
Commission's resolution of these complaints. We amend our discovery
rules pertaining to leased access complaints to require respondents to
attach to their answers copies of any documents that they rely on in
their defense; find that in the context of a complaint proceeding, it
would be unreasonable for a respondent not to produce all the documents
either
[[Page 10683]]
requested by the complainant or ordered by the Commission, provided
that such documents are in its control and relevant to the dispute,
subject to the protection of confidential material. We emphasize that
the Commission will use its authority to issue default orders granting
a complaint if a respondent fails to comply with reasonable discovery
requests. The respondent shall have the opportunity to object to any
request for documents. Such request shall be heard, and determination
made, by the Commission. The respondent need not produce the disputed
discovery material until the Commission has ruled on the discovery
request. Any party who fails to timely provide discovery requested by
the opposing party to which it has not raised an objection may be
deemed in default and an order may be entered in accordance with the
allegations contained in the complaint, or the complaint may be
dismissed with prejudice.
46. Under the current rules, a leased access complainant is
entitled, either as part of its complaint or through a motion filed
after the respondent's answer is submitted, to request that Commission
staff order discovery of any evidence necessary to prove its case. See
47 CFR 76.7(e), (f). Respondents are also free to request discovery. We
believe that expanded discovery will improve the quality and efficiency
of the Commission's resolution of leased access complaints.
Accordingly, we find that it would be unreasonable for a respondent not
to produce all the documents either requested by the complainant or
ordered by the Commission, provided that such documents are in its
control and relevant to the dispute. In reaching this finding, we agree
that evidence detailing how the cable operator calculated its leased
access rate, as well as the availability of certain contracts for
carriage of leased access programming, subject to confidential
treatment, are essential for determining whether the cable operator has
violated the Commission's leased access rules. The Commission's Rules
allow the Commission staff to order production of any documents
necessary to the resolution of a leased access complaint. See 47 CFR
76.7(e), (f). The subject discovery may require the production of
confidential material, including evidence detailing how the cable
operator calculated its leased access rate as well as carriage
contracts, subject to our confidentiality rules. While we retain this
process for the Commission to order the production of documents and
other discovery, we will also allow parties to a leased access
complaint to serve requests for discovery directly on opposing parties.
47. Parties to a leased access complaint may serve requests for
discovery directly on opposing parties, and file a copy of the request
with the Commission. As discussed above, the respondent shall have the
opportunity to object to any request for documents that are not in its
control or relevant to the dispute. Such request shall be heard, and
determination made, by the Commission. Until the objection is ruled
upon, the obligation to produce the disputed material is suspended. Any
party who fails to timely provide discovery requested by the opposing
party to which it has not raised an objection as described above may be
deemed in default and an order may be entered in accordance with the
allegations contained in the complaint, or the complaint may be
dismissed with prejudice.
48. We reiterate that respondents to leased access complaints must
produce in a timely manner the contracts and other documentation that
are necessary to resolve the complaint, subject to confidential
treatment. In order to prevent abuse, the Commission will strictly
enforce its default rules against respondents who do not answer
complaints thoroughly or do not respond in a timely manner to
permissible discovery requests with the necessary documentation
attached. Respondents that do not respond in a timely manner to all
discovery ordered by the Commission will risk penalties, including
having the complaint against them granted by default. Likewise, a
complainant that fails to respond promptly to a Commission order
regarding discovery will risk having its complaint dismissed with
prejudice. Finally, a party that fails to respond promptly to a request
for discovery to which it has not raised a proper objection will be
subject to these sanctions as well.
49. We understand that this approach requires the submission of
confidential and extremely competitively-sensitive information.
Accordingly, in order to appropriately safeguard this confidential
information we believe it is necessary to utilize the protective order
adopted for use in our program access proceedings (``Protective
Order''), which we attach hereto as Appendix A.
50. A Protective Order constitutes both an Order of the Commission
and an agreement between the party executing the declaration and the
submitting party. The Commission has full authority to fashion
appropriate sanctions for violations of its protective orders,
including but not limited to suspension or disbarment of attorneys from
practice before the Commission, forfeitures, cease and desist orders,
and denial of further access to confidential information in Commission
proceedings. We intend to vigorously enforce any transgressions of the
provisions of our protective orders.
G. Annual Reporting of Leased Access Statistics
51. We adopt an annual reporting requirement for cable operators to
submit information pertaining to leased access rates, usage, channel
placement, and complaints, among other leased access matters. In the
NPRM, we sought comment on various questions regarding the status of
commercial leased access, such as the extent to which programmers are
making use of commercial leased access channels, whether cable
operators have denied requests for commercial leased access, whether
cable operators use commercial leased access channels for their own
purposes, and the effectiveness of the complaint process.
52. We did not receive a large number of comments containing
industry-wide data regarding use of leased access. As described below,
to ensure that we have sufficient up-to-date information on the status
of leased access programming in the future, we adopt an annual
reporting requirement for cable operators.
53. Discussion. We adopt an annual reporting requirement for cable
operators pertaining to leased access rates, usage, channel placement,
and complaints, among other leased access matters. We find that
gathering up-to-date information and statistics on an annual basis
pertaining to leased access is critical to our efforts to track trends
in commercial leased access rates and usage as well as to monitor any
efforts by cable operators to impede use of commercial leased access
channels. This information will allow us to determine whether further
modifications to the commercial leased access rules we adopt herein are
needed based on a more concrete factual setting. The Annual Report will
require each cable system to provide the following information:
List the number of commercial leased access channels
provided by the cable system.
List the channel number and tier applicable to each
commercial leased access channel.
Provide the rates the cable system charges for full-time
and part-time leased access on each leased access channel.
[[Page 10684]]
Provide the calculated maximum commercial leased access
rate and actual rates.
List programmers using each commercial leased access
channel and state whether each programmer is using the channel on a
full-time or part-time basis.
List number of requests received for information
pertaining to commercial leased access and the number of bona fide
proposals received for commercial leased access.
Describe whether you have denied any requests for
commercial leased access and, if so, explain the basis for the denial.
Describe whether a complaint has been filed against the
cable system with the Commission or with a Federal district court
regarding a commercial leased access dispute.
Describe whether any entity has sought arbitration with
the cable system regarding a commercial leased access dispute.
Describe the extent to which and for what purposes the
cable system uses commercial leased access channels for its own
purposes.
Describe the extent to which the cable system impose
different rates, terms, or conditions on commercial leased access
programmers (such as with respect to security deposits, insurance, or
termination provisions). Explain any differences.
List and describe any instances of the cable system
requiring an existing programmer to move to another channel or tier.
54. Each cable system must submit this report with the Commission
by April 30th of each year. The report will request information for the
preceding calendar year. We anticipate that any burdens associated with
this annual reporting requirement will be limited, as the information
requested should be readily available to cable operators.
55. We provide leased access programmers and other interested
parties with an opportunity to file comments on a voluntary basis with
the Commission responding to the cable operators' annual leased access
reports. These comments should be filed by May 15th of each year. We
invite commercial leased access programmers to provide information such
as the following in these comments:
List the number of commercial leased access channels
leased on each cable system. Indicate the channel number and tier
applicable to each commercial leased access channel.
Describe whether a cable operator has denied any request
for commercial leased access and, if so, explain the basis for the
denial.
Describe whether cable operators have responded to
requests for information pertaining to leased access within three
business days, as required by the Commission's rules.
Describe whether the programmer has filed any complaints
with the Commission or a Federal district court against a cable
operator regarding a commercial leased access dispute.
Describe whether the programmer has sought arbitration
with a cable operator regarding a commercial leased access dispute.
Describe any difficulties the programmer has faced in
trying to obtain access to a commercial leased access channel.
III. Constitutional Issues
56. The revisions to the leased access rules we adopt herein
withstand constitutional scrutiny. The leased access provision of the
1992 Cable Act has survived a facial First Amendment challenge in Time
Warner Entertainment Co., L.P. v. FCC, 93 F.3d 957 (DC Cir. 1996)
(``Time Warner''). The DC Circuit has already decided that the leased
access provision of the 1992 Cable Act is not content-based. The leased
access provision does not favor or disfavor speech on the basis of the
ideas contained therein; rather, it regulates speech based on
affiliation with a cable operator. The court held in Time Warner that
the provisions of the Cable Act that regulate speech based on
affiliation with a cable operator are subject to intermediate scrutiny
and are constitutional if the government's interest is important or
substantial and the means chosen to promote that interest do not burden
substantially more speech than necessary to achieve the aim. The Time
Warner court found that there is a substantial government interest in
promoting diversity and competition in the video programming
marketplace. We find that this substantial government interest remains
today. While MVPDs argue that there are more outlets today for
independent programmers, such as the Internet, they fail to demonstrate
that these alternative outlets can be considered sufficient to conclude
that Congress's goals of promoting competition and diversity in passing
the leased access provisions of the 1992 Cable Act have been achieved.
The rules we adopt today simply implement the statutory requirements
enacted by Congress.
57. We also reject the claim that the leased access rules deprive
cable operators of the value of their property (i.e., channel capacity)
without just compensation in violation of the Fifth Amendment. The
Fifth Amendment ``takings'' clause requires ``just compensation'' for a
government ``taking'' of private property. Moreover, the leased access
provision of the 1992 Cable Act, as well as our rules implementing that
provision, provide just compensation to cable operators for use of
their channel capacity. We conclude that leased access rules satisfy
requirements that there must be an ``essential nexus'' between the
taking and a legitimate state interest as well as a ``rough
proportionality'' between the taking and the magnitude of the
government objective. As the DC Circuit previously held, there is a
substantial government interest in promoting competition and diversity
in the video programming marketplace, and the provisions of the 1992
Cable Act regulating cable-affiliated programming are narrowly tailored
to achieve those goals. Thus, there is no ``taking'' within the meaning
of the Fifth Amendment.
