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                 Before the                  
     Federal Communications Commission
           Washington, D.C. 20554

                                        
In the Matter of     )                  
                     )
                     )
Implementation of Sections of the )
Cable Television Consumer Protection)             CS Docket
No. 96-60
and Competition Act of 1992:)
                     )
                     )
Leased Commercial Access)
                      
                      

         SECOND REPORT AND ORDER
    AND SECOND ORDER ON RECONSIDERATION
       OF THE FIRST REPORT AND ORDER


Adopted:  January 31, 1997              Released:  February 4, 1997  

By the Commission:


             Table of Contents

                                  Paragraph

I.   Introduction and Background . . . . .1

II.  Report and Order. . . . . . . . . . .8

     A.   Statutory and Policy Goals of Leased Access8
     B.   Maximum Rate Formula for Leasing a Full
Channel. . . . . . . . . . . . . . . . . 13
     C.   Part-Time Leased Access Programming and
          Maximum Part-Time Rates. . . . 59
     D.   Resale of Leased Access Time . 77
     E.   Tier and Channel Placement . . 83
     F.   Minority and Educational Programmers90
     G.   Preferential Access. . . . . . 92
     H.   Selection of Leased Access Programmers98
     I.   Procedures for Resolution of Disputes101
     J.   Contractual Issues . . . . . .108
     K.   Technical Equipment Costs. . .113
     L.   Definition of Affiliate. . . .116

III. Order on Reconsideration  . . . . .122

     A.   Maximum Rate Formula . . . . .122
     B.   Provision of Initial Leased Access Information127
     C.   Time Increments  . . . . . . .136
     D.   Calculation of Statutory Set-Aside Requirement 137
     E.   Billing and Collection Services 138

IV.  Market Entry Analysis . . . . . . .140

V.   Final Regulatory Flexibility Analysis141

VI.  Paperwork Reduction Act of 1995 Analysis162

VII. Ordering Clauses. . . . . . . . . .164

Appendix A - Comments and Reply Comments
Appendix B - Petitions for Reconsideration and Oppositions
Appendix C - Example of Average Implicit Fee Calculation
Appendix D - Revised Rules


I.   INTRODUCTION AND BACKGROUND

     1.   In this Second Report and Order and Second
Order on Reconsideration of the First Report and Order
("Order"), we amend the Commission's rules pertaining to cable
television commercial leased access, after considering the
comments and reply comments filed in response to our Order on
Reconsideration of the First Report and Order and Further
Notice of Proposed Rulemaking ("Reconsideration Order and
Further Notice") and pursuant to the provisions of the Cable
Television Consumer Protection and Competition Act of 1992
("1992 Cable Act").  We also address petitions for
reconsideration of the leased access rules we adopted in the
Reconsideration Order.

     2.   The statutory framework for commercial leased
access, provided in Section 612 of the Communications Act of
1934 ("Communications Act"), was first established by the Cable
Communications Policy Act of 1984 ("1984 Cable Act").  In
promulgating Section 612, the House Committee stated that its
"overriding goal in adopting this section is divorcing cable
operator editorial control over a limited number of channels. . . .
[I]t is not the cable operator's exercise of any economic power,
but his exercise of editorial control, which is of concern to the
Committee."  Leased access set-aside requirements were
established in proportion to a system's total activated channel
capacity to "assure that the widest possible diversity of
information sources are made available to the public from cable
systems in a manner consistent with the growth and development
of cable systems."  Section 612 permits cable operators to use
any unused leased access channel capacity for their own purposes
until a written agreement for the use of such leased access
capacity is obtained.  Each system operator subject to this
requirement must establish, consistent with the rules prescribed by
the Commission, "the price, terms, and conditions of such use
which are at least sufficient to assure that such use will not
adversely affect the operation, financial condition, or market
development of the cable system."

     3.   The 1992 Cable Act broadened Section 612's
statutory purpose to include the promotion of "competition in the
delivery of diverse sources of video programming," and required
the Commission:  (a) to determine the maximum reasonable rates
that a cable operator may establish for leased access use, including
the rate charged for the billing of subscribers and for the collection
of revenue from subscribers by the cable operator for such use; (b)
to establish reasonable terms and conditions for leased access,
including those for billing and collection; and (c) to establish
procedures for the expedited resolution of leased access
disputes.  The legislative history of the 1992 amendments
indicates a concern that some cable operators may have
established unreasonable terms or may have had anti-competitive
motives for refusing to lease channel capacity to potential leased
access users, especially where the operator had a financial interest
in the programming services it carried.

     4.   In the Report and Order and Further Notice of
Proposed Rulemaking in MM Docket No. 92-266 ("Rate
Order"), the Commission established initial regulations to
implement the leased access provisions of the 1992 Cable Act. 
The Commission adopted the "highest implicit fee" formula as the
method for setting maximum reasonable rates, and adopted
various standards governing access terms and conditions, tier
placement, technical standards for use, technical support, security
deposits, conditions based on program content, requirements for
billing and collection services, and procedures for the expedited
resolution of disputes.  In the Rate Order, the Commission also
determined that leased access requirements were intended to apply
to all systems regardless of the "effective competition" test that
governs basic service tier ("BST") and cable programming
services tier ("CPST") rate regulation.

     5.   In the Rate Order, the Commission stated that
given the small number of comments received relating to leased
access, "the rules we adopt should be understood as a starting
point that will need refinement both through the rulemaking
process and as we address issues on a case-by-case basis."  The
Commission stated that it was aware that leasing issues may need
to be addressed in quite different ways depending upon the nature
of the service involved -- whether the lease is for a pay channel, an
advertiser-supported channel intended for wide distribution, a
channel for a narrow commercial purpose not relevant to the wide
body of cable subscribers, or for a single program or series of
programs.  Thus, the Commission stated that it was not attempting
to resolve all the issues potentially involved, many of which could
better be resolved in a more concrete factual setting.

     6.   In the Reconsideration Order and Further Notice,
we addressed certain issues pertaining to the highest implicit fee
formula, the provision of certain leased access rate and channel
availability information to prospective leased access programmers,
acceptable time increments and pricing for part-time leased access
use, operator provision of billing and collection services for leased
access programmers, security deposits, calculation of the leased
access set-aside requirement and reporting requirements.  We
also re-examined the highest implicit fee formula from an
economic perspective, and tentatively concluded that the highest
implicit fee formula is likely to overcompensate cable operators
and does not sufficiently promote the goals underlying the leased
access provisions.  We proposed a cost/market rate approach to
setting maximum reasonable rates and requested comment on the
approach and its implementation.  In addition, we sought
comment on:  (a) part-time rates and an operator's obligation to
open additional leased access channels for part-time use, (b) the
resale of leased access time, (c) tier and channel placement for
leased access programming, (d) the placement of minority or
educational programming when it is used as a substitute for leased
access programming, (e) preferential treatment for certain types
of leased access programmers, including not-for-profit
programmers, (f) the selection of leased access programmers, and
(g) streamlined leased access dispute resolution procedures. 

     7.   In this Order, we:  (a) revise the maximum rate
formulas for use of full-time leased access channels; (b) decline to
impose a transition period for the implementation of our revised
rate formulas; (c) maintain the current rules for maximum part-
time rates and adopt a rule that cable operators are not required
to open additional leased access channels for part-time use until all
existing part-time leased access channels are substantially filled or
until a programmer requests a year-long eight-hour daily time slot
that cannot otherwise be accommodated; (d) allow the resale of
leased access time; (e) grant leased access programmers the right
to demand access to a tier with a subscriber penetration of more
than 50%; (f) stipulate that minority and educational programming
does not qualify as a substitute for leased access programming
unless it is carried on a tier with a subscriber penetration of more
than 50%; (g) decline to mandate preferential treatment for certain
types of leased access programmers; (h) require operators to
accept leased access programmers on a non-discriminatory basis
so long as available leased access capacity exceeds demand;
(i) require that an independent accountant review an operator's
rate calculations prior to the filing of a rate complaint with the
Commission; (j) establish a standard of reasonableness for certain
contractual requirements; (k) specify when leased access
programmers must pay for technical support; and (l) define the
term "affiliate" for purposes of leased access.  We also address
several issues on reconsideration, including the exclusion of
programming revenues from the maximum rate calculation, the
maximum rate calculation for a la carte channels, cable operators'
obligations to provide certain information to potential leased
access programmers and the need for operators to comply with
those obligations, time increments, the calculation of the leased
access set-aside requirement, and billing and collection services.

II.  REPORT AND ORDER

     A.   Statutory and Policy Goals of Leased Access

     8.    As we explained in the Reconsideration Order,
Section 612 expressly states that its purposes are twofold:  to
assure that the public has access to the widest possible diversity of
information sources carried on cable systems, and to promote
competition in the delivery of diverse sources of video
programming.  The United States Court of Appeals for the
District of Columbia Circuit recently affirmed that these purposes
are "important governmental objectives unrelated to the
suppression of speech."  The statute also states, however, that
these goals must be accomplished in a manner consistent with the
growth and development of cable systems.  Thus, in
implementing the leased access provisions, including the
establishment of maximum reasonable rates, the Commission must
seek to promote the goals of competition and diversity of
programming sources, while doing so in a manner consistent with
the growth and development of cable systems.

     9.   Many commenters contend that the goals of
diversity and competition have been achieved in the marketplace,
and that the Commission therefore need do nothing further to
fulfill the purposes of Section 612.  We note, in this regard, that
the Commission has found that the total number of non-vertically
integrated programming services has increased in each of the past
three years and represents over half of the national programming
services in operation today.  Notwithstanding this growth in
unaffiliated programming services, we believe that there is an
important distinction between such programming and leased
access programming under Section 612.  The cable operator
generally exercises editorial judgment in choosing which
unaffiliated non-leased access programming services to carry. 
Section 612, by contrast, is designed to provide a limited amount
of channel capacity over which the cable operator has no editorial
control.  It is this divorce of editorial control that differentiates
the leased access provision from other provisions of the
Communications Act that seek to promote diversity of information
sources, such as channel occupancy restrictions.  Congress was
concerned not only with ensuring access for unaffiliated
programmers, but also with ensuring that cable operators do not
exercise editorial control in choosing which unaffiliated
programmers obtain access to a limited percentage of channel
capacity.       

     10.  Indeed, the legislative history of Section 612
indicates that Congress was concerned that while cable operators
have an incentive to provide a diversity of program services, they
do not necessarily have the incentive to provide a diversity of
programming sources, "especially when a particular program
supplier's offering provides programming which represents a social
or political viewpoint that a cable operator does not wish to
disseminate, or the offering competes with a program service
already being provided by that cable system."  The legislative
history also states that leased access is intended to promote
"competition by independent programmers to the services selected
by the cable operator" and "public access to a wide variety of
voices and viewpoints."  Thus, we believe that our statutory
mandate to implement Section 612 is not obviated by an increase
in diversity of programming services that are selected by cable
operators; rather, our mandate is to promote a diversity of
programming sources.  We are mindful, in this regard, that must-
carry broadcast stations and public, educational, and governmental
("PEG") access channels have added to the diversity of
programming services and sources, and that the current balance of
diversity partly stems from cable operators' fulfillment of their
obligations to carry these channels.

     11.  In addition, we believe that in order to promote
competition and diversity in a manner consistent with the growth
and development of cable systems, we must consider the broader
effects of our rules on the video programming delivery
marketplace, including the effect our rules might have on a cable
system's ability to compete with other multichannel video
distribution systems.  Section 612 itself provides that the "price,
terms, and conditions" for leased access should "not adversely
affect the operation, financial condition, or market development
of the cable system."  Similarly, the legislative history states that
"[w]hile the overall intent of [Section 612] is to diversify the
sources of programming available to the public, this is to be
accomplished in a manner consistent with the financial viability of
individual cable systems."

