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IV. Cable Television and the Future of Leased Access

A. Agency and Legislative Recommendations

In its 1990 Cable Report, the FCC acknowledged that it was unable to cure the infirmities of Section 612 of the Cable Act and made a series of recommendations to Congress. The recommendations were designed to facilitate a new leased access scheme which would alleviate some of the market power of the cable industry. Under the FCC vision, leased access would provide a check on anticompetitive behavior and ideally would become an established channel acquisition mechanism.167 The FCC further envisioned "channel brokers," which would be in the business of accumulating leased channels and "subleasing" them in groups so as to take advantage of reduce transaction costs.168

In order to fulfill this vision, the FCC first recommended that the specific purpose of promoting "robust programming competition" be enumerated in a new statute, because otherwise the discretion accorded cable operators to set rates and terms is "unlikely to facilitate vigorous competition...."169 Second, the FCC recognized that the enforcement provisions were overly cumbersome and urged Congress either to change the burden and standard of proof required to demonstrate a violation or to permit the FCC to do so.170 Third, the FCC requested that it be awarded original jurisdiction to resolve disputes regarding the provision of leased access channels.171 Finally, the FCC recommended that Congress require cable operators to provide billing and collection services for channel lessees and authorize the FCC to promulgate access rules.172

While these recommendations represent an improvement, they fail to address a basic shortcoming of Section 612 -- that without a right of immediate access, the leverage still remains with the cable operator. Moreover, it is unclear whether the FCC would be able to fashion reasonable standards regarding rates, when there is no free market by which to measure reasonableness. Still, it is significant that the expert agency has recognized the serious ineffectiveness of the present scheme and recommended significant legislative changes.

Changes to the commercial leased access provisions were also suggested in Congress. In the bill which passed the House during the last Congress,173 several changes were made to Section 612 of the Cable Act. First, in establishing rates, terms, and conditions for commercial access, the cable operator would have been subject to regulations promulgated by the FCC.174 The FCC was required to establish a formula to determine maximum rates, standards regarding terms and conditions, and standards regarding collection and billing.175

Second, the bill permits up to one third of the designated channel capacity to be used for "qualified minority programming" even if such programming is from a source affiliated with the cable operator.176

These changes still ignore the basic drawbacks of Section 612, however. First, there is no change in the overall purpose of the section which requires that the financial condition of the cable operator be preserved. Second, the burden of proof and enforcement mechanisms which have been so unworkable in the past likewise are untouched. Third, just as with the FCC recommendations, there is no basis upon which the FCC can reasonably determine rates for the leased channels. Most importantly, there is no provision for immediate access -- a key if the commercial access provisions are to be considered workable in light of marketplace realities.

With respect to the provision regarding minority programming sources, the essential point regarding true diversity of sources is lost to the extent cable-affiliated programming is permitted on the channels designated for leased access. The FCC and Congress have already documented the anti-competitive tendencies as a result of vertical integration and the leased access provisions have been viewed as "a promising alternative or supplement" to deal with the exercise of market power by the cable operators.177 Significantly, it may be widely acknowledged that if what we seek is diverse programming, the completely vertically integrated programmer may best provide it as it will maximize audience by filling as many market niches as possible.178 To permit cable-affiliated programming to fulfill obligations for independent access turns the Associated Press principle of promoting a diversity of sources on its head.

On the Senate side, similar changes have been proposed.179 The FCC would have been given authority to establish maximum rates and reasonable terms for access and directed to examine existing agreements in determining costs of carriage, billing, and collection.180

The FCC was also directed to examine the tiering of leased access channels to "ensure that these programmers are carried on channel locations that most subscribers actually use."181 While the Senate bill does broaden the purpose of Section 612 to include "promot[ion] of competition in the delivery of diverse sources of video programming," such purposes still must be achieved "in a manner consistent with the growth and development of cable systems."182 Again, there is no immediate right of access and, thus, a failure to take into consideration the realities of the programming marketplace. Without this right, it is questionable whether commercial access provisions will ever be effective.

