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Leased-Access Rules Heading to Court

Washington -- Federal regulators will head to court March
10 to defend year-old leased-access rules that critics want thrown out for being too
generous to cable operators.

The U.S. Court of Appeals for the District of Columbia
Circuit will hear oral arguments in a case brought by home shopping network ValueVision
International Inc. and supported by lower-power TV stations and consumer and
public-interest organizations.

The Federal Communications Commission, supported by the
National Cable Television Association, will defend the rules.

At issue is the price that leased-access programmers should
pay to reserve channel space on cable systems.

A publicly held company based in Minnesota, ValueVision has
about 13 million cable subscribers, and it owns two television stations. Last week, it
agreed to merge with infomercial giant National Media Corp. (see story, page 40).

The FCC said in a Dec. 18 court brief that its rules met
the goal established by Congress; namely, that leased access serve as a genuine outlet for
independent programmers without harming the financial position of the cable operator.

ValueVision, which pushed the FCC into adopting new
leased-access rules, told the court in a Nov. 3 brief that the FCC's leased-access
rates are too high. As a result, leased-access programmers wind up overpaying cable
operators -- or, more likely, not using the channels at all.

'This is a case involving an administrative agency
that has not only lost its way, but that has shown absolutely no interest in finding
it,' read ValueVision's brief.

In 1992, Congress said cable operators had to set aside up
to 15 percent of their channels, depending on the system size, for leased access. Channels
not sold to leased-access programmers because of lack of demand revert to the cable

In 1993, the FCC adopted leased-access-rate rules. The
agency said an operator could charge no more than the 'highest implicit fee,'
which it defined as the monetary difference between the operator's license fee for a
channel and the channel's retail price.

For example, if a cable operator pays $1 per month, per
subscriber for Cable News Network, but it collects $1.50 per month for the channel, the
50-cent difference would represent the highest implicit fee, and that would be the rate
charged to a leased-access programmer.

Under pressure from ValueVision, which said leased-access
rates were too high and channels designated for that purpose were being underutilized, the
FCC relented. The agency agreed to craft a new formula after tentatively concluding that
the highest implicit fee allowed cable operators to double-recover revenue -- once from
the leased-access programmer, and once from the subscriber through the tier charge.

ValueVision pressed the FCC to adopt what it called an
'explicit-fee' rate, derived from the monthly per-subscriber commission that
home shopping channels QVC and Home Shopping Network pay to cable operators. ValueVision
said QVC and HSN pay effective monthly rates of about 10 cents per subscriber.

Last February, after a year of deliberation, the FCC
modified the rates slightly, adopting what it called an 'average implicit fee,'
designed to produce rates lower than those generated by the highest implicit fee.

At the time, FCC officials said the new average implicit
fee equaled about 35 cents per subscriber, or more than three times the price that
ValueVision sought.

ValueVision is asking the court to void the rules and to
require the agency to produce lower rates with 120 days.

In its defense, the FCC said it was mistaken when it
concluded that the implicit-fee approach overcompensated cable operators. On review, the
FCC found that an implicit fee fairly compensated cable operators that lost subscribers
who were dissatisfied with a leased-access channel that bumped more popular programming.

'Allowing operators to charge up to the implicit fee
will not result in double recovery; rather, by taking into account the loss in customer
satisfaction that leased access will lead to, the implicit-fee approach will better
reflect the value of the channel capacity,' the FCC told the court.

Moreover, the FCC said, it tried to protect leased-access
programmers through nonprice incentives -- for example, rules that permit leased-access
carriage on widely penetrated tiers; that require cable operators to offer half-hour time
slots; and that allow leased-access programmers to resell part of their time.

Finally, the FCC said, Congress handed it the tough job of
promoting leased access while ensuring that cable operators are not required to offer
rates that subsidize leased access.

'Satisfying those demands clearly has been a difficult
matter,' the commission said.