58. We also reject the argument that the NPRM failed to provide the
specificity required under the Administrative Procedure Act (``APA'')
and that the Commission must issue another notice before adopting final
rules. Section 553(b) and (c) of the APA requires agencies to give
public notice of a proposed rule making that includes ``either the
terms or substance of the proposed rule or a description of the
subjects and issues involved'' and to give interested parties an
opportunity to submit comments on the proposal. See 5 U.S.C. 553(b),
(c). The notice ``need not specify every precise proposal which [the
agency] may ultimately adopt as a rule''; it need only ``be sufficient
to fairly apprise interested parties of the issues involved.'' See
Nuvio Corp. v. FCC, 473 F.3d 302, 310 (DC Cir. 2006) (internal
quotations omitted). In particular, the APA's notice requirements are
satisfied where the final rule is a ``logical outgrowth'' of the
actions proposed. See Public Service Commission of the District of
Columbia v. FCC, 906 F.2d 713, 717 (DC Cir. 1990). The questions raised
in the NPRM, as well as the concerns mentioned in the Adelphia Order
which resulted in the NPRM, regarding the adequacy of the current
leased access regimes, including the complaint process, were sufficient
to put interested parties on notice that the Commission was considering
how to revise the leased access rules to effectuate the intent of
Congress. See NPRM, 22 FCC Rcd 11222, para. 1 (citing Adelphia Order,
21 FCC Rcd 8203, 8277, para. 165; 8367 (Statement of Commissioner
[[Page 10685]]
Copps); 8371 (Statement of Commissioner Adelstein)); See also Adelphia
Order, 21 FCC Rcd at paras. 99, 109, 114, 165, 190-91, 298. Because
parties could have anticipated that the rules ultimately adopted herein
were possible, it is a ``logical outgrowth'' of the original proposal,
and adequate notice was provided under the APA. See Northeast Maryland
Waste Disposal Authority v. EPA, 358 F.3d 936, 951 (DC Cir. 2004)
(discussing APA notice requirements and the ``logical outgrowth''
test).
IV. Procedural Matters
59. Congressional Review Act. The Commission will send a copy of
this Report and Order in a report to be sent to Congress and the
Government Accountability Office pursuant to the Congressional Review
Act, see 5 U.S.C. 801(a)(1)(A).
60. Effective Date. Sections 76.975(h)(1),(2) and (3) and (i) are
effective March 31, 2008. Sections 76.970(j)(3), 76.972(a), (b), (c),
(d), (e), and (g); 76.975(d), (e), (g) and (h)(4); and 76.978, which
contain new or modified information collection requirements that have
not been approved by the Office of Management and Budget (OMB), are
effective upon OMB approval. Section 76.970 is effective May 28, 2008
or upon OMB approval of Sec. 76.970(j)(3), whichever is later. The
effective date of Sections 76.972 (f) and 76.975 (b), (c) and (f) is
delayed until OMB approval of the aforementioned rule sections. After
OMB approval is received, the Commission will publish a document in the
Federal Register announcing the effective date of the rules requiring
OMB approval and those whose effective date was delayed pending OMB
approval of other rules.
61. Final Regulatory Flexibility Analysis. As required by the
Regulatory Flexibility Act of 1980, as amended (``RFA''), an Initial
Regulatory Flexibility Analysis (``IRFA'') was incorporated in the
Notice of Proposed Rulemaking (``NPRM'') in MB Docket No. 07-42. The
Commission sought written public comment on the proposals in the Notice
of Proposed Rulemaking, including comment on the IRFA. This present
Final Regulatory Flexibility Analysis (``FRFA'') conforms to the RFA.
A. Need for, and Objectives of, the Rules Adopted
62. The commercial leased access requirements set forth in Section
612 of the Communications Act of 1934 require a cable operator to set
aside channel capacity for commercial use by video programmers
unaffiliated with the cable operator. The purposes of Section 612 are
``to promote competition in the delivery of diverse sources of video
programming and to assure that the widest possible diversity of
information sources are made available to the public from cable systems
in a manner consistent with growth and development of cable systems.''
63. In the Order, the Commission concludes that its rules governing
commercial leased access have impeded the use of leased access channels
by programmers, including smaller entities, thereby undermining the
goals of Section 612. The Order adopts several rules to address this
concern. Regarding commercial leased access rates, the Commission
concludes that its current formula for calculating leased access rates
yields fees charged by cable operators that are higher than the statute
mandates, resulting in an underutilization of leased access channels.
To address this concern, the Order modifies the Commission's formula
used to calculate commercial leased access rates, which will result in
making these channels a more viable outlet for leased access
programming. The Order also provides that the maximum leased access
rate will not exceed $0.10 per subscriber per month for any cable
system. Cable operators may petition the Commission to exceed the
maximum allowable leased access rates. A petition for relief must
present specific facts justifying the system's specific leased access
rate and provide an alternative rate which equitably balances the
revenue requirements of the cable operator with the public interest
goals of the leased access statute. The Order does not apply the new
rate methodology or the maximum allowable leased access rate of $0.10
per subscriber to programmers that predominantly transmit sales
presentations or program length commercials.
64. To address poor customer service practices of cable system
operators with regard to potential leased access programmers, the Order
requires a cable system operator to meet uniform customer service
standards; to maintain a contact name, telephone number, and e-mail
address on its website; to make available by telephone a designated
person to respond to requests for information about leased access
channels; and to maintain a brief explanation of the leased access
statute and regulations on its website. In response to concerns raised
by commercial leased access programmers that contract terms and
conditions imposed by cable operators are often unfair, unreasonable,
onerous, and overly burdensome, the Order requires cable operators to
apply the same uniform standards, terms, and conditions for all of its
leased access programmers as it applies to its other programmers. The
Order also specifies the information that a leased access programmer
must provide to a cable system operator in order to be considered for
carriage, and requires the cable system operator to respond to the
proposal by accepting the proposed terms or offering alternative terms
within 10 days.
65. Regarding leased access complaint procedures, the Order adopts
an expedited process which requires the Media Bureau to resolve leased
access complaints within 90 days of the close of the pleading cycle and
eliminates the requirement for a leased access complainant alleging
that a rate is unreasonable to first obtain a determination of the
cable operator's maximum permitted rate from an independent accountant.
The Order revises rules to provide that, as part of the remedy phase of
a leased access complaint process, the Media Bureau will have the
discretion to request that the parties file their best and final offer
for the prices, terms, or conditions in dispute, and the Media Bureau
will have the discretion to adopt one of the best and final offers or
to choose to fashion its own remedy. The Order also amends the
Commission's discovery rules pertaining to leased access complaints by
requiring respondents to attach to their answers copies of any
documents that they rely on in their defense; finding that in the
context of a complaint proceeding, it would be unreasonable for a
respondent not to produce all the documents either requested by the
complainant or ordered by the Commission, provided that such documents
are in its control and relevant to the dispute, subject to the
protection of confidential material; and emphasizing that the
Commission will use its authority to issue default orders granting a
complaint if a respondent fails to comply with its discovery requests.
66. Moreover, in order to ensure that the Commission has sufficient
up-to-date information on the status of leased access programming in
the future, the Order adopts a reporting requirement for cable
operators that requires cable operators to file annual reports on
leased access rates, channel usage, and complaints, among other matters
pertaining to leased access. Leased access programmers will have an
opportunity to file comments with the Commission in response to these
reports.
[[Page 10686]]
B. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
67. There were no comments filed specifically in response to the
IRFA.
C. Description and Estimate of the Number of Small Entities to Which
the Proposed Rules Will Apply
68. The RFA directs agencies to provide a description of, and where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted. The RFA generally defines
the term ``small entity'' as having the same meaning as the terms
``small business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small business concern'' under the Small Business
Act. A ``small business concern'' is one which: (1) Is independently
owned and operated; (2) is not dominant in its field of operation; and
(3) satisfies any additional criteria established by the Small Business
Administration (``SBA'').
69. Wired Telecommunications Carriers. The 2007 North American
Industry Classification System (``NAICS'') defines ``Wired
Telecommunications Carriers'' (2007 NAISC code 517110) to include the
following three classifications which were listed separately in the
2002 NAICS: Wired Telecommunications Carriers (2002 NAICS code 517110),
Cable and Other Program Distribution (2002 NAICS code 517510), and
Internet Service Providers (2002 NAISC code 518111). The 2007 NAISC
defines this category as follows: ``This industry comprises
establishments primarily engaged in operating and/or providing access
to transmission facilities and infrastructure that they own and/or
lease for the transmission of voice, data, text, sound, and video using
wired telecommunications networks. Transmission facilities may be based
on a single technology or a combination of technologies. Establishments
in this industry use the wired telecommunications network facilities
that they operate to provide a variety of services, such as wired
telephony services, including VoIP services; wired (cable) audio and
video programming distribution; and wired broadband Internet services.
By exception, establishments providing satellite television
distribution services using facilities and infrastructure that they
operate are included in this industry.'' The SBA has developed a small
business size standard for Wired Telecommunications Carriers, which is
all firms having 1,500 employees or less. According to Census Bureau
data for 2002, there were a total of 27,148 firms in the Wired
Telecommunications Carriers category (2002 NAISC code 517110) that
operated for the entire year; 6,021 firms in the Cable and Other
Program Distribution category (2002 NAISC code 517510) that operated
for the entire year; and 3,408 firms in the Internet Service Providers
category (2002 NAISC code 518111) that operated for the entire year. Of
these totals, 25,374 of 27,148 firms in the Wired Telecommunications
Carriers category (2002 NAISC code 517110) had less than 100 employees;
5,496 of 6,021 firms in the Cable and Other Program Distribution
category (2002 NAISC code 517510) had less than 100 employees; and
3,303 of the 3,408 firms in the Internet Service Providers category
(2002 NAISC code 518111) had less than 100 employees. Thus, under this
size standard, the majority of firms can be considered small.
70. Cable and Other Program Distribution. The 2002 NAICS defines
this category as follows: ``This industry comprises establishments
primarily engaged as third-party distribution systems for broadcast
programming. The establishments of this industry deliver visual, aural,
or textual programming received from cable networks, local television
stations, or radio networks to consumers via cable or direct-to-home
satellite systems on a subscription or fee basis. These establishments
do not generally originate programming material.'' This category
includes, among others, cable operators, direct broadcast satellite
(``DBS'') services, home satellite dish (``HSD'') services, satellite
master antenna television (``SMATV'') systems, and open video systems
(``OVS''). The SBA has developed a small business size standard for
Cable and Other Program Distribution, which is all such firms having
$13.5 million or less in annual receipts. According to Census Bureau
data for 2002, there were a total of 1,191 firms in this category that
operated for the entire year. Of this total, 1,087 firms had annual
receipts of under $10 million, and 43 firms had receipts of $10 million
or more but less than $25 million. Thus, under this size standard, the
majority of firms can be considered small.
