Pursuant to the authority of sections 10(b), 13, 14, 19, et al., of the Federal Reserve Act, the Board has amended its Regulation A (12 CFR part 201) to incorporate changes in discount rates on Federal Reserve Bank extensions of credit. The discount rates are the interest rates charged to depository institutions when they borrow from their district Reserve Banks.

The “basic discount rate” is a fixed rate charged by Reserve Banks for adjustment credit and, at the Reserve Banks' discretion, for extended credit for up to 30 days. In decreasing the basic discount rate from 5.5 percent to 5.0 percent, the Board acted on requests submitted by the Boards of Directors of the twelve Federal Reserve Banks. The new rates were effective on the dates specified below. The 50-basis-point decrease in the discount rate was associated with a similar decrease in the federal funds rate approved by the Federal Open Market Committee and announced at the same time.

Consumer and business confidence has eroded further, exacerbated by rising energy costs that continue to drain consumer purchasing power and press on business profit margins. Partly as a consequence, retail sales and business spending on capital equipment have weakened appreciably. In response, manufacturing production has been cut back sharply, with new technologies appearing to have accelerated the response of production and demand to potential excesses in the stock of inventories and capital equipment.

Taken together, and with inflation contained, these circumstances have called for a rapid and forceful response of monetary policy. The longer-term advances in technology and accompanying gains in productivity, however, exhibit few signs of abating and these gains, along with the lower interest rates, should support growth of the economy over time.

Nonetheless, the Committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future.

Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 605(b)), the Board certifies that the change in the basic discount rate will not have a significant adverse economic impact on a substantial number of small entities. The rule does not impose any additional requirements on entities affected by the regulation.

The provisions of 5 U.S.C. 553(b) relating to notice and public participation were not followed in connection with the adoption of the amendment because the Board for good cause finds that delaying the change in the basic discount rate in order to allow notice and public comment on the change is impracticable, unnecessary, and contrary to the public interest in fostering price stability and sustainable economic growth.

The provisions of 5 U.S.C. 553(d) that prescribe 30 days prior notice of the effective date of a rule have not been followed because section 553(d) provides that such prior notice is not necessary whenever there is good cause for finding that such notice is contrary to the public interest. As previously stated, the Board determined that delaying the changes in the basic discount rate is contrary to the public interest.

This amendment adopts a new AD for BHTI Model 214B and 214B-1 helicopters. This action requires, within 10 hours TIS, determining the hours TIS for each strap fitting, P/N 214-010-185-107, and creating a component history card or equivalent record for each strap fitting. This action also requires that if a strap fitting has 2,500 or more hours TIS or if the hours TIS cannot be determined, replacing the strap fitting with an airworthy strap fitting before further flight. This strap fitting is structurally identical to strap fitting, P/N 214-010-189-103, which currently has a retirement life of 2,500 hours. The strap fitting has been sold for spares since approximately 1982. This amendment is prompted by fatigue testing which indicates that a fatigue crack may occur in the strap fitting leading to failure of the strap fitting if it is allowed to remain in service in excess of 2,500 hours. The actions specified in this AD are intended to prevent a failure of a strap fitting, separation of a main rotor blade, and subsequent loss of control of the helicopter.

The FAA has reviewed BHTI Alert Service Bulletin 214-00-62, dated June 2, 2000, which describes procedures for establishing a 2,500-hour airworthiness life pending formal revision of the 214B series Maintenance Manual and provides information to determine continued serviceability for strap fitting, P/N 214-010-185-107.

We have identified an unsafe condition that is likely to exist or develop on other BHTI Model 214B and 214B-1 helicopters of the same type design. Therefore, this AD is being issued to require the following for each strap fitting, P/N 214-010-185-107:

• Within 10 hours TIS, by referring to the helicopter maintenance records, create a component history card or equivalent record for each strap fitting and record the hours TIS and serial number.

• If the hours TIS cannot be determined, replace the strap fitting with an airworthy strap fitting before further flight.

• If the strap fitting has accumulated 2,500 or more hours TIS, replace it with an airworthy strap fitting before further flight.

• Continue to record the subsequent hours TIS.

• Revise the Airworthiness Limitations section of the maintenance manual by establishing a retirement life of 2,500 hours TIS for the strap fitting.

The short compliance time involved is required because the previously described critical unsafe condition can adversely affect the controllability and structural integrity of the helicopter. Therefore, replacing any strap fitting, P/N 214-010-185-107, that has 2,500 or more hours TIS or a strap fitting for which the hours TIS cannot be determined is required within 10 hours TIS, and this AD must be issued immediately.

Since a situation exists that requires the immediate adoption of this regulation, it is found that notice and opportunity for prior public comment hereon are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

The FAA estimates that 11 helicopters will be affected by this proposed AD, that it will take approximately 14 work hours to replace each of the 2 strap fittings, 2 work hours to create a new component history card, and 10 work hours annually to maintain the records, and that the average labor rate is $60 per work hour. Required parts will cost approximately $4807 per helicopter. Based on these figures, the total cost impact of the AD on U.S. operators is estimated to be $79,277 the first year assuming all strap fittings will be replaced.

Although this action is in the form of a final rule that involves requirements affecting flight safety and, thus, was not preceded by notice and an opportunity for public comment, comments are invited on this rule. Interested persons are invited to comment on this rule by submitting such written data, views, or arguments as they may desire. Communications should identify the Rules Docket number and be submitted in triplicate to the address specified under the caption “ADDRESSES.” All communications received on or before the closing date for comments will be considered, and this rule may be amended in light of the comments received. Factual information that supports the commenter's ideas and suggestions is extremely helpful in evaluating the effectiveness of the AD action and determining whether additional rulemaking action would be needed.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify the rule. All comments submitted will be available in the Rules Docket for examination by interested persons. A report that summarizes each FAA-public contact concerned with the substance of this AD will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their mailed comments submitted in response to this rule must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. 2000-SW-56-AD.” The postcard will be date stamped and returned to the commenter.

The regulations adopted herein will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.

The FAA has determined that this regulation is an emergency regulation that must be issued immediately to correct an unsafe condition in aircraft, and that it is not a “significant regulatory action” under Executive Order 12866. It has been determined further that this action involves an emergency regulation under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). If it is determined that this emergency regulation otherwise would be significant under DOT Regulatory Policies and Procedures, a final regulatory evaluation will be prepared and placed in the Rules Docket. A copy of it, if filed, may be obtained from the Rules Docket at the location provided under the caption “ADDRESSES.”

This amendment to 14 CFR part 71 establishes Class E airspace at Sugar Land, TX. This action is prompted by a non-federal air traffic control tower that currently operates only during specified hours at this airport. The intended effect of this rule is to provide adequate controlled airspace for aircraft operating in the vicinity of Sugar Land Municipal/Hull Field, Sugar Land, TX. when the control tower is not operating. On March 4, 1999, a proposal to amend 14 CFR part 71 to establish Class D and Class E airspace at Sugar Land, TX, was published in the Federal Register (64 FR 10410). The proposal was to establish Class D and Class E airspace extending upward from the surface to and including 2,600 feet MSL, within a 4.2-mile radius of the Sugar Land Municipal/Hull Airport, Sugar Land, TX. The published notice proposed to establish Class E airspace to protect aircraft operations while the control tower was not operating. However, the necessary weather equipment was not available, therefore, the Class D airspace reverted to Class G airspace when the control tower is not in operation. Since weather equipment is necessary for Class E surface airspace, a final rule establishing only Class D airspace was published (64 FR 51208, September 22, 1999. The weather equipment is now available and operational.

Class E airspace designations are published in Paragraph 6002 of FAA Order 7600.9H, dated September 1, 2000, and effective September 16, 2000, which is incorporated by reference in 14 CFR § 71.1. The Class E airspace designation listed in this document will be published subsequently in the order.

The FAA anticipates that this regulation will not result in adverse or negative comment and therefore is issuing it as a direct final rule. A substantial number of previous opportunities provided to the public to comment on substantially identical actions have resulted in negligible adverse comments or objections. Unless a written adverse or negative comment, or a written notice of intent to submit an adverse or negative comment is received within the comment period, the regulation will become effective on the date specified above. After the close of the comment period, the FAA will publish a document in the Federal Register indicating that no adverse or negative comments were received and confirming the date on which the final rule will become effective. If the FAA does receive, within the comment period, an adverse or negative comment, or written notice of intent to submit such a comment, a document will be published in the Federal Register. This document may withdraw the direct final rule in whole or in part. After considering the adverse or negative comment, we may publish another direct final rule or publish a notice of proposed rulemaking with a new comment period.

Although this action is in the form of a final rule, comments are invited on this rule. Interested persons are invited to comment on this rule by submitting such written data, views, or arguments as they may desire. Communications should identify the Rules Docket number and be submitted in triplicate to the address specified under the caption ADDRESSES. All communications received on or before the closing date for comments will be considered, and this rule may be amended or withdrawn in light of the comments received. Factual information that supports the commenter's ideas and suggestions is extremely helpful in evaluating the effectiveness of this action and determining whether additional rulemaking action is needed.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify the rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report that summarizes each FAA-public contact concerned with the substance of this action will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this rule must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. 2001-AWS-03.” The postcard will be date stamped and returned to the commenter.

The regulations adopted herein will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this final rule will not have federalism implications under Executive Order 13132.

Further, the FAA has determined that this regulation is noncontroversial and unlikely to result in adverse or negative comments and only involves an established body of technical regulations that require frequent and routine amendments to keep them operationally current. Therefore, I certify that this regulation (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. Since this rule involves routine matters that will only affect air traffic procedures and air navigation, it does not warrant preparation of a Regulatory Flexibility Analysis because the anticipated impact is so minimal.

On September 21, 2000, the FAA proposed to amend Title 14 Code of Federal Regulations, part 71 (14 CFR part 71) by modifying Class E airspace at St. George, UT, in order to accommodate a new Area Navigation (RNAV) SIAP to Runway 34 at St. George Municipal Airport, St. George, UT (65 FR 184). This amendment provides additional Class E5 airspace at St. George, UT, to meet current criteria standards associated with the SIAP. Interested parties were invited to participate in the rulemaking proceeding by submitting written comments on the proposal. No comments were received.

This amendment to Title 14 Code of Federal Regulations, part 71 (14 CFR part 71) modifies Class E airspace at St. George, UT, in order to accommodate a new SIAP to the St. George Municipal Airport, St. George, UT. This amendment modifies Class E5 airspace at St. George, UT, to meet current criteria standards associated with the SIAP. The FAA establishes Class E airspace where necessary to contain aircraft transitioning between the terminal and enroute environments. This rule is designed to provide for the safe and efficient use of the navigable airspace and to promote safe flight operations under Instrument Flight Rules (IFR) at the St. George Municipal Airport and between the terminal and enroute transition stages.

The area will be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. Class E airspace areas extending upward from 700 feet or more above the surface of the earth, are published in Paragraph 6005, of FAA Order 7400.9H dated September 1, 2000, and effective September 16, 2000, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document will be published subsequently in the Order.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore, (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The Tri-City Regional Airport lies within Class D airspace. The Tri-City Airport Traffic Control Tower hours of operation have changed and it is now a part time facility. When the control tower closes, Atlanta ARTCC provides approach control service for the Tri-City Regional Airport. Since the Atlanta ARTCC provides approach control service and the proper classification of airspace to accommodate aircraft conducting standard instrument approach procedures is not available, flight safety interests may be affected. Accordingly, immediate corrective action is taken herein, in the interest of flight safety, to establish Class E2 airspace in the vicinity of Tri-City Regional Airport. Therefore, I find that notice and public procedure under 5 U.S.C. 553(b) are impracticable and contrary to the public interest. Designations for Class E are published in FAA Order 7400.9H, dated September 1, 2000, and effective September 16, 2000, which is incorporated by reference in 14 CFR part 71.1. The Class E designations listed in this document will be published subsequently in the Order.

This amendment to part 71 of the Federal Aviation Regulations (14 CFR part 71) establishes Class E2 airspace at Tri-City, TN.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore, (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

On June 6, 2000, Airspace Docket No. 98-AAL-26 (65 FR 35822; FR Doc. 00-14044) was published for the modification and revocation of VOR and Colored Federal Airways, and Jet Routes in Alaska. Included in this rule was the amendment to the legal description of G-8 which omitted the Glenallen, AK, NDB Intersection. This action adds the Glenallen intersection to the legal description of G-8, thereby correcting this error.

On October 11, 2000, the FAA proposed to amend 14 CFR part 71 (part 71) to revise V-480 and J-120 (65 FR 60385). Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments were received. With the exception of editorial changes, this amendment is the same as that proposed in the notice.

The FAA is amending part 71 to revise V-480 and J-120 in Alaska. The revision to V-480 and J-120 will add a routinely used route segment between Mt. Moffett and St. Paul Island, AK. Presently, there is an uncharted nonregulatory route segment with the same routing as this airway and jet route revision. The current route is used by air carrier and general aviation aircraft. The FAA is revising these routes for the following reasons: (1) The conversion of this uncharted nonregulatory route to a VOR Federal airway and jet route will add additional IFR airway and route infrastructure in Alaska; (2) pilots would be provided with minimum en route altitudes and minimum obstruction clearance altitude information; (3) to establish controlled airspace, thus eliminating some of the commercial IFR operations in uncontrolled airspace; and (4) to improve the management of air traffic operations and thereby enhance safety.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Jet routes are published in paragraph 2004 and Alaskan VOR Federal airways are published in paragraph 6010(b) of FAA Order 7400.9H dated September 1, 2000, and effective September 16, 2000, which is incorporated by reference in 14 CFR 71.1. The jet route and the Alaskan VOR Federal airway listed in this document will be published subsequently in the Order.

This amendment to part 95 of the Federal Aviation Regulations (14 CFR part 95) amends, suspends, or revokes IFR altitudes governing the operation of all aircraft in flight over a specified route or any portion of that route, as well as the changeover points (COPs) for Federal airways, jet routes, or direct routes as prescribed in part 95.

The specified IFR altitudes, when used in conjunction with the prescribed changeover points for those routes, ensure navigation aid coverage that is adequate for safe flight operations and free of frequency interference. The reasons and circumstances that create the need for this amendment involve matters of flight safety and operational efficiency in the National Airspace System, are related to published aeronautical charts that are essential to the user, and provide for the safe and efficient use of the navigable airspace. In addition, those various reasons or circumstances require making this amendment effective before the next scheduled charting and publication date of the flight information to assure its timely availability to the user. The effective date of this amendment reflects those considerations. In view of the close and immediate relationship between these regulatory changes and safety in air commerce, I find that notice and public procedure before adopting this amendment are impracticable and contrary to the public interest and that good cause exists for making the amendment effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes Standard Instrument Approach Procedures (SIAPs). The complete regulatory description of each SIAP is contained in official FAA form documents which are incorporated by reference in this amendment under 5 U.S.C. 552(a), 1 CFR part 51, and § 97.20 of the Federal Aviation Regulations (FAR). The applicable FAA Forms are identified as FAA Forms 8260-3, 8260-4, and 8260-5. Materials incorporated by reference are available for examination or purchase as stated above.

The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction on charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. The provisions of this amendment state the affected CFR (and FAR) sections, with the types and effective dates of the SIAPs. This amendment also identifies the airport, its location, the procedure identification and the amendment number.

This amendment to part 97 is effective upon publication of each separate SIAP as contained in the transmittal. Some SIAP amendments may have been previously issued by the FAA in a National Flight Data Center (NFDC) Notice to Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for some SIAP amendments may require making them effective in less than 30 days. For the remaining SIAPs, an effective date at least 30 days after publication is provided.

Further, the SIAPs contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these SIAPs, the TERPS criteria were applied to the conditions existing or anticipated at the affected airports. Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making some SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation ass the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes Standard Instrument Approach Procedures (SIAPs). The complete regulatory description on each SIAP is contained in the appropriate FAA Form 8260 and the National Flight Data Center (FDC)/Permanent (P) Notices to Airmen (NOTAM) which are incorporated by reference in the amendment under 5 U.S.C. 552(a), 1 CFR part 51, and § 97.20 of the Federal Aviation's Regulations (FAR). Materials incorporated by reference are available for examination or purchase as stated above.

The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction of charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. The provisions of this amendment state the affected CFR (and FAR) sections, with the types and effective dates of the SIAPs. This amendment also identifies the airport, its location, the procedure identification and the amendment number.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes SIAPs. For safety and timeliness of change considerations, this amendment incorporates only specific changes contained in the content of the following PDC/P NOTAMs for each SIAP. The SIAP information in some previously designated FDC/Temporary (FDC/T) NOTAMs is of such duration as to be permanent. With conversion to FDC/P NOTAMs, the respective FDC/T NOTAMs have been canceled.

The FDC/P NOTAMs for the SIAPs contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these chart changes to SIAPs by FDC/P NOTAMs, the TERPS criteria were applied to only these specific conditions existing at the affected airports. All SIAP amendments in this rule have been previously issued by the FAA in a National Flight Data Center (FDC) Notice of Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for all these SIAP amendments requires making them effective in less than 30 days.

Further, the SIAPs contained in this amendment are based on the criteria contained in the TERPS. Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making these SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes SIAP's. The complete regulatory description of each SIAP is contained in official FAA form documents which are incorporated by reference in this amendment under 5 U.S.C. 552(a), 1 CFR part 51, and 14 CFR 97.20 of the Federal Aviation Regulations (FAR). The applicable FAA Forms are identified as FAA Form 8260-5. Materials incorporated by reference are available for examination or purchase as stated above.

The large number of SIAP's their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction on charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. The provisions of this amendment state the affected CFR sections, with the types and effective dates of the SIAPs. This amendment also identifies the airport, its location, the procedure identification and the amendment number.

This amendment to part 97 is effective upon publication of each separate SIAP as contained in the transmittal. The SIAP's contained in this amendment are based on the criteria contained in the United States Standard for Terminal Instrument Procedures (TERPS). In developing these SIAPs, the TERPS criteria were applied to the conditions existing or anticipated at the affected airports.