     12.  Guided by these statutory and policy goals, we
hereby modify our leased access rules as set forth below.

     B.   Maximum Rate Formula for Leasing a Full
Channel

          1.   Background

     13.  Section 612 directs the Commission to determine
the maximum reasonable rates that cable operators may charge for
commercial leased access.  In the Rate Order, the Commission
adopted rules that establish maximum rates based on the highest
implicit fee paid by non-leased access programming services
distributed on a system.  In the non-leased access context, cable
operators generally pay programmers (e.g., a contractual license
fee or a copyright fee) for their programming services. 
Nevertheless, there is an implicit fee for carriage to the extent that
the amount of subscriber revenue that the operator receives for the
programming is greater than the fee that the operator pays to the
programmer.  In other words, the amount of subscriber revenue
that the programmer forgoes to the operator represents an implicit
payment for carriage.  The Commission therefore determined that
the implicit fee paid by a programmer is the average price per
channel that a subscriber pays the operator minus the amount per
subscriber that the operator pays the programmer.  The highest of
the implicit fees charged any unaffiliated non-leased access
programmer is the maximum rate per subscriber that a cable
operator may charge a leased access programmer.

     14.  Under the current formula, PEG access channels
and broadcast stations carried pursuant to the mandatory carriage
provisions of Sections 614 and 615 are excluded when
determining which channel results in the highest implicit fee.  In
addition, cable operators are required to calculate the highest
implicit fee for three programmer categories:  (a) those charging
subscribers directly on a per-event or per-channel basis, (b) those
using a channel for more than 50% of the time to sell products
directly to customers (e.g., home shopping networks, infomercials,
etc.), and (c) all others.  These three categories were intended to
account for the fact that leasing issues may need to be addressed
in different ways depending on the nature of the service
involved.  For leased access channels that are carried on a
programming services tier, operators must calculate the highest
implicit fee on a tier-by-tier basis; that is, if the leased access
channel is carried on the BST, the calculation of the highest
implicit fee should be based on the BST channels, and, if the
leased access channel is carried on a CPST, the highest implicit fee
should be determined for the channels on that CPST.

     15.  The Commission's current rules also provide that
for leased access channels carried on a programming services tier,
the highest per subscriber implicit fee is multiplied by the number
of subscribers that subscribe to the tier on which the leased access
channel is carried.  For a la carte channels, the highest per
subscriber implicit fee is multiplied by the average number of
subscribers that subscribe to the operator's a la carte services. 
The implicit fee is intended to recover only the value of the
channel capacity and not any fees, stated or implied, for services
other than the provision of channel capacity (e.g., billing and
collection, marketing, or studio services).  Accordingly,
programming revenues (e.g., home shopping commissions)
received by the operator from an unaffiliated programmer are not
included in the highest implicit fee calculation.  Under our rules,
cable operators are required to calculate the maximum rates for
each programmer category annually based on the contracts with
unaffiliated programmers in effect in the previous calendar year.

     16.  In the Reconsideration Order, we identified certain
problems with the highest implicit fee formula.  First, we stated
that the highest implicit fee formula may overcompensate cable
operators because it appears to allow "double recovery" in that
operators recover for the value of the channel capacity twice, once
from the subscriber (included in the tier charge) and again from
the programmer (included in the leased access programmer
charge). 

     17.  Second, we expressed concern that the highest
implicit fee allows an operator to charge a leased access
programmer a rate based on the channel with the highest mark-up
over programming costs (i.e., the highest of the relevant implicit
fees).  We stated that because the implicit fee for many, if not
most, non-leased access channels is by definition less than the
highest implicit fee, allowing the operator to charge leased access
programmers the highest implicit fee is likely to overcompensate
the operator in comparison to the amount the operator is willing
to accept for most non-leased access channels.

     18.  Third, we stated that the highest implicit fee
formula is not based on the reasonable costs that leased access
programming imposes on operators.  We tentatively concluded
that, when the set-aside requirement is not met, the rate should be
no higher than is necessary to recover all reasonable costs of
leasing and a reasonable profit.  In this way, leased access is
promoted without placing a financial burden on the operator.  We
asserted that a higher rate unnecessarily discourages leased access
and rewards operators that do not meet the set-aside
requirement.

     19.  Given these limitations of the highest implicit fee
formula, the Commission sought comment on a "cost/market rate
formula," an alternative approach that we believed might better
promote the goals of leased access.  Under this proposed
approach, the maximum rate for leased access would depend on
whether the cable operator is leasing its full statutory set-aside
requirement.  When the full set-aside capacity is not leased to
unaffiliated programmers, the maximum rate would be based on
the operator's reasonable and quantifiable costs (i.e., the costs of
operating the cable system plus the additional costs related to
leased access), including a reasonable profit.  The operator
would be allowed to use the subscriber revenue received from a
leased access channel to offset the operating costs associated with
the channel.  In addition, the operator would be allowed to
charge the leased access programmer the reasonable costs of
bumping a programming service in order to accommodate the
leased access programmer.  We believed that this approach
would promote leased access without giving programmers a
subsidy.  Our intent in proposing the cost/market rate formula
was not to raise or lower leased access rates, but to ensure that
they would be reasonable.

     20.  We tentatively concluded that once the operator
met its set-aside requirement, the cost-based maximum rate could
be replaced by a market rate.  The operator would be allowed to
negotiate higher rates for leased access as long as its set-aside
requirement continued to be met.  We believed that market rates
would most effectively determine which programmers should
receive leased access on the system when the operator's set-aside
is satisfied.  We stated that the higher price that some leased
access programmers may offer to pay for the channel capacity
reflects the greater ability and willingness of consumers to pay for
the programming to be carried on each of these channels.  Thus,
we tentatively concluded that relying on market prices to allocate
channel capacity provides consumers with an efficient mechanism
to communicate their preferences about which leased access
programming should be carried by the operator.

     21.  We also tentatively concluded that this cost/market
rate formula represented a pricing scheme that would establish a
maximum reasonable rate without placing an unreasonable
financial burden on operators.  We stated that, with the possible
exception of a preferential rate for not-for-profit programmers,
any maximum reasonable rate formula that we adopt, including the
proposed cost/market rate formula, would not provide a subsidy
for leased access programmers. 
  
          2.   Discussion

               a.   Goals in Establishing Maximum
Reasonable Rates

     22.  As described above, 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."  Accordingly, we must focus on these statutory
objectives in establishing maximum reasonable rates for leased
access use.  In addition, 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.

     23.  In the Reconsideration Order, we determined that
as long as the maximum leased access rate is reasonable, a lack of
demand for leased access channels would not indicate that the rate
should be lowered.  We continue to believe that Congress did
not intend that cable operators subsidize leased access
programmers.  

     24.  We emphasize that our role with regard to leased
access rates is to establish maximum reasonable rates, not a
mandatory rate that must be charged to all leased access
programmers.  Operators have the discretion to negotiate rates
below the maximum rates established by the Commission.  The
legislative history of the 1992 amendments to Section 612
specifically states that "the operator and the programmer can
bargain for a lower rate."  Furthermore, Section 612(c)(2) states
that the operator may consider content to the minimum extent
necessary to establish a reasonable price, implying that the cable
operator is not required to charge the Commission's maximum
reasonable rate.  We confirm that operators are permitted to
differentiate with respect to price between one leased access
programmer and another.  This discretion only pertains to rates
below the maximum rate.  For clarification purposes, we will
adopt a rule that specifically states that cable operators are
permitted under our rules to negotiate rates below the maximum
permissible rates.

               b.   Cost/Market Rate Formula

     25.  We stated in the Reconsideration Order and
Further Notice that we believed that our proposed cost/market
rate formula would further the goals of leased access and would
appropriately balance the needs of programmers and operators. 
After reviewing the record in this proceeding and after considering
and analyzing all of the options presented, we now conclude that
the cost/market rate formula does not adequately account for
certain factors which, if excluded, would make the maximum
leased access rates resulting from the formula unworkable in
today's programming marketplace.

     26.  Although the proposed cost/market rate formula
accounts for lost advertising revenue and lost commissions that
would result from bumping existing programming, it does not
account for negative effects that leased access programming might
have on subscriber revenue (i.e., lost subscriber revenue caused by
subscribers dropping the tier or by requiring a lower price due to
a devaluation of the tier).  In the Further Notice, we recognized
this cost but tentatively concluded that the inability to quantify the
specific effect on subscriber revenue caused by the replacement of
current programming with leased access programming in the
tiered programming services context made it too speculative to
include as an opportunity cost category in the cost/market rate
formula.  We nevertheless sought comment on how our
cost/market rate formula might measure changes in subscriber
penetration due to the addition of leased access programming.  

     27.  Neither the Commission nor the commenters in this
proceeding have been able to accurately quantify the effect that
leased access programming carried on a programming services tier
may have on subscribership or subscriber revenues to a degree
specific enough to assign it a definite value in a formula. 
Nevertheless, we no longer believe that this effect is a factor that
reasonably can be ignored.  Under the cost/market rate formula,
the value of a channel is measured by subtracting the programming
or license fee the operator pays for the channel from the
advertising revenues and commissions the operator receives for
the channel.  The formula does not include the subscriber revenue
received for the channel because, as explained above, we assumed
that leased access programming would have no measurable impact
on subscriber revenue.  By ignoring the effect of leased access
programming on subscriber revenue, the cost/market rate formula
assigns a negative value to a channel where the license fee is
higher than the revenue collected from advertising and
commissions.  For example, a programming service such as The
Disney Channel, which carries no commercial advertising, could
have a negative value under the cost/market rate formula and thus
would yield a negative leased access rate.  The proposed
cost/market rate formula therefore must not accurately represent
at least some important factor in assessing the value of a channel
because a well-established channel like The Disney Channel is
unlikely to have a negative value to the operator.  The missing
factor, we believe, is the subscriber revenue that an operator
receives because it carries a particular channel.  In the case of a
channel newly added to a tier, this subscriber revenue includes
both the additional amount an operator can charge its existing
subscribers when it adds a channel and also the full tier price paid
by subscribers the channel attracts to the tier.

     28.  ValueVision proposes using interim proxies for
subscriber loss of 1% of tier revenue for the first three leased
access programmers added, 2% for the next three programmers,
and 3% for the next three programmers.  We decline to adopt
this proposal because ValueVision's claim that this proxy would
adequately compensate cable operators for any subscriber loss is
based on only three anecdotal examples where one programming
service was substituted for a very similar programming service. 
We therefore find that ValueVision has not provided sufficient
evidence allowing us to predict what the actual subscriber loss is
likely to be for a typical system, especially when the leased access
programming substantially differs from the displaced
programming.  In addition, as described below, TCI and
Continental allege that the actual subscriber loss would be 25%
and 30%, respectively.  Given that these cable operators and
ValueVision provided such divergent estimates of subscriber loss,
we do not believe that we can determine with any precision the
actual amount that should be factored into the cost/market rate
formula to account for subscriber loss. 
  
     29.   Because the cost/market rate formula does not
adequately account for a significant benefit that cable operators
receive from programming, we believe it may result in an unduly
low rate that does not adequately capture the value of a channel. 
Such a rate would not adequately compensate the cable operator
and would force cable operators to subsidize leased access
programmers, thereby impermissibly affecting the cable system's
operation, financial condition or market development.  Similarly,
such a rate could impair a cable operator's ability to compete in
the multichannel video distribution marketplace by requiring the
operator to bump existing programming in exchange for less than
its actual value, which would be inconsistent with the growth and
development of cable systems.  

