[Federal Register Volume 63, Number 3 (Tuesday, January 6, 1998)]
[Proposed Rules]
[Pages 460-466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-144]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 1

[MM Docket No. 97-247; FCC 97-414]


Fees for Ancillary or Supplementary Use of Digital Television 
Spectrum Pursuant to Section 336(e)(1) of the Telecommunications Act of 
1996

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: This Notice of Proposed Rule Making implements Section 336 of 
the Telecommunications Act of 1996 (``1996 Act'') which requires the 
Commission to establish a program to assess and collect fees for 
digital television (DTV) licensees' use of DTV capacity for the 
provision of ancillary or supplementary services. The statute requires 
the imposition of a fee where DTV licensees use their capacity for 
services for which the payment of a subscription fee is required or 
where the licensee receives revenues from a third party other than 
advertising revenues in return for transmitting material furnished by 
the third party. With this Notice of Proposed Rule Making, the 
Commission seeks comment on various methods by which such fees might be 
assessed including a fee assessed as a percentage of gross revenues 
received from the ancillary or supplementary use of DTV capacity, a fee 
based on net revenues or incremental profits received from the 
ancillary or supplementary services provided, or a fee based upon a 
combination of a flat rate and a percentage of revenues.

DATES: Comments are due on or before March 3, 1998 and Reply Comments 
are due on or before April 2, 1998.

ADDRESSES: Comments should be sent to the Office of Secretary, Federal 
Communications Commission, 1919 M St., N.W., suite 222, Washington, DC 
20554.

FOR FURTHER INFORMATION CONTACT: Jerry Duvall, Chief Economist, Mass 
Media Bureau (202) 418-2600, Susanna Zwerling, Policy and Rules 
Division, Mass Media Bureau (202) 418-2140, or Jonathan Levy, Office of 
Plans and Policy (202) 418-2030.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rule Making, FCC 97-414 adopted December 18, 1997 and 
released December 19, 1997. The full text of this Commission Notice is 
available for inspection and copying during normal business hours in 
the FCC Dockets Branch (Room 239), 1919 M Street N.W., Washington, D.C. 
The complete text of this Notice may also be purchased from the 
Commission's copy contractor, International Transcription Services 
(202) 857-3800 2100 M Street, N.W., Suite 140, Washington, D.C. 20037.

Synopsis of Notice

I. Introduction

    In April, 1997, the Federal Communications Commission 
(``Commission'') adopted rules implementing a transition to digital 
television (``DTV'') for all existing television broadcasters. In 
accordance with 1996 Act, established standards for license 
eligibility, a transition and construction schedule, and a requirement 
that broadcasters continue to provide one free, over-the-air television 
service. As required by the 1996 Act, the Commission adopted rules 
permitting DTV licensees to use this spectrum to provide ancillary or 
supplementary services, provided such services do not derogate the free 
television service. The 1996 Act further requires the Commission to 
assess and collect a fee for the ancillary or supplementary use of the 
spectrum when the licensee receives for these services either 
subscription fees or other compensation from third parties. With this 
Notice of Proposed Rule Making, the Commission identifies various 
programs by which such fees may be assessed.

II. Background

    The 1996 Act set up the framework for licensing DTV spectrum to 
existing broadcasters and, in an earlier proceeding, the Commission 
established rules by which those licenses are assigned and adopted 
regulations regarding DTV licensees' provision of ancillary or 
supplementary services. Specifically, Congress directed the Commission 
to require that the broadcast of any ancillary or supplementary 
services on frequencies designated for advanced television services: 
(1) Must be consistent with the advanced television technology 
designated by the Commission; (2) must not derogate any advanced 
television services (including high definition television (``HDTV'')) 
that the Commission may require; and (3) may be subject to Commission 
regulations applicable to analogous services. Moreover, Congress 
directed the Commission to establish a fee program for any ancillary or 
supplementary services for which a licensee receives any compensation 
other than commercial advertisements used to support non-subscription 
broadcasting.
    The Commission adopted a technical standard that supports the 
transmission of HDTV as well as the transmission of multiple programs 
of standard definition television (``SDTV'') and non-video services. 
This standard permits the provision of other services including the 
transmission of CD quality audio signals or large amounts of data. The 
standard allows broadcasters to send video, voice and data 
simultaneously and to provide a range of services, switching easily and 
quickly from one type of service to another.
    The Commission's rules permit broadcasters to use their DTV 
capacity to provide ancillary and supplementary services which do not 
interfere with the required free service. Broadcasters ability to 
provide ancillary or supplementary services will allow the broadcasters 
flexibility to respond to the demands of their audience for such 
services.
    The 1996 Act required DTV licensees receiving fees or certain other 
compensation for ancillary or supplementary services provided on the 
DTV spectrum to return a portion of that revenue to the public. The 
Commission was charged with establishing a means of assessing and 
collecting fees for those ancillary or supplementary services specified 
in the statute (``feeable ancillary or supplementary services''). These 
services are described more fully below.
    To implement this provision of the 1996 Act, the Commission seeks 
comment on various methods of assessing a fee. The Commission sets 
forth possible fee assessment programs, including a fee related to the 
amount that would have been realized at auction, a fee based upon net 
revenues or incremental profits received from the provision of feeable 
ancillary or supplementary services, a fee assessed as a percentage of 
gross revenues, and a fee based upon a hybrid of a flat rate and a 
percentage of revenues. The Commission invites public comment on these 
fee assessment programs.