The FAA has determined through testing that current non-localizer type, non-precision instrument approaches developed using the TERPS criteria can be flown by aircraft equipped with a Global Positioning System (GPS) and or Flight Management System (FMS) equipment. In consideration of the above, the applicable SIAP's will be altered to include “or GPS or FMS” in the title without otherwise reviewing or modifying the procedure. (Once a stand alone GPS or FMS procedure is developed, the procedure title will be altered to remove “or GPS or FMS” from these non-localizer, non-precision instrument approach procedure titles.)

The FAA has determined through extensive analysis that current SIAP's intended for use by Area Navigation (RNAV) equipped aircraft can be flown by aircraft utilizing various other types of navigational equipment. In consideration of the above, those SIAP's currently designated as “RNAV” will be redesignated as “VOR/DME RNAV” without otherwise reviewing or modifying the SIAP's.

Because of the close and immediate relationship between these SIAP's and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are, impracticable and contrary to the public interest and, where applicable, that good cause exists for making some SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes Standard Instrument Approach Procedures (SIAPs). The complete regulatory description on each SIAP is contained in the appropriate FAA Form 8260 and the National Flight Data Center (FDC)/Permanent (P) Notices to Airmen (NOTAM) which are incorporated by reference in the amendment under 5 U.S.C. 552(a), 1 CFR part 51, and § 97.20 of the Federal Aviation's Regulations (FAR). Materials incorporated by reference are available for examination or purchase as stated above.

The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction of charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. The provisions of this amendment state the affected CFR (and FAR) sections, with the types and effective dates of the SIAPs. This amendment also identifies the airport, its location, the procedure identification and the amendment number.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes SIAPs. For safety and timeliness of change considerations, this amendment incorporates only specific changes contained in the content of the following FDC/P NOTAMs for each SIAP. The SIAP information in some previously designated FDC/Temporary (FDC/T) NOTAMs is of such duration as to be permanent. With conversion to FDC/P NOTAMs, the respective FDC/T NOTAMs have been canceled.

The FDC/P NOTAMs for the SIAPs contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these chart changes to SIAPs by FDC/P NOTAMs, the TERPS criteria were applied to only these specific conditions existing at the affected airports. All SIAP amendments in this rule have been previously issued by the FAA in a National Flight Data Center (FDC) Notice to Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for all these SIAP amendments requires making them effective in less than 30 days.

Further, the SIAPs contained in this amendment are based on the criteria contained in the TERPS. Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making these SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes Standard Instrument Approach Procedures (SIAPs). The complete regulatory description of each SIAP is contained in official FAA form documents which are incorporated by reference in this amendment under 5 U.S.C. 552(a), 1 CFR 51, and § 97.20 of the Federal Aviation Regulations (FAR). The applicable FAA Forms are identified as FAA Forms 8260-3, 8260-4, and 8260-5. Materials incorporated by reference are available for examination or purchase as stated above.

The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction on charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. The provisions of this amendment state the affected CFR (and FAR) sections, with the types and effective dates of the SIAPs. This amendment also identifies the airport, its location, the procedure identification and the amendment number.

This amendment to part 97 is effective upon publication of each separate SIAP as contained in the transmittal. Some SIAP amendments may have been previously issued by the FAA in a National Flight Data Center (NFDC) Notice to Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for some SIAP amendments may require making them effective in less than 30 days. For the remaining SIAPs, an effective data at least 30 days after publication is provided.

Further, the SIAPs contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these SIAPs, the TERPS criteria were applied to the conditions existing or anticipated at the affected airports. Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making some SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The collections of information contained in these final regulations have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under the control number 1545-1658.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

The collections of information in these regulations are in §§ 1.338-2(d), 1.338-2(e)(4), 1.338-5(d)(3), 1.338-10(a)(4), 1.338(h)(10)-1(d)(2), and 1.1060-1(e)(ii)(A) and (B). The collections of information are necessary to make an election to treat a sale of stock as a sale of assets, to calculate and collect the appropriate amount of tax in a deemed or actual asset acquisition, and to determine the bases of assets acquired in a deemed or actual asset acquisition.

These collections of information are required to obtain a benefit. The likely respondents and/or recordkeepers are small businesses or organizations, businesses, or other for-profit institutions, and farms.

The regulations provide that a section 338 election is made by filing Form 8023. The burden for this requirement is reflected in the burden of Form 8023. The regulations also provide that both a seller and a purchaser must each file an asset acquisition statement on Form 8594. The burden for this requirement is reflected in the burden of Form 8594. With respect to Form 8023, the IRS estimated that 201 forms would be filed each year and that each taxpayer would require 12.98 hours to comply. With respect to Form 8594, the IRS estimated that 20,000 forms would be filed each year and that each taxpayer would require 12.25 hours to comply. These estimates have been made available for public comment and no public comments have been received.

The burden for the collection of information in § 1.338-2(e)(4) is as follows:

Estimated total annual reporting/recordkeeping burden: 25 hours.

Estimated average annual burden per respondent/recordkeeper: 0.56 hours.

Estimated number of respondents/recordkeepers: 45.

Estimated annual frequency of responses: On occasion.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S:O, Washington, DC 20224, and to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

On August 10, 1999, the IRS and the Department of Treasury (Treasury) published a notice of proposed rulemaking in the Federal Register (REG-107069-97, 64 FR 43462 (1999-36 I.R.B. 346)) containing proposed regulations under sections 338 and 1060 of the Internal Revenue Code of 1986. On January 7, 2000, the IRS and Treasury published temporary regulations in the Federal Register (REG-107069-97, 65 FR 1236 (2000-4 I.R.B. 332)) that are virtually the same as the proposed regulations published on August 10, 1999. The preamble to the temporary regulations notes that the proposed regulations generally were favorably received and that the IRS and Treasury believe that the proposed regulations provided clearer guidance and better rules than the prior regulations under sections 338 and 1060. However, the preamble also notes that the comments received warranted further consideration.

In general, the final regulations adopted herein are very similar to the proposed and temporary regulations in their organization and substance. However, changes have been made in several areas, largely in response to the comments received. The principal changes are discussed below, in the order in which they appear in the regulations.

Although section 338 treats a target as having sold all its assets in the deemed asset sale, proposed § 1.338-1(a)(2) provides that other rules of law may characterize the transaction as something other than or in addition to a sale and purchase of assets. Proposed § 1.338-1(a)(2) states: “[f]or example, if target is an insurance company for which a section 338 election is made, the deemed asset sale would be characterized and taxed as an assumption-reinsurance transaction under applicable Federal income tax law.” Several comments urged removal of the quoted sentence in the final regulations and recommended that the treatment of transactions involving insurance companies under section 338 be reserved pending more complete analysis and guidance. The IRS and Treasury believe that generally it is appropriate to view the deemed asset sale by an insurance company as involving an assumption-reinsurance transaction and, therefore, have retained the sentence in the final regulations. The IRS and Treasury, however, intend to provide additional guidance in a separate project.

The proposed regulations include a new anti-abuse rule intended to prevent taxpayers from changing the results of applying the residual method by engaging in transactions that have a transitory economic effect with respect to the ownership or use of assets. The anti-abuse rule is intended to apply only to an asset transfer exhibiting objective characteristics suggesting the transfer was engaged in to manipulate the operation of the residual method.

Notwithstanding the limited scope of the anti-abuse rule, several commentators suggested further limiting or eliminating the rule. After studying the comments, the IRS and Treasury continue to believe that the anti-abuse rule serves a useful purpose in protecting the operation of the residual method. Several changes have been made, however, to clarify the intended scope of the rule. Thus, the phrase “to more than an insignificant extent” is changed in the final regulation to “primarily.” This change is meant to clarify that some continuing use in its original location of an asset transferred to or from the target is permitted.

A comment requested that the final regulations elaborate further on the statement that the Commissioner has the authority to make appropriate correlative adjustments and that the final regulations include an example. The final regulations do not do so, because the nature of any correlative adjustments would depend on the particular factual circumstances in which the rule is applied. Thus, any additional guidance would provide only limited assistance. However, the final regulations state that correlative adjustments should avoid duplication or omission of any item of income, gain, loss, deduction, or basis. See § 1.338-1(c).

Concerns have been raised about the possibility that buyers can effectuate transactions outside the ordinary course of business after acquiring target stock that, to the detriment of an unsuspecting seller, must be reported by the seller on its return, which normally covers the entire day on which the acquisition occurs. Some of these concerns derive from a reading of § 1.1502-76(b) to preclude operation of the “next day rule” whenever a section 338 election is made for a target. The “next day rule” of § 1.1502-76(b) provides that if, on the day of a group member's change in status as a member, a transaction occurs that is properly allocable to the portion of the member's day after the event resulting in the change, the member and all related persons must treat the transaction as occurring at the beginning of the following day.

Commentators have suggested that a purchaser acquiring stock of a subsidiary member of a consolidated group could, after acquiring the target stock, cause the target to sell all of its assets to another person later on the closing date and then make a unilateral section 338(g) election. It is suggested that the effect of the election is to preclude the operation of the next day rule, causing the results of the actual asset sale to fall onto the selling consolidated group's tax return. The IRS and Treasury do not believe that § 1.1502-76(b), as written, automatically precludes the operation of the next day rule in a section 338 context, but nevertheless have provided a new rule in these final regulations that requires the application of the next day rule in a section 338 context where the target engages in a transaction outside the ordinary course of business on the acquisition date after the event resulting in the qualified stock purchase (QSP). See § 1.338-1(d).

Proposed § 1.338-3(b)(2) provides rules concerning the definition of a “purchase” that require more than a nominal amount to be paid for the stock of the target. Several comments requested reconsideration of the proposed rule. Accordingly, in the temporary regulations, at § 1.338-3T(b)(2), a definition is given for the term purchase of target affiliate, while the definition of the term purchase of target is reserved. The final regulations include a single definition of purchase applicable to both targets and target affiliates, which definition generally conforms to the definition of purchase of target affiliate in the temporary regulations. Under this definition, stock in a target (or target affiliate) may be considered purchased if, under general principles of tax law, the purchasing corporation is considered to own stock of the target (or target affiliate) meeting the requirements of section 1504(a)(2), notwithstanding that no amount may be paid for (or allocated to) the stock.

Since 1995, the regulations under section 338 have provided special rules that apply, by virtue of section 338, to certain transfers of target assets following a QSP of the target's stock if a section 338 election is not made for the target. These provisions modify the normal operation of the continuity of interest requirement under section 368 and the interpretation of the term shareholder for purposes of section 368(a)(1)(D), as applied to certain taxpayers. These rules were adopted to effectuate Congressional intent, in replacing former section 334(b)(2) with section 338, that the deemed sale results provided by section 338 not be available through transactions within the purchasing group after the acquisition. In the final regulations, these rules are located at § 1.338-3(d).

The 1995 amendments did not provide any special rule to modify the application of the statutory requirements for reorganizations under section 368(a)(1)(C). However, the considerations that justify the modified application of the continuity of interest rule and the shareholder definition for “D” reorganizations also justify an analogous modification of the “solely for voting stock” requirement for post-acquisition “C” reorganizations. Accordingly, the final regulations provide that consideration other than voting stock issued in connection with a QSP is ignored in determining whether a subsequent transfer of assets by the target corporation to a member of its new affiliated group satisfies the solely for voting stock requirement of a “C” reorganization. See § 1.338-3(d)(4).

The proposed regulations eliminate the prior distinction between “modified aggregate deemed sale price” (or MADSP) and “aggregate deemed sale price” (or ADSP), a distinction that appeared to have been based on the premise that the new target generally will not bear the tax liability for the deemed sale where a section 338(h)(10) election is made, but that it generally will bear the liability where a section 338 (but not section 338(h)(10)) election is made. However, these generalizations were not universally correct in either situation. Proposed §§ 1.338-4 and 1.338-5 clarify the treatment of taxes as liabilities in computing ADSP and “adjusted grossed-up basis” (or AGUB). Commentators asked for further clarification of the standards for taking certain taxes into account. Rather than providing more specific guidance, which would be inconsistent with the overall philosophy of deferring to general tax principles governing actual transactions, the final regulations further simplify the discussion of liabilities. Except for the fact that new target remains liable for old target's tax liabilities (see § 1.338-1(b)(3)(i)) and that a buyer's assumption of a seller's income tax liability with respect to the sale causes the consideration to “gross up” or “pyramid,” a tax liability is like any other type of liability and the status of any particular type of tax liability as a liability includible in ADSP or AGUB should be determined under general principles as applied to the facts relating to the incidence of the tax liability.

Proposed § 1.338-6(a)(2)(iii) retains a statement from prior versions of the regulations that “[i]n certain cases the IRS may make an independent showing of the value of goodwill and going concern value as a means of calling into question the validity of the taxpayer's valuation of other assets.” This authority was intended to provide a means of ensuring that taxpayers do not overvalue assets in higher classes that are allocated consideration before the residual class. As a factual matter, the IRS and Treasury understand that a low (or no) allocation to goodwill and going concern value may result from causes other than a taxpayer's overvaluation of assets in higher classes. Moreover, the IRS and Treasury accept the soundness of the fundamental premise of the residual method that goodwill and going concern value are the most difficult assets to value independently and that their value should be computed as the residue after all other assets are valued. The final regulations delete the sentence about valuing goodwill and going concern value. Under the final regulations, the IRS retains the ability to challenge a taxpayer's valuation of assets in Classes I through VI, but will do so on grounds consistent with the residual method of allocation.

Changes to the rules for allocating purchase price to the stock and assets of lower tier subsidiaries were not proposed, although, as noted in the preamble to the proposed regulations, considerable study was given to alternative approaches. Comments were requested, but none was received, and the IRS and Treasury to date have been unable to develop a fully successful alternative. Accordingly, the final regulations continue to apply the “top-down” allocation system, under which the stock of a lower tier subsidiary is allocated purchase price in the general asset category (now Class V) and the deemed purchase price of its assets is in turn computed from that stock price and then allocated within the subsidiary.

In the final regulations, the scope of Class II assets described in § 1.338-6(b)(2)(ii) is modified to provide that Class II assets do not include stock of target affiliates, other than actively traded stock described in section 1504(a)(4) (certain preferred stock). Instead, stock of target affiliates is included in Class V. This would exclude target affiliate stock from Class II where the target holds an 80 percent or greater interest in the target affiliate but a minority interest in target affiliate stock of the same class is actively traded. It is not clear that the trading price for shares of a class of stock less than 20 percent of which is in the hands of the public, and which consequently may experience thinner trading volumes, necessarily is indicative of the fair market value of the 80 percent or greater majority interest.

Proposed § 1.338-6(b)(2) provides that Class III assets consist of “accounts receivable, mortgages, and credit card receivables from customers which arise in the ordinary course of business.” Comments suggested that these categories were too limited. Under the rationales expressed in the preamble to the proposed regulations, the IRS and Treasury believe that other types of debt instruments, and even other types of assets, should be included in Class III. As revised in the final regulations, Class III assets generally consist of assets that the taxpayer marks to market at least annually and debt instruments (including receivables). However, debt instruments issued by related parties, and certain contingent payment and convertible debt instruments, are not included in Class III.

Proposed § 1.338-7 provides rules for allocating the ADSP or AGUB when increases or decreases are required after the close of new target's first taxable year. For increases or decreases required before the end of new target's first taxable year, proposed § 1.338-4(b)(2)(ii) provides that “[i]ncreases or decreases with respect to the elements of ADSP that are taken into account before the close of new target's first taxable year are taken into account for purposes of determining ADSP and the deemed sale tax consequences as if they had been taken into account at the beginning of the day after the acquisition date.” Proposed § 1.338-5(b)(2)(ii) contains a similar rule for redeterminations of AGUB. These rules originated in predecessor versions of the regulations under section 338.

Although no commentator requested removal of these rules, one comment highlighted the difficulties posed for the seller in section 338(h)(10) transactions in applying a rule based on new target's year-end, and requested relief. After reviewing this comment, the final regulations remove the rules providing special treatment for changes in ADSP or AGUB occurring before the close of new target's first taxable year. Instead, the general rule in § 1.338-7 governs the allocation of all changes in ADSP or AGUB after the acquisition date. This change is consistent with the IRS's and Treasury's expressed intent in drafting the proposed regulations to eliminate, to the extent possible, any special accounting rules in the section 338 regulations, as it should result in treatment more consistent with that of an actual asset sale.

A commentator suggested that the final regulations should apply section 1031 to old target in its deemed asset sale if the purchaser pays for target stock with property of like kind to old target's assets or with cash put in escrow for a successor to old target to designate for purchase of assets of like kind. This rule would be an exception to the requirement in § 1.338-1(a)(2) that the transaction between old target and new target must be a taxable transaction, and inconsistent with the requirement of section 338(a)(1) that target “shall be treated as having sold all of its assets at the close of the acquisition date at fair market value * * *” After considering the policy concerns and the administrative difficulties in creating and administering an exception for section 1031 exchanges, the IRS and Treasury have not adopted this suggestion.

A purchaser may agree to compensate the sellers of an S corporation target for adverse tax consequences resulting from a section 338(h)(10) election. When more than one shareholder in an S corporation sells stock in the same transaction, the different shareholders may negotiate different prices for their stock based on varying Federal and state tax liabilities they will bear as a result of the transaction. Some commentators have noted that, in other cases, different prices may be paid for control premiums or other reasons. Under section 1361(b)(1)(D), an S corporation is permitted to have only one class of stock. A potential second class of stock issue arises because the fiction of a section 338(h)(10) election is that the target sells its assets to a new target and then liquidates. Applying that fiction, if the shareholders are treated as receiving differing amounts per share in the deemed liquidation, a second class of stock could result.

Some commentators have recommended that the final regulations clarify that the payment of varying amounts per share to S corporation shareholders will not cause the S corporation to violate the single class of stock requirement. The final regulations respond to these comments by including a statement in § 1.1361-1(l)(2)(v) that the payment of varying amounts to S corporation shareholders in a transaction for which a section 338(h)(10) election is made will not cause the S corporation to violate the single class of stock requirement of section 1361(b)(1)(D) and § 1.1361-1(l), provided that the varying amounts are negotiated in arm's length negotiations with the purchaser.