     30.   We therefore conclude that the proposed
cost/market rate formula would not accurately establish
reasonable maximum rates because, in its attempt to measure the
opportunity costs of using a channel for leased access, it ignores
a significant opportunity cost -- the effect on subscriber revenue. 
Because neither the Commission nor the commenters in this
proceeding have been able to specifically quantify this effect, we
are unable to revise our proposed formula in a way that would
allow us to adopt it as an appropriate method for determining
maximum leased access rates.

               c.   Maximum Rate for Full-Time
                    Leased Access Programming
                    Carried on a Programming
                    Services Tier

     31.  Based on our review of the comments, we no
longer believe that the proposed cost/market rate formula is a
reasonable formula for determining maximum leased access rates. 
Instead, we have decided to retain an implicit fee formula.  We
will, however, modify our current formula to address the concerns
set forth in the Further Notice and in the comments.  Specifically,
as described below, we conclude that the maximum reasonable
rate for leased access programming that is carried on a
programming services tier should be the "average implicit fee." 
We will, however, continue to monitor the availability of leased
access channels and may revisit this issue if it appears that the
average implicit fee formula no longer reflects a reasonable rate.
                                           
     32.  To determine the average implicit fee for a full-
time channel on a particular tier with a subscriber penetration over
50%, an operator must first calculate the total amount it receives
in subscriber revenue per month for the programming on all such
tier(s), and then subtract 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%.  For instance, a tier with 10 channels and
1,000 subscribers would have 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.  In the event of an
agreement to lease capacity on a tier with less than 50%
penetration, the average implicit fee should be determined on the
basis of subscriber revenues and programming costs for that tier
alone.  
     
     33.  In essence, the average implicit fee measures the
average amount that full-time programmers implicitly "pay" the
cable operator for carriage.  In other words, the average implicit
fee represents the average amount of subscriber revenue that full-
time programmers cede to the operator to permit the operator to
cover its costs and earn a profit.  For instance, if subscribers pay
an average of $0.50 per channel for a particular tier, and the
average programming or license fee on the tier is $0.10, then, on
average, programmers on the tier are implicitly "paying" the
operator $0.40 for carriage.  We agree with Cox and Comcast that
since full-time lessees resemble, and will be competing with, full-
time cable networks, it is appropriate that the maximum full-time
leased access rate reflect the average marketplace terms and
conditions under which cable networks are able to gain access to
the cable system.  From the operator's standpoint, the average
implicit fee represents the average value of a channel after
programming acquisition costs are paid.  As Encore argues, a
formula based on the average value of a channel may reflect the
value of channel capacity more accurately than a formula based on
the value of the programming bumped for leased access, such as
the proposed cost/market rate formula, because programming that
is bumped for leased access may not have had sufficient
opportunity to reach its full revenue-generating potential.     
     
     34.  In addition, we are adopting an average implicit fee
formula because it is possible to determine the average value of a
channel accurately, even when channels are sold as part of a
package (i.e., a tier).  A precise calculation of the average channel
value is possible because the necessary components are known: 
in particular, what a subscriber pays for the tier and what the
operator pays in total programming costs for all channels on the
tier.  By contrast, the proposed cost/market rate formula and the
highest implicit fee formula cannot provide such accuracy because
they attempt to measure the value of an individual channel on a
tier.  However, the value of an individual channel on a tier cannot
be ascertained accurately because it is not possible to determine
the subscriber revenue attributable to a particular channel that is
sold collectively with other channels as a single package.  The
same problem would be presented by an attempt to determine the
lowest implicit fee.  

     35.  We also believe that developments in the
multichannel video programming marketplace are relevant to our
decision to adopt the average implicit fee formula.  As noted
above, the number of non-vertically integrated national
programming services has grown in each of the past three years. 
We believe that a shift from a highest implicit fee formula to an
average implicit fee formula may provide additional opportunities
for diverse, unaffiliated programmers to enter the marketplace,
without creating a maximum rate that is artificially low and putting
the cable operator's operation, financial development or market
development at risk.

     36.  Moreover, we believe that the average implicit fee
formula addresses the concerns with the highest implicit fee
formula that we expressed in the Reconsideration Order.  Most
importantly, we do not believe that the average implicit fee
formula permits the operator a "double recovery."  In the
Reconsideration Order, we noted that the highest implicit fee
formula overcompensates the operator because it appears to allow
the value of the channel to be recovered twice -- once from the
leased access programmer (the highest implicit fee), and once
from subscribers (the average per channel subscriber charge). 
For example, if the subscriber revenue for a tier is an average of
$0.50 per channel and the lowest license fee for unaffiliated
programming on that tier is $0.05, the highest implicit fee for that
tier would be $0.45.  Because we assumed that the leased access
programmer would pay up to $0.45 (the highest implicit fee) and
the subscriber would still pay $0.50 (the average per channel
subscriber charge), we believed that the operator was permitted to
recover the value of the channel twice.     

     37.  Our "double recovery" hypothesis was based on
the assumption that operators would be able to charge subscribers
the same amount for leased access programming that they charge
on average for other programming on the same tier.  Several
commenters supported this assumption.  For instance, the Game
Show Network states that its programming had tested very
favorably with consumers and that it tied The Discovery Channel
and MTV in one ratings survey.  In addition, Blab TV and
Telemiami cite themselves as examples of full-time local leased
access programming that has proven to be commercially
successful over a lengthy time span.  More generally,
ValueVision argues that operators are not likely to lose subscriber
revenue because they will substitute leased access programming
with their least profitable networks, which recent data show have
virtually no audience.   

     38.  Many commenters, however, assert that
subscribers will not be willing to pay the same amount for leased
access programming because subscribers value it less than
programming selected by the operator.  Cox and Comcast
contend that the amount of subscriber revenue that operators will
be able to collect for most leased access channels will be close to
or equal to zero.  Several commenters claim that leased access
programming will in fact diminish the value of a tier because
subscribers will find it so unappealing that viewership of the other
programming on the tier will be adversely impacted.  They argue
that this "neighborhood effect" will force operators either to lose
subscribers or to reduce the price of the tier.  Many commenters
assert that due to the increasing threat of losing subscribers to
other services that are not subject to leased access requirements,
such as direct broadcast satellite services and wireless services,
cable operators cannot afford to use scarce channel capacity for
programming that subscribers value negatively.    

     39.  Continental attempts to quantify this
"neighborhood effect," claiming that 60% of subscribers surveyed
stated that replacing existing cable networks with leased access
programming would lead to decreased satisfaction with the
channels offered on the system and that 30% of those surveyed
threatened to discontinue service.  Continental asserts that the
impact of a lost subscriber extends far beyond the loss in value of
a single channel, since subscribers must drop the entire tier.  For
example, Continental alleges that a 1% drop in subscribership
would amount to a loss of $0.21 per subscriber per month for its
typical system.  Similarly, TCI cites survey results showing that
80% of the responding subscribers stated that leased access
programming would lower the value of their cable service and that
25% claimed that they would definitely cancel their service.  By
contrast, as described above, ValueVision proposes using interim
proxies for subscriber loss of 1% of tier revenue for the first three
leased access programmers added, 2% for the next three
programmers, and 3% for the next three programmers.  

     40.  Based on the record before us, we cannot conclude
that operators, in general, will be able to charge the same amount
for a tier once leased access programming is added, especially
since most leased access programming will be new and will not
have an established audience.  We cannot, however, predict
with any certainty what the relative value of the leased access
programming will be.  It is possible that some leased access
programming will be as profitable, if not more so, than some of
the operator's selected programming and that the effect on the tier
charge will be neutral or positive.  On the other hand, it is also
possible that some leased access programming will be less valuable
than the operator's current programming, leading either to a loss
of subscribers or to a loss of subscriber revenue if the operator
lowers the tier price.  For instance, subscribers whose
subscriptions are due in large part to the non-leased access
programming service that is bumped could drop the programming
tier or the entire cable service. 

     41.  We therefore find that the assumption underlying
our "double recovery" hypothesis -- that leased access
programming will always be equally valuable to the operator as its
non-leased access programming -- is not supported by the record. 
Neither the Commission nor the commenters, however, have been
able to develop a reliable method for predicting what value, if any,
subscribers will place on leased access programming.  In cases
where subscribers are willing to pay some amount above zero for
leased access programming, the operator will recover an excess
amount because the leased access programmer is already
reasonably compensating the operator for the value of the channel. 
In cases where leased access programming causes a loss of
subscriber revenue that exceeds the amount paid by the leased
access programmer, the operator will be under compensated. 
Since the current record does not permit us to accurately assess
the impact of leased access programming on the value of the tier,
we cannot find that leased access programming will necessarily
result in an excess recovery (let alone a "double" recovery) for the
operator.

     42.  Moreover, we believe that any potential excess
recovery generally will be minimal.  Based on what cable
operators in a competitive environment are able to charge
subscribers for the addition of a new channel, our "going forward"
order allows operators to charge a subscriber $0.20 a month for
an additional channel.  We expect, however, that operators will
recover less than $0.20 for a new leased access channel because
we believe that, on average, subscribers will not be willing to pay
as much for new leased access programming as they do for new
programming selected by the cable operator.  In selecting its own
programming, a cable operator is able to take into account the
particular mix of programming already on its system and the
particular interests and demands of its subscribership.  Thus,
unlike with leased access, the operator can select programming
that will maximize net subscriber revenue.  

     43.  Additional factors are likely to further reduce any
potential excess recovery.  For one, the "going forward" rate is
based on what operators can charge subscribers when new
channels are added without displacing existing programming. 
Therefore, if leased access programming displaces existing
programming, any amount of subscriber revenue that an operator
gains from a leased access channel may be offset by subscriber
revenue lost from the displaced channel.  In addition, we believe
that subscriber revenue from a leased access channel will be
further offset by lost advertising revenues since leased access
programmers, unlike other programmers, generally will not
provide advertising slots to the cable operator.  Subscriber
revenue will also be offset by additional administrative costs
imposed by leasing, which are not recovered through the
average implicit fee formula.  For all of the above reasons, we
believe that any excess recovery for a leased access channel will
be significantly less than the $0.20 that an operator is allowed to
charge subscribers for a new channel.    

     44.  Although we no longer believe that our "double
recovery" concern was a valid reason for rejecting the highest
implicit fee formula, we nonetheless believe that the average
implicit fee formula is a more appropriate method for determining
the maximum leased access rate.  First, as discussed above, the
average implicit fee is based on a more logical calculation than the
highest implicit fee, because it is derived from values that can be
measured -- subscriber revenue for the tier(s) and programming
costs for the tier(s) -- to arrive at an average amount of subscriber
revenue that programmers cede to the operator in exchange for
carriage.  The highest implicit fee formula, by contrast, attempts
to measure the implicit fee of a particular channel by using one
verifiable figure (the actual programming cost) and one proxy (the
average per channel subscriber revenue), since the actual amount
that subscribers pay for any particular channel on a tier cannot be
determined.  Second, the average implicit fee mitigates our
previous concern that the highest implicit fee may overcompensate
operators by permitting them to charge the highest mark-up over
programming costs (i.e., the highest of the implicit fees).  While
the average implicit fee formula does not allow the operator to
recover its highest mark-up over programming costs, it also does
not restrict the operator to charging the lowest mark-up over
programming costs.  Although we stated in the Rate Order that
using the highest market value of channel capacity is fair, we
believe that basing the maximum rate on the average mark-up over
programming costs more appropriately balances the interests of
cable operators and leased access programmers.  

     45.  Third, we also expressed concern in the
Reconsideration Order that an implicit fee formula is not based on
the operator's reasonable costs.  We now believe, however, that
an implicit fee formula may better reflect the value of the channel
capacity, since a formula based strictly on quantifiable costs
cannot account for lost subscriber revenue and therefore may not
adequately compensate the operator.  Given that the maximum
rate should not adversely affect the operation, financial condition
or market development of the cable system, it is entirely
appropriate to consider these non-quantifiable costs, such as any
negative effects leased access programming may have on the value
of the tier, in establishing the market value of a channel. 