III. Discussion

Goals and General Criteria for Assessing Fees

    The 1996 Act first directs that any fee established should 
``recover for the public a portion of the value of the public 
spectrum'' made available for ancillary or supplementary use by DTV 
licensees. This requirement echoes the competitive bidding provisions 
of the Communications Act of 1934 (``Communications Act''). Second, the

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1996 Act requires that the fee be designed ``to avoid unjust 
enrichment'' of broadcast licensees by their use of the spectrum for 
ancillary or supplementary services for which they collect fees or 
certain other compensation. DTV licensees could be placed at an unfair 
advantage if they paid no fee when using their DTV capacity to provide 
certain ancillary or supplementary services, given that nonbroadcast 
licensees providing analogous services may have acquired their spectrum 
through an auction process. Third, the 1996 Act requires that the fee 
recover ``for the public an amount that, to the extent feasible, equals 
but does not exceed (over the term of the license) the amount that 
would have been recovered'' in an auction.
    Section 336(e)(1) of the 1996 Act requires a fee to be assessed 
upon any services ``for which the payment of a subscription fee is 
required in order to receive such services'' or ``for which the 
licensee directly or indirectly receives compensation from a third 
party in return for transmitting materials furnished by such third 
party.'' The Act specifically exempts from the fee any service which 
relies upon ``commercial advertisements used to support broadcasting 
for which a subscription fee is not required.'' Further, the Conference 
Report states that the Commission must ``establish a fee program for 
any ancillary or supplementary services if subscription fees or any 
other compensation apart from commercial advertisements are required in 
order to receive such services.'' Thus, a fee must be assessed on any 
ancillary or supplementary services that are not supported entirely by 
commercial advertisements. The Commission recognizes that feeable 
ancillary or supplementary services may be offered simultaneously with 
other services, including HDTV, SDTV, or other video programming 
supported entirely by commercial advertisements, or other non-feeable 
ancillary or supplementary services. The mere fact that a feeable 
ancillary or supplementary service is being transmitted does not mean 
that all simultaneously transmitted ancillary or supplementary services 
are feeable.
    In establishing a fee for the feeable ancillary or supplementary 
use of DTV capacity, the Commission is cognizant of the administrative 
burden which such a fee could entail. In order to minimize this burden 
both for broadcasters and for the Commission, the fee should be simple 
to understand and be calculable with readily available information. An 
overly complex fee program could be difficult to calculate and enforce 
and could create uncertainty that might undermine a DTV licensee's 
business planning.
    The Commission intends to establish a fee program consistent with 
the criteria set forth in the 1996 Act. The 1996 Act evidences the 
intent of Congress that broadcasters be allowed the flexibility to 
provide such services. In implementing the statutorily mandated fee 
program, it is not the Commission's intention to dissuade broadcasters 
from using the DTV capacity to provide feeable ancillary or 
supplementary services.
    The Commission recognizes that there may be some tension among our 
goals. The means of assessing the fee may affect whether ancillary or 
supplementary services are offered at all and which services are 
offered. A fee set too high would serve as a disincentive for 
broadcasters to provide feeable ancillary or supplementary services. It 
could reduce the benefits that consumers receive from services provided 
on the DTV capacity. On the other hand, a fee that is set too low might 
not prevent the unjust enrichment of DTV licensees as required by the 
1996 Act and might not recover an amount approximating the amount that 
would have been recovered at auction, although it could recover for the 
public a ``portion of the value'' of the spectrum. Commenters are asked 
to address how the proposals and options set forth below strike the 
appropriate balance among the goals outlined.