71. Cable System Operators (Rate Regulation Standard). The
Commission has also developed its own small business size standards for
the purpose of cable rate regulation. Under the Commission's rules, a
``small cable company'' is one serving 400,000 or fewer subscribers
nationwide. As of 2006, 7,916 cable operators qualify as small cable
companies under this standard. In addition, under the Commission's
rules, a ``small system'' is a cable system serving 15,000 or fewer
subscribers. Industry data indicate that 6,139 systems have under
10,000 subscribers, and an additional 379 systems have 10,000-19,999
subscribers. Thus, under this standard, most cable systems are small.
72. Cable System Operators (Telecom Act Standard). The
Communications Act of 1934, as amended, also contains a size standard
for small cable system operators, which is ``a cable operator that,
directly or through an affiliate, serves in the aggregate fewer than 1
percent of all subscribers in the United States and is not affiliated
with any entity or entities whose gross annual revenues in the
aggregate exceed $250,000,000.'' There are approximately 65.4 million
cable subscribers in the United States today. Accordingly, an operator
serving fewer than 654,000 subscribers shall be deemed a small
operator, if its annual revenues, when combined with the total annual
revenues of all its affiliates, do not exceed $250 million in the
aggregate. Based on available data, we find that the number of cable
operators serving 654,000 subscribers or less totals approximately
7,916. We note that the Commission neither requests nor collects
information on whether cable system operators are affiliated with
entities whose gross annual revenues exceed $250 million. Although it
seems certain that some of these cable system operators are affiliated
with entities whose gross annual revenues exceed $250,000,000, we are
unable at this time to estimate with greater precision the number of
cable system operators that would qualify as small cable operators
under the definition in the Communications Act.
73. Direct Broadcast Satellite (``DBS'') Service. DBS service is a
nationally distributed subscription service that delivers video and
audio programming via satellite to a small parabolic ``dish'' antenna
at the subscriber's location. Because DBS provides subscription
services, DBS falls within the SBA-recognized definition of Cable and
Other Program Distribution. This definition provides that a small
entity is one with $13.5 million or less in annual receipts. Currently,
three operators provide DBS service, which requires a great investment
of capital for operation: DIRECTV, EchoStar (marketed as the DISH
Network), and Dominion Video Satellite, Inc. (``Dominion'') (marketed
as Sky Angel). All three currently offer subscription services. Two of
these
[[Page 10687]]
three DBS operators, DIRECTV and EchoStar Communications Corporation
(``EchoStar''), report annual revenues that are in excess of the
threshold for a small business. The third DBS operator, Dominion's Sky
Angel service, serves fewer than one million subscribers and provides
20 family and religion-oriented channels. Dominion does not report its
annual revenues. The Commission does not know of any source which
provides this information and, thus, we have no way of confirming
whether Dominion qualifies as a small business. Because DBS service
requires significant capital, we believe it is unlikely that a small
entity as defined by the SBA would have the financial wherewithal to
become a DBS licensee. Nevertheless, given the absence of specific data
on this point, we recognize the possibility that there are entrants in
this field that may not yet have generated $13.5 million in annual
receipts, and therefore may be categorized as a small business, if
independently owned and operated.
74. Private Cable Operators (PCOs) also known as Satellite Master
Antenna Television (SMATV) Systems. PCOs, also known as SMATV systems
or private communications operators, are video distribution facilities
that use closed transmission paths without using any public right-of-
way. PCOs acquire video programming and distribute it via terrestrial
wiring in urban and suburban multiple dwelling units such as apartments
and condominiums, and commercial multiple tenant units such as hotels
and office buildings. The SBA definition of small entities for Cable
and Other Program Distribution Services includes PCOs and, thus, small
entities are defined as all such companies generating $13.5 million or
less in annual receipts. Currently, there are approximately 150 members
in the Independent Multi-Family Communications Council (IMCC), the
trade association that represents PCOs. Individual PCOs often serve
approximately 3,000-4,000 subscribers, but the larger operations serve
as many as 15,000-55,000 subscribers. In total, PCOs currently serve
approximately one million subscribers. Because these operators are not
rate regulated, they are not required to file financial data with the
Commission. Furthermore, we are not aware of any privately published
financial information regarding these operators. Based on the estimated
number of operators and the estimated number of units served by the
largest ten PCOs, we believe that a substantial number of PCOs may
qualify as small entities.
75. Home Satellite Dish (``HSD'') Service. Because HSD provides
subscription services, HSD falls within the SBA-recognized definition
of Cable and Other Program Distribution, which includes all such
companies generating $13.5 million or less in revenue annually. HSD or
the large dish segment of the satellite industry is the original
satellite-to-home service offered to consumers, and involves the home
reception of signals transmitted by satellites operating generally in
the C-band frequency. Unlike DBS, which uses small dishes, HSD antennas
are between four and eight feet in diameter and can receive a wide
range of unscrambled (free) programming and scrambled programming
purchased from program packagers that are licensed to facilitate
subscribers' receipt of video programming. There are approximately 30
satellites operating in the C-band, which carry over 500 channels of
programming combined; approximately 350 channels are available free of
charge and 150 are scrambled and require a subscription. HSD is
difficult to quantify in terms of annual revenue. HSD owners have
access to program channels placed on C-band satellites by programmers
for receipt and distribution by MVPDs. Commission data shows that,
between June 2004 and June 2005, HSD subscribership fell from 335,766
subscribers to 206,358 subscribers, a decline of more than 38 percent.
The Commission has no information regarding the annual revenue of the
four C-Band distributors.
76. Broadband Radio Service and Educational Broadband Service.
Broadband Radio Service comprises Multichannel Multipoint Distribution
Service (MMDS) systems and Multipoint Distribution Service (MDS). MMDS
systems, often referred to as ``wireless cable,'' transmit video
programming to subscribers using the microwave frequencies of MDS and
Educational Broadband Service (EBS) (formerly known as Instructional
Television Fixed Service (ITFS)). We estimate that the number of
wireless cable subscribers is approximately 100,000, as of March 2005.
The SBA definition of small entities for Cable and Other Program
Distribution, which includes such companies generating $13.5 million in
annual receipts, appears applicable to MDS and ITFS.
77. The Commission has also defined small MDS (now BRS) entities in
the context of Commission license auctions. For purposes of the 1996
MDS auction, the Commission defined a small business as an entity that
had annual average gross revenues of less than $40 million in the
previous three calendar years. This definition of a small entity in the
context of MDS auctions has been approved by the SBA. In the MDS
auction, 67 bidders won 493 licenses. Of the 67 auction winners, 61
claimed status as a small business. At this time, the Commission
estimates that of the 61 small business MDS auction winners, 48 remain
small business licensees. In addition to the 48 small businesses that
hold BTA authorizations, there are approximately 392 incumbent MDS
licensees that have gross revenues that are not more than $40 million
and are thus considered small entities. MDS licensees and wireless
cable operators that did not receive their licenses as a result of the
MDS auction fall under the SBA small business size standard for Cable
and Other Program Distribution, which includes all such entities that
do not generate revenue in excess of $13.5 million annually.
Information available to us indicates that there are approximately 850
of these licensees and operators that do not generate revenue in excess
of $13.5 million annually. Therefore, we estimate that there are
approximately 850 small entity MDS (or BRS) providers, as defined by
the SBA and the Commission's auction rules.
78. Educational institutions are included in this analysis as small
entities; however, the Commission has not created a specific small
business size standard for ITFS (now EBS). We estimate that there are
currently 2,032 ITFS (or EBS) licensees, and all but 100 of the
licenses are held by educational institutions. Thus, we estimate that
at least 1,932 ITFS licensees are small entities.
79. Local Multipoint Distribution Service. Local Multipoint
Distribution Service (LMDS) is a fixed broadband point-to-multipoint
microwave service that provides for two-way video telecommunications.
The SBA definition of small entities for Cable and Other Program
Distribution, which includes such companies generating $13.5 million in
annual receipts, appears applicable to LMDS. The Commission has also
defined small LMDS entities in the context of Commission license
auctions. In the 1998 and 1999 LMDS auctions, the Commission defined a
small business as an entity that had annual average gross revenues of
less than $40 million in the previous three calendar years. Moreover,
the Commission added an additional classification for a ``very small
business,'' which was defined as an entity that had annual average
gross revenues of less than $15 million in the previous three calendar
years. These definitions of ``small business'' and ``very small
business'' in the context of the LMDS auctions have been approved
[[Page 10688]]
by the SBA. In the first LMDS auction, 104 bidders won 864 licenses. Of
the 104 auction winners, 93 claimed status as small or very small
businesses. In the LMDS re-auction, 40 bidders won 161 licenses. Based
on this information, we believe that the number of small LMDS licenses
will include the 93 winning bidders in the first auction and the 40
winning bidders in the re-auction, for a total of 133 small entity LMDS
providers as defined by the SBA and the Commission's auction rules.
80. Open Video Systems (``OVS''). The OVS framework provides
opportunities for the distribution of video programming other than
through cable systems. Because OVS operators provide subscription
services, OVS falls within the SBA-recognized definition of Cable and
Other Program Distribution Services, which provides that a small entity
is one with $ 13.5 million or less in annual receipts. The Commission
has approved approximately 120 OVS certifications with some OVS
operators now providing service. Broadband service providers (BSPs) are
currently the only significant holders of OVS certifications or local
OVS franchises, even though OVS is one of four statutorily-recognized
options for local exchange carriers (LECs) to offer video programming
services. As of June 2005, BSPs served approximately 1.4 million
subscribers, representing 1.49 percent of all MVPD households. Among
BSPs, however, those operating under the OVS framework are in the
minority. As of June 2005, RCN Corporation is the largest BSP and 14th
largest MVPD, serving approximately 371,000 subscribers. RCN received
approval to operate OVS systems in New York City, Boston, Washington,
DC and other areas. The Commission does not have financial information
regarding the entities authorized to provide OVS, some of which may not
yet be operational. We thus believe that at least some of the OVS
operators may qualify as small entities.
81. Cable and Other Subscription Programming. The Census Bureau
defines this category as follows: ``This industry comprises
establishments primarily engaged in operating studios and facilities
for the broadcasting of programs on a subscription or fee basis * * *.