One commentator requested clarification regarding the calculation and allocation of the purchaser's AGUB for a target that was an S corporation that owned a qualified subchapter S subsidiary (QSub), where the QSub status does not continue after the acquisition date and the QSub is treated as becoming a separate subsidiary of new target. Although the regulations require allocation of the AGUB among the target's assets held at the beginning of the day after the acquisition date, they also require results consistent with those that would occur if the parties had actually engaged in the transactions deemed to occur because of section 338(h)(10), and taking into account other transactions that actually occurred or are deemed to occur. See § 1.338(h)(10)-1(d)(9). An actual sale of the assets of the S corporation target, including the stock of the QSub, to a corporation would be treated as a sale by the S corporation of all of its assets, including those of the QSub. If the QSub status does not continue after the acquisition, the buyer would be treated as forming a new subsidiary containing the assets held by the former QSub. See § 1.1361-5(b)(3) Example 9. Accordingly, the AGUB for the former S corporation target would be allocated among the assets of the former QSub as though they were assets of the target, and then the target would be treated as having formed a new subsidiary containing the assets of the former QSub.

Clarification was also requested regarding the possibility of making a section 338(h)(10) election for the sale by an S corporation of stock of a QSub. As noted above, Example 9 of § 1.1361-5(b)(3) indicates that the sale by an S corporation of all of the stock of a QSub is treated as an asset sale by the S corporation to the purchaser of the QSub stock. No further guidance is provided in these regulations. The sale of an 80 percent or greater (but less than 100 percent) interest in the stock of a QSub is not expected to be a common transaction because it generally will result in a taxable transaction with respect to all the assets of the QSub.

The current temporary regulations provide that a section 338(h)(10) election for an S corporation target must be made jointly by the purchaser and the S corporation shareholders. These regulations specifically require nonselling S corporation shareholders to consent to the election. See § 1.338(h)(10)-1T(c)(2). However, the instructions for the election form (Form 8023) do not clearly require the nonselling shareholders to sign the election form. Moreover, the prior regulations were less clear in requiring nonselling S corporation shareholders to consent to the election. Commentators have requested that the IRS recognize the validity of section 338(h)(10) elections for S corporation targets even if not signed by nonselling shareholders. The IRS will revise Form 8023 to make clear that nonselling S corporation shareholders must also sign. The IRS will recognize the validity of otherwise valid elections made on the current version of the form even if not signed by the nonselling shareholders, provided that the S corporation and all of its shareholders (including nonselling shareholders) report the tax consequences consistently with the results under section 338(h)(10). See § 1.338(i)-1(b).

The preamble to the proposed regulations indicates that the IRS and Treasury were considering requiring that the information about the allocation of ADSP and AGUB currently submitted on the election form (Form 8023) instead be submitted by the purchaser and seller(s) separately on their income tax returns. Such a change will be effectuated when Form 8023 is revised. The information about ADSP and AGUB will be reported by each party separately on Form 8594, which also will be revised. With respect to a transaction subject to a section 338 election, Form 8594 will be filed with the income tax returns of the old and new target for the tax periods including the deemed sale and purchase. Where an election under section 338(g) is made for a controlled foreign corporation (CFC), the purchaser and seller (or their U.S. shareholder(s)) will be required to submit separately, on Form 8594, information about ADSP and AGUB. The Form 8594 will be required to be attached to the last Form 5471 filed by the seller for old target, and to the first Form 5471 filed by the purchaser for new target.

It has been determined that these final regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has been determined that a final regulatory flexibility analysis is required for the collection of information in this Treasury decision under 5 U.S.C. 604. This analysis is set forth below under the heading “Final Regulatory Flexibility Act Analysis.” Pursuant to section 7805(f) of the Internal Revenue Code, these final regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

This analysis is required under the Regulatory Flexibility Act (5 U.S.C. chapter 6). This regulatory action is intended to simplify and clarify the current rules relating to both deemed and actual asset acquisitions. The current rules were developed over a long period of time and have been repeatedly amended. The IRS and Treasury believe these final regulations will significantly improve the clarity of the rules relating to both deemed and actual asset acquisitions.

The major objective of these final regulations is to modify the rules for allocating purchase price in both deemed and actual asset acquisitions. In addition, these final regulations replace the general rules for electing to treat a stock sale as an asset sale.

These collections of information may affect small businesses if the stock of a corporation which is a small entity is acquired in a qualified stock purchase or if a trade or business which is also a small business is transferred in a taxable transaction. Form 8023 (on which an election to treat a stock sale as an asset sale is filed) has been submitted to and approved by the Office of Management and Budget. With respect to Form 8023, the IRS estimated that 201 forms would be filed each year and that each taxpayer would require 12.98 hours to comply. Form 8594 (on which a sale or acquisition of assets constituting a trade or business is reported) has also been submitted to and approved by the Office of Management and Budget. With respect to Form 8594, the IRS estimated that 20,000 forms would be filed each year and that each taxpayer would require 12.25 hours to comply. These estimates have been made available for public comment and no public comments have been received. The regulations do not impose new requirements on small businesses and, in fact, should lessen any difficulties associated with the existing reporting requirements by clarifying the rules associated with deemed and actual asset acquisitions.

The collections of information require taxpayers to file an election in order to treat a stock sale as an asset sale. In addition, taxpayers must file a statement regarding the amount of consideration allocated to each class of assets under the residual method. The professional skills that would be necessary to make the election or allocate the consideration would be the same as those required to prepare a return for the small business.

The principal author of these regulations is Richard Starke, Office of the Associate Chief Counsel (Corporate). However, other personnel from the IRS and Treasury Department participated extensively in their development.

The Secret Service is updating its current Privacy Act regulation Appendix D. The Secret Service moved its headquarters to a new location, consequently the addresses shown in the Appendix are no longer current and need to be updated to provide the proper address to the public.

The Secret Service also recognizes a need to revise paragraph 4 of Appendix D, which identifies the official responsible for reviewing administrative appeals of initial determinations refusing amendment of records. Existing regulations name the “Assistant Secretary of the Treasury for Enforcement” as the reviewing official. However, to be consistent with the language implementing the Freedom of Information Act (FOIA), 31 CFR part 1, subpart A, appendix D.4, published at 65 FR 40514 on June 30, 2000, the Secret Service has determined that the reviewing official should be changed to the “Deputy Director, United States Secret Service.” The address to which an appeal should be made by mail or delivered personally is also being changed to: “Privacy Act Amendment Appeal, Deputy Director, United States Secret Service, 950 H Street, NW., Suite 8300, Washington, DC 20373-5802.”

These regulations are being published as a final rule because the amendment does not impose any requirements on any member of the public. This amendment is the most efficient means for the Treasury Department to implement its internal requirements for complying with the Privacy Act. Accordingly, pursuant to the administrative procedure provisions in 5 U.S.C. 553, the Department of the Treasury finds good cause that prior notice and other public procedure with respect to this rule are impracticable and unnecessary and finds good cause for making this rule effective on the date of publication in the Federal Register.

In accordance with Executive Order 12866, it has been determined that this final rule is not a “significant regulatory action” and, therefore, does not require a Regulatory Impact Analysis.

Because no notice of proposed rulemaking is required, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do not apply.

On May 18, 2000, EPA published a final rule in the Federal Register titled Water Quality Standards; Establishment of Numeric Criteria for Priority Toxic Pollutants for the State of California (see 65 FR 31682) that contained typographical errors. These typographical errors consisted of omission of units in the column headings to a table, inadvertent placement of a zero in one of the numeric criteria values, an oversight in the correct CAS number for a pollutant, and the incorrect placement of a parameter in a formula. This action corrects those typographical errors. These corrections are all minor in nature and do not substantively alter the final rule.

Section 553 of the Administrative Procedure Act, 5 U.S.C. 553(b)(B), provides that, when an agency for good cause finds that notice and public procedure are impracticable, unnecessary or contrary to the public interest, the agency may issue a rule without providing notice and an opportunity for public comment. EPA has determined that there is good cause for making today's rule final without prior proposal and opportunity for comment because this action merely corrects typographical errors in a rule that already went through public notice and comment. Furthermore, the corrections in today's rule are all minor in nature and do not substantively alter the final rule. Thus, notice and public procedure are unnecessary. EPA finds that this constitutes good cause under 5 U.S.C. 553(b)(B).

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and is therefore not subject to review by the Office of Management and Budget. Because the agency has made a “good cause” finding that this action is not subject to notice-and-comment requirements under the Administrative Procedure Act or any other statute, it is not subject to the regulatory flexibility provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), or to sections 202 and 205 of the Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4). In addition, this action does not significantly or uniquely affect small governments or impose a significant intergovernmental mandate, as described in sections 203 and 204 of UMRA. This rule also does not significantly or uniquely affect the communities of tribal governments, as specified by Executive Order 13084 (63 FR 27655, May 10, 1998). This rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This rule also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant. This technical correction action does not involve technical standards; thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). EPA's compliance with these statutes and Executive Orders for the underlying rule is discussed in the May 18, 2000, Federal Register notice (65 FR 31682).

The Congressional Review Act (5 U.S.C. 801 et seq.), as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. Section 808 allows the issuing agency to make a rule effective sooner than otherwise provided by the CRA if the agency makes a good cause finding that notice and public procedure is impracticable, unnecessary or contrary to the public interest. This determination must be supported by a brief statement. 5 U.S.C. 808(2). As stated previously, EPA has made such a good cause finding, including the reasons therefor, and established an effective date of February 13, 2001. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

This is a summary of the Memorandum Opinion and Order on Reconsideration (“MO&O”) in MM Docket Nos. 94-150, 92-51, and 87-154, FCC 00-438, adopted on December 14, 2000, and released on January 19, 2001. The full text of this decision is available for inspection and copying during regular business hours in the FCC Reference Center, 445 Twelfth Street, SW, Room CY-A257, Washington DC, and also may be purchased from the Commission's copy contractor, International Transcription Service, (202) 857-3800, 445 Twelfth Street, SW, Room CY-B402, Washington DC. The complete text is also available under the file name fcc00438.doc on the Commission's Internet site at www.fcc.gov.

This MO&O contains either new or modified information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA). The general public and other Federal agencies are invited to comment on the proposed information collections contained in this proceeding.

This MO&O contains either new or modified information collections. The Commission, therefore, as part of its continuing effort to reduce paperwork burdens, invites the general public and the Office of Management and Budget to comment on the information collections contained in this MO&O as required by the Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency comments are due 60 days from date of publication of this MO&O in the Federal Register. Comments should address: (a) Whether the new or modified collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology.

OMB Approval Number: 3060-XXXX

Title: Reconsideration of Mass Media Attribution Rules, MM Docket Nos. 94-150, 92-51, and 87-154.

Form Nos.: FCC 301 (3060-0027), FCC 314 (3060-0031), FCC 315 (3060-0032), FCC 323 (3060-0010).

Type of Review: New collection.

Respondents: Business or other for-profit.

Number of Respondents: 1,156.

Estimated Hours Per Response: 0.75 hours respondent; 2.0 hours contract attorney.

Frequency of Response: On occasion.

Estimated Costs to Respondents: $462,400.

Estimated Total Annual Burden: 867.

Needs and Uses: Among other things, the MO&O eliminates the single majority shareholder exemption for broadcast stations. This action will improve the precision of the Commission's attribution rules in identifying cognizable interests for purposes of its ownership rules. The Commission will revise the instructions for the FCC 301, FCC 314, FCC 315, and FCC 323 to conform to the new policy.

In this MO&O, the Commission grants, in part, and denies, in part, five petitions seeking reconsideration of the Report and Order (“R&O”) (64 FR 50622, September 17, 1999) released in this proceeding on August 6, 1999. In response to one petition, the Commission provides clarification on certain issues related to the newly adopted attribution rules. In the R&O, the Commission, in relevant part, eliminated its cross-interest policy and adopted the new equity/debt plus (EDP) rule, retained the single majority shareholder exemption, adopted rules that make interests in certain television local marketing agreements (LMAs) or time brokerage agreements attributable for purposes of the ownership rules, and established policies for grandfathering certain newly attributable interests. Commenters seek reconsideration of issues related to these actions. In addition, on its own motion, the Commission provides guidance on several issues that the petitioners did not raise, but that pertain to application of the EDP rule.

Background. The Commission adopted the EDP rule to address the concerns raised in the Notice of Proposed Rulemaking (“NPRM”) (60 FR 6483, February 2, 1995) and Further Notice of Proposed Rulemaking (“FNPRM”) (61 FR 67275, December 20, 1996), and in the record that its attribution rules did not address some interests, including multiple business and financial relationships that conveyed significant influence such that they should be attributed. For example, network affiliates had expressed concerns that attribution exemptions had permitted networks to extend their nationwide reach by structuring nonattributable deals in which the networks effectively exert significant influence, if not control, over licensees. The EDP rule is a targeted approach that balances the Commission's goal of maximizing the precision of the attribution rules by attributing only interests that are of concern, and its goals of not unduly disrupting capital flow, affording ease of administration, and providing certainty to regulatees. Specifically, the Commission applies a two-pronged test to determine whether an interest is attributable under the EDP rule. Under the first prong, the Commission asks whether the investor is either a major program supplier or a same-market media entity subject to the broadcast ownership rules. A program supplier that supplies over 15 percent of a station's total weekly broadcast programming hours is a “major program supplier” under the rule. An interest holder is considered a “same-market media entity” where it has an existing attributable interest under the Commission's attribution rules, other than the EDP rule, in a broadcast station, newspaper, or cable system, in a given market. The second prong looks at the extent of the financial interest. Any interest the major program supplier has in a station, to which it supplies programming, will be attributable under the EDP rule if the interest, aggregating both equity and debt, exceeds 33 percent of the total asset value of the station. Similarly, any interest the media entity has in another media entity in the same market will be attributable under the EDP rule if the interest, aggregating both equity and debt holdings, exceeds 33 percent of the total asset value of the additional media entity.

Discussion. The Commission reaffirms the EDP rule as adopted in the R&O and declines, at this time, to allow any general exemptions to the rule. The Commission will neither limit the scope of the EDP rule to major program suppliers, nor will the Commission limit the interests attributable under the EDP rule to equity investments only. As the Commission has stated, the intent of its local broadcast ownership rules is to protect competition and program diversity in local broadcast markets. The smaller audiences and fewer advertising dollars available in small broadcast markets limit the number of viable local broadcast stations in those markets. The need to protect incumbents' broadcast signal quality from interference from nearby stations limits the number of stations in all broadcast markets. These limitations on the entry of new broadcast stations make the protection of competition and diversity in local broadcast markets particularly important objectives of the Commission's ownership rules.

The function of the Commission's attribution rules is to define which interests will be counted in applying its ownership rules. The equity/debt approach is intended to resolve the Commission's concerns that multiple nonattributable business interests could be combined to exert influence over licensees. As a result, rather than applying its EDP rule to all investments in broadcasters in a single market, the rule is limited only to those relationships that afford the interest holder the incentive and means to exert influence or control over decisions regarding the core operations of broadcast stations. As the Commission stated in the R&O, this targeted approach balances its goal of maximizing the precision of the attribution rules by attributing only those interests that are of concern, and its equally significant goals of not unduly disrupting capital flow and of affording ease of administrative processing and reasonable certainty to regulatees in planning their transactions.

Applying the EDP rule to same-market media entities is based, in part, on economic studies that have shown that the partial co-ownership of otherwise competing local business entities can lead to a decrease in competition between those local businesses. For example, the owner of a broadcast station that also has a significant financial interest in another local broadcast station has an incentive and may have the opportunity to decrease the level of competition between the two stations by controlling or influencing management decisionmaking of the stations' operations. In the R&O, the Commission noted that a same-market media entity relationship affords the interest holder the incentive and means to exert this type of influence over licensees. Specifically, the Commission found that entities with existing local media interests may have an incentive and the means to use financing or contractual arrangements to obtain a degree of horizontal integration, within a particular market, that raises concerns because of the Commission's goal of protecting local diversity and competition. The Commission therefore reaffirms its decision to include both same-market media entities and major program suppliers as the relationships that trigger the EDP rule.

Similarly, the Commission included debt under the EDP rule because the potential for certain creditors to exert significant influence over the core operations of a licensee, even though the creditors do not hold a direct voting or other equity interest, may undermine the diversity of voices the Commission seeks to promote. The Commission has found that, in many cases, it is no longer possible to classify investments strictly as “equity” or “debt,” and its has recognized the complexity of distinguishing debt from equity in cases where alleged debt obligations were found to be more properly characterized as equity. In the R&O, the Commission concluded that creditors may, through contractual rights and their ongoing right to communicate freely with the licensee, exert as much, if not more, influence or control over some corporate decisions as voting equity holders whose interests are attributable. Based on these same concerns, the Commission has found that debt interests are attributable both under its cable equity plus debt attribution rule, and also in determining eligibility for the New Entrant Bidding Credit under its competitive bidding procedures for commercial broadcast licenses. The Commission has not found that traditional bona fide debt by itself is attributable under its rules. The Commission does find, however, that significant debt relationships combined with other attributable interests in the same market, or a major program supplier's holding of significant debt in a licensee to which it supplies substantial amounts of programming, provide an incentive to influence or control key decisions concerning the debtor-station's operations.

Based upon the record in the R&O, the Commission found no reason to believe that the EDP rule would unduly curb investment in smaller, minority stations. The EDP rule does not preclude investment in any media entity, including minority and women-owned entities. In fact, the 33 percent threshold allows an investor to own up to one-third of a station's total assets without triggering the EDP rule. To help ensure that its actions do not unduly impede capital flow to broadcasting, the Commission raised the passive investor voting stock benchmark from 10 to 20 percent. As the Commission stated in the R&O, the function of its attribution rules is not to limit investment, but to identify influential interests over the core operations of a licensee that should be counted in applying the multiple ownership rules. The Commission's ownership rules, in turn, limit the extent of combined ownership based on its core policies of diversity and competition. Thus, if relaxation of ownership limits is warranted, those issues should be addressed through revision of the multiple and cross-ownership rules, not through redefinition of an attributable interest.

The commenter that raised the issue neither explains how the EDP rule will affect the transition to digital television or the “spin off” of broadcast stations, nor presents any evidence to support its concerns. In the R&O, the Commission stated that it would consider individual rule waivers in particular cases where substantial evidence is presented that the conversion to digital television would otherwise be unduly impeded or that a waiver would significantly expedite DTV implementation in that particular case. The Commission therefore reaffirms its decision to include debt interests in applying the EDP rule.

Asserting that the EDP rule will have inconsistent regulatory effects depending on the capitalization of broadcast companies, one commenter would quarrel with the Commission's focus on total assets. The Commission focused on total assets rather than looking at equity and debt separately because separate consideration could lead to distortions in applying the EDP rule depending on the percentage of total assets that each class of interests comprises. That the rule may advantage equity holders in entities with large debt interests does not undermine the basis of the EDP rule. As the Commission has explained, the EDP rule examines both equity and debt interests that are otherwise nonattributable to limit the ability of same market media entities and major program suppliers to circumvent the attribution rules by using those interests to gain significant influence over the licensee.

Commenters further argue that the rule is vague and overly broad, contending that the EDP rule could result in an attributable interest where no likelihood of control would exist, producing a lack of clarity in the rule that will cause problems both for licensees attempting to discern attributable interests and for the Commission attempting to administer the rule; and the Commission has not explained how an investment that is less than controlling can harm the public interest or competition in the marketplace. One commenter also asserts that the Commission has not demonstrated that the 33 percent threshold is appropriate, while another opposes adopting a more lenient threshold.

The Commission reiterates that attribution extends to relationships that permit significant influence over the core operations of a licensee, not just to investments that constitute controlling interests or that exceed 50 percent of the ownership of an entity. Shareholders with voting stock interests amounting to 5 percent or more may not have actual control over the management and operations of a licensee, but the Commission has set the voting equity benchmark at 5 percent or more because those shareholders have a realistic potential to exert significant influence or control over the licensees in which they invest. For example, a shareholder with voting stock interests that exceed the benchmark can influence the selection of board members through mechanisms such as proxy fights and, therefore, exert influence on the management of a licensee's operations.

In addition, as the Commission explained in the R&O, debt-holders or preferred stockholders, which do not have voting rights, might exert significant influence through contractual rights or other methods of access to a licensee. For example, an agreement entered into in conjunction with preferred stock might grant the holder the right to select the persons who will run for the board of directors. Based on its concern that multiple, substantial business interests could be combined to exert influence over licensees, the Commission determined that nonattributable interests held by major program suppliers and same-market media entities should be subject to limitation by the multiple ownership rules. Thus, the Commission's attribution rules are applicable where an interest holder has a realistic potential to affect the programming decisions or other core operating functions of a licensee.

The Commission also reaffirms the 33 percent investment threshold under the EDP rule for the reasons stated in the R&O. The Commission adopted the 33 percent benchmark, in part, based on its previous experience of using a 33 percent threshold in the context of applying the cross-interest policy. The Commission found it an appropriate and reasonable threshold to use in applying the EDP rule and noted that applying a 33 percent threshold had not had a disruptive effect in the context of the cross-interest policy. The Commission found that a 50 percent threshold would be inappropriately high and that the thresholds of 25 percent or 10 percent would be too low. In exercising its broad discretion to set the threshold, the Commission was guided by its goal of attributing not only interests with the potential to control, but also those interests that convey a realistic potential to exert significant influence. The Commission reiterates, however, that while it will use this threshold in applying the EDP rule now, it may adjust the benchmark in the future, if evidence is provided that would warrant an adjustment.

One commenter asks the Commission effectively to review cases individually under the EDP rule by expanding the EDP rule to attribute any relationship that permits an entity to exert significant influence or control over the programming, management, or budgetary decisions of a licensee. The EDP rule takes into consideration an entity's participation in programming and is designed to make attributable debt or nonvoting equity interests that have the ability to influence a station's core management decisions. The Commission notes that the EDP rule may also result in attribution of interests that would otherwise be nonattributable by limiting the availability of the insulated limited partner, bona fide debt, and nonvoting stock attribution exemptions.

The Commission notes that in the NPRM in this proceeding, it invited comment on whether to adopt a case-by-case review of applications to address its concerns about whether the combination of nonattributable interests and business relationships in a particular case could create significant influence so as to warrant attribution. The Commission sought comment as to whether the burdens and uncertainty created by individual case review would be outweighed by the benefits of addressing its concerns in this area in the context of specific factual situations. Based on its review of the comments filed in response to the NPRM, and in response to individual cases at that time, the Commission rejected the case-by-case approach in the FNPRM. Instead, the Commission proposed the EDP rule as a “balanced, specifically tailored approach that would focus the rules more precisely on those relationships that potentially permit significant influence such that they should be attributed.”

In ultimately rejecting case-by-case review and adopting the EDP rule in the R&O, the Commission found that the benefits of applying a rule that provides, to the greatest extent possible, regulatory certainty and eases application processing, outweighed the arguably increased accuracy that a case-by-case approach might afford. Indeed, a case-by-case approach might lead to lengthy fact-specific decisions of limited applicability and substantial processing difficulties and delays, impeding its goal of rapidly reviewing transactions and speeding new service to the public. Such a result would disserve the public interest. The Commission therefore believes that the bright-line EDP rule is superior to a case-by-case approach. Accordingly, the Commission denies the request to adopt a routine case-by-case approach to attribution. As it stated in the R&O, however, the Commission retains the discretion to review individual cases that present unusual issues and apply attribution on a case-by-case basis where it would serve the public interest to do so. The Commission finds that such discretion ensures a sufficient safety valve for unusual issues or cases that may arise.

Two petitioners seek general exemptions from the EDP rule. One petitioner asks the Commission to amend the EDP rule to make an exception for banks and other lending institutions, asserting that the EDP rule will detrimentally affect a lending institution's ability to invest in media companies because various arms of any big bank operate independently, and these independent groups may finance different broadcasters in the same market.

As it stated in the R&O, the Commission believes the EDP rule will not significantly curb investment in broadcast stations. The Commission finds no basis on which to distinguish banks or other lending institutions from other investors in media entities under the EDP rule. Under the Commission's attribution rules, commercial banks, including their venture capital subsidiaries, are treated as active investors. The Commission treats only the trust departments of banks as passive investors under its voting stock benchmark. Indeed, the EDP rule places no more restrictions on lending institutions, with respect to investment or foreclosure, than on any other type of entity interested in investing in a media entity. Similarly, the petitioner has not provided evidence that a large bank's obligation to track its investments for purposes of attribution differs from any other investor's obligation to do the same.

The petitioner cites the Right to Financial Privacy Act (RFPA), 12 U.S.C. 3401 et seq., to suggest that the EDP rule might force lending institutions to disclose private borrower information in violation of financial privacy laws. Congress enacted the RFPA to provide individuals with some privacy rights in financial records that are in the hands of third parties. Among other things, the RFPA defines the conditions under which financial institutions may disclose an individual's financial records and the conditions under which government officials may access an individual's financial records. The RFPA also provides a civil cause of action for anyone injured by a violation of the act's substantive provisions. Applications for construction permits, applications for consent to assignments, as well as applications for consent to transfers of control of broadcast stations must list: (1) Each party to the application whose ownership or positional interest in the applicant is attributable; (2) that party's citizenship; (3) the basis on which the interest is considered attributable, e.g., positional interest or investor attributable under the EDP rule; (4) the party's percentage of votes; and (5) the party's percentage of total assets in the station. The applications require information about the corporate or partnership structure of parties holding attributable interests and information on which the interests are deemed attributable. The applications do not inquire into the party's financial structure or amounts of loans involved in station acquisitions. Similarly, ownership reports do not require any information regarding financing or loan amounts. The petitioner does not explain how the information required in applications, or other forms, much less how the EDP rule itself, might cause lending institutions to violate privacy rights under the RFPA or any other law. In any event, if it is shown that materials filed with the Commission contain financial data that would customarily be guarded from competitors, its rules provide that the materials will not be made routinely available for public inspection.

Another petitioner asks the Commission to make certain exceptions to the EDP rule where the interest is held in a socially and economically disadvantaged small business concern (SDB). The governing statute for the Small Business Administration defines SDBs as businesses where the majority owners' race or ethnicity has impaired the owners' ability to obtain capital or credit for their businesses, and therefore impaired the businesses' ability to compete. At this time, the Commission shall defer consideration of MMTC's request to create certain exemptions for SDBs. The Commission has sponsored fact-finding studies as to whether preferences based on minority status may be justified consistent with the Supreme Court's decision in Adarand Constructors v. Pena, 515 U.S. 200 (1995). When the results of these studies have been evaluated, the Commission may initiate future proceedings in this area, as warranted.

Background. The EDP rule examines whether an interest holder has more than 33 percent of the total assets of a licensee or other media entity. In the R&O, the Commission defined total assets as the sum of all debt plus all equity. The Commission defined debt under the EDP rule to include all liabilities, whether short-term or long-term. Equity includes common or preferred stock, whether voting or nonvoting, as well as equity held by insulated limited partners in limited partnerships. The Commission also stated that it would require parties to maintain compliance with the attribution criteria as any changes in a firm's assets occur. Where sudden, unforeseeable changes take place, the Commission stated that it would afford parties a reasonable time, generally one year, to come into compliance with any ownership restrictions made applicable as a result of the change in attributable status.

Discussion. One petitioner asks the Commission to clarify what is included in the definition of “total assets” under the EDP rule. Initially, the Commission clarifies that it will include all equity, in whatever manner or amount the debt or equity is held, in computing whether an interest exceeds the EDP rule's 33 percent benchmark. For example, the Commission will include stock, non-stock, partnership or any other form of equity in the calculation. The Commission will also include all short-term and long-term debt liabilities, in whatever manner or amount the debt is held, in computing whether an interest exceeds the EDP rule's 33 percent benchmark.

Rather than itemizing what is included in the definition of “total assets,” the Commission clarifies that, for purposes of the EDP rule, an applicant may base the valuation of a station on either the book value as defined under standard financial accounting practices, or some other value, including the fair market value, provided the valuation is reasonable. In relying upon the book value, fair market value, or other reasonable value of a station, the applicant must use the valuation relevant at the time the application or ownership report is filed. If the issue arises in connection with a transfer or assignment application or an ownership report filed after consummation of a transfer or assignment, the applicant must use the sales price of that transfer or assignment as the total asset value. The Commission finds that clarifying the definition of total assets to include the foregoing reasonable methods of valuing a station's total assets for purposes of the EDP rule will provide applicants flexibility to use the most accurate valuation of the station at the time an application or ownership report is filed. The Commission may need to review an applicant's basis for computing its valuation where petitions are filed against the application. As a result, an applicant should retain the documentation on which it computes the value of the station so that it can produce the documentation as needed.

One petitioner asks the Commission to clarify when equity and debt interests that change over time should be evaluated for purposes of the EDP rule. The Commission reaffirms that parties must maintain compliance with the attribution criteria as any changes in a firm's assets occur. As noted in the R&O, where sudden, unforeseeable changes take place, the Commission will afford parties a reasonable time, but no more than 12 months from the time the unforeseen change occurred, to come into compliance with any ownership restrictions made applicable as a result of the change in attributable status. The Commission further notes that the scheduled repayment of loans is clearly not an “unforeseeable” or sudden event.

In addition to the issues that the petitioners raise in their petitions for reconsideration, the Commission notes that certain other issues have arisen with respect to the application of the newly adopted EDP rule. While none of the petitioners formally sought clarification on these particular issues, the Commission determines that it is in the public interest and serves its goals of promoting clarity and certainty under its regulations to provide guidance, on its own motion, on four issues.

a. Options, Warrants, and Loan Guarantees. Initially, the Commission considers how to apply the EDP rule to options, warrants, and loan guarantees. Bona fide debt, including a guarantee for a loan, is not ordinarily attributable under its rules. In addition, options, warrants, and other nonvoting interests with the right of conversion to voting interests are not ordinarily attributable until the conversion is effected. In the R&O, however, the Commission explained that the EDP approach would focus on those relationships that afford the interest holder the incentive and means to exert influence over the core operations of a licensee. For example, substantial investors or creditors that do not hold a direct voting interest may have the incentive and means, through contractual arrangements with the licensee, to exert as much, if not more, influence over some corporate decisions as voting equity holders whose interests are attributable. The Commission amended its rules to provide that where a major program supplier or same-market media entity holds a substantial financial interest in a licensee exceeding 33 percent of the total assets, that interest is attributable. In addition, the Commission amended its rules making the exemption of certain contractual arrangements, including debt and unexercised options and warrants, subject to the EDP rule.

Until exercised, options and warrants do not convey the underlying interest they entail, but they do constitute assets that are sold for consideration. Accordingly, the Commission will include the amount of consideration paid for the option or warrant in determining whether the option or warrant holder's interest is attributable under the EDP rule, and it will include any security deposit or financial contribution made by a guarantor for the guarantee of a loan in determining whether the guarantor's interest is attributable under the EDP rule. As noted, the Commission wishes to establish, so far as possible, a bright-line test that avoids the uncertainty of case-by-case review, and to premise the EDP rule on whether the extent of a financial interest is significant and is coupled with a relationship between the investor and the licensee that gives the investor an incentive to exert influence. Thus, the Commission clarifies that it will add any consideration or other amounts paid for options or warrants to any other equity or debt investment the holder has in a licensee. Similarly, it will include any financial contributions made by a guarantor, including amounts placed into escrow as security for a loan guarantee or amounts otherwise made in connection with the guarantee, to any other equity or debt investments the guarantor has in a licensee. In all cases, the Commission will then divide that aggregated amount by the total asset value of the licensee to determine whether the option or warrant holder's interest exceeds the 33 percent benchmark.

b. The Multiplier Rule. The Commission also clarifies, on its own motion, that it will use a “multiplier” in applying the EDP rule to indirect interests held in licensees. The Commission has traditionally used a multiplier under its attribution rules to determine the ownership interest of a party whose interest is held through intervening corporate entities. Specifically, attribution ownership interests in a broadcast licensee, cable television system, or daily newspaper that are held indirectly by a party through one or more intervening corporations are determined by successive multiplication of the ownership percentages for each link in the vertical ownership chain. Under the Commission's pass-through exception, however, a link in the ownership chain that represents a percentage interest exceeding 50 percent is treated as a 100 percent interest, when calculating the successive links in the ownership chain. The Commission also notes that in calculating the foreign ownership of a licensee or its parent under Section 310(b) of the Communications Act, as amended, it multiplies the percentage of interest held by each foreign investor in the successive links of the ownership chain, regardless of the amount of equity the foreign investor holds.

As the Commission does under its attribution rules in calculating whether an interest exceeds the voting stock benchmark in a corporation, the Commission will multiply the successive links in the vertical ownership chain of a licensee or other media entity to determine whether an indirect interest in the licensee or other media entity is attributable under the EDP rule. Specifically, the Commission will multiply the successive percentage interests, aggregating both equity and debt, in each intervening entity where a party holds an indirect interest in the licensee or other media outlet. Rather than applying the pass-through exception in determining whether an interest is attributable under the EDP rule, however, the Commission will multiply the percentage interest even where the interest in the link exceeds 50 percent.

In adopting the use of a multiplier, the Commission concluded that multiplication of successive interests would more realistically reflect a party's attenuated interest in a licensee where there are intervening corporations. The Commission established the pass-through exception to reflect the de jure control, rather than the de facto control, an entity might have over a licensee. Because the EDP rule applies not only to voting equity, but also to nonvoting equity and debt, the Commission will not employ the pass-through exemption to determine which interests are attributable under the EDP rule. The Commission made this same determination in the context of foreign ownership. Accordingly, the Commission will multiply the successive interests, aggregating both equity and debt, in each intervening entity, even where the interest exceeds 50 percent, to determine whether an indirect interest in a licensee is attributable under the EDP rule. The Commission also clarifies that it will use the multiplier not only in applying the EDP rule to corporations, but also to financial interests in partnerships, limited liability companies, or any other type of organizational form.

c. Interests in Multiple Stations. The Commission next clarifies how the EDP rule is applied where an investor holds an interest in an entity that owns several stations in one market or multiple stations in several markets. The issue of how to apply the EDP rule may arise, for example, where the investor holds a nonvoting financial interest amounting to over 33 percent of the total asset value of the entity that owns or is the licensee of the multiple stations. If the investor's interest is nonvoting stock, debt, an insulated limited liability company or limited partnership interest, the interest would not be attributable under the Commission's non-EDP attribution rules. If, however, the investor is either a major program supplier to a station owned by the multiple-station owner, or has a non-EDP attributable interest in another station in the same market in which the multiple-station owner owns a station, the issue arises whether the investor has, under the EDP rule, an attributable interest in all of the stations owned by the multiple-station owner. Such an issue might also arise in a case where a voting stock interest in the entity is non-attributable under the single majority shareholder exemption because the exemption is grandfathered, as discussed below.

The Commission clarifies that the investor in the foregoing case will not automatically hold an attributable interest under the EDP rule in all of the stations or media outlets owned by or licensed to the multiple-station owner. Rather, the investor will have an attributable interest under the EDP rule only in those stations or media outlets owned by or licensed to the multiple-station owner where the investor meets the triggering relationship prong of the EDP rule, i.e., the investor is a major program supplier to a station owned by the multiple-station owner, or the investor is a same-market media entity. Specifically, an investor will have an attributable interest, under the EDP rule, in any station that is owned by or licensed to a multiple-station owner and to which the investor supplies over 15 percent of the station's total weekly broadcast programming hours. An investor will also have an attributable interest under the EDP rule in a station or media outlet owned by or licensed to the multiple station owner that is in the same market as a station or media outlet in which the investor also has an attributable interest under the Commission's non-EDP attribution rules.

d. Officers and Directors. The Commission clarifies how it will apply the EDP rule to officers and directors. In doing so, the Commission follows established precedent. Under the Commission's attribution rules, the officers and directors of a parent company of a broadcast licensee, cable television system, or daily newspaper, with an attributable interest in any subsidiary entity, are deemed to have a cognizable interest in the subsidiary. The Commission will apply the same principle under the EDP rule. Each director or officer is individually attributed with the company's full equity and debt interests for purposes of applying the EDP rule. Where an entity has a financial interest in a licensee, its officers or directors will be deemed to hold that same financial interest. The Commission will not, however, treat an officer's or director's investment in a media entity as the company's investment for the purpose of applying the EDP rule.