Proposals for Establishing Fees for Feeable Ancillary or Supplementary 
Services

    Among the fee options consistent with the guidelines of the 1996 
Act are first, a fee akin to the amount that would have been received 
in an auction of the spectrum; second, a fee based upon the net 
revenues or incremental profits from the ancillary or supplementary use 
of a licensee's DTV capacity; third, a fee assessed as a percentage of 
the gross revenues received for the ancillary or supplementary use of 
this capacity; and fourth, a fee based upon a hybrid of a flat rate and 
a percentage of revenues.
    Revenue-based fees can affect the mix of ancillary or supplementary 
services provided, and also raise issues of accounting, auditing, and 
cost allocation. The choice of a fee structure may affect the choices 
made by consumers of feeable ancillary and supplementary services. A 
fee based on gross revenues does not require any cost allocation, but 
does require auditing of revenues to ensure that licensees do not 
attribute revenues from feeable ancillary or supplementary services to 
non-feeable services in order to reduce their fee liability. Because a 
fee based upon gross revenues ignores variations in the cost of 
providing different feeable ancillary or supplementary services, it 
will affect consumer choices among feeable ancillary or supplementary 
services. The magnitude of this effect depends on how much variation 
there is in the unit cost of different feeable ancillary or 
supplementary services. If the costs are quite similar, the effects 
will be minor. Notwithstanding any differences in cost, a smaller fee 
on gross revenues will reduce the impact on consumer choice. A variant 
on the gross revenue fee is a hybrid fee, consisting of a flat fee 
combined with a percentage of gross revenues. This structure would not 
further affect consumers' choices among feeable ancillary or 
supplementary services and would place a fixed floor under the amount 
recovered in return for use of the public spectrum. A fee based on net 
revenues or incremental profits presents additional accounting 
challenges, because it requires assigning costs to each feeable 
ancillary or supplementary service. Apportioning common costs among 
services may be quite difficult, but determining service-specific 
incremental costs could be less difficult. A fee based on net revenues 
or incremental profits could make consumers' choices among feeable 
ancillary or supplementary services more efficient. The paragraphs 
below describe each of these options, and explain the Commission's 
inclination to favor a formula that incorporates gross revenues as an 
element.
Auction-Related Fee
     The statute requires that the fee ``to the extent feasible'' equal 
but not exceed, over the term of the license, the amount that would 
have been realized at auction. There are significant obstacles, 
however, to basing the fee directly on such a spectrum-auction model. 
Were it possible to construct, an auction model would provide some 
guidance in valuing the DTV spectrum. However, spectrum auctions that 
have been held to date, such as those conducted for licenses to provide 
personal communications services, took place in circumstances so 
different from those in which a fee is to be assessed for the ancillary 
or supplementary use of DTV capacity that they are not necessarily 
applicable. Depending upon a variety of technological and regulatory 
factors including what services are authorized, auctioned spectrum may 
be usable either for more or fewer kinds of services than those 
authorized on the