These establishments produce programming in their own facilities or
acquire programming from external sources. The programming material is
usually delivered to a third party, such as cable systems or direct-to-
home satellite systems, for transmission to viewers.'' The SBA has
developed a small business size standard for firms within this
category, which is all firms with $13.5 million or less in annual
receipts. According to Census Bureau data for 2002, there were 270
firms in this category that operated for the entire year. Of this
total, 217 firms had annual receipts of under $10 million and 13 firms
had annual receipts of $10 million to $24,999,999. Thus, under this
category and associated small business size standard, the majority of
firms can be considered small.
82. Motion Picture and Video Production. The Census Bureau defines
this category as follows: ``This industry comprises establishments
primarily engaged in producing, or producing and distributing motion
pictures, videos, television programs, or television commercials.'' The
SBA has developed a small business size standard for firms within this
category, which is all firms with $27 million or less in annual
receipts. According to Census Bureau data for 2002, there were 7,772
firms in this category that operated for the entire year. Of this
total, 7,685 firms had annual receipts of under $24,999,999 and 45
firms had annual receipts of between $25,000,000 and $49,999,999. Thus,
under this category and associated small business size standard, the
majority of firms can be considered small. Each of these NAICS
categories is very broad and includes firms that may be engaged in
various industries, including cable programming. Specific figures are
not available regarding how many of these firms exclusively produce
and/or distribute programming for cable television or how many are
independently owned and operated.
83. Motion Picture and Video Distribution. The Census Bureau
defines this category as follows: ``This industry comprises
establishments primarily engaged in acquiring distribution rights and
distributing film and video productions to motion picture theaters,
television networks and stations, and exhibitors.'' The SBA has
developed a small business size standard for firms within this
category, which is all firms with $27 million or less in annual
receipts. According to Census Bureau data for 2002, there were 377
firms in this category that operated for the entire year. Of this
total, 365 firms had annual receipts of under $24,999,999 and 7 firms
had annual receipts of between $25,000,000 and $49,999,999. Thus, under
this category and associated small business size standard, the majority
of firms can be considered small. Each of these NAICS categories is
very broad and includes firms that may be engaged in various
industries, including cable programming. Specific figures are not
available regarding how many of these firms exclusively produce and/or
distribute programming for cable television or how many are
independently owned and operated.
84. Small Incumbent Local Exchange Carriers. We have included small
incumbent local exchange carriers in this present RFA analysis. A
``small business'' under the RFA is one that, inter alia, meets the
pertinent small business size standard (e.g., a telephone
communications business having 1,500 or fewer employees), and ``is not
dominant in its field of operation.'' The SBA's Office of Advocacy
contends that, for RFA purposes, small incumbent local exchange
carriers are not dominant in their field of operation because any such
dominance is not ``national'' in scope. We have therefore included
small incumbent local exchange carriers in this RFA, although we
emphasize that this RFA action has no effect on Commission analyses and
determinations in other, non-RFA contexts.
85. Incumbent Local Exchange Carriers (``LECs''). Neither the
Commission nor the SBA has developed a small business size standard
specifically for incumbent local exchange services. The appropriate
size standard under SBA rules is for the category Wired
Telecommunications Carriers. Under that size standard, such a business
is small if it has 1,500 or fewer employees. According to Commission
data, 1,307 carriers have reported that they are engaged in the
provision of incumbent local exchange services. Of these 1,307
carriers, an estimated 1,019 have 1,500 or fewer employees and 288 have
more than 1,500 employees. Consequently, the Commission estimates that
most providers of incumbent local exchange service are small
businesses.
86. Competitive Local Exchange Carriers, Competitive Access
Providers (CAPs), ``Shared-Tenant Service Providers,'' and ``Other
Local Service Providers.'' Neither the Commission nor the SBA has
developed a small business size standard specifically for these service
providers. The appropriate size standard under SBA rules is for the
category Wired Telecommunications Carriers. Under that size standard,
such a business is small if it has 1,500 or fewer employees. According
to Commission data, 859 carriers have reported that they are engaged in
the provision of either competitive access provider services or
competitive local exchange carrier services. Of these 859 carriers, an
estimated 741 have 1,500 or fewer employees and 118 have more than
1,500 employees. In addition, 16 carriers have reported that they are
``Shared-Tenant Service Providers,'' and
[[Page 10689]]
all 16 are estimated to have 1,500 or fewer employees. In addition, 44
carriers have reported that they are ``Other Local Service Providers.''
Of the 44, an estimated 43 have 1,500 or fewer employees and one has
more than 1,500 employees. Consequently, the Commission estimates that
most providers of competitive local exchange service, competitive
access providers, ``Shared-Tenant Service Providers,'' and ``Other
Local Service Providers'' are small entities.
87. Electric Power Generation, Transmission and Distribution. The
Census Bureau defines this category as follows: ``This industry group
comprises establishments primarily engaged in generating, transmitting,
and/or distributing electric power. Establishments in this industry
group may perform one or more of the following activities: (1) Operate
generation facilities that produce electric energy; (2) operate
transmission systems that convey the electricity from the generation
facility to the distribution system; and (3) operate distribution
systems that convey electric power received from the generation
facility or the transmission system to the final consumer.'' The SBA
has developed a small business size standard for firms in this
category: ``A firm is small if, including its affiliates, it is
primarily engaged in the generation, transmission, and/or distribution
of electric energy for sale and its total electric output for the
preceding fiscal year did not exceed 4 million megawatt hours.''
According to Census Bureau data for 2002, there were 1,644 firms in
this category that operated for the entire year. Census data do not
track electric output and we have not determined how many of these
firms fit the SBA size standard for small, with no more than 4 million
megawatt hours of electric output. Consequently, we estimate that 1,644
or fewer firms may be considered small under the SBA small business
size standard.
D. Description of Reporting, Recordkeeping and Other Compliance
Requirements
88. The rules adopted in the Report and Order will impose
additional reporting, recordkeeping, and other compliance requirements
on cable system operators and leased access programmers. The Order
requires a respondent in a leased access complaint proceeding that
expressly relies upon a document in asserting a defense to include the
document as part of its answer. The Order finds that in the context of
a leased access complaint proceeding, it would be unreasonable for a
respondent not to produce all the documents either requested by the
complainant or ordered by the Commission, provided that such documents
are in its control and relevant to the dispute. The Order requires the
parties to a leased access complaint proceeding to enter into a
Protective Order to protect pleading or discovery material that is
deemed by the submitting party to contain confidential information. The
Order requires cable system operators to submit annual reports on
leased access rates, channel usage, and complaints. The Order requires
cable system operators to provide prospective leased access programmers
with certain information within three business days of the date on
which a request for leased access information is made. A longer period
for small systems to respond has been retained. The Order requires
cable system operators to meet uniform customer service standards with
respect to their dealings with leased access programmers and to apply
uniform contract terms and conditions to all leased access programmers
as applied to other programmers. The Order requires cable systems to
maintain a contact name, telephone number, and e-mail address on their
Web site and to make available by telephone a designated person to
respond to requests for information about leased access channels. The
Order requires a cable system operator to maintain a brief explanation
of the leased access statute and regulations on its Web site. The Order
specifies the information that a leased access programmer must provide
to a cable system operator in order to be considered for carriage and
requires the cable system operator to respond to the proposal by
accepting the proposed terms or offering alternative terms within 10
days.
E. Steps Taken To Minimize Significant Impact on Small Entities and
Significant Alternatives Considered
89. The RFA requires an agency to describe any significant
alternatives that it has considered in proposing regulatory approaches,
which may include the following four alternatives (among others): (1)
The establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or any part thereof, for small
entities. The Notice invited comment on issues that had the potential
to have significant economic impact on some small entities.
90. As discussed in Section A, the decision to modify the leased
access rules will facilitate the goals of Section 612 of the
Communications Act ``to promote competition in the delivery of diverse
sources of video programming and to assure that the widest possible
diversity of information sources are made available to the public from
cable systems in a manner consistent with growth and development of
cable systems.'' The decision confers benefits upon the variety of
leased access programmers, most of which are smaller entities. Thus,
the decision to modify the leased access rules benefits smaller
entities as well as larger entities. The alternative of retaining the
current leased access rules would hinder achieving the goals of
competition and diversity as envisioned by Congress. Moreover, the
alternative of requiring only certain cable operators to comply with
these new rules, such as only large cable operators, would similarly
impede achieving the goals of competition and diversity as envisioned
by Congress. However, a longer period for small systems to respond to
certain requests for information has been retained.
F. Report to Congress
91. The Commission will send a copy of the Report and Order,
including this FRFA, in a report to be sent to Congress and the
Government Accountability Office pursuant to the Congressional Review
Act. In addition, the Commission will send a copy of the Report and
Order, including this FRFA, to the Chief Counsel for Advocacy of the
SBA. A copy of the Report and Order and FRFA (or summaries thereof)
will also be published in the Federal Register.
V. Ordering Clauses
92. Accordingly, it is ordered, pursuant to the authority found in
Sections 4(i), 303, and 612 of the Communications Act of 1934, as
amended, 47 U.S.C. 154(i), 303, and 532, this Report and Order and
Further Notice of Proposed Rulemaking is adopted.
93. It is ordered that, pursuant to the authority found in Sections
4(i), 303, and 612 of the Communications Act of 1934, as amended, 47
U.S.C. 154(i), 303, and 532, the Commission's Rules are hereby amended
as set forth in the Rule Changes.
94. It is further ordered that, Sections 76.975(h)(1), (2) and (3)
and (i) are effective March 31, 2008. Sections 76.970(j)(3), 76.972(a),
(b), (c), (d), (e), and (g); 76.975(d), (e), (g) and (h)(4); and
[[Page 10690]]
76.978, which contain new or modified information collection
requirements that have not been approved by the Office of Management
and Budget (OMB), are effective upon OMB approval. Section 76.970 is
effective May 28, 2008 or upon OMB approval of Sec. 76.970(j)(3),
whichever is later. The effective date of Sections 76.972 (f) and
76.975 (b), (c) and (f) is delayed until OMB approval of the
aforementioned rule sections. After OMB approval is received, the
Commission will publish a document in the Federal Register announcing
the effective date of the rules requiring OMB approval and those whose
effective date was delayed pending OMB approval of other rules.
95. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of this Report and Order and Further Notice of Proposed
Rulemaking, including the Initial and Final Regulatory Flexibility
Analyses, to the Chief Counsel for Advocacy of the Small Business
Administration.
96. It is further ordered that the Commission shall send a copy of
this Report and Order and Further Notice of Proposed Rulemaking in a
report to be sent to Congress and the Government Accountability Office
pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).
List of Subjects in 47 CFR Part 76
Administrative practice and procedure and Cable television.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Rule Changes
0
For the reasons stated in the preamble, the Federal Communications
Commission amends 47 CFR part 76 as follows:
PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE
0
1. The authority citation for part 76 continues to read as follows:
Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 302a, 303,
303a, 307, 308, 309, 312, 315, 317, 325, 338, 339, 340, 503, 521,
522, 531, 532, 533, 534, 535, 536, 537, 543, 544, 544a, 545, 548,
549, 552, 554, 556, 558, 560, 561, 571, 572 and 573.
0
2. Revise Sec. 76.970 to read as follows:
Sec. 76.970 Commercial leased access rates.
(a) Cable operators shall designate channel capacity for commercial
use by persons unaffiliated with the operator in accordance with the
requirement of 47 U.S.C. 532. For purposes of 47 U.S.C. 532(b)(1)(A)
and (B), only those channels that must be carried pursuant to 47 U.S.C.
534 and 535 qualify as channels that are required for use by Federal
law or regulation. For cable systems with 100 or fewer channels,
channels that cannot be used due to technical and safety regulations of
the Federal Government (e.g., aeronautical channels) shall be excluded
when calculating the set-aside requirement.
(b) In determining whether an entity is an ``affiliate'' for
purposes of commercial leased access, entities are affiliated if either
entity has an attributable interest in the other or if a third party
has an attributable interest in both entities.
(c) Attributable interest shall be defined by reference to the
criteria set forth in Notes 1-5 to Sec. 76.501 provided, however,
that:
(1) The limited partner and LLC/LLP/RLLP insulation provisions of
Note 2(f) shall not apply; and
(2) The provisions of Note 2(a) regarding five (5) percent
interests shall include all voting or nonvoting stock or limited
partnership equity interests of five (5) percent or more.
(d) The maximum commercial leased access rate that a cable operator
may charge to programmers that predominantly transmit sales
presentations or program length commercials for full-time channel
placement on a tier exceeding a subscriber penetration of 50 percent is
the average implicit fee for full-time channel placement on all such
tier(s).
(e) The average implicit fee identified in paragraph (d) of this
section for a full-time channel on a tier with a subscriber penetration
over 50 percent shall be calculated by first calculating the total
amount the operator receives in subscriber revenue per month for the
programming on all such tier(s), and then subtracting the total amount
it pays in programming costs per month for such tier(s) (the ``total
implicit fee calculation''). A weighting scheme that accounts for
differences in the number of subscribers and channels on all such
tier(s) must be used to determine how much of the total implicit fee
calculation will be recovered from any particular tier. The weighting
scheme is determined in two steps. First, the number of subscribers is
multiplied by the number of channels (the result is the number of
``subscriber-channels'' ') on each tier with subscriber penetration
over 50 percent. For instance, a tier with 10 channels and 1,000
subscribers would have a total of 10,000 subscriber-channels. Second,
the subscriber-channels on each of these tiers is divided by the total
subscriber-channels on all such tiers. Given the percent of subscriber-
channels for the particular tier, the implicit fee for the tier is
computed by multiplying the subscriber-channel percentage for the tier
by the total implicit fee calculation. Finally, to calculate the
average implicit fee per channel, the implicit fee for the tier must be
divided by the corresponding number of channels on the tier. The final
result is the maximum rate per month that the operator may charge the
leased access programmer for a full-time channel on that particular
tier. The average implicit fee shall be calculated by using all
channels carried on any tier exceeding 50 percent subscriber
penetration (including channels devoted to affiliated programming,
must-carry and public, educational and government access channels). In
the event of an agreement to lease capacity on a tier with less than 50
percent penetration, the average implicit fee should be determined on
the basis of subscriber revenues and programming costs for that tier
alone. The license fees for affiliated channels used in determining the
average implicit fee shall reflect the prevailing company prices
offered in the marketplace to third parties. If a prevailing company
price does not exist, the license fee for that programming shall be
priced at the programmer's cost or the fair market value, whichever is
lower. The average implicit fee shall be based on contracts in effect
in the previous calendar year. The implicit fee for a contracted
service may not include fees, stated or implied, for services other
than the provision of channel capacity (e.g., billing and collection,
marketing, or studio services).
(f) The maximum commercial leased access rate that a cable operator
may charge for full-time channel placement as an a la carte service is
the highest implicit fee on an aggregate basis for full-time channel
placement as an a la carte service.
(g) The highest implicit fee on an aggregate basis for full-time
channel placement as an a la carte service shall be calculated by first
determining the total amount received by the operator in subscriber
revenue per month for each non-leased access a la carte channel on its
system (including affiliated a la carte channels) and deducting the
total amount paid by the operator in programming costs (including
license and copyright fees) per month for programming on such
individual channels. This calculation will result in implicit fees
determined on an aggregate basis, and the highest of these implicit
fees shall be the maximum rate per month that the operator may charge
the
[[Page 10691]]
leased access programmer for placement as a full-time a la carte
channel. The license fees for affiliated channels used in determining
the highest implicit fee shall reflect the prevailing company prices
offered in the marketplace to third parties. If a prevailing company
price does not exist, the license fee for that programming shall be
priced at the programmer's cost or the fair market value, whichever is
lower. The highest implicit fee shall be based on contracts in effect
in the previous calendar year. The implicit fee for a contracted
service may not include fees, stated or implied, for services other
than the provision of channel capacity (e.g., billing and collection,
marketing, or studio services). Any subscriber revenue received by a
cable operator for an a la carte leased access service shall be passed
through to the leased access programmer.
(h) The maximum commercial leased access rate that a cable operator
may charge for part-time channel placement shall be determined by
either prorating the maximum full-time rate uniformly, or by developing
a schedule of and applying different rates for different times of the
day, provided that the total of the rates for a 24-hour period does not
exceed the maximum daily leased access rate.
(i) The maximum commercial leased access rate that a cable operator
may charge for full-time channel placement, except to programmers that
predominantly transmit sales presentations or program length
commercials, is the lower of the marginal implicit fee for a full-time
channel placement on the tier where the leased access programming will
be placed or $0.10 per subscriber per month.
(j)(1)(i) The marginal implicit fee identified in paragraph (i) of
this section for a full-time channel shall be calculated by first
determining the mark-up of the tier where the leased access programming
will be placed. The mark-up is calculated by determining the total
amount the operator receives in subscriber revenue per month for the
tier, and dividing by the total amount it pays in affiliation fees for
the channels located on the tier. The resulting figure is the mark-up.
In cases where the cost and channels of one tier are implicitly
incorporated into a larger tier, the larger tier price is equal to the
larger tier price minus the smaller tier price and the channels on the
larger tier are those that are not available on the smaller tier.
(ii) The monthly gross subscriber revenue per channel is obtained
by multiplying the monthly per subscriber affiliation fee for each
channel by the mark-up for the tier. The net subscriber revenue per
channel per month for each channel is the difference between the
monthly gross subscriber revenue per channel and the monthly per
subscriber affiliation fee paid for that channel by the cable operator.
This value represents the implicit fee for the individual channel.
(iii) To determine the marginal channels on the tier for systems
with 55 or more activated channels, multiply the number of non-mandated
channels on the tier by 0.15 and round to the nearest number. To
determine the marginal channels on the tier for systems with 54 or less
activated channels, multiply the number of non-mandated channels on the
tier by 0.10 and round to the nearest number. That is the number of
marginal channels. Next identify the channels with the lowest implicit
fee until that number is reached. These are the marginal channels.
(iv) Finally, calculate the marginal implicit fee by taking the
mean of the implicit fees of the marginal channels by summing the
implicit fees of the marginal channels and dividing by the number of
marginal channels. The result is the marginal implicit fee.
(2) The affiliation fees for channels used in determining the
marginal implicit fee are the contractual license fee or retransmission
consent fee representing the compensation per subscriber per month paid
to the programmer for the right to carry the programming. It excludes
fees for services other than the provision of channel capacity, such as
marketing, and excludes revenues. The affiliation fees for channels
used in determining the marginal implicit fee shall reflect the
prevailing affiliation fees offered in the marketplace to third
parties. If a prevailing affiliation fee does not exist, the
affiliation fee for that programming shall be priced at the
programmer's cost or the fair market value, whichever is lower. The
marginal implicit fee calculation shall be based on affiliation fees in
contracts in effect in the previous calendar year. The implicit fee for
a contracted service may not include fees, stated or implied, for
services other than the provision of channel capacity (e.g., billing
and collection, marketing, or studio services).
(3) Operators shall maintain, for Commission inspection, sufficient
supporting documentation to justify the scheduled rates, including
supporting contracts, calculations of the implicit fees, and
justifications for all adjustments.
(4) Cable operators are permitted to negotiate rates below the
maximum permitted rates.
0
3. Add Sec. 76.972 to read as follows:
Sec. 76.972 Customer service standards.
(a)(1) A cable system operator shall maintain a contact name,
telephone number and e-mail address on its Web site and available by
telephone of a designated person to respond to requests for information
about leased access channels.
(2) A cable system operator shall maintain a brief explanation of
the leased access statute and regulations on its Web site.
(b) Cable system operators shall provide prospective leased access
programmers with the following information within three business days
of the date on which a request for leased access information is made:
(1) The cable system operator's process for requesting leased
access channels;
(2) The geographic and subscriber levels of service that are
technically possible;
(3) The number and location and time periods available for each
leased access channel;
(4) Whether the leased access channel is currently being occupied;
(5) A complete schedule of the operator's statutory maximum full-
time and part-time leased access rates;
(6) A comprehensive schedule showing how those rates were
calculated;
(7) Rates associated with technical and studio costs;
(8) Whether inclusion in an electronic programming guide is
available;
(9) The available methods of programming delivery and the
instructions, technical requirements and costs for each method;
(10) A comprehensive sample leased access contract that includes
uniform terms and conditions such as tier and channel placement,
contract terms and conditions, insurance requirements, length of
contract, termination provisions and electronic guide availability; and
(11) Information regarding prospective launch dates for the leased
access programmer.
(c) A bona fide proposal, as used in this section, is defined as a
proposal from a potential leased access programmer that includes the
following information:
(1) The desired length of a contract term;
(2) The tier, channel and time slot desired;
(3) The anticipated commencement date for carriage;
(4) The nature of the programming;
(5) The geographic and subscriber level of service requested; and
[[Page 10692]]
(6) Proposed changes to the sample contract.
(d) All requests for leased access must be made in writing and must
specify the date on which the request was sent to the operator.
(e) A cable system operator must respond to a bona fide proposal
within 10 days after receipt.
(f) A cable system operator will be subject to a forfeiture for
each day it fails to comply with Sec. Sec. 76.972(a) or 76.972(e).
(g)(1) Operators of systems subject to small system relief shall
provide the information required in paragraph (b) of this section
within 30 calendar days of a bona fide request from a prospective
leased access programmer. For these purposes, systems subject to small
system relief are systems that either:
(i) Qualify as small systems under Sec. 76.901(c) and are owned by
a small cable company as defined under Sec. 76.901(e); or
(ii) Have been granted special relief.
(2) Bona fide requests, as used in this section, are defined as
requests from potential leased access programmers that have provided
the following information:
(i) The desired length of a contract term;
(ii) The time slot desired;
(iii) The anticipated commencement date for carriage; and
(iv) The nature of the programming.
0
4. Section 76.975 is amended to revise paragraphs (b) through (g) and
redesignate paragraph (h) as paragraph (i) and to add new paragraph (h)
to read as follows:
Sec. 76.975 Commercial leased access dispute resolution.
* * * * *
(b) Any person aggrieved by the failure or refusal of a cable
operator to make commercial channel capacity available or to charge
rates for such capacity in accordance with the provisions of Title VI
of the Communications Act, or our implementing regulations, Sec. Sec.
76.970, 76.971, and 76.972 may file a petition for relief with the
Commission.
(c) A petition must contain a concise statement of the facts
constituting a violation of the statute or the Commission's rules, the
specific statute(s) or rule(s) violated, and certify that the petition
was served on the cable operator.
(d) The petition must be filed within 60 days of the alleged
violation. The time limit on filing complaints will be suspended if the
complainant files a notice with the Commission prior to the expiration
of the filing period, stating that it seeks an extension of the filing
deadline in order to pursue active negotiations with the cable
operator, and the cable operator agrees to the extension.
(e) Discovery. In addition to the general pleading and discovery
rules contained in Sec. 76.7 of this part, parties to a leased access
complaint may serve requests for discovery directly on opposing
parties, and file a copy of the request with the Commission. The
respondent shall have the opportunity to object to any request for
documents that are not in its control or relevant to the dispute. Such
request shall be heard, and determination made, by the Commission.
Until the objection is ruled upon, the obligation to produce the
disputed material is suspended. Any party who fails to timely provide
discovery requested by the opposing party to which it has not raised an
objection, or who fails to respond to a Commission order for discovery
material, may be deemed in default and an order may be entered in
accordance with the allegations contained in the complaint, or the
complaint may be dismissed with prejudice.
(f) Protective Orders. In addition to the procedures contained in
Sec. 76.9 of this part related to the protection of confidential
material, the Commission may issue orders to protect the
confidentiality of proprietary information required to be produced for
resolution of leased access complaints. A protective order constitutes
both an order of the Commission and an agreement between the party
executing the protective order declaration and the party submitting the
protected material. The Commission has full authority to fashion
appropriate sanctions for violations of its protective orders,
including but not limited to suspension or disbarment of attorneys from
practice before the Commission, forfeitures, cease and desist orders,
and denial of further access to confidential information in Commission
proceedings.
(g) The cable operator or other respondent will have 30 days from
the filing of the petition to file a response. To the extent that a
cable operator expressly references and relies upon a document or
documents in asserting a defense or responding to a material
allegation, such document or documents shall be included as part of the
response. If a leased access rate is disputed, the response must show
that the rate charged is not higher than the maximum permitted rate for
such leased access, and must be supported by the affidavit of a
responsible company official. If, after a response is submitted, the
staff finds a prima facie violation of our rules, the staff may require
a respondent to produce additional information, or specify other
procedures necessary for resolution of the proceeding.
(h)(1) The Media Bureau will resolve a leased access complaint
within 90 days of the close of the pleading cycle.
(2) The Media Bureau, after consideration of the pleadings, may
grant the relief requested, in whole or in part, including, but not
limited to ordering refunds, injunctive measures, or forfeitures
pursuant 47 U.S.C. 503, denying the petition, or issuing a ruling on
the petition or dispute.
(3) To be afforded relief, the petitioner must show by clear and
convincing evidence that the cable operator has violated the
Commission's leased access provisions in 47 U.S.C. 532 or Sec. Sec.
76.970, 76.971, or 76.972, or otherwise acted unreasonably or in bad
faith in failing or refusing to make capacity available or to charge
lawful rates for such capacity to an unaffiliated leased access
programmer.
(4) As part of the remedy phase of the leased access complaint
process, the Media Bureau will have discretion to request that the
parties file their best and final offer for the prices, terms, or
conditions in dispute. The Commission will have the discretion to adopt
one of the proposals or choose to fashion its own remedy.
* * * * *
0
5. Section 76.978 is added to read as follows:
Sec. 76.978 Leased access annual reporting requirement.
(a) Each cable system shall submit a Leased Access Annual Report
with the Commission on a calendar year basis, no later than April 30th
following the close of each calendar year, which provides the following
information for the calendar year:
(1) The number of commercial leased access channels provided by the
cable system.
(2) The channel number and tier applicable to each commercial
leased access channel.
(3) The rates the cable system charges for full-time and part-time
leased access on each leased access channel.
(4) The cable system's calculated maximum commercial leased access
rate and actual rates.
(5) The programmers using each commercial leased access channel and
whether each programmer is using the channel on a full-time or part-
time basis.
(6) The number of requests received for information pertaining to
[[Page 10693]]
commercial leased access and the number of bona fide proposals received
for commercial leased access.
(7) Whether the cable system has denied any requests for commercial
leased access and, if so, with an explanation of the basis for the
denial.
(8) Whether a complaint has been filed against the cable system
with the Commission or a Federal district court regarding a commercial
leased access dispute.
(9) Whether any entity has sought arbitration with the cable system
regarding a commercial leased access dispute.
(10) The extent to which and for what purposes the cable system
uses commercial leased access channels for its own purposes.
(11) The extent to which the cable system impose different rates,
terms, or conditions on commercial leased access programmers (such as
with respect to security deposits, insurance, or termination
provisions) with an explanation of any differences.
(12) A list and description of any instances of the cable system
requiring an existing programmer to move to another channel or tier.
(b) Leased access programmers and other interested parties may file
comments with the Commission in response to the Leased Access Annual
Reports by May 15th.
The attached Appendices A and B will not be included in the Code of
Federal Regulations (CFR).
Appendix A--Standard Protective Order and Declaration for Use in
Section 612 Commercial Leased Access Proceedings
Before the Federal Communications Commission, Washington, DC 20554
In the Matter of [Name of Proceeding], Docket No. ------
PROTECTIVE ORDER
1. This Protective Order is intended to facilitate and expedite
the review of documents obtained from a person in the course of
discovery that contain trade secrets and privileged or confidential
commercial or financial information. It establishes the manner in
which ``Confidential Information,'' as that term is defined herein,
is to be treated. The Order is not intended to constitute a
resolution of the merits concerning whether any Confidential
Information would be released publicly by the Commission upon a
proper request under the Freedom of Information Act or other
applicable law or regulation, including 47 CFR 0.442.
2. Definitions.
a. Authorized Representative. ``Authorized Representative''
shall have the meaning set forth in Paragraph 7.
b. Commission. ``Commission'' means the Federal Communications
Commission or any arm of the Commission acting pursuant to delegated
authority.
c. Confidential Information. ``Confidential Information'' means
(i) information submitted to the Commission by the Submitting Party
that has been so designated by the Submitting Party and which the
Submitting Party has determined in good faith constitutes trade
secrets and commercial or financial information which is privileged
or confidential within the meaning of Exemption 4 of the Freedom of
Information Act, 5 U.S.C. 552(b)(4) and (ii) information submitted
to the Commission by the Submitting Party that has been so
designated by the Submitting Party and which the Submitting Party
has determined in good faith falls within the terms of Commission
orders designating the items for treatment as Confidential
Information. Confidential Information includes additional copies of,
notes, and information derived from Confidential Information.
d. Declaration. ``Declaration'' means Attachment A to this
Protective Order.
e. Reviewing Party. ``Reviewing Party'' means a person or entity
participating in this proceeding or considering in good faith filing
a document in this proceeding.
f. Submitting Party. ``Submitting Party'' means a person or
entity that seeks confidential treatment of Confidential Information
pursuant to this Protective Order.
3. Claim of Confidentiality. The Submitting Party may designate
information as ``Confidential Information'' consistent with the
definition of that term in Paragraph 2.c of this Protective Order.
The Commission may, sua sponte or upon petition, pursuant to 47 CFR
0.459 and 0.461, determine that all or part of the information
claimed as ``Confidential Information'' is not entitled to such
treatment.
4. Procedures for Claiming Information is Confidential.
Confidential Information submitted to the Commission shall be filed
under seal and shall bear on the front page in bold print,
``CONTAINS PRIVILEGED AND CONFIDENTIAL INFORMATION--DO NOT
RELEASE.'' Confidential Information shall be segregated by the
Submitting Party from all non-confidential information submitted to
the Commission. To the extent a document contains both Confidential
Information and non-confidential information, the Submitting Party
shall designate the specific portions of the document claimed to
contain Confidential Information and shall, where feasible, also
submit a redacted version not containing Confidential Information.
5. Storage of Confidential Information at the Commission. The
Secretary of the Commission or other Commission staff to whom
Confidential Information is submitted shall place the Confidential
Information in a non-public file. Confidential Information shall be
segregated in the files of the Commission, and shall be withheld
from inspection by any person not bound by the terms of this
Protective Order, unless such Confidential Information is released
from the restrictions of this Order either through agreement of the
parties, or pursuant to the order of the Commission or a court
having jurisdiction.
6. Access to Confidential Information. Confidential Information
shall only be made available to Commission staff, Commission
consultants and to counsel to the Reviewing Parties, or if a
Reviewing Party has no counsel, to a person designated by the
Reviewing Party. Before counsel to a Reviewing Party or such other
designated person designated by the Reviewing Party may obtain
access to Confidential Information, counsel or such other designated
person must execute the attached Declaration. Consultants under
contract to the Commission may obtain access to Confidential
Information only if they have signed, as part of their employment
contract, a non-disclosure agreement the scope of which includes the
Confidential Information, or if they execute the attached
Declaration.
7. Disclosure. Counsel to a Reviewing Party or such other person
designated pursuant to Paragraph 5 may disclose Confidential
Information to other Authorized Representatives to whom disclosure
is permitted under the terms of paragraph 8 of this Protective Order
only after advising such Authorized Representatives of the terms and
obligations of the Order. In addition, before Authorized
Representatives may obtain access to Confidential Information, each
Authorized Representative must execute the attached Declaration.
8. Authorized Representatives shall be limited to:
a. Subject to Paragraph 8.d, counsel for the Reviewing Parties
to this proceeding, including in-house counsel, actively engaged in
the conduct of this proceeding and their associated attorneys,
paralegals, clerical staff and other employees, to the extent
reasonably necessary to render professional services in this
proceeding;
b. Subject to Paragraph 8.d, specified persons, including
employees of the Reviewing Parties, requested by counsel to furnish
technical or other expert advice or service, or otherwise engaged to
prepare material for the express purpose of formulating filings in
this proceeding; and
c. Subject to Paragraph 8.d., any person designated by the
Commission in the public interest, upon such terms as the Commission
may deem proper; except that,
d. Disclosure shall be prohibited to any persons in a position
to use the Confidential Information for competitive commercial or
business purposes, including persons involved in competitive
decision-making, which includes, but is not limited to, persons
whose activities, association or relationship with the Reviewing
Parties or other Authorized Representatives involve rendering advice
or participating in any or all of the Reviewing Parties', Associated
Representatives' or any other person's business decisions that are
or will be made in light of similar or corresponding information
about a competitor.
9. Inspection of Confidential Information. Confidential
Information shall be maintained by a Submitting Party for inspection
at two or more locations, at least one of which shall be in
Washington, DC. Inspection shall be carried out by Authorized
Representatives upon reasonable notice not to exceed one business
day during normal business hours.
[[Page 10694]]
10. Copies of Confidential Information. The Submitting Party
shall provide a copy of the Confidential Material to Authorized
Representatives upon request and may charge a reasonable copying fee
not to exceed twenty five cents per page. Authorized Representatives
may make additional copies of Confidential Information but only to
the extent required and solely for the preparation and use in this
proceeding. Authorized Representatives must maintain a written
record of any additional copies made and provide this record to the
Submitting Party upon reasonable request. The original copy and all
other copies of the Confidential Information shall remain in the
care and control of Authorized Representatives at all times.
Authorized Representatives having custody of any Confidential
Information shall keep the documents properly and fully secured from
access by unauthorized persons at all times.
11. Filing of Declaration. Counsel for Reviewing Parties shall
provide to the Submitting Party and the Commission a copy of the
attached Declaration for each Authorized Representative within five
(5) business days after the attached Declaration is executed, or by
any other deadline that may be prescribed by the Commission.
12. Use of Confidential Information. Confidential Information
shall not be used by any person granted access under this Protective
Order for any purpose other than for use in this proceeding
(including any subsequent administrative or judicial review), shall
not be used for competitive business purposes, and shall not be used
or disclosed except in accordance with this Order. This shall not
preclude the use of any material or information that is in the
public domain or has been developed independently by any other
person who has not had access to the Confidential Information nor
otherwise learned of its contents.
13. Pleadings Using Confidential Information. Submitting Parties
and Reviewing Parties may, in any pleadings that they file in this
proceeding, reference the Confidential Information, but only if they
comply with the following procedures:
a. Any portions of the pleadings that contain or disclose
Confidential Information must be physically segregated from the
remainder of the pleadings and filed under seal;
b. The portions containing or disclosing Confidential
Information must be covered by a separate letter referencing this
Protective Order;
c. Each page of any Party's filing that contains or discloses
Confidential Information subject to this Order must be clearly
marked: ``Confidential Information included pursuant to Protective
Order, [cite proceeding];'' and
d. The confidential portion(s) of the pleading, to the extent
they are required to be served, shall be served upon the Secretary
of the Commission, the Submitting Party, and those Reviewing Parties
that have signed the attached Declaration. Such confidential
portions shall be served under seal, and shall not be placed in the
Commission's Public File unless the Commission directs otherwise
(with notice to the Submitting Party and an opportunity to comment
on such proposed disclosure). A Submitting Party or a Reviewing
Party filing a pleading containing Confidential Information shall
also file a redacted copy of the pleading containing no Confidential
Information, which copy shall be placed in the Commission's public
files. A Submitting Party or a Reviewing Party may provide courtesy
copies of pleadings containing Confidential Information to
Commission staff so long as the notations required by this Paragraph
13 are not removed.
14. Violations of Protective Order. Should a Reviewing Party
that has properly obtained access to Confidential Information under
this Protective Order violate any of its terms, it shall immediately
convey that fact to the Commission and to the Submitting Party.
Further, should such violation consist of improper disclosure or use
of Confidential Information, the violating party shall take all
necessary steps to remedy the improper disclosure or use. The
Violating Party shall also immediately notify the Commission and the
Submitting Party, in writing, of the identity of each party known or
reasonably suspected to have obtained the Confidential Information
through any such disclosure. The Commission retains its full
authority to fashion appropriate sanctions for violations of this
Protective Order, including but not limited to suspension or
disbarment of attorneys from practice before the Commission,
forfeitures, cease and desist orders, and denial of further access
to Confidential Information in this or any other Commission
proceeding. Nothing in this Protective Order shall limit any other
rights and remedies available to the Submitting Party at law or
equity against any party using Confidential Information in a manner
not authorized by this Protective Order.
15. Termination of Proceeding. Within two weeks after final
resolution of this proceeding (which includes any administrative or
judicial appeals), Authorized Representatives of Reviewing Parties
shall, at the direction of the Submitting Party, destroy or return
to the Submitting Party all Confidential Information as well as all
copies and derivative materials made, and shall certify in a writing
served on the Commission and the Submitting Party that no material
whatsoever derived from such Confidential Information has been
retained by any person having access thereto, except that counsel to
a Reviewing Party may retain two copies of pleadings submitted on
behalf of the Reviewing Party. Any confidential information
contained in any copies of pleadings retained by counsel to a
Reviewing Party or in materials that have been destroyed pursuant to
this paragraph shall be protected from disclosure or use
indefinitely in accordance with paragraphs 10 and 12 of this
Protective Order unless such Confidential Information is released
from the restrictions of this Order either through agreement of the
parties, or pursuant to the order of the Commission or a court
having jurisdiction.
16. No Waiver of Confidentiality. Disclosure of Confidential
Information as provided herein shall not be deemed a waiver by the
Submitting Party of any privilege or entitlement to confidential
treatment of such Confidential Information. Reviewing Parties, by
viewing these materials: (a) Agree not to assert any such waiver;
(b) agree not to use information derived from any confidential
materials to seek disclosure in any other proceeding; and (c) agree
that accidental disclosure of Confidential Information shall not be
deemed a waiver of the privilege.
17. Additional Rights Preserved. The entry of this Protective
Order is without prejudice to the rights of the Submitting Party to
apply for additional or different protection where it is deemed
necessary or to the rights of Reviewing Parties to request further
or renewed disclosure of Confidential Information.
18. Effect of Protective Order. This Protective Order
constitutes an Order of the Commission and an agreement between the
Reviewing Party, executing the attached Declaration, and the
Submitting Party.
19. Authority. This Protective Order is issued pursuant to
Sections 4(i) and 4(j) of the Communications Act as amended, 47
U.S.C. 154(i), (j) and 47 CFR 0.457(d).
Attachment A to Section 612 Protective Order
DECLARATION
In the Matter of [Name of Proceeding] Docket No.------
I, --------------------, hereby declare under penalty of perjury
that I have read the Protective Order that has been entered by the
Commission in this proceeding, and that I agree to be bound by its
terms pertaining to the treatment of Confidential Information
submitted by parties to this proceeding. I understand that the
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[[Page 10695]]
Appendix B--Example Calculation of the Leased Access Rate
I. Example of the Marginal Implicit Fee Calculation
The following table illustrates the channel line-up of a tier
with greater than 50% subscriber penetration. The tier consists of
26 channels. We will assume that 100 subscribers purchase this tier
and that they all pay the retail price of $18.95.
------------------------------------------------------------------------
Affiliation fee
paid by cable
operator to the Implicit fee
Programming programmer (net revenue)
(monthly amount
per subscriber)
------------------------------------------------------------------------
Broadcast Station 1............... $0.00 $0.000
Broadcast Station 2............... 0.05 0.082
Broadcast Station 3............... 0.00 0.000
PEG 1............................. 0.00 0.000
Leased Access 1................... 0.00 0.000
Cable Network 1................... 0.12 0.196
Cable Network 2................... 0.34 0.556
Cable Network 3................... 0.05 0.082
Cable Network 4................... 0.07 0.114
Cable Network 5................... 0.01 0.016
Cable Network 6................... 0.04 0.065
Cable Network 7................... 0.05 0.082
Cable Network 8................... 0.27 0.442
Cable Network 9................... 0.00 0.000
Cable Network 10.................. 0.10 0.164
Cable Network 11.................. 0.48 0.785
Cable Network 12.................. 2.19 3.582
Cable Network 13.................. 1.10 1.799
Cable Network 14.................. 0.57 0.932
Cable Network 15.................. 0.15 0.245
Cable Network 16.................. 0.41 0.671
Cable Network 17.................. 0.19 0.311
Cable Network 18.................. 0.06 0.098
Cable Network 19.................. 0.21 0.343
Cable Network 20.................. 0.11 0.180
Cable Network 21.................. 0.62 1.014
------------------------------------------------------------------------
Step 1: Determine Monthly Per-Subscriber Affiliation Fees for Each
Channel on the Tier
The preceding table presents the monthly per-subscriber
affiliation fee paid by the cable operator to the programmer. These
values are those contractually agreed to and paid by the cable
operator. As illustrated, this hypothetical cable operator carries
three broadcast stations. Two of the broadcast stations do not
receive a monthly per-subscriber payment from the cable operator,
while ``Broadcast Station 2'' receives $0.05 per month per
subscriber from the cable operator. In addition, ``Cable Network 8''
and ``Cable Network 9'' are sold by the programmer on a bundled
basis in a contract which does not specify individual affiliation
fees for each network, but instead specifies a rate of $0.27 for
carriage of both networks. ``Cable Network 8'' is the higher rated
of the two networks and therefore the affiliation fee is allocated
to it and the affiliate fee for ``Cable Network 9'' is set equal to
zero.
