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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of) ) Petition for Relief of) ) LORILEI COMMUNICATIONS INC., ) d/b/a THE FIRM, ) Petitioner, ) ) vs. ) CSR 4487-L ) SCRIPPS HOWARD CABLE COMPANY, ) d/b/a LAKE COUNTY CABLEVISION, ) Respondent, ) MEMORANDUM OPINION AND ORDER Adopted: August 23, 1996 Released: September 6, 1996 By the Chief, Cable Services Bureau INTRODUCTION 1. On March 16, 1995, Lorilei Communications, Inc., a Florida corporation d/b/a The Firm (herein "The Firm" or "petitioner"), filed a petition for relief pursuant to Section 76.975 of the rules of the Federal Communications Commission against Scripps Howard Company d/b/a Lake County Cablevision (herein "Lake County") alleging violations of the Commission's commercial leased access rules. Lake County filed a response on March 27, 1995 asserting that the petition failed to show that Lake County violated the Commission's leased access rules, was frivolous and should be dismissed. The Firm filed a "Answer to Opposition to Petition" on April 4, 1995, and Lake County filed a reply to petitioner's answer, accompanied by a motion for leave to file, on April 19, 1995. BACKGROUND 2. In 1984, Congress amended the Communications Act of 1934 by adding among other things a commercial leased access requirement, pursuant to which cable operators with 36 or more activated channels must set aside part of their channel capacity for use by programmers that are not affiliated with them. The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") revisited the leased access requirement and directed the Commission to establish, among other things, rules for determining maximum reasonable rates for commercial leased access. Pursuant to that Congressional directive, the Commission established regulations, including rate regulations, applicable to leased access channels, in its proceedings in Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992; Rate Regulation, MM Docket 92-266, (the Rate Order), 8 FCC Rcd 5631 (1993), at  531-538,. Order on Reconsideration of the First Report and Order and Further Notice of Proposed Rulemaking, MM Docket No. 92-266 & CS Docket No. 96-60, FCC 96-122, Released March 29, 1996, 61 Fed. Reg. 16396 (April 15, 1996), ("Further Notice"). The new leased access regulations relevant to this case are found at 47 C.F.R.  76.970, 76.971 and 76.975. 3. In the Rate Order, the Commission developed procedures that cable operators must follow to determine the maximum reasonable rate that a cable operator may charge any non- affiliated programmer for leased access. Sections 76.970(b), (c) and (d) of the rules describe the methodology to be used by cable operators for calculating a maximum reasonable rate for leased access channels. This methodology uses (a) the rates subscribers pay per channel for the services they receive and (b) the rates cable operators pay nonaffiliated programmers for programming (other than leased access programming) provided to subscribers. The difference between these two amounts is deemed to be the implicit fee that nonaffiliated programmers pay to be carried on the cable system. The highest implicit net fee thus determined becomes the maximum monthly rate that the operator may charge a programmer for leased access. THE PLEADINGS A. The Petitioner's Allegations 4. The Firm is an advertising agency and video production company doing business throughout Florida, producing thirty minute "infomercials" for automotive dealers, recreational vehicle dealers, and real estate companies to air on commercial leased access channels. The petition describes efforts by The Firm to obtain a leased access channel on Lake County's cable system, starting with an initial request to a Lake County sales manager for leased access rates by telephone in April 1994, which produced no response. A subsequent letter request to Lake County's general manager, dated December 15, 1994, also produced no response. A phone call to Lake County's corporate headquarters on January 11, 1995 was followed by a letter sent by facsimile later that day. That request produced a letter dated January 13, 1995 from Lake County's attorneys promising to forward a list of rates by January 20, 1995. A letter from Lake County's general manager dated January 20, 1995 quoted monthly rates for three categories of service and indicated his availability to discuss rates for specific day parts and programming type being contemplated. The following Monday, January 23, 1995, The Firm reiterated to Lake County's general manager its request for rates by the half hour or hour and/or by day parts. Later that day, Lake County's general manager requested more information about the specifics of The Firm's proposal, and indicated that, after receipt of such information, he would ask his staff to assess their capability to meet the request and respond with specific rates. After an additional exchange of correspondence, Lake County provided a list of leased access rates by day parts on January 26, 1995. 5. The Firm transmitted a leased access order for a thirty minute recreational vehicle program then in production to Lake County's general manager on February 28, 1995. The order indicated that payment would accompany the program tape. On March 7, 1995, The Firm's president called Lake County to confirm receipt of the order. A person identified as Lake County's new leased access coordinator acknowledged receipt of the order. He also indicated, for the first time, that other charges might be due and that Lake County's attorneys were looking into what other costs might be passed on to leased access users. The Firm's vice president was subsequently informed, on March 10, 1995, by Lake County's leased access coordinator that an administrative fee of $1,100 would be added to the previously quoted leased access rates, along with a requirement for a refundable deposit of $500. On March 13, 1995, The Firm received from Lake County a lease agreement, containing clauses for the $1,100 administrative fee and the $500 security deposit, for submission of program materials ten days in advance of broadcast dates, and for a $1,000,000 liability insurance policy with Lake County named as a co-insured party, among other things. 