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DTV spectrum. Moreover, the process of assessing a fee for feeable 
ancillary or supplementary use of DTV capacity involves setting a fee 
for the use of the assigned spectrum for any number of services at 
different times. The relative market demand among services may change 
month-to-month, day-to-day, or hour-by-hour. In addition, different 
types of services may require different amounts of capacity. For 
example, at any given instant HDTV may require the entire 20 Mbps 
payload capacity while standard definition television programming 
requires far less capacity. Moreover, a licensee providing free, 
advertiser-supported programming on its DTV channel, whether in the 
form of HDTV or multiple SDTV streams, is exempt from the statute's fee 
requirement. Thus, it is difficult to identify market transactions that 
involve the transfer of spectrum usage rights equivalent to that 
capacity which DTV licensees may use to provide feeable ancillary or 
supplementary services. A fee directly tied to the auction-model 
estimate of the value of the capacity used for particular feeable 
ancillary or supplementary services would necessarily be a moving 
target, would involve innumerable unknown variables, and would be 
difficult if not impossible to assess. Given these problems, the 
Commission is initially disinclined to base the fees on a model that 
would seek to simulate the revenue that would be generated from an 
auction. The language of the 1996 Act provides flexibility in this 
regard, stating that the Commission should use the auction value ``to 
the extent feasible.''
Relationship Between the Value of the DTV Spectrum and Revenues
    The Commission believes that a fee program can be constructed that 
satisfies the statutory directive through the imposition of a fee based 
upon revenues received from the feeable ancillary or supplementary use 
of the DTV capacity. The relationship between the value of the DTV 
capacity used in the provision of feeable ancillary or supplementary 
services and the revenue produced from the provision of those services 
can be demonstrated using microeconomic theory. It may, therefore, be 
possible to establish a fee program as required by the 1996 Act based 
upon some measure of revenues received from these services.
    More specifically, where DTV capacity is viewed in economic terms 
as an input of production used to produce a given ancillary or 
supplementary service, and the capacity can be combined with other 
inputs of production, such as equipment, programming, and labor in 
variable proportions to produce the service, it is possible to 
postulate a relationship between variable quantities of DTV capacity 
and the quantity of the service actually produced, holding constant all 
other inputs of production. Whatever the nature of the actual empirical 
input-output relationship, it will reflect the economic principle of 
diminishing returns to DTV capacity as a variable input of production, 
if the other inputs of production are held constant. In other words, 
all other things remaining the same, an increase in the quantity of 
digital capacity used to produce a given feeable ancillary or 
supplementary service will result in the production of increasing 
quantities of the ancillary or supplementary service although the rate 
of increase will diminish as the increasing quantity of capacity is 
forced to work with fixed quantities of all other inputs of production. 
The relationship between the quantity of DTV capacity used in 
production and the diminishing rate of increase in total output is 
called, in graphical terms, a marginal product curve.
    Microeconomic theory demonstrates that the marginal product curve 
represents a firm's demand curve for a single variable input of 
production, or, here, a broadcaster's demand for digital capacity for 
producing feeable ancillary or supplementary services. Theory also 
shows that a profit-maximizing firm will use an amount of the variable 
input of production (DTV capacity) that equates the marginal product 
(or incremental change in total output produced resulting from an 
incremental change in the amount of DTV capacity used in production) of 
the variable input or DTV capacity, multiplied by the unit market price 
of the specific ancillary or supplementary service, with the unit price 
of the input (DTV capacity) itself. In the case of DTV capacity as a 
variable input of production, there is no market-determined price 
established by auction which can be equated with the value of marginal 
product (``VMP''), i.e., marginal product multiplied by the unit market 
price of a specific ancillary or supplementary service. Within the 
range of efficient production described by the empirical input-output 
relationship, the value of marginal product curve represents the 
implicit value to the broadcaster of DTV capacity used to produce 
feeable ancillary or supplementary services. Moreover, it can be shown 
that VMP may be interpreted as a measure of incremental revenue 
attributable to a one unit increase in the quantity of DTV capacity 
used to produce a given ancillary or supplementary service. Multiplying 
the implicit unit value of DTV capacity by the corresponding quantity 
of capacity actually used in providing a given service provides an 
estimate of the implicit market value of that particular quantity of 
capacity for that particular broadcaster providing that specific 
service. The ratio of this implicit value of DTV capacity to some 
measure of revenues generated by the sale of the specific feeable 
ancillary or supplementary service provides a conceptual basis for 
relating the value of the capacity to service revenues.
    This conceptual approach can only approximate the implicit value of 
DTV spectrum over a range of possible quantities of the DTV capacity 
actually used to produce specific ancillary or supplementary services, 
since market-determined unit prices of DTV spectrum are unavailable. 
The Commission believes that the VMP curve provides some evidence of 
the implicit value of DTV capacity used to provide each specific 
feeable ancillary or supplementary service and, therefore, provides a 
conceptual basis for estimating the market value of such spectrum 
within the range of efficient production of feeable ancillary or 
supplementary services.
Fee Based Upon Net Revenues
    The value of the DTV capacity used for feeable ancillary or 
supplementary services may be estimated through the net revenues from 
each such service provided. Net revenue is defined as revenue from a 
service less incremental costs and a portion of joint and common costs. 
The Commission believes that this revenue proxy for the auction value 
is one means of satisfying the criteria of the 1996 Act. A fee could be 
computed as a percentage of net revenues derived from each feeable 
ancillary or supplementary service. Such fee has the additional effect 
of allowing broadcasters to build their feeable ancillary or 
supplementary services to the break-even point without the assessment 
of a fee, fostering the development of these new services. Ascertaining 
the costs involved in calculation of net revenues may, however, be 
problematic. Such a determination would necessitate the apportionment 
of common expenses between and among free television services offered 
on a licensee's DTV capacity and each feeable ancillary or 
supplementary use of its DTV capacity. The Commission has concerns as 
to whether this information will be readily and reliably available. The 
Commission seeks comment on the burden such a fee