Background. Under the single majority shareholder exemption from attribution, in a corporation in which a single shareholder owns more than 50 percent of the voting stock of the corporation, the interests of minority shareholders are not attributable. In the R&O, the Commission intended that the EDP rule would limit the availability of the single majority shareholder exemption. Thus, for example, if a minority shareholder's financial interest in a licensee amounts to over 33 percent of the licensee's total asset value and the minority shareholder is either a major program supplier to the licensee or a same-market media entity, the minority shareholder's interest would be attributable under the EDP rule, even if the licensee has a single majority shareholder. The Commission declined, in the R&O, to eliminate the single majority shareholder exemption for broadcast stations, while the Commission eliminated the exemption from its general cable attribution rules.

Discussion. One petitioner asks the Commission to eliminate the single majority shareholder exemption for broadcasters, arguing that it is arbitrary and capricious to eliminate the exemption for cable systems and not for broadcast stations. The Commission grants the request. In the Cable Attribution Report and Order (64 FR 67193, December 1, 1999), the Commission concluded that the single majority shareholder exemption should be eliminated because of its concern “that a minority shareholder may be able to exert influence over a company even where a single majority shareholder exists.” The Commission generally found in that proceeding no evidence that differences in ownership, financing, or management structures between the cable and broadcast industries warrant creating an attribution standard for applying the cable horizontal ownership, or other cable rules, that is different than the standard the Commission uses in applying the broadcast multiple ownership rules. Thus, the Commission sees no rational basis to distinguish between cable and broadcasting that would justify eliminating the exemption for the cable ownership rules while retaining it for the broadcast ownership rules.

In addition to resolving the apparent inconsistency that resulted from the Commission's decision to eliminate the single majority shareholder exemption in the cable context, eliminating this exemption from the broadcast attribution rules would promote one of its primary goals in this proceeding: to improve the precision of its attribution rules in identifying cognizable interests for purposes of its ownership rules. In adopting the single majority shareholder exemption in 1984, the Commission reasoned that minority interest shareholders “would be unable to direct the affairs or activities of the licensee on the basis of their shareholdings” where a single majority shareholder controls the corporation. The Commission therefore determined that these minority interests would not be deemed cognizable for purposes of the multiple ownership rules.

In this proceeding, as in the cable attribution rulemaking, the Commission has repeatedly stated that its attribution rules are designed to identify not only interests that enable an entity to control a company, but also interests that give an entity the potential to exert significant influence on a company's major decisions, even if the entity cannot control the company. Minority shareholders may not be able to control the affairs or activities of licensees, but, in certain circumstances, they clearly have the potential to influence a licensee's actions. Although the influence of a minority shareholder may be diminished somewhat where a single majority shareholder controls the licensee, the Commission has no reason to believe that the minority shareholder's influence is eliminated or so attenuated in such circumstances that the Commission should ignore its ownership interest for purposes of its ownership rules. Accordingly, the Commission will amend Note 2 of § 73.3555 of its rules to eliminate the single majority shareholder exemption from the broadcast attribution rules.

The Commission further concludes that the single majority shareholder exemption will no longer apply to minority interests acquired on or after the adoption date of this MO&O. Accordingly, any minority interests in a company with a single majority shareholder will be grandfathered if the interest was acquired before the adoption date of this MO&O. Grandfathering of these minority interests will be permanent until the grandfathered interest is assigned or transferred. The Commission notes, however, that grandfathered minority interests in companies with single majority shareholders remain subject to the EDP rule.

Background. An LMA or time brokerage agreement is a type of contract that generally involves the sale by a licensee of discrete blocks of time to a broker that then supplies the programming to fill the time and sells the commercial spot announcements to support the programming. In the R&O, the Commission adopted attribution rules for television LMAs. Specifically, an intra-market television LMA is per se attributable if the LMA involves more than 15 percent of a brokered station's weekly broadcast hours. In contrast, the Commission will not attribute television time brokerage agreements between stations in different markets, unless the agreements come under the EDP rule. Specifically, an inter-market television LMA is attributable only if the broker supplies more than 15 percent of a station's programming (i.e., the broker is a major program supplier), and it has a financial investment that is more than 33 percent of the brokered station's total asset value. The Commission also decided to attribute intra-market radio LMAs for purposes of applying all of its multiple ownership rules that are applicable to radio stations, not just the radio duopoly rule, as in the past.

In the R&O, the Commission decided to review the issue of grandfathering existing intra-market radio LMAs on a case-by-case basis. Specifically, the Commission concluded that it would consider the issue of grandfathering radio LMAs whose attribution as of November 16, 1999, the effective date of the newly adopted rules, resulted in ownership violations. The Commission further concluded that any interest, other than intra-market radio and television LMAs, newly attributable under the rules that would result in violations of the ownership rules, would be grandfathered if the triggering interest was acquired before November 5, 1996, the date of the FNPRM in this proceeding. The Commission determined that grandfathering would apply only to the current holder of the attributable interest, and if the grandfathered interest was later assigned or transferred, new owners would be given one year to come into compliance with the multiple ownership rules. Non-grandfathered interests, except for non-grandfathered intra-market television LMAs, must be divested to comply with the Commission's multiple ownership rules within twelve months of the date of adoption of the R&O. The Commission requires the licensee that is the brokering station to file with the Commission, within 30 days of execution of a time brokerage agreement, a copy of any such agreement, redacted as necessary, that would result in the arrangement being attributed.

Discussion. One petitioner asks the Commission to deem unlawful LMAs entered into after August 6, 1999, the date the R&O was released, arguing that LMAs are an unlawful evasion of the ownership rules that hinder diversity and competition and are no longer necessary with adoption of the revised duopoly rule; the grandfathering plan for existing LMAs protects existing equity interests; and suggests that LMAs entered into after August 6, 1999, may have been entered into to bypass the Commission's transfer or assignment authorization requirements or to prevent a competitor from obtaining a transfer. Another petitioner urges the Commission to reject the request because the Commission has already found that the record shows that a number of television LMAs have resulted in public interest benefits.

The Commission made no finding in the R&O that LMAs are per se unlawful as of any date. The Commission's newly adopted attribution rules do not preclude parties from entering into LMAs. Rather, the Commission amended its rules to make intra-market LMAs and some inter-market LMAs attributable for purposes of its broadcast ownership rules. Some LMAs are grandfathered, while interests in others may need to be divested. Parties may still enter into LMAs with the understanding that they may be subject to applicable ownership rules. Nothing suggests that Congress intended the Commission to deem per se unlawful all LMAs entered into after a certain date. Indeed, in the Conference Report on Section 202(g) of the Telecommunications Act of 1996, the conferees recognized “the positive contributions of television LMAs.” The Commission finds no reason to reconsider its decision that LMA interests may be attributable under its newly adopted rules, but that LMAs are not unlawful.

One petitioner also urges the Commission to require all existing LMAs, not just attributable LMAs, to be filed with the Commission. The Commission will not change the filing requirements for LMAs as adopted in the R&O. The attribution rules impose an affirmative obligation on licensees to determine whether a particular LMA is attributable and, if it is, to file the agreement with the Commission. Commercial radio and television licensees must also maintain copies of time brokerage agreements in their local public inspection files. As the Commission stated in the R&O, it believes a licensee's affirmative obligation in combination with its filing requirements will subject LMAs to sufficient scrutiny by competitors, the public, and the Commission. The Commission therefore reaffirms the requirement that brokering stations must file redacted copies of attributable LMAs with the Commission within 30 days of execution of the agreement.

Background. The cross-interest policy has been applied to preclude individuals or entities from holding an attributable interest in one media property (broadcast station, newspaper, cable system) and having a “meaningful” albeit nonattributable interest in another media entity serving “substantially the same area.” In the R&O, the Commission eliminated the cross-interest policy.

Discussion. One petitioner asks the Commission to reconsider its decision to eliminate the cross-interest policy, contending that the Commission has not explained why the policy should not be retained in small and medium markets and arguing that the Commission has failed to consider the impact of its decision on diversity. The petitioner argues that repeal of the cross-interest policy may result in allowing business combinations and relationships, that were not permitted under the cross-interest policy, that are not covered by the EDP rule, and that are not addressed by other rules and remedies referenced by the Commission in its R&O.

The Commission declines to reconsider its decision to eliminate the cross-interest policy. Its decision in the R&O to eliminate the cross-interest policy was based on its judgment that the regulatory costs and chilling effects of administering the cross-interest policy and the benefits of applying clear ownership and attribution standards outweigh any risks of abuses in eliminating the policy. As the Commission noted, the cross-interest policy did not prohibit the relationships it covered outright, but required an ad hoc determination as to whether the relationships at interest would be permitted. The Commission determined that the public interest would be better served by administering, to the greatest extent possible, bright line tests with respect to attribution and ownership rather than case-by-case determinations, which delay processing and involve public and regulatory costs. The Commission did not base its conclusion simply on the increased certainty that a rule-based proscription provided. Rather, the Commission carefully reviewed the interests typically addressed by the cross-interest policy and included within the ambit of the new rules those interests that the Commission concluded warranted continued limitation. Most obvious among these is the consideration of nonvoting equity and debt interests under the Commission's EDP standard.

In short, the Commission's attribution tests were based on its best judgment, after a review of the record, as to what relationships should count in terms of administering the ownership rules. The ownership rules, in turn, are based on the Commission's competition and diversity analysis. The local ownership rules do take into account the nature and size of the market. Further, the Commission also retained discretion, in an appropriate case, “to review individual cases that present unusual issues on a case-by-case basis where it would serve the public interest to conduct such a review.” Administering regulatory procedures that are, to the greatest extent possible, clear and consistent is an important aspect of the public interest.

Authority for issuance of this MO&O is contained in Sections 4(i), 303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), 403, and 405.

Paperwork Reduction Act Analysis. This MO&O contains either new or modified information collections. The Commission, therefore, as part of its continuing effort to reduce paperwork burdens, invites the general public and the Office of Management and Budget to comment on the information collections contained in this MO&O as required by the Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency comments are due 60 days from date of publication of this MO&O in the Federal Register. Comments should address: (a) Whether the new or modified collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. In addition to filing comments with the Secretary, a copy of any comments on the information collections in this MO&O should be submitted to Judy Boley, Federal Communications Commission, 445 Twelfth Street, S.W., Room 1-C804, Washington, DC 20554, or over the Internet to jboley@fcc.gov and to Edward Springer, OMB Desk Officer, 10236 NEOB, 725 17th Street, N.W., Washington, DC 20503 or over the Internet to edward.springer@omb.eop.gov.

Supplemental Final Regulatory Flexibility Analysis. As required by the Regulatory Flexibility Act (RFA), the Commission has prepared a Supplemental Final Regulatory Flexibility Analysis (Supplemental FRFA) of the possible impact on small entities of the rules adopted in the MO&O. The Supplemental FRFA is set forth in the MO&O.

As required by the Regulatory Flexibility Act (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the NPRM and the FNPRM in this proceeding. The Commission sought written public comment on the proposals in the NPRM and FNPRM, including comment on the IRFAs. The comments received were discussed in the Final Regulatory Flexibility Analysis (FRFA) contained in the R&O in this proceeding. As described below, this MO&O grants reconsideration of one action taken in the R&O and provides clarification of other issues. This associated Supplemental Final Regulatory Flexibility Analysis (Supplemental FRFA) addresses the rule modifications on reconsideration and conforms to the RFA.

The attribution rules seek to identify those interests in licensees or media entities that confer on their holders a degree of influence or control such that the holders have the potential to affect the programming decisions of licensees or other core operating functions. The attribution rules are used to implement the Commission's broadcast multiple ownership rules. The Commission's goals in this proceeding are to improve the precision of the attribution rules, avoid disruption in the flow of capital to broadcasting, afford clarity and certainty to regulatees and markets, and facilitate application processing. While its focus is on the issues of influence or control, the Commission must also tailor the attribution rules to permit arrangements where an ownership or positional interest involves minimal risk of influence to avoid unduly restricting the means by which investment capital may be made available to the broadcast industry. The rule revisions and clarifications contained in this MO&O meet these goals.

The comments in response to the IRFAs that addressed small business issues were discussed in the FRFA contained in the R&O in this proceeding. We received no petitions for reconsideration in direct response to that FRFA. In its petition for reconsideration, however, the Office of Communications, Inc. of United Church of Christ et al. (UCC) asked the Commission to eliminate the single majority shareholder exemption for broadcast stations, arguing that it is arbitrary and capricious to eliminate the exemption for cable systems and not broadcasters. Under the single majority shareholder exemption from attribution, in a corporation in which a single shareholder owns more than 50 percent of the voting stock of the corporation, the interests of minority shareholders are not attributable. The Commission grants UCC's request, finding no rational basis to distinguish between cable and broadcasting that would justify eliminating the exemption for the cable ownership rules while retaining it for the broadcast ownership rules. Any minority interest in a company with a single majority shareholder will be grandfathered if the interest was acquired before the adoption date of this MO&O. Grandfathered minority interests in companies with single majority shareholders, however, remain subject to the equity/debt plus (EDP) rule.

The rules revisions contained in this MO&O will apply to full service television and radio licensees and permittees, potential licensees and permittees, cable services or systems, Multipoint Distribution Service, Multichannel Multipoint Distribution Service, and Instructional Television Fixed Service, and newspapers. These entities are discussed in detail in the FRFA contained in the R&O at Section III.

The MO&O clarifies various aspects of the EDP rule adopted in the R&O. One clarification is to use the “multiplier” in calculating an EDP interest. Specifically, the Commission will multiply the successive percentage interests, aggregating both equity and debt, in each intervening entity where a party holds an indirect interest in the licensee or other media outlet. In calculating an EDP interest, however, the Commission will not apply the pass-through exception, which applies to indirect voting stock interests in corporations where a link in the ownership chain that represents a percentage interest exceeding 50 percent is treated as a 100 percent interest. Thus, the Commission will multiply successive interests for purposes of EDP, even where the interest exceeds 50 percent. The decision not to apply the pass-through exception is less restrictive than the traditional application of the multiplier on all entities, including small businesses.

The MO&O also eliminates the single majority shareholder attribution exemption. Elimination of the single majority shareholder attribution exemption does not affect grandfathered small entities. Elimination of the single majority shareholder exemption does not affect the Commission's ownership reporting requirements. The reporting requirements for non-grandfathered licensees may increase, however, because those licensees will be required to report interests that are newly attributable as a result of elimination of the exemption. Those entities are already required to file ownership reports with the Commission, so any additional cost associated with this reporting requirement is nominal.

The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

Under the Commission's pass-through exception to the multiplier rule, a link in the ownership chain that represents a percentage interest exceeding 50 percent is treated as a 100 percent interest, when calculating the successive links in the ownership chain. The MO&O clarifies that the Commission will not apply the pass-through exception in using the multiplier to calculate interests under the EDP rule. An alternative to this decision is to apply the pass-through exception for purposes of EDP, which would make the calculation of attributable EDP interests as restrictive on all entities, including small businesses, as those calculated under the traditional application of the multiplier.

The MO&O eliminates the single majority shareholder attribution exemption. To minimize the disruptive effect of this attribution rule change, the MO&O grandfathers entities, subject to the EDP rule, relying on the single majority shareholder exemption whose interests were acquired before the adoption date of the MO&O. An alternative to eliminating the exemption would be to leave the rule as is. In addition to the prior decision to eliminate the exemption for cable operators, however, the Commission believes that eliminating the exemption from the broadcast attribution rules will promote one of its primary goals to improve the precision of the Commission's attribution rules in identifying cognizable interests for purposes of the ownership rules.

Report to Congress: The Commission will send a copy of the MO&O, including this Supplemental FRFA, in a report to be sent to Congress pursuant to SBREFA. In addition, the Commission will send a copy of the MO&O, including the Supplemental FRFA, to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the MO&O and Supplemental FRFA (or summaries thereof) will also be published in the Federal Register.

The petitions for reconsideration or clarification are granted to the extent provided herein and otherwise are denied pursuant to sections 4(i), 303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), 403, and 405, and § 1.429(i) of the Commission's rules, 47 CFR 1.429(i).

Sections 4(i) & (j), 303(r), 307, 308 and 309 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i) & (j), 303(r), 307, 308 and 309, parts 21, 73, and 76 of the Commission's rules, 47 CFR. Parts 21, 73, 76, are amended as set forth in the MO&O.

The rule amendments set forth in the MO&O shall be effective sixty days after publication in the Federal Register.

The Commission's Consumer Information Bureau, Reference Information Center, shall send a copy of this MO&O in MM Docket Nos. 94-150, 92-51, and 87-154, including the Supplemental Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

The new or modified paperwork requirements contained in this MO&O (which are subject to approval by the Office of Management and Budget (OMB)) will go into effect upon OMB approval.

This proceeding is hereby terminated.

The final regulations that are the subject of this correction prescribed the procedures one must follow to apply for special temporary authorization to install and/or operate new or modified equipment for earth stations.

As published, § 25.120(a) contains an incomplete mailing address which could delay receipt and processing of requests for special temporary authorizations.

This is a synopsis of the Report and Order (“R&O”) in MM Docket No. 00-39, FCC 01-24, adopted January 18, 2001, and released January 19, 2001. The complete text of this document is available for inspection and copying during normal business hours in the FCC Reference Center, Room CY-A257, 445 12th Street, SW., Washington, DC and may also be purchased from the Commission's copy contractor, International Transcription Service (202) 857-3800, 445 12th Street, SW., Room CY-B402, Washington, DC. This R&O is also available on the Internet at the Commission's website: http://www/fcc.gov.