Step 2: Determine the Mark-Up of the Tier
The mark-up is equal to the total subscriber revenue for the
programming tier (100 x $18.95 = $1,895), divided by the total of
the affiliation fees the cable operator pays to the programmers for
the channels on the tier (100 x $7.19 = $719). In the example the
mark-up is equal to 2.636.
Step 3: Determine the Implicit Fee of Each Channel on the Tier
The implicit fee, or net revenue, is equal to the gross revenue
from the channel less the affiliation fee of the channel. The gross
revenue is obtained by multiplying the affiliation fee by the mark-
up of the tier.
Step 4: Determine the Number of Marginal Channels on the Tier
The number of marginal channels is equal to 15% of the non-
mandated channels on the tier. In this case, the tier contains 5
mandated channels: ``Broadcast Station 1,'' ``Broadcast Station 2,''
``Broadcast Station 3,'' ``PEG 1,'' and ``Leased Access 1.''
Therefore there are 21 non-mandated channels on the tier. The number
of marginal channels is 0.15 x 21 = 3.15. The result should be
rounded to the nearest positive integer. This tier has three
marginal channels.
Step 5: Determine the Marginal Channels
The marginal channels are the three non-mandated channels with
the lowest implicit fee. In this example, those channels are:
``Cable Network 5,'' ``Cable Network 6,'' and ``Cable Network 9.''
Step 6: Calculate the Marginal Implicit Fee
The marginal implicit fee is the mean of the implicit fees of
the three marginal channels. The marginal implicit fee is (0.000 +
0.016 + 0.065)/3 = 0.027. The monthly rate for a leased access
programmer on this tier is $0.027 per subscriber.
II. Alternative Methods for Calculating the Maximum Allowable Leased
Access Rate
20. We use several methods to examine aggregate information on
the cable industry and develop a maximum allowable leased access
rate. All of our methods begin with the construction of hypothetical
analog and digital tiers based upon the 194 most widely distributed
networks. We obtain the number of subscribers to the most widely
distributed programming networks from SNL Kagan, Economics of Basic
Cable Networks, 13th Ed. (at 36-40) and SNL Kagan, Media Trends,
2007 Edition (at 58). Affiliation fees for these networks are from
SNL Kagan, Economics of Basic Cable Networks, 13th Edition (at 60-
62); SNL Kagan, Media Trends, 2007 Edition (at 59); and SNL Kagan,
Cable Program Investor, October 18, 2007 (at 2-3). We base the sizes
of the hypothetical analog and digital tiers on data collected via
the FCC's Cable Price Survey. The survey indicates that the average
analog tier contains 54.9 non-mandated channels and the most highly
subscribed digital tier contains 33.7 additional channels. Report on
Cable Industry Prices, Table 4, 21 FCC Rcd 15087 (released December
27, 2006). The most widely distributed networks were ranked
[[Page 10696]]
according to their subscribers. They are then weighted according to
the number of subscribers that they reach relative to the most
widely distributed network, The Discovery Channel, which received a
weight of 1. Lesser distributed networks receive weights that are
equivalent to the fraction of subscribers they have relative to the
most widely distributed network.
21. The hypothetical analog tier consists of the channels with
the highest subscribers, whose weights sum to 54.9. This
hypothetical analog tier consists of 67 program networks. These 67
networks reach the same number of subscribers as that which would be
reached if 55 networks each reached 100% of cable subscribers.
Construction of the hypothetical digital tier is complicated by the
fact that 12 of the 194 most widely distributed networks do not
currently receive any license fees. We therefore proceed on two
fronts. We construct a digital tier which includes these ``no-fee''
networks which we refer to as the ``inclusive digital tier'' as well
as an ``exclusive digital tier'' which excludes networks with no
license fees from the hypothetical digital tier. An additional
complication is that our information on affiliation fees and
distribution of cable networks is not sufficiently broad to get a
sufficient number of networks whose weights sum to 33.7, the number
of channels on the average digital tier. Therefore both the
inclusive and exclusive digital tiers will contain all of the
networks not included in our hypothetical analog tier. The inclusive
digital tier consists of 127 networks with a total weight of 17. The
exclusive digital tier contains 115 networks with a weight of 15.1.
22. We examine two approaches to calculating the marginal
implicit fees of the hypothetical analog and digital tiers. The
first approach, which we refer to as the net revenue approach,
follows the method used to calculate the operator-specific rates.
The average mark-up of cable operators is determined. This value is
used to determine net revenue of each network on the tier by
multiplying it against the affiliation fee to obtain gross revenue
and subtracting off the programming cost to obtain net revenue. The
marginal implicit fee is calculated as the mean or median net
revenue of the least profitable 15% of channels on the tier. The
other approach, which we call the per-subscriber fee approach,
calculates the marginal implicit fee as the mean or median
affiliation fee of the least costly 15% of channels on the
hypothetical tier. Because the mark-up of each channel on a tier is
the same, ranking networks by net revenue or per-subscriber fees
leads to the same ordering of the networks. Therefore, the
identities of the channels used to calculate the marginal implicit
fee under either approach are the same for a given hypothetical
tier.
A. The Marginal Implicit Fee Under the Net Revenue Approach
23. As discussed, the net revenue approach mirrors the system-
specific method adopted in this order. The mark-up of programming
costs by cable operators is determined by dividing video revenues by
programming costs. We base this calculation on the average of the
programming cost as a percentage of revenue for three large cable
operators in 2005. The inverse of this number is equal to the mark-
up. SNL Kagan, Cable TV Investor: Deals and Finance, January 31,
2007 at 6. The mark-up in the cable industry is 2.76. This mark-up
is then applied to the per-subscriber affiliation fees of the
networks in the hypothetical tiers in order to determine the gross
revenue per subscriber that each of those networks generates for the
cable industry. Subtracting the per subscriber affiliation fee from
the gross revenue per subscriber yields the net revenue per
subscriber. The next step in the calculation is to determine the
marginal channels, which is based upon the number of channels that
the average cable operator must set aside for leased access. The
marginal networks for the maximum allowable rate on an analog tier
will be the 15% of 54.9 or 8.2 networks. The marginal channels are
those channels, with the lowest net revenues amongst the 67, whose
weights sum to 8.2 (the number of marginal channels on our
hypothetical analog tier). The weighted mean of the net revenue of
those 13 networks is equal to $0.091 per subscriber per month and
the weighted median is equal to $0.094 per subscriber per month.
24. Calculation of the maximum rate for the hypothetical digital
tiers is similar. The tier consists of those networks that were not
included in the hypothetical analog tier with the greatest numbers
of subscribers, whose weights sum to 33.7. Our information on per
subscriber affiliation fees and distribution of cable networks is
not sufficiently broad to get a sufficient number of networks whose
weights sum to 33.7. This occurs because there is a substantial
population of networks with very limited distribution. However, in
our existing data, we noted that there are a number of networks with
license fees that are effectively zero. It is likely that the lesser
networks that we have been unable to include have a similar paucity
of license revenues. Failure to include these additional networks
makes the marginal implicit fee for digital tiers slightly higher
than it otherwise would be. The marginal channels are those
channels, with the lowest net revenues whose weights sum to 5.1 (15%
of the number of channels on our hypothetical digital tier). The
weighted mean net revenue of those networks is $0.056 per subscriber
per month and the weighted median is $0.070 per subscriber per month
for the exclusive digital tier. The weighted mean net revenue for
the inclusive digital tier is $0.026 per subscriber per month and
the weighted median is $0.035 per subscriber per month.
B. The Marginal Implicit Fee Under the Per-Subscriber Fee Approach
25. The per-subscriber fee method is based upon the costs
incurred by a cable system when it must vacate a channel in order to
provide capacity to a commercial leased access programmer. If a
cable system that receives a request for LA carriage has no vacant
channels available, then the system will need to incur certain costs
in order to make the required capacity available to the LA
programmer. Specifically, it is unlikely that the commercial
contracts that the cable operator has with program channels permit
unilateral costless cancellation by the cable operator. Even without
detailed information on these contracts, it is reasonable to assume
that the cable operator would need to provide some compensation to
the ``bumped'' channel in order to induce it to vacate the system.
One reasonable candidate for this is the fee that the cable operator
was collecting from each consumer and paying to the bumped channel
(the ``per-subscriber fee''). If we assume that the marginal channel
is earning negligible advertising revenues, then that channel would
be made whole if it continued to receive the per-subscriber fee that
the cable operator had been paying. We use this as an alternative
method of examining the costs that leased access programming may
impose on cable operators.
To calculate the marginal implicit fee under the per-subscriber
fee approach, rather than calculating the weighted means and medians
of the net revenue of the bottom 15% of networks in a tier, the
weighted means and medians of the affiliation fees are calculated.
As discussed, because a constant mark-up is applied to affiliation
fees when calculating net revenue, networks with the lowest net
revenue are also the networks with the lowest affiliation fees.
Therefore the marginal implicit cost using the per-subscriber fee
method is based on exactly the same networks as used to calculate
the marginal implicit fee with the net revenue method. The weighted
mean of the per-subscriber fee of the marginal networks on the
hypothetical analog tier is equal to $0.051 per subscriber per month
and the weighted median is equal to $0.053 per subscriber per month.
The weighted mean of the per-subscriber fee of the marginal networks
on the hypothetical inclusive digital tier is equal to $0.015 per
subscriber per month and the weighted median is equal to $0.020 per
subscriber per month. The weighted mean of the programming cost of
the marginal networks on the hypothetical exclusive digital tier is
equal to $0.032 per subscribe.
[FR Doc. 08-872 Filed 2-27-08; 8:45 am]
BILLING CODE 6712-01-P