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program would impose on broadcasters and on Commission staff in the 
audit and review process.
Fee Based Upon Incremental Profits From Specific Services
    An alternative to such a cost accounting approach that would avoid 
the problem of the allocation of costs shared by multiple broadcasting 
and ancillary or supplementary services is assessing the fee on the 
difference between the incremental gross revenues for a given feeable 
ancillary or supplementary service and the incremental economic costs 
associated with the production of the service. The service-specific 
incremental cost would include the costs of all directly-attributable 
inputs of production, such as labor and equipment, and the economic 
depreciation and rate of return on any specific capital assets that are 
used exclusively in the production of a given feeable ancillary or 
supplementary service. Any costs, either variable or fixed, that are 
shared in the production of the advertiser-supported television service 
and an ancillary or supplementary service would be omitted in the 
calculation of profit. This approach has an advantage over the net 
revenue approach of reduced auditing requirements since joint and 
common costs do not have to be allocated. Nevertheless, due to the 
accounting and enforcement difficulties, especially the potential need 
to conduct audits, the Commission remains concerned about the 
feasibility of the incremental profits fee. The Commission seeks 
comment on the costs to broadcasters and the Commission of the specific 
proposal that DTV spectrum fees be based on the calculated profit for 
each feeable ancillary or supplementary service. In particular, what 
type of studies or recordkeeping will be required to estimate service-
specific incremental cost? Will the Commission need to prescribe 
specific cost accounting rules to insure consistent and uniform 
calculations of incremental cost for purposes of calculating service-
specific profit? Will the costs to broadcasters and the Commission of 
calculating and auditing the computation of service-specific profit 
exceed the benefit of avoiding whatever inefficiency in consumption may 
be induced by a fee based on gross revenues?
Fee Based Upon Gross Revenues
    A fee assessed as a percentage of a licensee's gross revenues from 
the provision of feeable ancillary or supplementary services would be 
consistent with the 1996 Act and would avoid some of the infirmities of 
the fee based upon net revenues described above. Moreover, the 
Commission believes a fee based upon a percentage of gross revenues 
could foster our goal of creating a fee structure which does not 
dissuade broadcasters from offering feeable ancillary and supplementary 
services. Such a fee would be straightforward to assess and calculate; 
the licensee would be required to report its gross revenues from 
feeable ancillary or supplementary services and to calculate a fee 
based upon a percentage of these revenues. In addition, a fee set at a 
percentage of gross revenues provides broadcasters a more certain fee 
amount to use in their long term planning and decisions.
Hybrid Fees
    Another possible fee structure is a two-part, tariff-like fee, in 
which the fee is comprised of a combination of a flat dollar amount and 
a percentage of gross revenues. Compared to a fee based purely on a 
percentage of gross revenues, a hybrid fee would include an element--
the flat fee--that would provide a uniform means of preventing unjust 
enrichment and recover a portion of the value of the spectrum 
consistent with the statute. Moreover, a flat fee component would 
permit us to set the percentage rate of gross revenues at a lower 
level, thus avoiding a fee program that dissuades broadcasters from 
offering feeable ancillary and supplementary services. A flat amount, 
however, would be an up-front cost, which could serve as a disincentive 
to broadcasters to provide ancillary or supplementary services. Given 
the statutory requirement that a fee be imposed on feeable ancillary 
and supplementary uses, a flat fee may be appropriate even if it does 
discourage some such uses. The addition of a percentage of gross 
revenues to the flat rate could prevent the unjust enrichment that 
might result from a flat fee, by recovering some percentage of gross 
revenues in excess of the up-front payment. The Commission invites 
comment on the two-part fee proposal. The Commission is especially 
interested in comments that recommend what the initial flat rate should 
be and explain the basis of the recommendation. Would the initial flat 
rate discourage broadcasters' institution of feeable ancillary or 
supplementary services or serve as an incentive to broadcasters to 
further develop feeable ancillary or supplementary services once 
established?
Percentage Rate of Fee
    If the fee is assessed as a percentage of revenues or incremental 
profits, the percentage rate of the fee, more than the process by which 
it is derived will determine the degree to which the fee affects 
broadcasters' decisions. The 1996 Act exempts free broadcasting 
services from any such fees, thus to some extent creating an incentive 
for DTV licensees to use this capacity for free broadcasting services 
in addition to the one FCC-mandated free television service. This is 
consistent with the Commission's previous statement that ``the 
fundamental use of the 6 MHz DTV license will be for the provision of 
free over-the-air television service.'' The greater the fee, the 
greater the incentive created by the fee for a broadcaster to use its 
assigned spectrum to provide free, over-the-air broadcast programming 
instead of subscription programming or other feeable ancillary or 
supplementary services. The lower the fee, the more flexible the 
broadcaster may be in serving audience demand for services and in 
choosing the mix of services it provides. The Commission seeks comment 
as to the types of services broadcasters may provide using DTV 
capacity. The Commission is particularly interested in DTV licensees' 
plans for the provision of feeable ancillary or supplementary services. 
To the extent that commenters can estimate revenues at this time, the 
Commission seeks information as to the revenues anticipated from the 
use of the DTV capacity for feeable ancillary or supplementary 
services.
    The percentage rate of the fee must reflect the statutory 
requirements that the fee recover a portion of the value of the 
spectrum used for these services, avoid unjust enrichment, and 
approximate the revenue that would have been achieved had these 
services been licensed through an auction. The Commission asks 
commenters to take the statutory requirements and policy goals into 
account in proposing particular percentage rates. The Commission seeks 
comment on how to factor in permitting broadcasters flexibility to 
provide feeable ancillary or supplementary services in establishing an 
appropriate percentage rate for the fee. The Commission is reluctant to 
set the percentage rate so high that it would dissuade broadcasters 
from providing feeable ancillary or supplementary services. The 
Commission asks commenters to explain how the percentages they propose 
implicate this consideration. The Commission seeks comment on what 
percentage would be appropriate for the fee, taking into account the 
various proposals for assessing a fee. Clearly, a fee based upon gross 
revenues will be set at a lower