1. In this R&O we will impose a channel election requirement, requiring commercial television stations with two in-core channels (i.e., channels 2-51) to elect their post-transition digital channel by December 31, 2003. We will resolve in a subsequent rule making both priority as to channel assignment (e.g., should stations that must move to a new channel have the highest priority and get the first selection of channels that are returned) and processing issues as well as the question of whether any channels should be placed off-limits, not available for use by DTV licensees. Additionally, while full replication by DTV licensees of the NTSC service area was an important Commission objective in developing the DTV Table of Allotments and remains a key goal, we will not impose a full replication requirement. Instead, we have determined that, after December 31, 2004, whatever portion of a commercial broadcaster's NTSC Grade B contour is not replicated with its digital television signal will simply cease to be protected in the Table of Allotments. We will, however, impose a city-grade service obligation that will require licensees to encompass their communities of license with a stronger signal than that with which they had, or will have, to commence DTV operations. In this R&O, we also adopt DTV application cut-off procedures and address how we will resolve any mutual exclusivities that arise. We also address in the R&O portion of this document a host of technical issues and determine that at this time there is no persuasive information to indicate that there is any deficiency in the 8-VSB modulation system of the DTV transmission standard that would cause us to revisit our decision to deny Sinclair Broadcasting Group, Inc.’s, petition and to add COFDM to the current 8-VSB DTV standard or to grant Univision Communications Inc.’s Petition for Expedited Rule Making to that same effect. We also decline to adopt technical performance standards for DTV receivers.

2. In the Commission's digital television proceeding (MM Docket No. 87-268) we repeatedly indicated our intent to hold periodic reviews of the progress of the conversion to digital television and to make such mid-course corrections as were necessary to ensure the success of that conversion. We commenced this, the first, periodic review, with a Notice of Proposed Rule Making (“NPRM”), adopted March 6, 2000 (65 FR 15600, March 23, 2000). In that NPRM we stated that the conversion is progressing and that television stations are working hard to convert to digital television. We invited comment on several issues that we considered essential to be resolved in order to ensure that progress continued and that potential sources of delay were eliminated.

3. In the NPRM, we noted that we had decided in the DTV Sixth Memorandum Opinion and Order (“6MO&O”), 63 FR 15774, April 1, 1998, that, after the transition, DTV service would be limited to a “core spectrum” consisting of current television channels 2 through 51. Although some stations received transition channels out of the core, and a few had both their NTSC and DTV channels outside the core, we believe there will be sufficient spectrum so that at the end of the transition all DTV stations will be operating on core channels. Nevertheless, it now appears that there will be more out of core stations that must be accommodated with a core channel than we initially anticipated because new applicants will be allowed to convert their single NTSC channels to DTV operation and those on channels outside the core will be provided a post-transition channel inside the core. Also, as noted in the NPRM, the recent establishment of primary Class A TV stations may limit availability of core channels in some areas. Accordingly, the NPRM suggested a May 1, 2004, election date, but asked for comment on whether the election date should be earlier.

4. We have determined to mandate a December 31, 2003, election deadline for commercial television stations both their NTSC and DTV operations on in-core channels. This is more than one and a half years after the last commercial station construction deadline (i.e., May 1, 2002), giving these stations ample time in which to decide which of their two core channels would be most suitable for use in digital broadcasting. Setting this channel election deadline will enable us to determine at an early date, on a market-by-market basis, what channels will be available for stations having two out-of-core channels and for other users and will assist in our clearing of this spectrum. We believe that the transition process will be sufficiently along by December 31, 2003, to allow commercial broadcasters to make an informed channel selection decision. An earlier election decision will provide commercial broadcasters with more time in which to construct the replication capability prior to our December 31, 2004, “use or lose” date, also being adopted herein. The choice of this election deadline for this category of stations strikes an appropriate balance between the need for stations to have a sufficient amount of time in which to gain experience in DTV operation and allowing stations that will have to move—particularly from out-of-core to in-core—to plan for the DTV channel conversion by December 31, 2006.

5. Non-commercial stations that have both their NTSC and DTV operations on in-core channels will have until the end of 2004 to elect their channels. This later deadline allows noncommercial stations to have at least a full year of experience with their DTV operation before having to choose their post-transition channels and, accordingly, accommodates the needs of public television.

6. We will resolve in future DTV periodic reviews a decision on whether and when stations with one or both of their channels out of the core will have to make an election. We presume that, except in extraordinary circumstances, stations that have one in-core and one out-of-core channel will remain on their in-core channel after the transition. We will resolve issues relating to the particulars of the election process and procedure to later periodic reviews or publish them in Public Notices issued with sufficient time to allow for licensees to familiarize themselves with them. We will also resolve later the issue of whether any channels should be off limits. In all cases, including stations with both channels in-core, we reserve the right to select the final channel of operation in order to minimize interference and maximize the efficiency of broadcast allotments in the public interest. We intend to review the channel elected to ensure that its use furthers these goals.

7. Under the Community Broadcasters Protection Act of 1999 (CBPA), the Commission is prohibited from granting a Class A license to a low power television station operating on a channel within the core spectrum that includes any of the 175 additional channels that were referenced in the Commission's 6MO&O. In the 6MO&O, the Commission expanded the DTV core spectrum to cover, in total, channels 2-51, and we observed that this expansion would add approximately 175 additional channels to the core. The CBPA, as we noted in the NPRM, also requires the Commission to identify these 175 channels within 18 months of the Act's enactment. We thus invited comment as to whether, based on the new obligations imposed by this legislation, we are required to impose an earlier election date than May 1, 2004. After enactment of the CBPA, we concluded in our R&O establishing a Class A television service that we are currently in compliance with the requirement of section (f)(6)(B) of the CBPA that we protect the 175 channels, because these channels are now encumbered by existing NTSC or DTV allotments. (R&O in MM Docket No. 00-10, 65 FR 29985, May 10, 2000.) While a portion of these channels will become available for other parties once the broadcast licensees make their elections and begin to discontinue operations on one of their paired channels at the end of the DTV transition, we will have the opportunity closer to that stage to ensure that the CBPA's channel protection requirement continues to be met. In any event, we are establishing herein an election deadline for commercial stations that is earlier than that originally proposed.

8. We established replication as a goal in the creation of the initial DTV Table of Allotments. By this we meant that each DTV channel allotment was chosen to best allow its DTV service to match the Grade B service contour of the NTSC station with which it was paired. This approach provides important benefits to both viewers and broadcasters.

9. Thus far we have not mandated replication. We instead have allowed broadcasters to build facilities sufficient to emit a DTV signal strong enough to ensure that the predicted DTV service contour covers the community of license in order to accelerate the construction timetable and to alleviate the burdens that it placed on broadcasters. We nonetheless noted that during the first two-year review, we would consider whether to modify the build-out requirement to require a full-replication facility.

10. After considering the comments, and balancing the arguments for and against, we have decided not to require replication. We expect that DTV broadcasters will eventually choose to replicate their NTSC service areas to serve their viewers. However, we will not require such replication because we want to give broadcasters a measure of flexibility as they build their DTV facilities to collocate their antennas at common sites, thus minimizing potential local difficulties locating towers and eliminating the cost of building new towers. Some broadcast commenters have taken advantage of these measures, which we suggested in the 5R&O, and it would be unfair to them and might delay construction to require them to change these plans, if necessary, to achieve full replication. Additionally, some licensees are not operating on their core channels and it would be inefficient to require them to construct full-replication facilities on the channel that they will soon vacate. As Joint Broadcasters point out, the migration to final DTV channels is by no means complete. To require NTSC service replication by DTV stations under these circumstances would indeed be premature, would cause excessive additional expense to both commercial and noncommercial broadcasters alike, and could delay the transition. Finally, we are not requiring replication in order that broadcasters can have more flexibility to collocate their transmitters and make other necessary adjustments. As pointed out in the comments, the use of common sites can also minimize environmental degradation.

11. While we wish to assure broadcasters a measure of flexibility in constructing their DTV facilities, we continue to want to assure that viewers do not lose service and we take seriously our mandate to speed the transition and to ensure that the spectrum is used efficiently. We have determined that the best way to accomplish this objective without imposing undue cost and delay on broadcasters, and to minimize environmental effects, is not to expressly require full replication of NTSC coverage with DTV service. However, to provide an incentive to them to do so, we will, as proposed by several commenters, and as discussed in the NPRM, cease to give interference protection to their unreplicated service area as of December 31, 2004. Thus, by December 31, 2004, commercial DTV licensees must either be on-the-air replicating their April 1997 NTSC Grade B service area as of that date or lose interference protection to the unreplicated portion of this service area outside the noise-limited signal contour.

12. We view this as part of a three-stage approach to the transition to DTV. The first stage will end May 1, 2002, by which time all commercial television stations must commence digital service. Noncommercial stations will have until May 1, 2003, to complete this stage. The second stage will end at the close of 2003, when channel election will be required for all commercial stations or the close of 2004, for noncommercial stations. The final stage will be occur on December 31, 2004, at which time commercial DTV licensees will lose interference protection to those portions of their NTSC service area that they do not replicate with their DTV signal. Noncommercial DTV licensees will not lose such protection until December 31, 2005.

13. For the reasons we discussed in the NPRM, we will impose a principal community coverage requirement that is stronger than the DTV service contour requirement that we adopted as an initial obligation in the 5R&O. Such a requirement will improve the reliability of service to the community of license. However, we recognize the broadcasters' need for flexibility and will require a set of signal strengths lower than we proposed in the NPRM. We believe an appropriate balance is achieved by requiring a DTV city grade contour that is 7 dB stronger than the DTV service contour values for the pertinent channel. This is significantly less burdensome than the proposed values which would have been at least 16 dB stronger. The values we are adopting are as follows:

14. We base the 7 dB increment on two factors relating to improving the availability of service in the city of license. First, as with NTSC TV city grade requirements, we conclude that the percent of locations receiving service should be more than the fifty percent criteria that is the standard for the NTSC Grade B service contour, as well as for the DTV service contour. Increasing the DTV service availability to the best 70 percent of the locations requires about a 4 dB increase in field strength, if all other assumed planning factors remain the same. We believe it is also appropriate to assume that locations inside a station's community of license should not require a very high-gain receiving antenna normally necessary for fringe-area reception. For NTSC TV service, the assumed antenna gain for Grade B service is five or six dB more than the assumed antenna gain for Grade A service. Where a lower-gain antenna is assumed, correspondingly stronger field strength is required for service to be provided. DTV antenna assumptions are generally that higher gain antennas will be used than have been assumed for NTSC TV reception. Conservatively, we assume that a DTV receiving antenna for use in a station's city of license can be at least 3 dB lower gain than the assumed receiving antenna for the edge of the station's service area.

15. The improved availability we are providing for is consistent with recognizing that the DTV signal is substantially different from the NTSC signal. The NTSC signal strength degrades over distance from the transmitter, with picture quality declining accordingly. In DTV there are virtually no gradations in picture quality that are dependent on signal strength. If the signal strength is above a certain threshold it will produce an excellent picture. If the signal strength does not reach that threshold, the receiver's screen will freeze or go blank. The degree to which the signal exceeds that threshold requirement does not matter; the picture quality will not change and would not change even if we were to require that the community of license be provided with a more robust signal than that currently required. The higher signal level requirement should increase the number of locations where a good signal is present.

16. We recognize that some stations have spent time and money developing solutions to their coverage issues (e.g., placing the required level of signal over their community of license, avoiding co-channel and adjacent channel interference) that may result in their not being able to encompass their principal communities with the increased city-grade signal level proposed in the NPRM. In some of these cases interference has been reduced through collocation that may preclude licensees from being able to encompass their communities of license with the proposed signal level. We believe the less burdensome requirement we are adopting will not force many licensees to increase their power or move their antenna resulting in increased cost. The new, scaled-down requirement will continue to allow most broadcasters the flexibility they have requested in building their DTV facilities and we expect that they will construct expeditiously to assure that consumers and viewers have the benefit of a rapid transition to digital television.

17. Our enhanced principal community signal strength standard also helps prevent the migration of licensees from their community of license, thus furthering the purposes of Section 307(b) of the Communications Act. Their public interest obligations run to their communities of license. These requirements remain undiluted by our decision herein.

18. Although we did not solicit comment on this issue in the NPRM, and we stated that it is too early to address the needs of public television stations in converting to DTV, AAPTS/PBS request special treatment for noncommercial educational television stations. In the 5R&O in our DTV proceeding, we noted our commitment to noncommercial educational television and acknowledged the difficulties they would face in transitioning to DTV and which would require special relief measures. In recognition of these difficulties we stated that noncommercial stations will need and warrant special relief to assist them in the transition to DTV. We continue to believe, however, that it would be premature to attempt to resolve the issues raised, or grant the type of relief sought, by AAPTS/PBS in their comments. Furthermore, we believe that it would be beyond the scope of the NPRM in this proceeding to do so. As we get closer to the construction and election deadlines for noncommercial educational broadcast stations we will be in a better position to determine what further relief might be required by such stations and whether the scope of that relief needs to be on an industry-wide basis or only on a station-by-station or market-by-market basis.

19. In the NPRM, we also addressed certain issues with respect to mutually exclusive (MX) DTV applications.

20. DTV Cut-off Procedures. Based upon the record in this proceeding, we conclude that the fairest and most expedient method for determining cut-off protection for DTV expansion applications is to take a bifurcated approach. With respect to all currently pending DTV expansion applications, we establish cut-off protection as of the date of the adoption of this R&O. Therefore, all DTV expansion applications pending as of the adoption date of this R&O are cut off and will be protected against later-filed DTV applications. Later-filed DTV applications must protect applications in this cut-off group. We find that this approach, which received the support of the majority of the commenters, will create a definitive pool of applicants from which both the applicants and the Commission staff can begin to resolve mutual exclusivity issues. As the Joint Broadcasters and AAPTS/PBS observe, use of a single cut-off date for all pending DTV applications will minimize the number of MX situations and facilitate applicants' planning with respect to their proposals. A single cut-off date also provides a measure of fairness to all applicants that filed DTV expansion applications prior to the adoption of the R&O by allowing all of them to be considered as part of one cut-off group. Because most television licensees have filed their DTV expansion applications, providing cut-off protection to all pending DTV applications will adversely affect only the limited number of licensees that will be filing such DTV applications in the future. Finally, selection of the adoption date of the R&O as the cut-off date will prevent a possible rush of hasty and possibly defective DTV filings filed merely to preserve rights that might occur if we were to announce a later cut-off date.

21. Fox and KM Communications, Inc., proposed that we apply first-come, first served processing to the pending DTV applications. Under their approach, all pending DTV applications would be cut-off on the day they were filed. We decline to adopt such an approach. First, we recognize that there was an extended period of time over the past several months during which we permitted DTV applications to be filed without indication that applicants needed to expedite their filings or lose out on an opportunity to expand their DTV allotments. It would be unfair to retroactively apply first-come, first served processing to those applicants, such as noncommercial and smaller market licensees, that, as permitted, followed our staggered DTV implementation schedule and waited until their later deadlines to file their applications. In addition, we find that such an approach would not achieve the expected results. We have previously found first-come, first-served processing to be a desirable method of application processing because it avoids a large number of MX applications while also providing applicants with a level of certainty that their filing will not conflict with undiscovered earlier-filed applications. However, in this case, since so many of the pending DTV applications were filed in large batches on the same day because of Commission-mandated DTV deadlines (November 1, 1999, and May 1, 2000 being the prime examples), these applications would remain MX, with the intended benefits of first-come, first-served processing not being realized.

22. As for future DTV expansion applications filed after the adoption date of this R&O, we will adopt the proposal in the NPRM and we will consider such applications cut-off as of the close of business on the day they are filed. Under this day-to-day cut-off approach, conflicting later-filed applications would have to protect the earlier-filed, cut-off application. Unlike the case with the large number of currently pending DTV applications, we find that the benefits of this type of application processing can be realized with respect to the anticipated relatively small number of future DTV applications. Adoption of day-to-day cut-off processing for new DTV expansion applications will not only help to avoid a larger number of mutually exclusive applications the processing of which could delay expediting DTV service to the public and provide certainty for future applicants, but will also encourage potential applicants to file quickly for improved facilities and thus help speed the introduction of DTV service to the public.

23. We decline to adopt a moratorium on the filing of new DTV expansion applications, as suggested by some commenters. Since many licensees filed their DTV expansion or maximization applications by May 1, 2000, the date set by the CBPA after which such applications would have to protect on new Class A television stations, we find it unlikely that a large number of additional stations will be filing DTV expansion applications. Furthermore, the procedures we adopt herein for resolving the pending MX applications will result in an expedited resolution of such.

24. Resolving Mutually Exclusive DTV Applications. We find that the best approach to resolving MX DTV expansion applications is to follow our existing DTV new station application procedure. First, we will continue to identify and grant all checklist, non-checklist, and maximization applications that are not predicted to create or receive impermissible levels of interference. The staff will identify via public notice those groups of MX applications that are related either by direct or indirect mutual exclusivities. The applicants will then be permitted a period of time, as discussed below, to resolve their MX situation through engineering solutions or settlement. The applications that remain MX following this settlement period would then be dismissed. We agree with those commenters that recognized that this type of private resolution of MX situations affords the parties greater flexibility than Commission imposed solutions, and avoids the burdens of costly and more time consuming regulatory proceedings. We will not adopt the proposed “safety valve” proposed by the Joint Broadcasters. However, in this regard we will consider on a case-by-case basis waivers of the de minimis interference limits (between applications) in cases of particular hardship where MX applicants demonstrate that their DTV applications were filed because they were required to relocate their proposed facilities for zoning or technical reasons.