B. Recommendations for Leased Access in the Future

The problems of access to the cable system may one day become moot. With a fiber optic competitor, such as a telephone company, to provide broadband video distribution services, questions of capacity limitations and cable's monopoly gatekeeping role may evaporate.183 In addition, if the telephone companies provide an integrated voice, data, and video network, they may also provide video distribution facilities at a very low cost, thereby inducing cable operators to make leased access channels available on more competitive terms.184 One difficulty is that even if immediate action is taken to authorize telephone companies to proceed,185 such a competitive network could take decades to be developed. Of course, permitting the telephone companies to proceed, would certainly give the cable industry the incentive to install fiber now so as to meet the competition. The result might be an enormous increase in capacity all around. While we still must work toward that end, the First Amendment concerns currently presented by cable need to be addressed now.

Under the present structure, the leverage in negotiating leased access prices, terms, and conditions rests squarely with the cable operator. The cable operator is accorded vast discretion and then substantial deference is paid to the reasonableness of his decisions. But, even beyond regulatory intervention addressing the setting of rates and terms, there is a need to shift the negotiating balance by granting the proposed channel lessee immediate access if, after a short period (perhaps 30 days), no agreement is reached between the cable operator and the programmer. Of course, there would be a need to ensure that the proposed lessee met certain minimum financial qualifications, by posting a bond for example, so that the cable operator would not bear unreasonable risks in granting immediate access. With access permitted even before the rates and terms are completely agreed upon, the programmer is able to go forward and the cable operator has an incentive to negotiate in good faith.

In implementing a new leased access plan, it should again be made explicit that the cable operator will not be held liable for any matter presented on the leased access channels. Since the cable operator may not consider content, it would have no way of exercising control over the material and thus, should clearly escape civil and criminal liability (e.g., for libel or for the presentation of obscenity).186

The same protection would apply to liability for programmers who exceed the advertising limits for children's television, now applicable to children's programming on cable television.187

Once access has been granted, disputes regarding the rates, terms, and conditions could be resolved through a combination of tariff-setting and arbitration. Without some sort of additional regulatory check on rates, even mandating nondiscriminatory access charges might result in reduced service offerings because cable system operators may set their rates at such a high level that competition will be discouraged.188 Traditional rate of return regulation, however, with a regulatory body intricately involved in figuring costs, would not be necessary.

There should also be a requirement that the cable operator provide billing and collection services for the channel lessee, but prices for these services would be subject to the process outlined below. There is no justification to require that the cable operator actually market the leased channel program service -- indeed, it would be preferable to have the programmer do so in order to avoid disputes, for example, concerning the quality of the marketing. Additionally, given the difficulties an advertiser-based service may have in proceeding on a stand-alone basis, there might be a requirement that in such circumstances the leased channel be available on a tier that does not require additional costs to the subscriber beyond that charged by the lessee.

Regarding rates, the cable operator should be required to publish a reasonable tariff for each of three components that would be relevant in channel leases: the proportionate share of physical facilities; the costs of billing and collection; and a method for determining royalties or profits for commercial services.189 The cable operator could also propose rate variations depending upon the time of day or other factors. Initially, the cable operator would set the tariffs without regulatory intervention.190

Some have argued that the economics of leased access are contrary to the way the cable programming market naturally functions,191 since generally, under affiliation agreements, the cable system pays the program service provider, not the other way around. The arrangement under the leased access provisions, they argue, turns the economics of program provision on its head. But this ignores the fact that, one way or another, there is an access charge paid although it may be implicit.192 If a programmer pays the cable system for lease of capacity, that is an explicit access charge. If, on the other hand, the cable system pays a per-subscriber cost to the program provider, the amount the cable system retains from revenues collected is the implicit access fee. For instance, if a cable operator collects $5 per month per subscriber for a monthly fee and must remit $2 to the program service, there is a $3 "implicit" fee. Since both of these arrangements are functionally equivalent, there is certainly no economic reason leased access cannot effective.

Once the cable system operator publishes the tariffs for channel eases, the terms would be subject to mandatory "last offer" arbitration if the potential lessee believed they were unreasonable. Under this type of arbitration, the potential lessee would be required to state what it believed were reasonable terms (the operator having published its tariff).193 The arbitrator would then be required to choose between these "last offers." In this way, both parties would attempt to be as reasonable as possible and the result should closely emulate the marketplace. Such a process achieves the regulatory check that is needed in this area but at the same time permits the parties to negotiate without the need for a regulatory bureaucracy. Leased access would then be an effective means to ensure that programmers get access to the majority of the American viewing public.