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percentage rate than a fee based upon net revenues or incremental 
profits. Similarly, the percentage rate of a fee incorporated into a 
hybrid approach will be lower than the percentage rate of a fee that is 
not additional to an up-front payment. Commenters are encouraged to 
make specific recommendations as to the level of the fee and type of 
fee assessment program to which the fee is to be tied and to provide 
evidence to build a record supporting those recommendations. For 
example, should the fee be set at one percent or less of gross revenues 
generated from feeable ancillary and supplementary services, or up to a 
more substantial ten percent of gross revenues?
    An additional consideration is whether different feeable ancillary 
or supplementary services should be subject to fees set at different 
percentage rates. A varying percentage rate could have a number of 
disparate effects. Different rates for different services might create 
incentives for broadcasters to offer services with lower fees over 
services with higher fees and could affect broadcasters' choice from 
among alternative feeable ancillary or supplementary uses. On the other 
hand, a varying percentage rate fee could be used to adjust the costs 
to broadcasters of providing feeable ancillary or supplementary 
services to reflect the different costs to competitors offering 
analogous services on spectrum purchased at auction or on spectrum not 
obtained at auction or through technologies that are not spectrum-
based. Another consideration is whether the percentage rate of the fee 
should vary based upon the time of day during which the service is 
being provided or other factors. The Commission seeks comment on the 
imposition of a varying percentage rate fee.
    The statute provides for the periodic adjustment of the fee, 
requiring that the fee ``be adjusted by the Commission from time to 
time in order to continue to comply'' with the 1996 Act. While this 
provision generally gives us the authority to recalculate the fee once 
DTV is established and feeable ancillary or supplementary services are 
being offered, it also raises the possibility that the fee be set at a 
lower percentage rate at the outset. The assessment of a lower initial 
percentage rate would allow broadcasters a greater percentage of gross 
revenues during the build-out of DTV service and would also provide the 
Commission the opportunity to adjust the percentage rate after gaining 
more information concerning the nature of the services offered by 
licensees. The periodic adjustment of the fee allows the Commission to 
ensure that the fee program continues to meet the requirements of the 
statute, including the prevention of unjust enrichment and the recovery 
of a portion of the value of the spectrum. For example, the fee program 
could be adjusted where it is shown that it has given DTV licensees an 
unfair advantage in the provision of their feeable ancillary or 
supplementary services as compared with their nonbroadcast competitors 
providing analogous services on spectrum licensed through a competitive 
bidding process.
Noncommercial Television Licensees
    In their Petition for Reconsideration of the Fifth Report and 
Order, the Association of America's Public Television Stations and the 
Public Broadcasting Service (``APTS/PBS'') requested that the 
Commission exempt public television licensees from any obligation to 
pay fees when they offer feeable ancillary or supplementary services on 
their DTV capacity as a source of funding for their public television 
operation. APTS/PBS argue that the revenues from the remunerative 
provision of feeable ancillary or supplementary services on their DTV 
capacity may provide a revenue stream to support their noncommercial 
broadcasting activities.
    To the extent public television licensees ultimately offer feeable 
ancillary and supplementary services, the Commission must determine 
whether and in what circumstances they are subject to fees for these 
services. The Commission seeks comment on the argument that 
noncommercial television licensees should be exempt from fees or 
subject to lower fees. Is such relief consistent with the 1996 Act's 
requirement that a fee be collected where the DTV spectrum is used for 
feeable ancillary or supplementary services for which a subscription 
fee is charged or compensation is received other than advertising 
revenues? If so, what form should such an exemption take? Should 
noncommercial DTV licensees be exempt from the fee where they offer 
revenue producing feeable ancillary or supplementary services as a 
source of funding for public television? If noncommercial licensees are 
subject to a fee for the feeable ancillary or supplementary use of the 
DTV capacity, should the fee be assessed at the same percentage as the 
fee for commercial licensees or at a lower rate? If noncommercial 
broadcasters are exempt from the fee, or assessed a reduced fee what 
effect would this have on competing providers of these services?