25. Furthermore, we decline to use auctions to resolve MX DTV applications would not serve the public interest. We stated in the NPRM that, while we are precluded from Section 309(j) from auctioning initial DTV replacement licenses, it does not appear that a digital area-expansion application would constitute such a replacement. Some commenters, however, pointed out that many initial applications request area-expansion. Furthermore, even those DTV expansion applications that seek to modify a DTV construction permit or seek a construction permit to change an existing DTV facility could be viewed as components of the replacement of analog television service. Therefore, it would take a time consuming, case-by-case approach to determine whether individual DTV applications were subject to auction. Given the extended length of time for such analysis, the strain on staff resources, and the difficulty in making such a determination, we find that use of auctions would not be a workable solution to resolving MX DTV groups. In addition, there are other public interest reasons why we believe that auctions would not be the best method for resolving DTV mutual exclusivity. The use of auctions could encourage applicants to take steps to avoid siting their DTV facilities in proximity to the DTV facilities of other licensees in order to avoid an MX situation and possible auction. This would undermine our stated goal of encouraging the collocation of DTV facilities and sharing of facilities. Finally, we agree with the Joint Broadcasters that auctions of DTV expansion applications could be difficult to administer since they could involve “daisy chains” of direct and indirect MX groupings and may cause delay to the overall DTV implementation process.

26. As for the length of the settlement period, we will limit the settlement period to 90 days during which applicants must either find an engineering solution or otherwise propose a settlement that would resolve their mutual exclusivities. These settlement periods will be announced by the staff in future public notices. While we encourage applicants to utilize all means possible to resolve their mutual exclusivities, including third-party mediation if they desire, we will not permit additional time for parties using such measures. We conclude that a 90-day settlement period strikes a fair balance between permitting applicants ample time and opportunity to resolve their mutual exclusivities and expediting the processing of pending DTV expansion applications.

27. As noted above, in addition to permitting applicants in MX groups to propose engineering solutions to resolve their mutual exclusivities, we will also permit applicants to enter into settlement agreements whereby one or more applicants may agree to change their proposed facilities or dismiss their expansion application altogether in exchange for compensation. In an effort to provide additional flexibility and to hasten the settlement process, we will waive the provisions of 47 CFR 73.3525(a)(3) which limit the monetary settlement of pending applications to the legitimate and prudent expenses of the applicant. All other provisions of 47 CFR 73.3525 will continue to be applied to these settlements. We find that the public interest will be served by waiving the monetary limitation because it will result in the resolution of more MX DTV groups, the grant of a greater number of DTV expansion applications, and expedited DTV service to the public. We also remind DTV applicants seeking engineering solutions or settlements to resolve their MX groups, that all such engineering solutions and settlements must be submitted in writing for staff review pursuant to 47 CFR 73.623(g). As that section provides, concerning negotiated agreements on DTV interference, “applications submitted pursuant to the provisions of this paragraph will be granted only if the Commission finds that such action is consistent with the public interest.”

28. Finally, we recognize the comments of the Joint Broadcasters that adoption of a cut-off procedure and method for resolving MX DTV applications necessarily means that we must revise our existing maximization procedures as adopted in the Second Memorandum Opinion and Order, 64 FR 4322, January 28, 1999 (“2MO&O”) in the DTV rulemaking proceeding. In that decision, we adopted a procedure whereby DTV maximization applications with power levels above 200 kilowatts would be placed on public notice and interested parties would be given 30 days to object to an expansion proposal by stating that the proposed change would impact upon their future plans to maximize their own DTV operations. The applicant and objecting party would then have 30 days to resolve the conflict and, in the event they are unable to do so, the DTV above 200 KW maximization application would be dismissed. The Joint Broadcasters are apparently concerned that, left untouched, the maximization procedures set forth in the 2MO&O would be inconsistent with the cut-off and MX procedures we are adopting herein. We agree, and we replace the maximization procedures set forth in the 2MO&O with our new cut-off and MX procedures. Accordingly, the temporary 200 kW cap on power increases for UHF DTV stations is no longer necessary and is removed.

29. Application Processing/Protection Priority. After consideration of the comments, we adopt a system of priorities similar to that proposed in the NPRM, and we give priority to DTV expansion applications over all NTSC applications except NTSC applications that fall into one of the following three categories: post-auction applications (i.e., the long form application [FCC Form 301] filed by the winning bidder following the completion of a broadcast auction), applications proposed for grant in pending settlements, and any singleton applications cut-off from further filings. We estimate that there are approximately 20 applications in these three categories. The cut-off singleton applications remain pending for a variety of legal and technical reasons. These NTSC applications must have been accepted for filing in order to be protected from DTV expansion applications. In the future, when a party files a DTV expansion application, it must determine whether there are NTSC applications on file in any of the three above categories and provide interference protection to them. As for pending DTV expansion applications and NTSC applications, if an earlier-filed DTV expansion application conflicts with an NTSC application in one of the these three categories, we will consider these applications MX and follow our above-outlined procedures for MX applications—that is, we will require that the parties resolve their MX within 90 days or we will subsequently dismiss both applications. Additionally, we will require NTSC applications to protect facilities proposed by DTV applicants even if the DTV application was filed while the NTSC application is pending. We believe that our goal should continue to be expedited implementation of DTV service. We find that the above system of priorities will further that goal, while at the same time recognizing the need to continue to provide viable NTSC service until the DTV transition is complete and not disrupting the settled expectations of these NTSC applicants that may have relied on existing procedures in the reasonable belief that their applications would receive protection.

30. We will condition the grant of all future NTSC minor change applications on acceptance of interference from any proposed DTV facility which was filed on or before the NTSC grant date.

31. With respect to pending petitions for rule making for new or modified DTV allotments, where an NPRM has been adopted and the comment deadline on the petition for rule making has passed, we will consider such petitions as “cut-off” as of the comment deadline. In that case, if there is an earlier-filed pending DTV expansion application that conflicts with the petition, we will consider the petition and application(s) as MX and, once again, follow our above outlined procedures for MX applications. Pending DTV expansion applications that are filed after a DTV petition is cut-off on its comment deadline will have to protect the facilities proposed in the DTV petition. If the pending DTV petition has not yet been cut-off as of the adoption date of this R&O, then, because we will have cut off all pending DTV expansion applications, we will consider the petition and any conflicting DTV expansion applications as MX and use our above-outlined procedures to resolve them.

32. With respect to future petitions for rulemaking that are filed for new or modified DTV allotments, we will continue our current practice of providing cut-off protection to such petitions on their comment deadline. Therefore, in the future, when an interested party files a DTV expansion application, it must provide protection for any DTV rulemaking petition for which the comment deadline has passed. Also in the future, new DTV petitions will be required to protect all earlier-filed DTV expansion applications, given our newly adopted day-to-day cut-off procedure for such application.

33. In this section, we address several comments that request action on technical issues.

34. ATSC DTV Standard. The Advanced Television Systems Committee (ATSC) is the organization that developed the “ATSC DTV Standard,” most of which we adopted as our DTV broadcast standard in the Fourth Report and Order, 62 FR 14006, March 25, 1997 (“4R&O”) in the DTV proceeding. Title 47 CFR 73.682(d) requires that broadcast DTV transmissions comply with standard ATSC Doc. A/53 dated September 9, 1995, except for its constraints on video formats. In comments, ATSC reports that, since adoption of the 4R&O, it has made several changes to the Doc. A/53 standard including removing constraints associated with the “program paradigm,” updating references to the underlying MPEG standards, replacing references to obsolete ATSC standards for Electronic Program Guide and System Information with a reference to a new ATSC Doc. A/65 for Program and System Information Protocol (PSIP), and requiring a signal when colorimetry other than that defined by standard SMPTE 274M is used. The PSIP specification provides for the transmission of system information and program guide data for broadcast DTV stations, enabling the identification of service channels and digital bit streams, and allowing receivers to generate electronic program guides. It also provides for selection through the program guide function of the type and language of closed captioning to be viewed and transmission of program ratings information to allow parents to use “v-chip” technology. ATSC also indicates that it is considering an increase in the maximum allowable audio bit rate.

35. ATSC urges the Commission to revise the rules to reference the latest version of the ATSC DTV Standard A/53 and to require use of the ATSC PSIP Standard A/65. ATSC further requests Commission action to assure that “major channel numbers” in the PSIP are used properly, the assignment of transport stream identifier (TSID) parameters is properly administered, and that closed captioning and content advisory information conforms with the PSIP Standard. “Major channel number” is part of the DTV bit stream specified in the PSIP standard and used to identify the terrestrial broadcast station (or cable or satellite source) providing the DTV program(s). Where a station is transmitting multiple programs, it uses “minor channel numbers” to distinguish among them. Within each television market, each programming source (terrestrial DTV broadcast stations as well as cable or satellite DTV channels) must have a unique “major channel number” so DTV receivers can be tuned to the desired stations and programs. In addition, the PSIP standard uses a “TSID” to uniquely identify transport streams, again to allow DTV receivers to tune between programs arriving from different sources. Finally, ATSC suggests the Commission encourage use of additional supplementary ATSC standards, including those concerning conditional access and data broadcasting.

36. In ET Docket No. 99-34, we sought comment on whether coordination committees and a national coordinator could assist in the administration of the DTV system by assigning the unique PSIP station identifier and negotiating the naming and numbering of channels among broadcasters in local markets. We continue to believe that an industry approach is generally the most appropriate means for managing the implementation of a PSIP system. However, we do recognize that the transport stream identifiers (TSIDs) must be unique to each individual television station and that there is a need to coordinate TSID assignments for stations in the border areas with our neighbors in Canada and Mexico. We therefore agree that TSID assignments should be made part of the Commission's licensing process for broadcast television stations and will begin the process to incorporate this function into that process in the near future. Until negotiations with Canada and Mexico on this matter are complete and we have modified our licensing process and records management systems, we will continue to rely on the industry to make TSID assignments.

37. Distributed transmission and boosters. The Merrill Weiss Group (Merrill Weiss), supported by Pappas and Penn State University, and ADC Telecommunications, urge the Commission to adopt rules for on-channel DTV boosters, including allowance for a distributed transmission system. Merrill Weiss defines distributed transmission as being similar to a cellular telephone system in that a service area is divided into a number of cells, each served by its own transmitter. Distributed transmission differs from a cellular telephone system in that all adjacent cells use the same frequency (a “single-frequency network”). DTV boosters also retransmit the primary DTV station's same program on the same channel.

38. While we recognize the desire to initiate DTV booster operations, we believe there are fundamental issues surrounding their authorization and protection that must be addressed in a more comprehensive manner than can be accomplished based on the limited record on this issue in this proceeding. Therefore, we will defer this consideration to the rulemaking proceeding on digital LPTV and DTV translator stations that we expect to initiate within the next few months.

39. Computer program used for application processing. Several concerns are raised in comments about elements of the Commission's interference analysis program used in processing applications. Hammett and Edison seeks changes in the way the program treats the return of an “Error Code 3” message from the Longley-Rice propagation model. An “Error Code 3” message is given when internal Longley-Rice program calculations show parameters are out of range and that reported results are dubious or unusable. The message is returned when the calculation of the actual distance to the horizon from a given cell or transmitter location is less than 0.1 times or greater than 3 times the distance to the smooth earth horizon. Hammett and Edison also seeks a change to the program's calculation of the depression angle from a transmitting antenna to a cell and requests that the program be changed to allow use of the actual transmitting antenna elevation patterns rather than the generic pattern. AFCCE recommends that the cell size and spacing increment should be reduced as necessary to accurately depict terrain and population distribution.

40. We recognize that this is a very complicated analysis. We have found it necessary to balance ideas and recommendations for refining the program with the disruption and uncertainty that would occur when a change is made. In the case of each of these proposals, we believe that the disruption of altering the program would be more severe than warranted by the possible improvement in the accuracy of the analysis results provided by the program. In the case of the “error code 3” request, we note that we previously indicated that the assumption of service was appropriate where the Longley-Rice propagation model indicates that results are unreliable because it is similar to the situation where, for many purposes, all locations within an NTSC TV station's Grade B service contour are assumed to receive service. While Hammett and Edison submits the results of its study regarding the prevalence of the problem, our review of its information reveals no benefit that would warrant reversing our earlier decision.

41. We have an administrative process that relies on comparison of interference and service predictions with the analysis performed in creating the table of allotments. Recalculating the entire table would be an enormous undertaking. Additionally, reconciling calculations using a new methodology with the table calculations based on different methodology is difficult and likely to result in uncertainty in the results and contested decisions.

42. We believe the best balance of accurate interference prediction and administrative certainty can be achieved with the analytical methods that we used to develop the initial table, which is consistent with the comments of AFCCE. AFCCE recommends continuing to use the established methods of determining the grade B contour for predicting an NTSC station's service and determining a DTV service contour using the F(50,90) propagation model as the first step in predicting DTV service. AFCCE also recommends that use of Longley-Rice analysis and the relevant DTV planning factors be continued. We believe this can be best achieved by maintaining the normal processing analysis based on the methodology established in creating the table. However, in a special case, where one of the suggested revisions would improve the accuracy of the analysis and would make a critical difference, an application may contain a showing using an alternate analysis in support of a waiver request.

43. Release of evaluation software. Everist requests that the Commission immediately release all software to the public that it uses in its DTV evaluation procedures. Some of the software requested by Everist is still in a development and testing phase and we believe it would be premature and, indeed, confusing to release it to the public while it is undergoing review and revision. Software that is relied upon in processing TV and DTV applications has been, and will continue to be, made available to the public in the same way that evaluation software for other video broadcast services is made available.

44. DTV Planning Factor—Assumed Receiving Antennas. Hammett and Edison objects to the assumed receiving antenna pattern for NTSC reception being different from the assumed receiving antenna pattern for DTV reception in OET-69 interference calculations.

45. At this time, we do not have a basis for changing these criteria. The receiving antenna assumptions were considered in the Advisory Committee on Advanced Television Systems and were part of its recommendation to the Commission. There has been no consensus developed in the industry that changing the receiving antenna assumption is appropriate. We therefore see no merit in changing the assumed NTSC and DTV antenna patterns. Also, changing the assumptions now would alter the interference analysis methodology, which, as discussed above, could disrupt processing and create uncertainty.

46. Change in Census Population Data. Everist asks whether the Commission will permit updated Census Bureau population estimates to be used for service and interference calculations as they become available. As a related matter, AFCCE recommends that the geographic center instead of the population centroid of each cell be used in the Longley-Rice analysis. The effect of this change would be to make the analysis of whether a cell is served or interfered-with independent of the population data the analysis is based on (because the precise location that is considered to represent the cell would be fixed at the middle of the cell and not shifted to a location that depends on the population distribution within the cell).

47. At this time, we have not made plans to convert our processing analysis to use new census data. New census data would necessitate re-evaluation of the entire DTV table to establish “baseline” values against which application proposals can be measured. Again as above, additional information about population shifts can be submitted with an application where such information is crucial and decisional. Also, if, in the future, we consider using new census data, we can consider then the AFCCE recommendation concerning the use of the geographic center of each cell.

48. Maximum power clarification. Title 47 CFR 73.622(f)(5) provides that licensees assigned a DTV channel in the initial DTV Table of Allotments may request an increase in either Effective Radiated Power (ERP) in some direction or antenna Height Above Average Terrain (HAAT) that exceeds the initial technical facilities authorized for the allotment. Such increases are limited to maximum powers specified in paragraphs (f)(6) through (f)(8) of that section. Where specified antenna HAAT values are exceeded, the maximum ERP generally is reduced in accordance with the appropriate chart or formula in those paragraphs. Paragraph (f)(5) also allows the maximum ERP and HAAT combination to be “up to that needed to provide the same geographic coverage area as the largest station within their market, whichever would allow the largest service area.” AFCCE, Everist and Hammett & Edison, each requests clarification of the term “geographical coverage of the largest station in the market” for determining maximum power and antenna.

49. We take this opportunity to clarify this rule. First, the maximum ERP limits (1000 kW for UHF channels 14-69 in any zone; 30 kW for VHF channels 7-13 in Zone 1; 160 kW for VHF channels 7-13 in Zone 2 or 3; 10 kW for VHF channels 2-6 in Zone 1; and 45 kW for VHF channels 2-6 in Zone 2 or 3) may not be exceeded. The “largest station” provision applies only where the rules normally require a reduction in the maximum power because a specified antenna HAAT is exceeded. That is, it does not allow power higher than the maximum ERP to compensate for an antenna HAAT that is lower than the value specified in the rule. Second, the “largest station” provision is only triggered where a station in the same market is serving a larger area than could be covered with the standard maximum power and antenna height specified in 47 CFR 73.622(f). Otherwise, applicants must comply with the maximum power and antenna height in that rule section. Third, for the purpose of this rule, stations in the same DMA are considered to be in the same market. Fourth, the geographical coverage determination is based on the area within the DTV station's noise-limited contour, calculated using predicted F(50,90) field strengths as set forth in 47 CFR 73.622(e) and the procedure specified in 47 CFR 73.625(b). Under this provision an application may not request a power and antenna height combination that would result in coverage of more square kilometers of area than the largest station in the market. It is not necessary that the application specify coverage that is congruent with or encompassed by the coverage area of the largest station. Stations are not expected to shift their coverage area in order to use this provision of the maximum power rules. Finally, DTV stations are still subject to the interference protection requirements, even when availing themselves of this provision.

50. Directional Antenna Definition and Interference Creating NTSC White Areas. Everist seeks clarification on the definition of a non-directional and a directional transmitting antenna. He also asks about incremental creation of white or underserved areas as DTV stations are authorized based on creating de minimis interference to the Grade B service of NTSC TV stations.

51. In both of these matters, we believe it is appropriate to continue the NTSC TV practice. Title 47 CFR 73.625(c)(2) defines a DTV directional antenna as one “designed or altered to produce a noncircular radiation pattern in the horizontal plane * * *.” Title 47 CFR 73.685(e) defines an NTSC TV directional antenna as one “designed or altered to produce a noncircular radiation pattern in the horizontal plane * * *.” Therefore, the DTV and NTSC rules defining directional antennas are identical and the practices and policies that have been applied to NTSC directional antennas will also be applied to DTV directional antennas. With regard to white area or underserved area determinations, we note that 47 CFR 73.684(a) concerning NTSC TV station prediction of coverage specifically indicates that “predictions of coverage made pursuant to this section shall be made without regard to interference * * *.” Therefore, as has been the case with NTSC interference, we will not consider the effect of DTV interference on analysis of white areas or underserved areas.

52. Closed Captioning for Digital TVs. Motorola addresses an issue of compatibility of DTV closed captioning with an existing digital cable closed captioning technology. Motorola is concerned that this issue could lead to a delay in the DTV transition, so it includes an analysis that it also submitted in ET Docket 99-254.

53. The R&O in ET Docket No. 99-254, 65 FR 58467, September 29, 2000, has addressed this matter and no further action is necessary herein.

54. NTSC Group Delay Blanket Waiver. Hammett & Edison requests a blanket waiver of the envelope delay requirement in 47 CFR 73.687(a)(3) for NTSC stations with upper-adjacent channel DTV assignments that combine their NTSC and DTV signals and use a common transmitting antenna.

55. We agree with Hammett and Edison that a blanket waiver is appropriate for this situation. Therefore, we authorize all NTSC TV stations with a DTV signal on the first-adjacent channel above the NTSC channel and with a common transmission line and antenna, to operate at variance with the envelope delay requirements of § 73.687(a)(3) for frequencies between 3.9 and 4.2 MHz above the visual carrier.

56. Canadian Border Zone. AFCCE urges the Commission to resolve Canadian border zone issues in an expeditious fashion. We believe this concern has been resolved. A Letter of Understanding with Canada was signed September 12 and 22, 2000, and announced in a Public Notice released September 29, 2000.

57. Data Base Inconsistency. Everist is concerned that the new Mass Media Bureau Consolidated Data Base System (CDBS) should be validated. He states that where old terrain elevation data that is inconsistent with current determination of terrain elevation, it can turn an otherwise “checklist” application into a “non-checklist” application because it will show the antenna height differing from that authorized by more than ten meters.

58. Errors and inconsistencies in the CDBS that we have discovered have been corrected and resolved. However, this is an on-going process. As for the criteria for “checklist” treatment, we decline to alter it at this time. We now have the capability to process “non-checklist” applications expeditiously (and to quickly grant those applications that do not raise interference concerns and would have been considered checklist except for failing to meet the power or HAAT limits to be defined as checklist). Thus, there is not a significant benefit to an application being designated as checklist.

59. Sanctioning a Government-Industry Committee Similar to TASO. AFCCE recommends that the Commission sanction the formation of a government-industry advisory committee to deal with application processing issues, as well as a “TASO”-like committee to help resolve DTV allotment and service issues. TASO is the Television Allocations Study Organization, which was formed in the 1950s by the television broadcast and consumer electronics industries at the request of the Commission to study the technical principles that should be applied in television channel allocations. At this time, we believe it is preferable to allow current industry efforts to continue without interruption. Significant activity is underway and we do not wish to slow it down or prevent it from reaching possible resolution of the issues that are being addressed. In the future, if circumstances warrant, this matter may be revisited.

60. Method for determining 85% criteria for extending end of the transition. California Oregon Broadcasting, Inc. urges the Commission to consider how it will implement the 85% DTV reception criteria for extending the end of the transition beyond 2006. It is too early in the transition to initiate consideration of this matter. We expect to consider it in a future review proceeding.

61. Biological effects of RF radiation. Carole Lomond opposes introduction of DTV signals in any residential environment until concern over biological effects of nonionizing electromagnetic radiation is resolved. Lomond provides no evidence to warrant re-evaluating our RF exposure regulations. We therefore decline to consider this issue in the context of this DTV review proceeding.

62. Other technical issues. Everist requests clarifications and explanations of a number of other technical matters. We are unable to address all of these in the context of this proceeding. Many of the issues he addresses have not yet arisen in processing and in the case of others his concerns are not clearly described. As these issues come up, we will resolve them individually on a case-by-case basis. If principles emerge from this practice, we will describe them in a Public Notice.

63. In the NPRM, we observed that some broadcast entities had raised concerns regarding the 8-VSB modulation system used in the ATSC DTV Standard adopted by the Commission as the transmission standard for digital broadcast television signals. We stated that while we continue to believe that NTSC service replication is achievable by DTV operations using the 8-VSB standard, we recognized that some parties within the broadcast industry had recently raised various issues with respect to this standard. In particular, we noted that the Sinclair Broadcasting Group, Inc. (Sinclair) had previously filed a Petition for Expedited Rulemaking urging that we modify the rules to permit the use of an alternative modulation method, coded orthogonal frequency division multiplexing (COFDM), in addition to the 8-VSB standard. In its petition, Sinclair argued that COFDM modulation offered easier reception with simple antennas and would enable broadcasters to provide fixed, mobile and portable video services. We dismissed Sinclair's petition, indicating that we continued to believe that NTSC service replication is achievable by DTV operations using the 8-VSB standard. However, we also indicated that we would address the concerns raised by Sinclair and others about the 8-VSB modulation standard in the context of this proceeding. In the NPRM, we therefore invited comment on the current status of the 8-VSB DTV standard. We specifically requested comment on the progress being made to improve indoor DTV reception under the existing transmission standard and manufacturers' efforts to implement DTV design or receiver improvements. We also asked commenting parties to submit information regarding any additional studies that may have been conducted regarding NTSC replication using the 8-VSB standard.

64. Parties primarily representing some broadcast interests express continuing concern about the ability of the 8-VSB standard to support reliable reception in areas where there is strong multipath, and submit that this deficiency must be corrected. These parties generally argue that the Commission should actively investigate both 8-VSB and COFDM and should consider a change to COFDM if that system is shown to be superior to 8-VSB. Sinclair and several others continue to argue that broadcasters should be given the option to use a COFDM system for transmitting their DTV signals. Other parties representing broadcasters, consumer electronics equipment manufacturers and consumers urge the Commission to maintain the current 8-VSB modulation standard for DTV transmissions. These commenters generally state that 8-VSB is the most suitable modulation standard for DTV service for North America and that the current concerns about reception in areas where there are high levels of multipath are being addressed through receiver improvements.

65. We also observe that a group of broadcasters, including many of those participating in the Joint Broadcasters comments, has recently completed a program of DTV receiver testing. The industry study, among other things, compared reception of 8-VSB and COFDM signals at a large number of locations in those markets. This study took measurements outdoors at the 30-foot antenna height assumed in the DTV planning factors and at 6-feet using simple antennas typical of indoor reception. Some actual indoor measurements were also taken. One of the objectives of the industry tests was to determine whether COFDM should be added to the current 8-VSB standard. The report on the industry 8-VSB/COFDM comparison tests (8-VSB/COFDM Report) indicates that at the 30-foot receive antenna height, 8-VSB was received at a greater percentage of sites than COFDM. This was true at all distances from the transmitter. In addition, 8-VSB performed better up to the furthest distances measured from the transmitters (55 miles). It also states that at the 6-foot receive antenna height, using a simple antenna, COFDM was successfully received at more sites than 8-VSB in Washington, while 8-VSB was successfully received at more sites in Cleveland. It notes that successful reception of either system at the 6-foot height was achieved at less than 50% of the test locations. The 8-VSB/COFDM Report further indicates that in the case of indoor measurements, the percentage of successful reception was similar for both 8-VSB and COFDM, with 8-VSB holding a slight advantage. However, successful indoor reception was achieved at only about 30% of the test locations.

66. Based on these test results, the industry has reaffirmed their endorsement of the VSB standard and concluded that there is insufficient evidence to add COFDM to the U.S. DTV broadcast standard. In this regard, on January 15, 2001, the Boards of Directors of MSTV and NAB issued the following joint resolution:

67. These new studies bear out the conclusions of the OET's DTV Report that the relative benefits of changing the DTV transmission system to COFDM are unclear and would not outweigh the costs or delays involved in making such a revision. Accordingly, based on our review of the record, the demonstrated improvements in DTV receiver performance, and the findings and recommendations of the industry, we find that there is no reason to revisit our decision to deny Sinclair's petition. Consequently we will not reopen the issue of the Commission's DTV standard.

68. In the NPRM, we discussed the desirability of setting receiver performance standards and recognized that some broadcasters have recommended that we address over-the-air DTV signal reception issues by setting receiver performance thresholds. We therefore requested comment on the desirability of adopting minimum performance levels and asked, if we were to adopt such requirements, how they should be structured, including timing considerations.

69. In the 6MO&O in the DTV proceeding, we stated that we believe that competitive market forces will ensure that DTV receivers perform adequately. We noted that receiver performance involves trade-offs among many different factors and that manufacturers are in the best position to determine how these trade-offs should best be made to meet consumer demand. We further stated, however, that we would continue to monitor this area through the DTV implementation process and that we would take regulatory action if needed. As indicated above, DTV receiver manufacturers, driven by market forces, are continuing to make significant improvements in their products, particularly in the area of indoor reception and multipath signal handling capabilities. These efforts are consistent with our earlier assessment that those producing receivers are in the best position to determine how to make trade-offs in performance factors to best meet consumer needs. We therefore continue to believe that it would be undesirable to set rigid performance standards for DTV receivers at this time. We will, however, continue to monitor receiver issues throughout the transition and will take appropriate action on receiver standards if necessary.

70. In the NPRM, we invited comment on any critical unresolved tower siting issues and how they affect the progress of the digital transition. We asked whether broadcasters are able to secure necessary tower locations and construction resources and whether and to what extent zoning disputes, private negotiations with tower owners, and the availability of tower construction resources affect the transition.

71. The comments generally affirm our preliminary assessment in the NPRM that, while some stations are facing problems with tower availability and/or local zoning issues, such problems do not seem to be widespread at this time. The Commission intends to continue to monitor the situation to forestall and/or remedy problems through these entities, as requested by NAB.

72. Additionally, in the NPRM we invited comment on copy protection and cable compatibility issues. Recently, the Commission issued orders in other proceedings dealing with both issues, obviating the need for action to be taken herein. In our recent FNPRM in the navigation devices proceeding (FNPRM in CS Docket No. 97-80, 65 FR 58255, September 28, 2000), we noted that, unlike in the analog context, digital technology enables users to make an unlimited number of virtually perfect copies of digital content. However, digital technology also can enable copyright holders of digital content to prevent misuse of copy protected material through methods not previously available. In the Declaratory Ruling we found that some measure of anti-copying encryption technology is consistent with our navigation devices rules because it protects a gap where digital data would otherwise be available “in the clear” and subject to unrestricted digital copying. Accordingly, we clarified that the inclusion of some amount of copy protection within a host device does not violate the navigation devices rules. In the NPRM, with respect to cable compatibility, we invited comment on the extent to which a failure of industry parties to reach agreement on labeling of digital receivers would hinder the transition. Subsequently, in our recent R&O concerning compatibility between cable systems and consumer electronics equipment (R&O in PP Docket No. 00-67, 65 FR 64388, October 27, 2000) we adopted rules providing for the labeling of DTV receivers to ensure that consumers will be fully informed about the capabilities of DTV receivers to operate with cable television systems. We provided for labels with regard to three categories of DTV receivers, depending upon several characteristics. Because additional industry work is still required for design specifications for the Digital Cable Ready 3 category, we stated that the record would be kept open in PP Docket No. 00-67 in order to provide us with the option of incorporating these anticipated specifications into our rules at a later date. This labeling scheme will permit consumers to make well-informed decisions about DTV equipment purchases based on a clear understanding of receivers with different labels.

73. Additionally in that proceeding, we required the consumer electronics and cable television industries to report back to us on their progress in developing technical standards in two areas: Direct connection of DTV receivers to digital cable television systems, and the provision of tuning and program schedule information to support on-screen program guides for consumers. These two issues have been substantially, but not completely resolved in an agreement between the National Cable Television Association and the Consumer Electronics Association.

74. In sum, substantial progress has been made with respect to both copy protection and DTV receiver/cable compatibility. We see no need for further action at the present time in this proceeding with respect to these important issues and will continue to monitor and consider those issues in the foregoing separate proceedings.

1. At the outset of this proceeding we stated that the conversion to digital is progressing and television stations are working hard to convert to DTV. The comments we received in response to the NPRM have mostly further confirmed our initial impressions. We believe that the conversion is, indeed, making progress and that the actions we are taking, and proposing, herein will hasten this transition. Particularly, our choice of an early channel election for commercial licensees and our decision not to require replication of NTSC service should well conduce to allowing stations to make plans and purchase equipment at the earliest practicable times. We will continue to monitor the progress toward the DTV conversion and will in future reviews take those actions needed to accomplish a smooth transition by December 31, 2006.

76. Paperwork Reduction Act Analysis. This R&O has been analyzed with respect to the Paperwork Reduction Act of 1995, and found to impose no new or modified reporting and recordkeeping requirements or burdens on the public.

77. Final Regulatory Flexibility Analysis. As required by the Regulatory Flexibility Act (RFA), the Commission has prepared the following Final Regulatory Flexibility Analysis (FRFA) of the possible impact on small entities of the rules adopted in this R&O.

78 As required by the Regulatory Flexibility Act (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the NPRM. The Commission sought written public comment on several issues concerning the transition to digital television (DTV), including comment on the IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

79. Need for, and Objectives of, the R&O. As described in the R&O, the nation's television system is currently engaged in the transition from analog to digital television. As part of that transition, all television broadcasters will have to file applications of various types. This might create mutual exclusivities both between DTV applicants and between DTV and analog (NTSC) applicants. The Commission will have to process those applications. The rules adopted herein are needed to, and will, govern the processing of those applications.

80. Summary of Significant Issues Raised by Public Comments in Response to the IRFA. No comments were filed in response to the IRFA.

81. Description and Estimate of the Number of Small Entities To Which the Proposed Rules Will Apply. The RFA directs agencies to provide a description of, and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction. In addition, the term “small business” has the same meaning as the term “small business concern” under section 3 of the Small Business Act. A small business concern is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.

82. Pursuant to 5 U.S.C. 601(3), the statutory definition of a small business applies “unless an agency, after consultation with the Office of Advocacy of the [SBA] and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the Federal Register.” A “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 1992, there were approximately 275,801 small organizations. “Small governmental jurisdiction” generally means “governments of cities, counties, towns, townships, villages, school districts, or special districts with a population of less than 50,000.” As of 1992, there were approximately 85,006 local governments in the United States. This number includes 38,978 counties, cities, and towns; of these, 37,566, or 96 percent, have populations of fewer than 50,000. The Census Bureau estimates that this ratio is approximately accurate for all governmental entities. Thus, of the 85,006 governmental entities, we estimate that 81,600 (91 percent) are small entities.

83. The SBA defines small television broadcasting stations as television broadcasting stations with $10.5 million or less in annual receipts. According to Commission staff review of the BIA Publications, Inc., Master Access Television Analyzer Database, fewer than 800 commercial TV broadcast stations (65%) subject to our proposal have revenues of less than $10.5 million dollars. We note, however, that under SBA's definition, revenues of affiliates that are not television stations should be aggregated with the television station revenues in determining whether a concern is small. Therefore, our estimate may overstate the number of small entities since the revenue figure on which it is based does not include or aggregate revenues from non-television affiliated companies. It would appear that there would be no more than 800 entities affected

84. Description of Projected Reporting, Recordkeeping, and Other Compliance Requirements. None. The actions taken in the R&O impose no reporting, recordkeeping, or other compliance requirements on television broadcast stations, large or small. Instead, this R&O simply alerts licensees to the procedures that the Commission will utilize in considering DTV applications and, particularly, mutually exclusive applications. Additionally, this R&O adopted a channel election requirement but specifically reserved the process and procedure for a future DTV periodic review. Accordingly, no reporting, recordkeeping or other compliance requirements were adopted in this R&O with regard to channel election.

85. Steps Taken To Minimize Significant Impact on Small Entities, and Significant Alternatives Considered. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

86. The processes adopted in the R&O are designed to be as simple and inexpensive to applicants as possible, including any small entities. The revised rules call for neither auctions nor hearings, alternatives which were considered and not adopted because of the Commission's belief that, inter alia, such alternatives might disadvantage small entities. The Commission declined to adopt a hearing procedure to resolve disputes because such procedures are expensive, prolonged, and likely would be precluded by section 309(j) of the Communications Act. A second alternative would have been to go to an auction system. It is our belief, however, that in this situation an auction would have both caused delay and disadvantaged smaller entities. Therefore, we declined to adopt either of these alternatives.

87. During our consideration of other possible alternatives, all steps were taken to ameliorate the impact of these rules on small entities. Instead of the hearing and auction alternatives, we adopted rules that establish in cases of mutual exclusivity, that all mutually exclusive applications will be dismissed if no voluntary resolution can be arrived at within 90 days. We believe that this provision levels the playing field, and thereby protects small entities from the economic leverage that large entities could wield in either a hearing or settlement environment.

88. Report to Congress. The Commission shall send a copy of the R&O in MM Docket No. 00-39, including this FRFA, in a report to be sent to Congress pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A). In addition, the Commission shall send a copy of the R&O in MM Docket No. 00-39, including the FRFA, to the Chief Counsel for Advocacy of the SBA. A copy of the R&O in MM Docket No. 00-39 and FRFA (or summaries thereof) will also be published in the Federal Register. See 5 U.S.C. 604(b).

89. Accordingly, pursuant to the authority contained in 47 U.S.C. 1, 2(a), 4(i), 7 and 303, part 73 of the Commission's rules, 47 CFR part 73, is amended as set forth in this R&O.

90. Sinclair Broadcasting Group, Inc.’s, Petition for Reconsideration of our denial of its Petition for Expedited Rulemaking, and Univision Communications Inc.’s, Petition for Expedited Rule Making submitted November 17, 1999, are denied.

91. Pursuant to the Contract With America Advancement Act of 1996, the rule amendments set forth in “Rule Changes,” infra., shall be effective April 16, 2001.

92. The Commission's Consumer Information Bureau, Reference Information Center, shall send a copy of this R&O, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.