******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) Petition for Relief of ) ) Thomas M. Schaefer d/b/a Strategic Video ) ) v. ) CSR-4800-L ) Time Warner Cable ) Raleigh, North Carolina ) ) For Leased Access Channels ) MEMORANDUM OPINION AND ORDER Adopted: June 9, 1997 Released: June 11, 1997 By the Chief, Cable Services Bureau: INTRODUCTION 1. Thomas M. Schaefer d/b/a Strategic Video ("Strategic") filed the above-captioned petition pursuant to Section 76.975 of the Commission's rules against Time Warner Cable ("Warner"), operator of cable systems serving Raleigh, Durham, and Chapel Hill, North Carolina. Strategic and Warner subsequently requested that the time for filing of an opposition to the petition be extended, and indicated that the parties were engaged in discussions which could result in the matter being settled amicably and the complaint withdrawn. However, Strategic subsequently filed a "Request for Resumption and Emergency Consideration" asserting that Warner had ceased negotiating and had refused its attempts at communication. Warner has filed a response to the petition. 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 video 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 rules for determining maximum reasonable rates for, and reasonable terms and conditions for the use of, commercial leased access channels. Pursuant to that Congressional directive, the Commission established 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, 5956-5961 (1993). The Commission revisited these regulations in Implementation of Sections of the Cable Television Consumer Protection and Competition Act of 1992, Leased Commercial Access, Second Report and Order and Second Order on Reconsideration of the First Report and Order, CS Docket 96-90, 62 Fed. Reg. 11364, March 12, 1997 ("Second Report"). SUMMARY OF PLEADINGS 3. The petition raised objection to some of the rates, terms and conditions offered by Warner to Strategic in connection with the provision of commercial leased access channel capacity. Specifically, Strategic asserted that a technical support fee proposed by Warner is exorbitant and motivated by an attempt to discourage use of leased access. Strategic requested the Commission to direct Warner to justify the proposed fee or reduce it substantially. Strategic raised further objections to numerous provisions contained in Warner's Commercial Use Programming Agreement and asserted that the objectionable provisions are vague, intrusive, and unnecessary and represent an attempt to establish an unreasonable barrier to obtaining leased access capacity. 4. Warner submitted with its opposition copies of several exchanges of correspondence with Strategic. Warner asserts that the correspondence shows efforts to negotiate a satisfactory leased access arrangement with Strategic that began when Strategic first asked about leased access capacity on its Chapel Hill, North Carolina system in July, 1996. Warner asserts that its negotiating efforts and the related exchanges of correspondence continued with its assistant general counsel forwarding to Strategic a letter summarizing his understanding of the two remaining unresolved issues, explaining that one of the time slots requested by Strategic was not available, and offering certain other times slots for the carriage of Strategic's programming. Warner asserts that of the numerous issues initially raised by the petition only two remain concerning a requirement for liability indemnification insurance and the resonableness of a technical support fee. Warner contends that these remaining two issues relate to the reasonableness of terms and conditions offered to Strategic in connection with leased access use. Warner argues that the correspondence accompanying the opposition shows full compliance with the Commission's leased access regulations and requests that the petition be dismissed. DISCUSSION AND ANALYSIS 5. The first of the two issues concerns a requirement by Warner for Strategic to obtain a certificate of insurance coverage for indemnification relating to claims stemming from carriage of Strategic's programming. The other concerns Warner's proposed technical support fee. A. The Reasonableness of Insurance Requirements. 6. With regard to the requirement for a certificate of indemnification insurance, we note that cable operators have been given protection from leased access program liability as provided by Section 638 of the Communications Act. Section 638 provides program liability protection "unless the program involves obscene material." We are not aware, however, of any statutory provision that completely protects cable operators from all possible program carriage liability, or from the filing of un-meritorious actions against cable operators despite the provisions of Section 638. Moreover, the Commission does not deny cable operators the right to request indemnification from leased access programmers for the costs and expenses attributable to defending a prosecution for carriage of an allegedly obscene program, stating, "this is a reasonable term or condition relating to use of leased access channel capacity in light of the removal by Congress in amended [S]ection 638 of cable operator immunity for carriage of obscene programming." In Anthony Giannotti v. Cablevision Systems Corporation, an operator's right to require reasonable liability insurance coverage for leased access programming was confirmed. 7. However, the Commission recently modified the insurance requirements in the Second Order. In connection with the Second Order, some commenting parties contended that the cost of general liability and errors and omissions insurance represents a significant barrier to small independent producers. One party requested that the Commission set a limit on the required amount of general liability insurance. However, the Commission declined to adopt specific conditions or limits regarding the amount of coverage or the type of insurance policy that operators may require on the ground that "a specific restriction might not be appropriate for all situations." Instead, the Commission stated that it would require that insurance requirements be reasonable in relation to the objective of the requirement and placed on cable operators the burden of proof in establishing reasonableness. The Commission further stated that 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. 8. In its petition, Strategic merely asserts that a cable operator may not require indemnification from a leased access user. This issue has been settled in Anthony Giannotti v. Cablevision Systems Corporation. In this decision, the Commission concluded that cable operators could require reasonable indemnification provisions from leased access users. Consequently based on the Commission's holding at the time the application was filed, which is set out in the Giannottidecision, we cannot find that Warner violated the leased access rules by requesting an indemnification policy. However, as noted above, the Commission revisited this area in its Second Order and found that the burden under its leased access rules is on the subject cable operator to show that an indemnification requirement is reasonable. Consequently, should Warner require an indemnification policy from a potential leased access user in the future, it must show its reasonableness consistent with the provision's of the Second Order. B. Reasonableness of Technical Support Fees 9. At the time that Warner filed its complaint, the leased access rules permitted cable operators to charge leased access users for providing the minimal level of technical support necessary to present their material on a cable system. Under this standard, Warner developed a technical service fee based on the average hourly rate for technicians in its Raleigh area cable systems and adjusted this hourly cost figure by a factor of 50% to take account overtime hours. Warner increased the average hour rate in this instance by 50% because the hours requested for leased access use were outside its normal business hours. We believe this approach to be reasonable. Warner then, however, included a 100% mark up of the hourly labor cost to cover overhead Apart from a conclusory statement that this is reasonable, Warner has failed to justify the 100% mark up. Consequently, we find that the proposed 100% overhead cost factor to be unsupported and therefore unreasonable. 10. The Commission revisited the area of technical costs in its Second Report. Therein the Commission clarified that the leased access rates determined under Section 76.970 include the cost of technical support ordinarily provided to other programmers. For that reason a cable operator may not impose an additional charge for technical support ordinarily provided to other programmers. In addition to failing to justify its 100% mark up of its labor costs for overhead, the information before us does not indicate whether the technical support services at issue are ordinarily provided to other programmers. Therefore, we cannot determine whether the proposed support fee would be acceptable under the Second Report standard. ORDERING CLAUSE 11. Accordingly, IT IS ORDERED, that the Petitions for Special Relief filed by Thomas M. Schaefer d/b/a Strategic Video in File No. CSR 4800-L IS GRANTED to the extent indicated in paragraphs 10 and 11 above and in all other respects IS DENIED. 12. This action is taken by the Chief, Cable Services Bureau, pursuant to authority delegated by Section 0.321 of the Commission's Rules, 47 C. F. R.  0.321 (1995). FEDERAL COMMUNICATIONS COMMISSION Meredith J. Jones Chief, Cable Services Bureau