Implementation

    The Commission proposes to employ similar procedures to those it 
currently uses for the administration of its filing fees, regulatory 
fees, and auction revenue programs. Further, it proposes to generally 
follow the same reporting and filing requirements as currently exist 
for other programs. The Commission seeks comment on the proposed means 
of implementing and collecting the fee and on any special circumstances 
that merit an exception to current processes.

IV. Conclusion

    The 1996 Act required the Commission to assess fees on the 
provision of feeable ancillary or supplementary services over the DTV 
spectrum. The Commission issues this Notice of Proposed Rule Making to 
seek comment on the fee assessment programs proposed herein.

V. Administrative Matters

Initial Paperwork Reduction Act of 1995

    This Notice proposes a new fee assessment program which may contain 
an information collection requirement. As part of our continuing effort 
to reduce paperwork burdens, the Commission invites the general public 
and the Office of Management and Budget (``OMB'') to take this 
opportunity to comment on the information collection contained in this 
Notice, as required by the Paperwork Reduction Act of 1995, Public Law 
No. 104-13. Public and agency comments are due at the same time as 
other comments on this Notice; OMB comments are due 60 days from the 
date of publication of this Notice in the Federal Register. Comments 
should address: (a) Whether the proposed 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 contained herein should be submitted to 
Judy Boley, Federal Communications Commission, Room 234, 1919 M Street, 
N.W., Washington, DC 20554, or via the Internet to [email protected] and 
to Timothy Fain, OMB Desk Officer, 10236

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NEOB, 725--17th Street, N.W., Washington, DC 20503 or via the Internet 
to [email protected].

Ex Parte Rules

    This proceeding will be treated as a ``permit-but-disclose'' 
proceeding subject to the ``permit-but-disclose'' requirements under 
section 1.1206(b) of the rules. 47 CFR 1.1206(b), as revised. Ex parte 
presentations are permissible if disclosed in accordance with 
Commission rules, except during the Sunshine Agenda period when 
presentations, ex parte or otherwise, are generally prohibited. Persons 
making oral ex parte presentations are reminded that a memorandum 
summarizing a presentation must contain a summary of the substance of 
the presentation and not merely a listing of the subjects discussed. 
More than a one or two sentence description of the views and arguments 
presented is generally required. See 47 CFR 1.1206(b)(2), as revised. 
Additional rules pertaining to oral and written presentations are set 
forth in section 1.1206(b).

Initial Regulatory Flexibility Analysis

    With respect to this Notice, an Initial Regulatory Flexibility 
Analysis (``IRFA'') is contained in Appendix A and summarized below. As 
required by the Regulatory Flexibility Act, the Commission has prepared 
an IRFA of the expected significant economic impact on small entities 
by the policies and rules proposed in this Notice. Written public 
comments are requested on the IRFA. In order to fulfill the mandate of 
the Contract with America Advancement Act of 1996 regarding the Final 
Regulatory Flexibility Analysis, the Commission asks a number of 
questions in our IRFA regarding the prevalence of small businesses in 
the industries covered by this Notice. Comments on the IRFA must be 
filed in accordance with the same filing deadlines as comments on the 
Notice, but they must have a distinct heading designating them as 
responses to the IRFA.

VI. Initial Regulatory Flexibility Analysis

    As required by the Regulatory Flexibility Act (RFA), the Commission 
has prepared this present Initial Regulatory Flexibility Analysis 
(IRFA) of the expected significant economic impact on small entities by 
the policies and rules proposed in this Notice. Written public comments 
are requested on this IRFA. Comments must be identified as responses to 
the IRFA and must be filed by the deadlines for comments on the Notice 
provided above. The Commission will send a copy of the Notice, 
including this IRFA, to the Chief Counsel for Advocacy of the Small 
Business Administration.

Reasons Why Agency Action Is Being Considered

    The 1996 Act directed the Commission to adopt regulations allowing 
licensees to use a portion of the DTV spectrum to provide feeable 
ancillary or supplementary services and to establish a program to 
assess and collect a fee for these services. In the Fifth Report and 
Order the Commission established rules permitting broadcasters to offer 
feeable ancillary or supplementary services on the DTV spectrum. As 
directed by Congress, in this proceeding the Commission proposes a 
means of assessing and collecting a fee for the feeable ancillary or 
supplementary use of the DTV spectrum.