6. The Firm states no objection to the leased access rates quoted by Lake County. Its complaint, however, is that Lake County has "demonstrated an attitude of foot-dragging, non- compliance with and contempt of Commission rules regarding leased access," which is "a willful, wanton, and blatant attempt to avoid compliance with the Commission's leased access rules." It asserts that being forced to pay the $1,100 administrative fees above and beyond the quoted leased access rates constitutes a violation of Section 76.970 and 76.975 of the Commission's rules and an attempt by Lake County to keep programmers off the cable system. The Firm also asserts that the $500 security is an unusual and unnecessary burden, because, as noted on Lake County's rate card, payment of the leased access rates in advance is required. It seeks a reduction of the ten day period for advance submission of tapes to three days, asserting that no reason for the longer period has been shown. It objects to the liability insurance clause, as adding at least $200 per month to programming costs. Finally, it objects to other clauses of Lake County's lease agreement, relating to pre-approval of use of Lake County's name and to limitations of recovery on lawsuits stemming from breach of contract, as having "no place" in the lease agreement. B. Relief Requested 7. The Firm requests that Lake County be ordered to compensate it "for its time based on [its] standard fee of One-Hundred dollars ($100) per hour," due to multiple attempts to gain leased access over a lengthy period of time, and for "all courier charges, fax charges, long distance telephone calls, and any other charges incurred in bringing this action before the Commission." It further requests the Commission to order Lake County to discontinue charging the administrative fee and the security deposit and to delete the other objectional clauses from the lease agreement. C. The Response 8. Lake County, in response, asserts that The Firm's allegations are replete with misrepresentations of fact and implicit conclusions of law that are unsupported by the Commission's rules. Lake County rebuts the allegation of foot-dragging by arguing that its response times to petitioner's requests were reasonable. It states that The Firm was the first entity to make a substantive leased access inquiry, and that the request "triggered the need for Lake County Cablevision to determine how best to comply with the new leased access rules." According to Lake County, it was not unreasonable "in taking the necessary time to devise a system that could have general applicability as more requests were submitted." As evidence of intent to comply with the leased access rules, Lake County submitted a copy of an invoice for the purchase and installation of two video cassette players, and states that it would not have expended more than $6,000 on leased access equipment if it had not intended to comply with those rules. It further asserts that the request for relief is premature, because much of the petition focuses on terms of the agreement offered by Lake County, "which petitioner has not sought to negotiate before filing its petition." It states also that it has entered into an agreement with another leased access user "on the precise terms that petitioner has refused to negotiate." It asserts that the proceeding "is therefore frivolous and a thoroughly inappropriate use of the Commission's resources," and therefore should be dismissed. 9. Lake County asserts that the $1,100 per month administrative fee is appropriate, because the leased access rules do not forbid recovery of costs of starting up and operating a system for the provision of leased access. It asserts that, to the contrary, Section 612(c)(1) mandates that cable operators establish price, terms and conditions sufficient to assure that leased access use will not adversely affect the cable system. It asserts that administrative costs are substantial, and submits as support a list of functions performed by its technical department in preparation for leased access between January 26 and March 6, 1995, which are priced out at $1,020. Lake County asserts that it has sought to keep administrative costs as reasonable as possible "by amortizing start-up costs over a 12-month period and by dividing the reimbursement fee among all lessees." It asserts that its rate methodology assures that in no month would its "total intake from leased access - - i.e., the sum of its rate collections and administrative fee reimbursements - - exceed the maximum monthly rate it is permitted to charge under the Commission's rate formula." It states that petitioner is alone in attacking that rate structure, that another user has accepted the rate structure, and that had petitioner accepted Lake County's terms for programming in April 1995, the administrative fee for March 1995 could have been avoided and reduced by half for that April, as it would then be divided between the two users under the rate methodology described. 