     46.  We will also make a few other changes to the
manner in which the maximum leased access rate is calculated for
tiered channels.  First, we will depart from the current rule
requiring rate calculations to be made on a tier-by-tier basis.  As
described below in Section II.E., we have determined that leased
access programmers have the right to demand access to a tier with
more than 50% subscriber penetration.  We believe that
subscribers generally perceive these highly penetrated tiers as a
single programming package, not as separate products. 
Consistent with this view, we believe that operators should
calculate the average implicit fee using all channels carried on any
tier with more than 50% subscriber penetration.  In addition, we
note that our rate regulation rules generally are based on the
principle of tier neutrality, which requires cable operators to
charge the same per channel rate regardless of the programming
costs incurred on a particular tier.  Prior to rate regulation, we
believe that tier prices did not necessarily follow this tier neutrality
principle.  Similarly, because the Communications Act requires
cable operators to transmit must-carry and PEG access channels
on the basic service tier, the average programming cost on that
tier will tend to be lower than it would be absent such a carriage
requirement.  Since, as a result of regulation, individual tier
prices may not be directly correlated with their underlying
programming costs, we believe that it is appropriate to permit
cable operators to assess these costs more accurately by averaging
across highly penetrated tiers.

     47.  Second, we believe that the maximum rate
calculation should no longer exclude channels devoted to must-
carry broadcast signals or PEG access programming.  In the
Reconsideration Order, we stated that must-carry and PEG access
channels should be excluded from consideration because the lack
of program license fees for those channels does not represent a
marketplace decision, but is the result of statutory mandates. 
Under the highest implicit fee approach, the inclusion of channels
with zero license fees, such as must- carry and PEG access
channels, would virtually ensure that every cable system had a
commensurately high leased access rate.  Now, with the average
implicit fee formula, because all of the programming costs are
averaged together, it is appropriate to include must-carry and PEG
access channels in calculating the maximum leased access rate. 
Although the lack of programming costs for these channels makes
it inappropriate to use them as the sole determinant of maximum
rates, these channels are relevant to a calculation that is based on
the value of the relevant tier(s).  Since the average implicit fee is
derived from the total value of the tier(s) being considered, it is
appropriate to account for the effect of all of the channels on the
tier(s).  Moreover, as with all individual channels on a tier, it
would not be possible to ascertain how much the total subscriber
revenue for the tier should be reduced if must-carry and PEG
access channels were excluded.    

     48.   For the same reason we also conclude that the
maximum rate calculation should no longer exclude channels
devoted to affiliated programming.  In the Rate Order, we
determined that affiliated programming should not be considered
in determining the highest implicit fee because to do so could
affect the operator's right to charge affiliated and unaffiliated
programmers different rates.  However, in addition to the
necessity of including all channels on the relevant tier(s) in an
average implicit fee calculation, we believe that requiring cable
operators to base an implicit fee calculation only on unaffiliated
programming may inappropriately result in different maximum
leased access rates for systems that are identical but for their
affiliation with certain programmers.  We believe that adopting a
standard similar to that adopted with regard to our affiliate
transaction rules will resolve this disparity without interfering with
the operator's right to establish different rates for affiliated and
unaffiliated programmers.  We will therefore modify our rules
to require that, in calculating the average implicit fee, operators
must use programming costs for affiliated programming that
reflect the prevailing company prices offered in the marketplace to
third parties.  If a prevailing company price does not exist, the
programming should be priced at the lower of the programmer's
cost or the fair market value.  Because these objective
measurements are based on factors outside affiliated transactions,
the requirement to use them as proxies for the actual programming
costs does not conflict with our conclusion in the Rate Order that
the Commission is precluded from establishing rates based on
transactions with affiliates.   

     49.  Finally, we believe that it is appropriate to
eliminate our current programmer categories for determining
maximum rates for leased access programming that is carried on
a tier.  In the Rate Order, the Commission stated that the
programmer categories were intended to reflect the different
economies faced by the different types of programmers.  We now
believe, however, that basing maximum rates on the average value
of the channel capacity is a more appropriate approach to
implementing Section 612 than making distinctions based on the
different economies among leased access programmers.  For this
reason, and also because an average implicit fee calculation must
include all channels on the relevant tier(s), we will abolish the
mandatory distinction between the rate charged to direct sales
programmers and "all others."  Therefore, all leased access
programmers carried on a cable system's tier will be subject to the
same maximum rate, which will be derived using all channels on
the relevant tier(s), including channels devoted to direct sales
programming (e.g., home shopping networks and infomercials). 
As described below in Section II.B.2.d, cable operators will still
be required to calculate different rates for programming services
sold on a per-channel, or a la carte, basis.  We will maintain the
distinction between leased access programming carried on a tier
and leased access programming offered as an a la carte service,
not because of their "different economies," but because of the
practical differences involved in implementing a maximum leased
access rate for a la carte services.  

               d.   Maximum Rate for Full-Time
                    Leased Access Programming
                    Carried as an A La Carte Service

     50.  Despite our conclusion that the average implicit fee
formula is the appropriate method for setting maximum reasonable
rates for leased access programming carried on a tier, we conclude
that the highest implicit fee formula remains the best approach for
setting maximum reasonable rates for leased access programming
offered to subscribers as an a la carte service.  Because the
subscriber revenue for an a la carte service is known, an a la carte
programmer can readily determine how much it is implicitly paying
the operator for carriage.  If an unaffiliated a la carte programmer
is implicitly paying more than the maximum leased access rate for
carriage, the a la carte programmer could obtain a larger share of
the subscriber revenue simply by demanding a lease.  This
potential disruption to operators' negotiated relationships with
unaffiliated a la carte programmers could adversely impact the
operation, financial condition, and market development of cable
systems.  The highest implicit fee for a la carte services protects
operators from this potential adverse effect because, unlike the
average implicit fee, it represents the maximum amount that any
a la carte programmer is implicitly paying for carriage.  The
average implicit fee does not pose such a risk for tiered services
because the actual subscriber revenue for individual channels is
not known.  Even if the actual subscriber revenue for a particular
tiered service could be determined, a non-leased access
programmer implicitly paying more than the average implicit fee
would have little reason to switch to leased access because
subscriber revenue is not passed through to leased access
programmers that are carried on a tier.  Non-leased access
programmers that are carried on a tier are unlikely to switch from
an arrangement where they receive a license fee to an arrangement
where they pay the cable operator but receive no subscriber
revenue.  

     51.  In addition, because in the a la carte context we are
able to determine the actual subscriber revenue derived from
particular programming services, we do not need to use the
average implicit fee formula.  Moreover, there can be no "double
recovery" in the a la carte context because any subscriber revenues
for a leased access channel carried as an a la carte service are
readily ascertainable and can be passed through to the leased
access programmer.  In order to protect against any over
recovery, we will modify our rules to clarify that any subscriber
revenue from an a la carte leased access service must be passed
through to the leased access programmer.  As with the average
implicit fee, we will require operators to include affiliated a la
carte services in their highest implicit fee calculation using the
rules described above for determining programming costs for
affiliated programming.  As discussed below in Section III.A.2,
we will also make one modification regarding the calculation of
the highest implicit fee for a la carte programming services.  

               e.   Proposals for a Flat Rate

     52.  We received a broad range of proposals from
commenters suggesting that the maximum leased access rate
should be a flat rate.  Based on its cost of service, Continental
suggests a maximum monthly flat rate per subscriber of $0.87 to
$0.89.  Adelphia, et al. propose a minimum $1.00 monthly per
subscriber rate for channel capacity on small systems to account
for their higher air time costs relative to larger systems. 
Paradise claims that a per subscriber monthly rate of $0.30 would
be a reasonable maximum rate that would avoid complex
accounting disputes and costly arbitration and litigation.  By
contrast, we received several proposals for a lower monthly per
subscriber flat rate from ValueVision ($0.10), Telemiami ($0.01
to $0.05), Blab TV ($0.04 to $0.08), CBA ($0.03) and
Broadcasting Systems ($0.0025 to $0.03, depending on channel
location).    

     53.  The attractiveness of a flat rate is its simplicity. 
After carefully considering each proposal for a flat rate, however,
it is clear that the fundamental limitation with a flat rate approach
is selecting a maximum rate that is appropriate for all cable
systems.  None of the commenters provided sufficient empirical
evidence demonstrating how their proposed flat rate would
promote the statutory objectives of diversity and competition,
while also guarding against an adverse effect on cable systems'
operation, financial condition, and market development.  We
therefore decline to adopt a flat rate approach. 

               f.   Transition Period

                    (1)  Background

     54.  In the Further Notice, we asked whether operators
should be required to implement the proposed cost/market rate
formula immediately or whether a transition period would be
appropriate.  At that time, we noted that when non-leased
access programming is placed on a channel designated for leased
access, the operator and the programmer generally assume the risk
that the programming may have to be displaced for a leased access
programmer.  We were concerned, however, that the
Commission's immediate adoption of an entirely new formula
might unduly penalize operators and programmers for decisions to
use designated channels for non-leased access programming, when
those decisions had been based on conditions created by the
Commission's rules.  We also wished to avoid any abrupt and
unnecessary disruption to subscribers due to changes in
programming line-ups.

     55.  In the Further Notice, we tentatively concluded
that the appropriateness of a transition period should depend on
whether a cable system had any unused channel capacity (i.e., dark
channels).  We tentatively concluded that a transition period
would not be appropriate for:  (a) programmers already leasing
channel capacity on a cable system and (b) programmers seeking
leased access on a cable system with unused channel capacity.  On
the other hand, if the operator would be forced to bump existing
programming to accommodate a leased access request, we sought
comment on whether transition relief might be appropriate.  We
asked commenters to explain how any proposed transition period
would be consistent with the Commission's obligation to establish
maximum reasonable rates for leased access.  

                    (2)  Discussion

     56.  We received numerous proposals regarding an
appropriate transition mechanism, including:  no transition
period; a multi-year transition period; a transition period that
coincides with the expansion of channel capacity; a transition
period that permits the cable operator to continue to charge the
highest implicit fee if existing programming is bumped; and a
transition period that prohibits bumping except upon expiration of
the incumbent non-leased access programmers' contracts.

     57.  After careful consideration of the above proposals,
we have decided not to adopt a transition mechanism.  In the Rate
Order, the Commission clearly stated that "the rules we adopt
should be understood as a starting point that will need refinement
both through the rulemaking process and as we address issues on
a case-by-case basis."  Thus, we agree with commenters that
argue that cable operators and non-leased access programmers
have had ample notice that the rate formula was subject to
change.  Both operators and programmers alike understand that
a reduction in the maximum rate could increase the demand for
leased access, thereby increasing the possibility that bumping
might occur.

     58.  We believe that operators and programmers that
negotiate to place non-leased access programming on a channel
designated for leased access assume the risk that the programming
might have to be bumped for a leased access programmer. 
Section 612 explicitly provides that operators may no longer use
unused leased access capacity once a written agreement is
obtained by a leased access programmer.  We do not believe
that an operator's contractual obligations with non-leased access
programmers excuse it from its statutory obligation to
accommodate leased access programmers.

     C.   Part-Time Leased Access Programming and
          Maximum Part-Time Rates

          1.   Background

     59.  Under the Commission's rules, cable operators are
required to accommodate part-time leased access requests, but
need not accommodate requests of less than one half hour. 
With respect to rates for part-time leased access programming, the
Commission's rules permit cable operators to charge different
time-of-day rates, provided that:  (a) the total of the rates for a
day's schedule (i.e., a 24-hour block) does not exceed the
maximum rate for one day of a full-time leased access channel
prorated evenly from the monthly rate; (b) the overall pattern of
time-of-day rates is otherwise reasonable; and (c) the time-of-day
rates are not intended to unreasonably limit leased access use. 
We stated in the Reconsideration Order that this approach
recognizes that different time slots have different values.  In
addition, time-of-day pricing furthers the statutory goal of
promoting diverse programming sources because programmers
that could not afford rates based on uniform pro rata pricing may
be able to afford lower non-prime time rates.  Making non-
prime time slots less expensive, and therefore more attractive, to
programmers may also help promote the maximum use of part-
time leased access channels.

     60.  The Further Notice sought comment on a cable
operator's obligation to accommodate a part-time leased access
programmer by opening a new channel for leased access use, and
on the calculation of maximum rates for part-time use.  On the
issue of accommodation, the Further Notice sought comment on
whether there is any compelling reason to depart from the rule set
forth in TV-24 Sarasota, Inc. v. Comcast that a cable operator
is not required to open an additional channel for part-time leased
access use if the operator can reasonably accommodate the leased
access request by providing comparable time slots on an existing
leased access channel.  We tentatively concluded that where an
operator cannot reasonably accommodate a request with an
existing leased access channel, it should only be required to open
an additional leased access channel if the programmer guarantees
a minimum time increment of eight hours within a 24-hour
period.  We also tentatively concluded that this rule should
apply even when a dark channel (i.e., activated but without
programming) is available.  

     61.  In addition, the Further Notice requested comment
on whether time-of-day proration would be appropriate under our
proposed cost/market rate formula, and if so, whether the
restriction that the sum of the part-time rates for a 24-hour time
period total no more than the maximum daily rate would also be
appropriate.  We also sought comment on whether an entirely
different method of calculating the maximum reasonable rate for
part-time use would be more appropriate under the cost/market
rate formula.

          2.   Discussion

               a.   Accommodation of Requests for
Part-Time Leased Access 

     62.  As an initial matter, we affirm our current rule
requiring cable operators to lease time in half-hour increments. 
We recognize that part-time leasing is not expressly required by
the statute, that it may impose additional administrative and other
costs on cable operators, and that it may pose the risk of capacity
being under-used.  As noted above, if cable operators are not
adequately compensated for their capacity, it may constitute a
violation of Section 612.  We also recognize, however, that the
statute does not restrict leased access to full-time programming
and that part-time programming currently represents a significant
share of the leased access marketplace, thereby providing much of
the competition and diversity of programming sources that Section
612 was intended to promote.  Therefore, rather than permit
cable operators to exclude part-time leased access programming,
we will permit cable operators to set reasonable limits on when
and how part-time programming must be accommodated, as set
forth below.

     63.  First, we affirm the holding in TV-24 Sarasota that
a cable operator is not required to open an additional leased
access channel if a programmer's request can be accommodated in
a comparable time slot on an existing leased access channel. 
We believe that the comparability of time slots can be determined
by a number of objective factors, such as day of the week, time of
day, and audience share.  We also adopt our tentative
conclusion that a cable operator should not be required to make
even a dark channel available for leased access, so long as the
programmer's request can be accommodated in a comparable time
slot on a programmed channel.  

     64.  In addition, we will extend TV-24 Sarasota to
permit a cable operator to accommodate a part-time leased access
request by offering the programmer a comparable time slot on a
channel otherwise carrying non-leased access programming. 
We believe that the above measures based on TV-24 Sarasota will
promote the statutory objectives of competition and diversity by
providing part-time programmers with a reasonable opportunity
to obtain carriage, while protecting the operator, subscribers and
existing programming services from unnecessary disruption.  As
we stated in the Further Notice, to require operators to disrupt
existing programming when adequate and comparable capacity is
available on an existing channel would be incompatible with the
statutory objective to promote diversity in a manner consistent
with the growth and development of cable systems. 

     65.  Furthermore, we conclude that cable operators
should not be required to open an additional channel for use by
part-time leased access programmers until existing part-time
leased access channels are substantially filled with leased access
programming.  For these purposes, we will consider a channel to
be "substantially filled" with leased access programming if leased
access programming occupies 75% or more of its programming
day.  In other words, cable operators do not have to open a
second channel for part-time use until the first part-time channel
has at least 18 hours of programming every day.  Likewise, a third
channel for part-time use does not have to be made available until
the second channel has at least 18 hours of programming every
day, and so on.  

     66.  Consistent with our tentative conclusion in the
Further Notice, we will provide an exception to this rule and
require operators to open an additional channel for part-time
leased access use if a programmer (or collective) agrees to provide
programming for a minimum of eight contiguous hours every day
for at least one year.  The programmer may select any eight-
hour time period during the day, but the same eight hours must be
used every day.  Therefore, even if an operator has an existing
part-time leased access channel that is not substantially filled with
leased access programming, the operator must open an additional
part-time leased access channel if it cannot otherwise
accommodate a programmer's request for a year-long eight-hour
daily time slot.  Once an operator has opened a vacant channel to
accommodate such a request, our other leased access rules apply. 
If, however, the operator has accommodated such a request on a
channel already carrying an existing full-time non-leased access
programmer, the operator does not have to accommodate other
part-time requests of less than eight hours on that channel until all
other existing part-time leased access channels are substantially
filled with leased access programming.  

     67.  By its nature, part-time programming poses a risk
that channel capacity will not be fully used, and the cable operator
may therefore be undercompensated if it is only paid for the time
programmed.  We do not believe that we could assure that the
operation, financial condition, or market development of cable
systems would not be adversely affected were we to require cable
operators to open additional channels for part-time programming
without the limitations set forth above.  The possibility of
adverse effect would be especially likely if several full-time
programming services highly valued by subscribers were
frequently disrupted by intermittent part-time leased access use. 
We believe that an exception for a year-long eight-hour daily time
slot is reasonable because the length and regularity of the required
time commitment does not pose similar risks.  As we stated in
the Further Notice, "there may be circumstances in which
substantially greater harm to subscribers, the operator, and the
non-leased access programmer may result if the leased access
request is accommodated than would result for the leased access
programmer if the leased access request is not accommodated." 
If and when digital technology causes a dramatic increase in cable
systems' available capacity, we may revisit the above conclusions. 

  
     68.  Part-time programmers are permitted to seek
access on a collective basis.  If part-time programmers request an
entire channel on a collective basis, the operator must provide the
channel regardless of any unused capacity on part-time leased
access channels because we would not consider that a request for
part-time programming.  Similarly, part-time programmers that
individually cannot meet the year-long eight-hour daily time
commitment may demand access as a group in order to satisfy the
requirement.  Allowing collective requests will not impose any
further burden on cable operators since the same request could
have been made by an individual programmer.   

     69.  To summarize, we will modify our rules regarding
part-time leased access programming as follows.  Cable operators
may accommodate part-time leased access requests by providing
comparable time slots on non-leased access channels or on
channels already being used for leased access on a part-time basis. 
Cable operators will not be required to make an additional channel
available for part-time leased access use until all other part-time
leased access channels have at least 18 hours of leased access
programming every day.  So long as an operator has at least one
channel designated for part-time leased access use that is not
substantially filled by part-time programmers, the operator will not
be required to open another part-time channel even if comparable
time slots are no longer available on the part-time channel that is
only partially programmed.  However, if a leased access
programmer (or collective) agrees, at a minimum, to provide
programming during the same eight-hour time slot every day for
at least one year, an operator will be required to accommodate the
request even if an existing part-time leased access channel is not
substantially filled with leased access programming.  We believe
that this approach achieves the statutory objectives of competition
and diversity of programming sources, while doing so in a manner
consistent with the growth and development of cable systems. 

               b.   Maximum Part-Time Rates

     70.  Because we are not adopting the proposed
cost/market rate formula, and because the formulas for tiered and
a la carte full-time services that we are adopting are similar in kind
to the existing approach for setting the maximum full-time leased
access rate, we affirm our decision to require that cable operators
prorate their maximum full-time rate when determining their
maximum permitted part-time rate, and to allow operators to
adjust part-time rates according to time-of-day pricing.  As we
stated in the Reconsideration Order, we believe that this approach
accounts for marketplace realities by recognizing that different
time slots have different value, furthers the statutory goal of
promoting a diversity of programming sources, and promotes the
full use of leased access channels by making non-prime time slots
less expensive than prime-time slots, and therefore more
attractive, to programmers.  We will permit cable operators to
recover any additional technical costs that are attributable to part-
time leased access programming in accordance with the rules we
adopt in Section II.K. below.

     71.  Various commenters argue that the Commission
should also allow cable operators to impose a surcharge for part-
time leased access use.  Specifically, some commenters argue
that a surcharge would account for the likelihood of programming
"gaps" and unused time on the channel, or, to the extent the
operator continues to use the remainder of the channel, the
damage to its full-time programming of being "swiss cheesed" by
part-time programming.  Commenters also argue that our
current rules do not account for the full impact of part-time
programming on the value of the remaining channel time available
to the operator.  Finally, some commenters submit that when
cable operators are required to accommodate part-time leased
access requests, the value of the remaining channel time decreases
because:  (a) a majority of cable programmers seek only full-time
carriage on cable systems and have no interest in sharing channel
space, (b) preemption of current programming results in
subscriber confusion, and (c) leased access programming that is
incompatible with existing programming can result in the loss of
subscribers.

     72.  We do not believe that application of a surcharge
for part-time programming is appropriate.  First, we believe that
the current record contains insufficient evidence to support any
particular surcharge.  For example, TCI proposes that the
Commission apply a 10% surcharge on part-time programmers for
every hour in a day that is not programmed (e.g., if only one hour
a day is programmed, the surcharge would be 230%).  TCI does
not, however, indicate how it arrived at its 10% figure, and, more
importantly, TCI's proposal would allow operators to recover
more than the maximum rate for a full-time channel when a
channel has more than 10 hours and less than 24 hours of
programming per day.  For example, because the surcharge for 14
hours of programming per day would be 100% (10% surcharge
for each of the 10 non-programmed hours on the channel), an
operator could charge the equivalent of 28 hours a day for the
channel.

     73.  In addition, we believe that with time-of-day
pricing and the conditions we have placed on the amount of part-
time programming that must be accommodated, the financial
impact of part-time programming on cable operators should be
minimal, making any surcharge unnecessary to adequately
compensate cable operators as required by Section 612. 
According to our rules, operators will not be required to open
additional channels for part-time leased access use (unless the
request is for a year-long eight-hour daily time slot that the
operator cannot otherwise accommodate) until all other part-time
leased access channels are substantially filled with leased access
programming.  Thus, potential disruption to full-time
programming and the problem of unused channel capacity will be
limited.  Time-of day pricing should also encourage the full use of
part-time leased access channels and thus limit unused capacity.

     74.  We reject several other proposals made by
commenters.  First, we reject Continental's proposal that the first
part-time programmer must pay for the full value of the channel,
with its ratable share decreasing as more part-time programmers
are added.  In addition to virtually ensuring that the rate to the
first part-time programmer would be so prohibitive that none ever
appears, we believe that Continental overstates the impact on the
value of the channel when the first part-time programmer obtains
carriage.

     75.  We also reject the suggestion of several
commenters that part-time programmers should pay for any dark
portion of a leased access channel that is available for part-time
programming after part-time channel capacity has been leased. 
Such a requirement could significantly discourage the use of
leased access by part-time programmers.  In addition, as
described below, we will permit the resale of leased access
capacity, which may result in channels being more fully leased. 
Resale will relieve operators of the cost and administrative burden
of dealing with part-time programmers on such channels, while
potentially assisting part-time programmers in obtaining carriage.

     76.  Finally, we disagree with those commenters that
propose that part-time leased access rates should be deregulated
due to the existence of, or similarity to, commercial advertising. 
Commercial advertisers on cable systems are able to obtain
carriage only at the sufferance of the cable operator; leased access,
by contrast, is designed to afford carriage to those programmers
that the cable operator, for whatever reason, may choose not to
carry on its system.  Deregulation of part-time leased access
rates would afford part-time programmers no protection at all
against unreasonable rates, and we therefore decline to adopt the
proposal.

     D.   Resale of Leased Access Time

          1.   Background

     77.  In the Further Notice, we asked whether persons
unaffiliated with the operator should be allowed to lease
programming time from the operator and then sell it for a profit to
other unaffiliated persons.  We sought comment on whether this
type of resale service would benefit programmers by reducing
transaction costs or by offering alternative ways for programmers
to package their services.  We expressed concern, however, that
enabling resellers to charge unregulated rates for leased access
time may conflict with the Commission's statutory mandate to
establish maximum leased access rates.  We also asked whether
an exception should apply for not-for-profit leased access
programmers, if the Commission were to prohibit the resale of
leased access time.

          2.   Discussion

     78.  Consistent with our authority to establish
reasonable terms and conditions for leased access use, we find
that it would be unreasonable for an operator to prohibit a leased
access programmer from reselling leased access capacity to other
persons unaffiliated with the operator.  We note, as an initial
matter, that resale is not a foreign concept in the cable industry. 
The record indicates that companies such as Access TV already
make a business out of reselling remnant time on cable systems.
 
     79.  We conclude that resale of leased access capacity
to persons unaffiliated with the operator should be permitted,
subject to certain contractual conditions described below that a
cable operator may reasonably impose, because we believe that
resale can provide substantial benefits to leased access
programmers without an adverse impact on cable operators.  In
particular, we believe that small and part-time programmers could
benefit from resale.  For instance, a reseller could bring together
various part-time programmers to form a programming package
for an entire channel.  This service would not only relieve
operators of much of the cost and burden of dealing with a large
number of small programmers, but would be more efficient,
since a reseller's business would be devoted to this goal while
cable operators typically devote little or no staff to promoting
leased access.  We believe that resale may prove to be a crucial
mechanism by which part-time programmers are able to obtain
carriage.    

     80.  We are not persuaded that resale poses the dangers
raised by some commenters.  First, we disagree with those
commenters that argue that resellers will charge excessive rates,
or that the Commission would be violating its obligations under
Section 612 if leased access programmers are permitted to
purchase time from a reseller at higher rates than the maximum
rate established by the Commission.  Unlike a cable operator
that may use unused leased access capacity for its own
programming, a reseller unaffiliated with a cable operator does not
have the incentive or ability to discourage leased access by
charging unaffordable rates.  Because a reseller needs to attract
leased access users, we believe that a payment exceeding our
maximum rate will reflect the reasonable value added by the
reseller.  

     81.  Second, we do not agree that resale would prevent
cable operators from exercising their discretion under Section
612(c)(2) to consider "content to the minimum extent necessary
to establish a reasonable price" for leased access.  NCTA and
TCI argue that allowing resale would ensure that operators would
not enter into contracts for rates lower than the maximum
permitted by the Commission's rules.  For instance, NCTA
contends that an operator "would be loathe to enter into an
agreement with a non-profit organization for less than the
maximum rate if that organization were able to then sell its rights
to the channel to the highest bidder."  To avoid discouraging
cable operators from providing carriage to not-for-profit entities
and others at reduced rates, we find that it would be a reasonable
term or condition of carriage for a cable operator to provide that
if the lessee resells its capacity, the lessee must start paying the
operator at a rate which may be up to and including the maximum
permissible rate. 

     82.  Third, we do not believe that resale would interfere
with a cable operator's discretion to refuse to transmit
programming containing obscenity or indecency.  The cable
operator's right to refuse to transmit such programming applies to
any leased access program or portion of a leased access program,
regardless of whether the programmer purchased leased access
capacity directly from the cable operator or through a reseller. 
Moreover, cable operators may provide in their leased access
contracts that any sublessees are subject to the non-price terms
and conditions that apply to the initial lessee.  
 
     E.   Tier and Channel Placement

          1.   Background

     83.  According to the legislative history of the 1992
amendments to Section 612, the purpose of leased access would
be defeated if leased access programmers were placed on tiers that
few subscribers access.  The 1992 Senate Report states that
"[t]he FCC should ensure that [leased access] programmers are
carried on channel locations that most subscribers actually use." 
It further states that "it is vital that the FCC use its authority to
ensure that these channels are a genuine outlet for
programmers."

     84.  In the Further Notice, the Commission tentatively
concluded that leased access programmers are entitled to
placement either on the BST or on the CPST with the highest
subscriber penetration, unless technical or other compelling
reasons weigh against such placement.  We reasoned that the
BST and the CPST with the highest subscriber penetration qualify
as "genuine outlets" because "most subscribers actually use"
them.  We sought comment on whether the term "most
subscribers" should be interpreted to mean that any CPST that has
a subscriber penetration of more than 50% should also qualify as
a "genuine outlet."

          2.   Discussion

     85.  As stated in the Further Notice, we believe that we
must ensure a "genuine outlet" for leased access programming in
order to further the statutory goals of competition in the delivery
of video programming sources and diversity of programming
sources.  To that end, we affirm our tentative conclusion that,
absent a technical or other compelling reason, leased access
programmers have the right to demand access to a tier that most
subscribers actually use.  Leased access programmers would not
be assured access to most subscribers if cable operators were
permitted to require leased access channels to be sold on an
individual, or a la carte, basis.  As discussed above, the value of
being carried on a tier is accounted for in the average implicit fee
formula we are adopting for tiered services.  

     86.  Although we continue to believe that the BST and
the CPST with the highest subscriber penetration qualify as
genuine outlets, we do not think it is necessary to restrict the
placement of leased access programming to only those tiers.  We
believe that any tier with a subscriber penetration over 50%
should also qualify as a genuine outlet because it consists of
channel locations that "most subscribers actually use." 
Therefore, if a leased access programmer requests placement on
a tier, we will allow the cable operator the flexibility to place the
programming on any tier that has a subscriber penetration of more
than 50%.  We believe that this approach takes into account the
"legitimate need of the cable operator to market its product"
because it allows the operator to consider the marketing mix of
different tiers.  The record reflects that some commenters would
favor placing leased access channels on a separate tier comprised
primarily, if not exclusively, of leased access programming.  We
conclude that so long as such a tier has a subscriber penetration of
more than 50%, the cable operator is not precluded from
developing a tier that predominantly features leased access
programming.

     87.  We disagree with commenters that argue that the
Commission should not impose tier placement requirements since
the Communications Act does not specifically require tier
placement.  As described above, the legislative history supports
a right to tier placement.  Furthermore, the Communications Act
authorizes the Commission to establish reasonable terms and
conditions for leased access.  We believe that tier placement for
leased access channels is a reasonable requirement that will
promote the statutory goals of leased access by allowing leased
access programming to reach the majority of subscribers of a cable
system, in accordance with Congress' intent.  

     88.  We therefore no longer believe that the issue of tier
placement should be left solely to negotiation between the leased
access programmer and the cable operator, as under our current
rules.  That approach failed to account for the possibility that an
operator might attempt to discourage leased access by placing
leased access programming on unfavorable tiers if it competes
with programming chosen by the operator.  We disagree with
commenters that argue that a right to tier placement provides
leased access programmers with the benefits of tier placement
without compensating the operator and does not allow a cable
operator to adjust the placement of programming for maximum
subscriber appeal.  Cable operators are adequately compensated
for the value associated with such tier placement under the
maximum rate formula we are adopting, and the tier placement
requirements we are adopting afford cable operators sufficient
flexibility to determine the placement of leased access
programming for the greatest subscriber appeal.    

     89.  With regard to specific channel placement, we
believe that the cable operator should have the discretion to select
the channel location of a leased access channel, so long as the
operator's choice is reasonable.  Because a determination of
reasonable channel placement will depend on the particular
circumstances of a situation, we will evaluate these types of
disputes on a case-by-case basis.  We will take into consideration
evidence that the operator deliberately interfered with potential
viewership of the leased access programming in an effort to
discourage continued carriage (e.g., by intentionally surrounding
a leased access channel with dark channels or by frequently
shifting its channel location without sufficient justification).  We
do not agree with Lorilei that an operator should be required to
space leased access channels evenly throughout its system. 
Once a cable operator has provided leased access programmers
with a genuine outlet, we do not believe it is necessary to interfere
with that operator's ability to structure channel line-ups. 
Therefore, although a leased access programmer may demand
access to a tier that has a subscribership of more than 50%, the
cable operator is entitled to place the leased access programming
on any reasonable channel location on any qualifying tier.  

     F.   Minority and Educational Programmers

          1.   Background

     90.  Pursuant to Section 612(i), a cable operator may
substitute programming from a qualified minority or educational
programming source for up to 33% of its designated leased access
channels.  In the Further Notice, the Commission sought
comment on whether leased access requirements regarding tier
and channel placement should also apply to minority or
educational programming that is used as a substitute for leased
access programming.  The Commission tentatively concluded
that minority or educational programming should not qualify as a
substitute for leased access programming unless it is carried on the
BST or on a CPST that qualifies as a genuine outlet.   

          2.   Discussion

     91.  Applying the same tier placement standard we are
adopting for leased access, we conclude that minority or
educational programming will not qualify as a substitute for leased
access programming unless it is carried on a tier that has a
subscriber penetration of more than 50%.  The cable operator
may select which qualifying tier to use for the substituted
programming.  As we noted in the Further Notice, neither the
statute nor the legislative history specifically requires that most
subscribers receive the substituted minority or educational
programming.  However, as we previously stated, the language
of Section 612(i)(1) strongly suggests that Congress envisioned
that any substituted minority or educational programming would
be placed on the same channels that would have been used for
leased access.  Specifically, Section 612(i)(1) states that "a cable
operator required by this section to designate channel capacity for
commercial use may use any such channel capacity" to provide
minority or educational programming.  Furthermore, to allow
a more lenient standard for minority or educational programming
could potentially diminish its value as a substitute for leased access
programming.  We will therefore impose the same tier and channel
placement requirements on substitute minority or educational
programming as we do on leased access programming.

     G.   Preferential Access

          1.   Background

     92.  In the Further Notice, we asked whether
preferential treatment for not-for-profit leased access
programmers should be required "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."  To determine whether current
leased access rates restrict the diversity of programming sources,
we asked that commenters provide specific and concrete examples
illustrating the extent to which not-for-profit programmers can
afford current leased access rates.  We sought comment on how
to calculate preferential rates, if found to be necessary.  We also
asked whether cable operators should be required to give
preferential access to not-for-profit programmers by setting aside
a certain percentage of their leased access capacity for such use
(e.g., 25%).  In addition, we sought comment on whether a
"not-for-profit programmer" should be defined as a programmer
with Section 501(c)(3) tax-exempt status.  Commenters were
also invited to demonstrate with specific evidence why preferential
treatment might be appropriate for certain types of for-profit
programmers, such as low power television ("LPTV") stations and
minority and educational programmers.

          2.   Discussion

     93.  We do not believe that mandating preferential
access or preferential rates for not-for-profit programmers is
necessary or appropriate under Section 612.  First, leased access
is intended for "commercial use," which the Communications Act
defines as "the provision of video programming, whether or not
for profit."  The fact that not-for-profit leased access
programmers are defined as commercial users for purposes of
leased access indicates that they should compete on equal terms
with for-profit leased access programmers.  

     94.  Second, we do not believe that requiring cable
operators to offer preferential treatment to not-for-profit
programmers is necessary to serve the statutory purposes of
Section 612.  Mandatory preferential treatment would not
necessarily promote diversity since unaffiliated not-for-profit
programming sources are not inherently more diverse than
unaffiliated for-profit programming sources.  In fact, mandatory
preferential treatment could potentially conflict with the statutory
directive that leased access rates not "adversely affect the
operation, financial condition, or market development of the cable
system" because a mandatory preferential rate below what the
Commission has determined to be the maximum reasonable rate
may be insufficient to compensate operators for leased access use. 


     95.  Third, although CME, et al. argue that the
economic structure of not-for-profit programmers makes them
"fundamentally incapable of competing with commercial entities
for limited channel capacity," not-for-profit status does not
necessarily indicate a lack of financial resources.  Outdoor Life,
et al. note that many not-for-profit entities have annual incomes
that far exceed those of most nascent programming networks. 
Moreover, while we agree with CME, et al. that Congress gave
cable operators the flexibility to negotiate lower rates, we do
not believe that operators' right to negotiate lower rates should be
transformed into an obligation to provide affordable rates to not-
for-profit leased access programmers.  CME, et al. cite
legislative history which states that "by establishing one rate for all
leased access users, a price might be set which would render it
impossible for certain classes of cable services, such as those
offered by not-for-profit entities, to have any reasonable
expectation of obtaining leased access to a cable system." 
Again, however, Congress' recognition that not-for-profit
programmers might benefit if cable operators are able to offer
discriminatory rates does not translate into a right to preferential
treatment.   

     96.  In addition, we reject HITN's recommendation to
require cable operators to set aside 33% of their leased access
capacity, at nominal rates, for not-for-profit programmers that
qualify as minority or educational programmers under Section
612(i)(2) or (3).  Congress chose to encourage minority and
educational programming by allowing it to be used as a substitute
for leased access, regardless of its profit status.  HITN cites no
evidence that Congress intended the Commission to create an
additional mechanism to promote not-for-profit minority or
educational programming through preferential rates and set-asides. 
We therefore decline to adopt HITN's proposal.

     97.  Furthermore, we disagree with Assn. of Public
TV/PBS that there is a current need for preferential rates and set-
asides for educational and community programming services that
public television stations may wish to offer in addition to their
primary over-the-air signals.  We also decline to adopt
commenters' recommendation to require cable operators to
provide preferential leased access treatment to LPTV stations. 
Congress provided public television stations and LPTV stations
the preferences it deemed necessary.   

     H.   Selection of Leased Access Programmers

          1.   Background

     98.  In the Further Notice, the Commission proposed
rules to govern a cable operator's selection of leased access
programmers.  We tentatively concluded that an operator
should be required to select leased access programmers on a first-
come, first-served basis as long as the operator's available leased
access capacity is sufficient to accommodate all incoming
requests.  We sought comment on whether an operator should
be allowed to accept leased access programmers on any other
basis if its system's available leased access capacity is insufficient
to accommodate all pending requests.  Specifically, we noted
that where demand for leased access channels exceeds the
available supply, it may be appropriate to allow an operator to
make content-neutral selections in order to avoid situations that
could "adversely affect the operation, financial condition, or
market development of the cable system."  We asked whether
it would be appropriate, when two or more leased access
programmers simultaneously demand the last available leased
access space, to allow the cable operator to select a leased access
programmer based on the amount of time requested (e.g., a full-
time request versus a part-time request).  We also sought
comment on whether operators should be permitted to base their
selections on any content-neutral criteria other than the amount of
time requested by the programmers.

          2.   Discussion

     99.   We conclude that, so long as an operator's
available leased access capacity is sufficient to satisfy the current
demand for leased access, all leased access requests must be
accommodated as expeditiously as possible, unless the operator
refuses to transmit the programming because it contains obscenity
or indecency.  We believe that such an approach is the most
appropriate method of assuring that cable operators comply with
Section 612(c)(2), which explicitly restricts operators' exercise of
editorial control over leased access programming.  Section
612(c)(2) provides that "a cable operator shall not exercise any
editorial control over any video programming provided pursuant
to this section, or in any other way consider the content of such
programming," except in the case of programming containing
obscenity or indecency, or to the minimum extent necessary to set
a reasonable price.  We believe that requiring operators to
accommodate all leased access requests when the programming
does not contain obscenity or indecency, so long as there is
available capacity, will most effectively restrict operators' exercise
of editorial control, without impinging upon their discretion with
regard to price and sexually-oriented programming.  We also
believe that such an approach will further the statutory objective
to promote competition because it will reduce an operator's ability
to select leased access programming based on anti-competitive
motives.   
 
     100.      We believe, however, that an operator should be
allowed to make objective, content-neutral selections from among
leased access programmers when the operator's available leased
access channel capacity is insufficient to accommodate all pending
leased access requests.  In the full-time channel context, this
situation would arise if two or more leased access programmers
requested the remaining available leased access space; in the part-
time context, this situation could arise, for example, if two or
more programmers requested the 8:00 p.m. to 9:00 p.m. time slot
on the system's part-time leased access channel.  In such
situations, we believe that the cable operator should be allowed to
make an objective, content-neutral selection among the competing
programmers.  For example, the operator could hold a lottery. 
Or, the operator could base its decision on other objective,
content-neutral criteria such as a programmer's non-profit
status, the amount of time a programmer is willing to lease, 
or a programmer's willingness to pay the highest reasonable price
for the capacity at issue.  Allowing flexibility within this limited
context will better enable operators to assure the growth and
development of their cable systems.    
     
     I.   Procedures for Resolution of Disputes

          1.   Background

     101.      In the Further Notice, the Commission proposed
to streamline its complaint process by establishing a rule that a
leased access programmer may not file a complaint alleging that
a leased access rate is unreasonable until an independent
accountant has reviewed the cable operator's calculations and
made a determination of the maximum rate.  We proposed to
allow the operator to select the independent accountant when the
parties cannot agree on a mutually acceptable accountant.  Our
proposal required the accountant's review to be conducted within
60 days of the leased access programmer's request to the operator
for a review.

     102. The Commission solicited comment on whether, in
the absence of any evidence to the contrary, a determination by
the accountant that the cable operator's rate exceeds the
permissible rate should satisfy the complainant's burden to rebut,
with clear and convincing evidence, the statutory presumption that
an operator's rates are reasonable.  In addition, we tentatively
concluded that the accountant's final report should be filed in the
cable system's local public file in order to provide notice to other
potential leased access programmers.  We asked whether, in the
alternative, we should require operators to provide the
accountant's final report to other leased access programmers upon
request.  We sought comment on what type of information
should be included in the accountant's final report and what type
of information should remain confidential.  We also asked
whether the responsibility for paying the accountant's expenses
should be shared equally by both parties or borne only by the party
proven incorrect by the accountant's report.  We also supported
the use of alternative dispute resolution ("ADR") in cases where
disputes are not resolved as a result of the accountant's final
report.

          2.   Discussion

     103. We affirm our proposal to streamline the complaint
process by requiring that an independent accountant make a
determination of the cable operator's maximum permitted rate
prior to the filing of any complaint alleging that the operator's rate
is unreasonable.  We believe that such a requirement will
preserve Commission resources by reducing the likelihood that
unsubstantiated claims will be filed with the Commission.  In the
event that a complaint is filed with the Commission because the
dispute remains unresolved despite the accountant's final report,
there will be a rebuttable presumption that the accountant's
findings are correct.  We disagree with the Game Show
Network that both parties should be prohibited from challenging
the accountant's final report because such a rule would conflict
with a leased access programmer's statutory right to file a
complaint.

     104. We will not adopt our proposal in the Further
Notice to allow the cable operator to select an independent
accountant in the event that the operator and leased access
programmer fail to agree on a mutually acceptable accountant. 
We agree with commenters that argue that such an approach may
be unfair to the leased access programmer because it does not
encourage the operator to find a mutually acceptable
accountant.  Following the suggestion of the Game Show
Network, we will require that if the parties cannot agree on a
mutually acceptable accountant within five business days of the
programmer's request for a review, they must each select an
independent accountant on the sixth business day.  These two
accountants will then have five business days to select a third
independent accountant to perform the review.  To account for
their more limited resources, operators of systems entitled to small
system relief will have 14 business days to select an independent
accountant when no agreement can be reached.  The final
accountant report must be completed within 60 days of when the
final accountant is selected to perform the review.  We will
amend our current rule requiring complaints to be filed within 60
days of the alleged violation to provide instead that complaints
must be filed within 60 days of the completion of the final
accountant report.

     105. We will require the operator to pay the full cost of
the review if the final accountant report shows that the operator's
rate exceeds the maximum permitted rate by more than a de
minimis amount.  Otherwise, each party will pay their own
expenses incurred in making the review and will split the cost of
the final accountant's review.  We believe that this approach is
appropriate because, unlike the leased access programmer, the
cable operator possesses all the information necessary to calculate
its rates accurately and knows, or should know, whether its rates
are excessive.  

     106. The Commission adopts its tentative conclusion
that the final accountant report should be filed in the cable
system's local public file.  Intermedia/Armstrong suggest that
the information contained in the public file should be limited to a
one-sentence statement summarizing the ultimate conclusion. 
We believe, however, that if the information is to serve as
adequate notice to other potential leased access programmers, the
final accountant report must, at a minimum, state the maximum
permitted rate and explain, as fully as possible without revealing
proprietary information, how it was determined.  The report
must be signed, dated, and certified by the accountant. 

     107. As stated in the Further Notice, we strongly
encourage parties to use ADR to settle disputes that are not
resolved by the final accountant report.  We disagree with
RK Production that ADR would be ineffectual because only the
cable operator knows the pertinent facts of the case.  The cable
operator has an incentive to provide the information necessary to
resolve the dispute informally because, if the leased access
programmer believes the operator is not cooperating fully, it can
terminate the ADR proceedings and file its complaint with the
Commission.  Moreover, we note that some ADR processes --
e.g., a commercial arbitration under the rules of the American
Arbitration Association -- contain provisions for discovery.  If
parties attempt, but fail, to settle their dispute through ADR, we
will make an exception to our requirement that complaints must
be filed within 60 days of the completion of the final accountant
report, provided that the leased access programmer certifies that
its complaint was filed within 60 days of the termination of the
ADR proceedings.  The cable operator may rebut such a
certification.

     J.   Contractual Issues

          1.   Background

     108. Section 612(c)(4) grants the Commission the
authority to establish reasonable terms and conditions for leased
access use.  A few commenters have asked that we address
certain contractual issues that arise in the negotiation of leased
access contracts.  Ambassadors for Christ Institute asserts that
allowing operators to include contract termination provisions that
allow the parties to terminate the contract for any reason leaves
the leased access programmer unprotected.  It claims that a
minimum contract length of at least one year is necessary to justify
other necessary business expenses, such as building leases and
equipment purchases.  CBA and Blab TV urge the Commission
to require five-year leases.  Paradise argues that long-term
security is necessary to obtain financing.

     109. Strategic Video and Lorilei ask that the
Commission address the issue of insurance requirements imposed
by cable operators on leased access programmers.  Strategic
Video argues that the cost of general liability and errors and
omissions ("E&O") insurance (typically, according to Strategic
Video, costing $4000 or more annually) represents a significant
barrier to small independent producers.  Strategic Video asks the
Commission to limit the required amount of general liability
insurance to no more than $250,000 or an amount no more than
the operator is required to have by the local franchising authority,
whichever is less, and that operators not be permitted to require
E&O insurance in any amount.  Lorilei claims that operators
often require $1 million to $5 million of coverage, which is very
costly and difficult to obtain.  Lorilei argues that operators are
sufficiently protected by their own insurance policies and by the
indemnification provisions they impose on leased access
programmers.

          2.   Discussion

               a.   Minimum Contract Length

     110. We find that the record before us is insufficient to
determine what a reasonable  minimum contract length would be. 
We recognize that the lack of long-term security could create
difficulties for leased access programmers that need to obtain
financing or to make long-term investments in leases and
equipment.  However, our rule that operators must accommodate
all leased access requests so long as capacity exceeds demand
guarantees that a leased access programmer will be assured of
continued access at least until the operator's set-aside requirement
is met.  We agree with Ambassadors for Christ Institute that
operators should not be allowed to terminate leased access
contracts for simply any reason asserted by the cable operator. 
Termination provisions of leased access contracts must be
commercially reasonable.  Because we believe that this
requirement affords leased access programmers adequate security,
we decline at this time to establish a minimum contract length.

     111. We will, however, require that operators not
unreasonably limit the length of a contract with a leased access
programmer.  In assessing reasonableness in this context, we will
weigh heavily the contract lengths that the operator enters into
with the non-leased access programming services on its system. 


               b.   Insurance Requirements

     112. At the outset, we note that the Cable Services
Bureau recently confirmed an operator's right to require
reasonable liability insurance coverage for leased access
programming.  We decline to adopt specific conditions or limits
regarding the amount of coverage or the type of insurance policy
that operators may require because we believe that a specific
restriction might not be appropriate for all situations.  Instead, we
will adopt a standard comparable to the standard that applies in
the context of security deposits for leased access programming. 
That is, insurance requirements must be reasonable in relation to
the objective of the requirement.  Cable operators will bear the
burden of proof in establishing reasonableness.  Similar to the rule
for security deposits, insurance requirements may be sufficient to
insure adequate coverage.  Determinations of what is a
"reasonable" insurance requirement will be based on the operator's
practices with respect to insurance requirements imposed on non-
leased access programmers, the likelihood that the nature of the
leased access programming will pose a liability risk for the
operator, previous instances of litigation arising from the leased
access programming, and any other relevant factors.

     K.   Technical Equipment Costs

          1.   Background

     113. In the Further Notice, we sought comment on our
proposal to include any technical costs incurred by the cable
operator in offering leased access programming, such as the cost
of scrambling, as an opportunity cost that could be included in
calculating the maximum rate under our proposed cost/market rate
formula.  No commenter objected to this proposal, although one
commenter cautions that "programmers should be responsible for
only those technical costs that are truly new and incremental costs
to the particular leased access programmer."  Two commenters,
SCBA and Tele-Media of Delaware, point out that small cable
systems may not already possess the equipment necessary to carry
the programming of a particular leased access programmer.  These
commenters both recommend that the Commission require the
leased access programmer to pay the costs of any equipment that
the operator must obtain in order to carry the leased access
programming on the cable system.  

          2.   Discussion

     114. The Commission's rules provide that cable
operators must provide "the minimal level of technical support
necessary for [leased access] users to present their material on the
air . . . provided however, that leased access providers must
reimburse operators for the reasonable cost of any technical
support that operators actually provide."  We clarify that this
provision entitles cable operators to charge an additional fee only
for the reasonable cost of providing technical support to a leased
access programmer that is not also provided to non-leased access
programmers on the system.  Cable operators may not impose a
separate charge for the same kind of technical support that they
already provide to non-leased access programmers because the
maximum leased access rate represents what non-leased access
programmers implicitly pay for carriage, including their technical
costs.  In other words, the maximum leased access rate already
includes technical costs common to all programmers.  Similarly,
the operator cannot impose an additional charge on the leased
access programmer to purchase additional equipment (e.g., when
the current equipment is fully utilized) if the same type of
equipment is used to serve non-leased access programmers.  For
example, the operator cannot add a charge for the costs of
providing a satellite dish if it provides that type of technical
support to non-leased access programmers at no additional
charge.  In contrast, the operator is entitled to add a charge to
recover the costs of providing, for instance, a tape recorder or a
camera if such technical equipment would be provided to non-
leased access programmers for the same additional charge.  The
operator may also charge the leased access programmer for the
use of technical equipment that is provided at no charge for PEG
access programming, provided that the franchise agreement
requires the operator to provide the equipment, the equipment is
not being used for any other non-leased access programming, and
the operator's franchise agreement does not preclude such use.

     115. If, in order to accommodate a leased access
programmer, a cable operator must purchase technical equipment
that is not of a type used by non-leased access programmers on
the system, we believe that the operator should have the option of
requiring the leased access programmer to pay the full purchase
price of the equipment.  Should the cable operator exercise this
option, the leased access programmer will have all rights of
ownership associated with the equipment under applicable state
and local law.  If, on the other hand, the operator prefers to own
the technical equipment, it may purchase the equipment for itself
and lease it to leased access programmers at a reasonable rate. 
We believe that this approach will protect leased access
programmers, while assuring that the cable system's operation,
financial condition or market development are not adversely
affected.

     L.   Definition of Affiliate

          1.   Background

     116. Section 612(b)(1) states that "[a] cable operator
shall designate channel capacity for commercial use by persons
unaffiliated with the cable operator."   We note that the
Telecommunications Act of 1996 added a new definition of
"affiliate" in Section 3 of Title I of the Communications Act.  This
new provision defined "affiliate" for purposes of the
Communications Act, unless the context otherwise requires, as:

     a person that (directly or indirectly) owns or controls, is
     owned or controlled by, or is under common ownership or
     control with, another person.  For purposes of this
     paragraph, the term "own" means to "own an equity
     interest (or the equivalent thereof) of more than 10
     percent."  

We also note, however, that Congress did not alter the separate
definition of "affiliate" set forth under Title VI.  Under Title VI,
the term "affiliate" is defined, when used in relation to any person,
to mean "another person who owns or controls, is owned or
controlled by, or is under common ownership or control with,
such person."  

     117. Although the Further Notice did not specifically
seek comment pertaining to the definition of affiliate, ValueVision
urges the Commission to further define the term for purposes of
leased access.  ValueVision claims that, in order to prevent
evasion of leased access obligations, the definition of affiliate
should include "any financial or business relationships, by contract
or otherwise, directly or indirectly, between the cable operator and
a cable programmer, which result in the potential ability of the
cable operator to control or influence the programmer's business
affairs."  In response, several commenters argue that
ValueVision's definition is overly broad and without support in the
Commission's rules.  In addition, Outdoor Life, et al. contend
that a leased access programmer must be unaffiliated only with the
cable operator of the particular cable system on which carriage is
sought, not with any cable operator.

          2.   Discussion

     118. The Commission has already decided in other
proceedings that the Title I definition of affiliate does not strictly
apply to Title VI.  For purposes of Section 612, we will adopt
the definition of affiliate that applies in the context of our program
access rules under Section 628 and our open video system rules
under Section 653.  As we do in those contexts, we will apply
the definitions contained in the notes to 47 C.F.R.  76.501
(which reflect the broadcast attribution rules contained in the
notes to 47 C.F.R.  73.3555), with certain modifications. 
Specifically, in contrast to the broadcast attribution rules reflected
in  76.501:  (a) we will consider an entity to be a cable operator's
affiliate if the cable operator holds 5% or more of the entity's
stock, whether voting or non-voting; (b) we will not adopt a single
majority shareholder exception; and (c) all limited partnership
interests of 5% or greater will qualify, regardless of insulation. 
In addition, actual working control, in whatever manner exercised,
will also be deemed a cognizable interest.   

     119. Section 612 is designed to promote diversity of
programming sources and to reduce the ability of cable operators
to discriminate against unaffiliated programming services for anti-
competitive reasons.  Because these dual objectives are analogous
to the objectives of the program access and open video system
rules, adoption of a similar affiliation standard is warranted. 
Moreover, by adopting a definition of affiliate for leased access
that is consistent with the program access standard, we avoid the
possibility that a programmer will be considered a cable operator's
affiliate for one purpose but not for another.  We therefore decline
to adopt Outdoor Life, et al.'s suggestion that we apply the
broadcast attribution rules without modification.
   
     120. We believe that the certainty provided by the
definition we adopt above is preferable to the ad hoc inquiry
proposed by ValueVision into whether a cable operator could
control or influence a programmer's business affairs.  We decline
to adopt Time Warner's "control" standard on similar grounds. 
We also decline to adopt the Title I definition of "affiliate."  As
described above, we believe that our program access standard is
the appropriate standard for identifying the interests at issue here. 
No commenter has proposed that we adopt the Title I standard,
or provided any record evidence that would support such a
standard.  We have no basis to find that the Title I standard would
identify the interests at issue as well as our program access
standard.       

     121. We also clarify that leased access programmers are
required to be unaffiliated only with the operator of the cable
system on which they seek carriage.  As discussed above, Section
612(b)(1) provides that leased access channel capacity shall be
designated for use by programmers "unaffiliated with the cable
operator."  We agree with Outdoor Life, et al. that use of the
term "the" to modify "cable operator" clearly indicates that
Congress was referring only to the cable operator of the particular
system in question.  We believe that if Congress feared that
affiliated programmers have an advantage in acquiring carriage
from even rival cable operators, it would have disqualified all
affiliated programmers by using "a" or "any" to modify "cable
operator."  Furthermore, allowing a broader category of
programmers to use leased access will advance the statutory
purposes of promoting competition and diversity.

III. ORDER ON RECONSIDERATION

     A.   Maximum Rate Formula

          1.   Exclusion of Programming Revenues

     122. In the Reconsideration Order, we clarified that
programming revenues received by the operator from non-leased
access programmers, such as sales commissions from home
shopping networks, should not be included in the highest implicit
fee calculation.  Since the highest implicit fee was intended to
recover only the value of channel capacity, we determined that its
calculation should not include the value of services, such as
marketing, other than the provision of channel capacity.

     123. TCI contends that excluding sales commissions
that cable operators receive from home shopping services will lead
to low rates that will encourage migration of home shopping
networks from existing cable channels to leased access.  We find
that the effect of excluding sales commissions on future maximum
leased access rates will be minimal given that this Order: 
(a) adopts the average implicit fee for tiered services which, unlike
the highest implicit fee, is derived using all channels on the
relevant tier(s), and (b) eliminates direct sales programming as a
separate category for setting rates.  We are therefore not
persuaded that excluding sales commissions will result in the
migration of home shopping networks to leased access. 
Accordingly, we decline to change our previous determination that
such programming revenues should be excluded from the
computation of maximum leased access rates.

          2.   Averaging Subscriber Penetration for A
La Carte Channels

     124. The Reconsideration Order clarified that in order
to calculate the maximum rate when leased access programming
is offered as an a la carte service, the highest per-subscriber
implicit fee should be multiplied by the average number of
subscribers that subscribe to the operator's a la carte services. 
Our reasoning was that operators would be unfairly penalized for
low subscribership to a leased access programmer's a la carte
service if we required the highest per-subscriber implicit fee to be
multiplied by the actual number of subscribers that purchased the
leased access programming.  TCI and NCTA seem to assert
that, for a la carte services, the highest per-subscriber implicit fee
should be multiplied by the number of subscribers that subscribe
to the operator's a la carte service with the highest subscriber
penetration.  TCI and NCTA's rationale is that the higher rate
will discourage certain a la carte services from migrating to leased
access.

     125. As discussed above in Section II.B.2.d., we will
continue to permit cable operators to use the highest implicit fee
formula to set maximum reasonable rates for leased access
programming that is carried as an a la carte service.  We believe,
however, that it is most appropriate to require operators to
determine on an aggregate basis for a single channel which of their
a la carte services has the highest implicit fee.  For example, if
Channel A on a given cable system has a per-subscriber implicit
fee of $1.00 and has 2000 subscribers, its aggregate implicit fee is
$2000.  If Channel B has a per-subscriber implicit fee of $1.50 and
1000 subscribers, its aggregate implicit fee is $1500.  Of these
channels, Channel A has the highest aggregate implicit fee even
though it has a lower per-subscriber implicit fee than Channel B. 
Therefore, assuming these two channels are the only channels
offered on an a la carte basis, the amount that is