Need For and Objectives of the Proposed Rule Changes

    The 1996 Act specified that the Commission shall establish a 
program to assess and collect fees for the feeable ancillary or 
supplementary use of the DTV capacity. Congress set forth the following 
objectives to be achieved by the assessment of the fee: First, that the 
fee recover a portion of the value of the DTV capacity; second, that 
the fee prevent the unjust enrichment of broadcast licensees using the 
DTV capacity to provide services for which they receive revenues other 
than advertising revenues; third, that the fee recover ``for the public 
an amount that, to the extent feasible, equals but does not exceed 
(over the term of the license) the amount that would have been 
recovered'' in an auction of the spectrum; and finally, that any free 
broadcasting service which relies upon commercial advertisements rather 
than subscription fees or other compensation for its revenues be exempt 
from the fee requirement. In the Fifth Report and Order the Commission 
expressed its objective that broadcasters develop innovative uses of 
the DTV spectrum and be free to respond to market demand for feeable 
ancillary or supplementary services provided over this spectrum. This 
proceeding should achieve the objectives set forth in the 1996 Act and 
in the Fifth Report and Order.

Legal Basis

    Authority for the actions proposed in this Notice may be found in 
sections 4(i), 303(r), 336 and 403 of the Communications Act of 1934, 
as amended, 47 U.S.C. 154(i), 303(r), 336 and 403.

Recording, Recordkeeping, and Other Compliance Requirements

    The Notice proposes a new fee assessment program which may contain 
an information collection requirement. In general, the proposed fee 
assessment programs which would assess a fee for feeable ancillary or 
supplementary services based upon revenues derived from these services 
would require broadcasters to report their revenues derived from these 
services. Certain alternative fee assessment proposals may require more 
information from broadcasters than would other proposals. In the 
Notice, the Commission has proposed a fee assessment program that seeks 
to minimize the administrative and reporting burdens on broadcast 
licensees.

Description and Estimate of the Number of Small Entities to Which the 
Proposed Rules Will Apply

    Under the RFA, small entities may include small organizations, 
small businesses, and small governmental jurisdictions. The RFA 
generally defines the term ``small organization'' to mean ``any not-
for-profit enterprise which is independently owned and operated and is 
not dominant in its field.'' In addition, the RFA, generally defines 
the term ``small business'' as having the same meaning as the term 
``small business concern'' under the Small Business Act, 15 U.S.C. 632. 
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 Small Business 
Administration (``SBA''). 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.''
    The proposed rules and policies will apply to television 
broadcasting licensees. The Small Business Administration defines a 
television broadcasting station that has no more than $10.5 million in 
annual receipts as a small business. Television broadcasting stations 
consist of establishments primarily engaged in broadcasting visual 
programs by television to the public, except cable and other pay 
television services.

[[Page 466]]

Included in this industry are commercial, religious, educational, and 
other television stations. Also included are establishments primarily 
engaged in television broadcasting and which produce taped television 
program materials. There were 1,509 television stations operating in 
the nation in 1992. That number has remained fairly constant as 
indicated by the approximately 1,563 operating television broadcasting 
stations in the nation as of October 31, 1997. For 1992 the number of 
television stations that produced less than $10.0 million in revenue 
was 1,155 establishments.
    Thus, the proposed rules will affect many of the approximately 
1,563 television stations; approximately 1,200 of those stations are 
considered small businesses. These estimates may overstate the number 
of small entities since the revenue figures on which they are based do 
not include or aggregate revenues from non-television or non-radio 
affiliated companies.
    In addition to owners of operating television stations, any entity 
who seeks or desires to obtain a television broadcast license may be 
affected by the proposals contained in this item. The number of 
entities that may seek to obtain a television broadcast license is 
unknown.

Federal Rules That Overlap, Duplicate, or Conflict With the Proposed 
Rules

    The initiatives and proposed rules raised in this proceeding do not 
overlap, duplicate or conflict with any other rules.

Any Significant Alternatives Minimizing the Impact on Small Entities 
and Consistent with the Stated Objectives

    This Notice solicits comment on a variety of alternatives discussed 
herein. Any significant alternatives presented in the comments will be 
considered. The proposed rules and policies are required to implement 
provisions of the 1996 Act. These proposed rules and policies may 
affect broadcast television licensees, some of which are small 
businesses. The Commission believes that the proposed rules and 
policies may be necessary to the recovery of a portion of the value of 
the public spectrum and to promote the development of innovative uses 
of the DTV capacity. The Commission seeks comment on the alternatives 
proposed in the Notice and on whether there is a significant economic 
impact on any class of small licensee or permittee as a result of any 
of the proposed approaches.

List of Subjects in 47 CFR Part 1

    Television, Television broadcasting.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 98-144 Filed 1-5-98; 8:45 am]
BILLING CODE 6712-01-P