10. Lake County defends the $500 security deposit as needed because the administrative fees are to be billed in arrears. It argues that, if the one-time $500 deposit imposes a hardship on petitioner, then it is given little confidence in petitioner's ability to pay the $1,100 monthly administrative fee. With respect to petitioner's objections to provisions of the lease agreement, Lake County characterizes it as "a proposed lease agreement - - in effect, an initial offer," and asserts that petitioner has made no attempt to negotiate with it about terms found objectionable, but instead has taken this "initial offer straight to the Commission as grounds for complaint." Lake County states its willingness to consider reasonable alternatives that would accomplish the same purpose as an insurance clause. It also points to a clause stating that consent will not be unreasonably withheld, as indicating that petitioner will not be prohibited from using Lake County's name in conjunction with advertising carried in its system. DISCUSSION 11. The material issues presented in this case are (a) whether Lake County has responded to petitioner's requests for leased access channel capacity on a timely basis; (b) whether Lake County's proposed administrative fees are consistent with the requirements of the Commission's leased access regulations; and (c) whether petitioner has objected prematurely to certain clauses in Lake County's lease access agreement. We will address each issue in turn. A. Cable Operator Responsiveness to Requests for Rates 12. The question of the cable operator's responsiveness arises in the context of the several requests for leased access rates which The Firm made to Lake County. The initial request was made by telephone to Lake County's sales manager during April 1994, in response to which no rate information was provided. The next request, for monthly and day part rates, was made by letter dated December 15, 1994. A request for rates was made again by phone and by facsimile on January 11, 1995. Lake County provided a quotation of monthly rates on January 20, 1995 and of day part rates on January 26, 1995. Lake County argues that its manner of response was reasonable because the petitioner was the first entity to make a substantive leased access inquiry and that it had not acted unreasonably "in taking the necessary time to devise a system that could have general applicability as more requests were submitted." 13. Section 76.970(e), which became effective on September 1, 1993 and is applicable to the facts set forth herein, provided that "[u]pon request, a schedule of commercial leased access rates shall be provided to prospective lease access programmers." In an effort to facilitate the provision of leased access information to potential programmers, the Commission recently clarified its policy in regard to Section 76.970(e) of its rules in its Further Notice. In this decision, the Commission held that Section 76.970(e) would require that specific information about leased access be given to prospective leased access programmers within seven days of such programmer's request. In so doing , the Commission recognized that timely receipt of initial leased access information is an important item in a leased access programmer's processes of deciding whether to pursue leased access. On these facts, we conclude that Lake County was not reasonably responsive to the Firm's requests for leased access rates. However since the Commission clarified Section 76.970(e) subsequent to the Firm's filing, we do not believe that any administrative sanctions would be appropriate in this instance. B. Consistency of Proposed Administrative Fees With Section 76.970 14. We next address whether Lake County's proposed $1,100 monthly administrative fees, announced March 10, 1995 by Lake County's leased access coordinator after receipt of petitioner's order for service, are consistent with the requirements of the Commission's leased access regulations contained in Section 76.970. Lake County attempts to justify the proposed administrative fee as necessary for recovery of equipment, administrative, legal and start-up costs. In the Rate Order, the Commission considered and rejected cost of service rate making methodologies, such as that represented by an administrative fee designed, as this one is, to cover elements of the cost of providing service, in favor of the net implicit fee methodology of Section 76.970. In contrast to the extensive accounting, record keeping and costing requirements which make it difficult to justify costs under the cost of service methodology, the Commission opted in favor of the net implicit fee methodology, because it is designed to be reflective of the value nonaffiliated programmers have placed on a cable system's channels, imposes minimal regulatory burdens, and results in rates that are readily determinable and easily verifiable. 15. Lake County states, in further justification of the administrative fee, that its total charges for a month, including the administrative fee and day part rates, will not exceed the total maximum monthly rate for any leased access programmer. This limitation of the total charges results, according to Lake County, from the methodology employed in determining the amount of the administrative fee to be assessed each month to each leased access programmers being served. Lake County determines the administrative fee to be assessed to each programmer first by dividing the stated fee by the number of programmers on the system during the billing period. Next, the resulting amount of administrative fee for each leased access user is subtracted from the maximum monthly rate, and the day part rates are developed from the remainder. Finally, each user's administrative fee is adjusted to assure that the total of the day part rates and administrative fees do not exceed the maximum monthly rate. This rate calculation process means that any leased access user's total monthly services charges, i.e., day part rates plus administrative fee, cannot be determined until the end of each billing period and cannot be known in advance, either by the cable operator or the programmer. Lake County's proposed rate methodology violates the Commission's goal of having leased access rates that are readily determinable and easily verifiable, and, therefore, will be rejected. C. Premature Filing of Objection to Terms and Conditions of Access 16. In addition to its objections to Lake County's proposed administrative fee, The Firm objects to several other clauses contained in the lease agreement offered by Lake County, including the requirement for a $500 refundable deposit, maintenance of liability insurance, ten days advance delivery of tapes, pre-approval of the use of Lake County's name by The Firm, and limitations on recovery in lawsuits stemming from breach of contract. Lake County responds to these objections, in the first instance, by asserting that petitioner has made no effort to negotiate with it with respect to any of these terms and conditions. Lake County takes the position that it "has presented the petitioner with a proposed lease agreement -- in effect, an initial offer." We understand that many terms and conditions of leased access agreements will be negotiable. We expect, however, that all proposed leased access agreements offered by cable operators to be consistent with the Commission's requirements. 17. The Commission in the Rate Order noted that neither the Act itself nor its legislative history pointed to any particular terms and conditions as being appropriate for leased access and determined to leave the negotiation of leased access arrangements in the first instance to the parties involved. In making a determination of what is reasonable one must look to the use to be made of the leased access channel. For example a ten day waiting period for a casual user may be reasonable. A ten day delay in airing a tape submitted by a frequent user may be unreasonable, especially if the subject matter is time sensitive.. In general, we believe that once a leased access user has obtained a contract covering specific time periods cable operators must provide prompt airing of the material presented. We agree with Lake County in this instance that the petitioner should have given it opportunity to consider and respond in negotiations to the matters found objectionable. The lease agreement was first made available to The Firm on March 13, 1995. Since The Firm's petition was received by mail at the Commission's offices on March 16, 1995, it is difficult to conclude that any serious negotiations occurred before the petition was dispatched to the Commission. We believe that the types of agreement clauses in question here are matters best left in the first instance for negotiation between the parties. Further, the record in this case does not contain relevant and material evidence showing that the agreement clauses are unreasonable. For example, Section 76.971(d) of the rules provides that cable operators may require reasonable security deposits or other assurances from users who are unable to prepay in full for access to leased channels. The record in this case provides no information whatever regarding The Firm's ability to prepay in full for the term it proposes to lease from Lake County, beyond the statement with its first order for service that payment would accompany the delivery of the first tape. The Commission in its recent Further Notice clarified section 76.971(d) holding that deposits for channel time are not permitted when full payment is offered in advance. The record is completely bare with respect to the other terms and conditions discussed. Accordingly, we decline to make any findings or issue any rulings with respect to the consistency of Lake County's proposed lease agreement with our leased access regulations at this time. However, we wish to make it clear that we believe in the general principle that leased access users must be reasonably accommodated by cable operators. We will not, as mentioned above, allow cable operators to blunt leased access users rights by imposing unreasonable delays to the airing of leased access programming on cable systems. D. Compensation for Costs of Filing a Petition for Relief 18. As noted above, petitioner requests compensation for time expended and costs incurred in bringing this action before the Commission. Neither the Communications Act of 1934, as amended, the 1984 Act, nor the 1992 Act provides for recovery of costs associated with the filing of a petition for relief with the Commission for alleged violations of the leased access statutory provisions or of the Commission's regulations issued under authority of those statutory provisions. Accordingly, petitioner's request for compensation for such costs will be denied. ORDERING CLAUSES 19. For the foregoing reasons, IT IS ORDERED that the petition for relief of Lorilei Communications, Inc. d/b/a The Firm (a) IS GRANTED in part insofar as it requests that respondent Scripps Howard Cable Company d/b/a Lake County Cablevision (herein "Lake County") be ordered to cease and desist from charging a monthly administrative fee, (b) IS DENIED insofar as it requests compensation for costs incurred in bringing this matter before the Commission, and (c) IS DISMISSED without prejudice insofar as it requests that respondent be ordered to delete certain clauses from the lease agreement offered to petitioner on March 13, 1995. 20. IT IS FURTHER ORDERED, pursuant to 47 C.F.R.  76.975(f), that respondent Lake County shall CEASE AND DESIST from imposing on petitioner monthly administrative fees in addition to the leased access rates set forth on rate cards provided to petitioner, as described in this order. 21. IT IS FURTHER ORDERED that the Lake County Motion for Leave to File Reply to Petitioner's Answer to Opposition to Petition for Relief IS DENIED. 22. This action is taken pursuant to authority delegated by Section 0.321 of the Commission's rules, 47 C.F.R.  0.321. FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau