[Federal Register Volume 63, Number 241 (Wednesday, December 16, 1998)]
[Rules and Regulations]
[Pages 69208-69216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33065]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MM Docket No. 97-247; FCC 98-303]


Fees for Ancillary or Supplementary Use of Digital Television 
Spectrum

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This Report & Order establishes a fee of five percent of gross 
revenues received from ancillary or supplementary services for which 
DTV licensees receive specified

[[Page 69209]]

compensation from third parties. This 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. 
Licensees will be required to annually report to the Commission whether 
they provided ancillary or supplementary subject to a fee and the 
amount of fees to be paid to the Commission.

EFFECTIVE DATE: January 15, 1999.

ADDRESSES: Federal Communications Commission, 445 12th Street, Room TW-
A306, SW, Washington, DC 20554. 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 C-1804, 445 12th Street, SW, 
Washington, DC 20554, or via the Internet to [email protected]. Comments 
may also be filed by using the Commission's Electronic Comment Filing 
System (ECFS), via the Internet to http://www.fcc.gov.e-file/ecfs.html.

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 Report 
& Order, FCC 98-303, adopted November 19, 1998 and released November 
19, 1998. The full text of this Commission Report & Order is available 
for inspection and copying during normal business hours in the FCC 
Dockets Branch (Room TW-A306), 445 12 St. S.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 Report & Order

I. Introduction

    1. With this Report & Order (``R&O''), the Commission establishes a 
program for assessing and collecting fees for the provision of 
ancillary or supplementary services by commercial digital television 
(``DTV'') licensees as required by the Telecommunications Act of 1996 
(``1996 Act''), Public Law 104-104, 110 Stat. 56, section 201 (1996), 
codified at 47 U.S.C. 336. The rules promulgated pursuant to this R&O 
implement the criteria of the 1996 Act, establishing a fee of five 
percent of gross revenues received from certain ancillary or 
supplementary uses of the DTV bitstream. Consistent with the 1996 Act, 
the fee will be assessed on revenues from all ancillary or 
supplementary services for which the licensee receives compensation 
other than advertising revenues used to support broadcasting.

II. Background

    2. The 1996 Act established the framework for licensing DTV 
spectrum to existing broadcasters, and permitted them to offer 
ancillary or supplementary services consistent with the public 
interest. 47 U.S.C. 336. In the 1996 Act, Congress directed the 
Commission to require that any ancillary or supplementary services 
carried on DTV capacity: (1) must be consistent with the advanced 
television technology designated by the Commission (``the DTV 
Standard''); (2) must avoid derogating any advanced television services 
that the Commission may require; and (3) must, with specified 
exceptions, be subject to Commission regulations applicable to 
analogous services. Congress also gave the Commission discretion to 
prescribe such other regulations with respect to ancillary or 
supplementary services ``as may be necessary for the protection of the 
public interest, convenience, and necessity, 47 U.S.C. 336(b)(5). 
Moreover, Congress directed the Commission to establish a fee program 
for any ancillary or supplementary services for which the payment of a 
subscription fee is required to receive such services or for which the 
licensee receives any compensation from a third party other than 
commercial advertisements used to support non-subscription broadcasting 
(hereinafter referred to as ``feeable ancillary or supplementary 
services''). 47 U.S.C. 336(e).
    3. In a number of recent orders, the Commission adopted rules 
implementing the transition to DTV pursuant to the 1996 Act. In the 
Fourth R&O in MM Docket No. 87-268, 62 FR 14006 (March, 1997), the 
Commission adopted the DTV Standard that supports the transmission of 
High Definition Television (``HDTV''), as well as allowing for the 
transmission of multiple programs of standard definition television 
(``SDTV'') and non-video services. This Standard permits the provision 
of other services, including large amounts of data. For example, a DTV 
licensee will be able to transmit ``telephone directories, stock market 
updates, * * * computer software distribution, interactive education 
materials or virtually any other type of information.'' The DTV 
Standard ``allows broadcasters to send video, voice and data 
simultaneously and to provide a range of services dynamically, 
switching easily and quickly from one type of service to another.''
    4. In the Fifth R&O in MM Docket No. 87-268, In the Matter of 
Advanced Television Systems and Their Impact upon the Existing 
Television Broadcast Service, 62 FR 26966 (May, 1997), the Commission 
we assigned the initial DTV licenses and established rules allowing 
broadcasters to use their DTV capacity to provide ancillary or 
supplementary services which ``do not interfere with the required free 
service.'' The Commission stated that the DTV licensees' ability to 
provide ancillary or supplementary services in addition to the mandated 
free television service ``allow[s] the broadcasters flexibility to 
respond to the demands of their audience'' for such services. This 
flexibility ``should encourage entrepreneurship and innovation'' and 
will give ``broadcasters the opportunity to develop additional revenue 
streams from innovative digital services.''
    5. The 1996 Act charged the Commission with establishing a means of 
assessing and collecting fees for feeable ancillary or supplementary 
services. Last December, the Commission issued a Notice of Proposed 
Rule Making in MM Docket No. 97-247, In the Matter of Fees for 
Ancillary or Supplementary Use of Digital Television Spectrum Pursuant 
to section 336(e)(1) of the Telecommunications Act of 1996, 63 FR 00460 
(January, 1998), which sought comment on various issues relating to the 
establishment of a fee program in accordance with the 1996 Act. The 
Notice of Proposed Rule Making, invited comment on all aspects of the 
proposed fee program and proposed several methods of assessing such 
fees, including a fee based upon a percentage of revenues received from 
the ancillary or supplementary use of the digital bitstream, or a fee 
based upon a hybrid of a flat rate and a percentage of revenues.

III. Issue Analysis

A. Goals

    6. The 1996 Act sets forth general criteria the Commission must 
follow in assessing fees for ancillary or supplementary services 
carried on the

[[Page 69210]]

DTV bitstream. First, the 1996 Act requires the Commission to establish 
a program which recovers ``for the public a portion of the value of the 
public spectrum'' made available for ancillary or supplementary use by 
DTV licensees. Second, the statute requires that the fee be designed 
``to avoid unjust enrichment'' of broadcast licensees through the 
method used to permit digital use of the spectrum. These provisions 
recognize that existing DTV licensees received their licenses without 
charge, while providers of potentially competing services may have paid 
for the spectrum used to provide these services. Finally, 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. 
This requirement refers to the competitive bidding provisions of the 
Communications Act of 1934. As discussed fully below, the fee program 
established today is consistent with these criteria as set forth in the 
1996 Act. In addition, consistent with our goal of promoting the 
efficient deployment of digital television, in implementing the 
statutorily mandated fee program, the Commission seeks to avoid 
dissuading broadcasters from using the DTV capacity to provide feeable 
ancillary or supplementary services.
    7. The 1996 Act also generally defines which ancillary or 
supplementary uses of the DTV bitstream are subject to a fee. Section 
336(e)(1), adopted by 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.'' In 
the latter case, the 1996 Act specifically exempts from the fee any 
ancillary or supplementary service which relies for its revenues upon 
``commercial advertisements used to support broadcasting for which a 
subscription fee is not required.'' Thus, a fee must be assessed on any 
ancillary or supplementary service for which a subscription fee is 
required or for which the licensee receives any compensation for 
transmission of material other than commercial advertisements used to 
support broadcasting. These services previously have been defined as 
``feeable ancillary or supplementary services.'' The Commission noted 
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 
with other non-feeable ancillary or supplementary services. The fact 
that a feeable ancillary or supplementary service is being transmitted 
by the DTV licensee does not subject all simultaneously transmitted 
services to a fee.
    8. In establishing fees for the ancillary or supplementary use of 
DTV capacity, the Commission was cognizant of the administrative 
burdens which such fees could entail. In order to minimize these 
burdens both for broadcasters and for the Commission, the fee program 
established is intended to be simple to understand, and calculable with 
readily available information. An overly complex fee program could be 
difficult for licensees to calculate and for the Commission to enforce 
and could create uncertainty that might undermine a DTV licensee's 
efficient planning of what services it will provide.

B. Basis of Fee

    9. Background. In the Notice of Proposed Rule Making we set forth 
several fee options which we determined to be consistent with the 
guidelines of the 1996 Act. The options included a fee akin to the 
amount that would have been received in an auction of the spectrum, a 
fee based upon the net revenues or incremental profits from the 
ancillary or supplementary use of a licensee's DTV capacity, a fee 
assessed as a percentage of the gross revenues received for the 
ancillary or supplementary use of this capacity, and a fee based upon a 
hybrid of a flat rate and a percentage of revenues.
    10. In describing the various fee options in the Notice of Proposed 
Rule Making, the Commission described the advantages and disadvantages 
of each. The Commission stated that while net revenues or incremental 
profits could serve as effective proxies for the value of DTV capacity 
used for feeable ancillary or supplementary services, the process of 
ascertaining the costs involved in calculation of net revenues or 
incremental profits would involve the burdensome apportionment of 
expenses between free television services and feeable ancillary or 
supplementary services and among ancillary or supplementary services. 
Another fee approach suggested was a combination of a flat dollar 
amount and a percentage of gross revenues, which would include a 
uniform means of preventing unjust enrichment but would also create an 
up-front cost, which could serve as a disincentive to broadcasters' 
provision of feeable ancillary or supplementary services.
    11. In the Notice of Proposed Rule Making, the Commission expressed 
an inclination to favor a fee program that incorporates gross revenues. 
Such a fee would ``foster our goal of creating a fee structure which 
does not dissuade broadcasters from offering feeable ancillary and 
supplementary services [and]. * * * would be straightforward to assess 
and calculate.''
    12. Comments. Virtually all of the commenters supported a fee based 
upon gross revenues. The commenters agreed with the Commssion's 
assessment that a fee based upon gross revenues could be the simplest 
to calculate and enforce. Commenters also agreed that a fee based upon 
gross revenues would satisfy the statutory criteria of preventing 
unjust enrichment, recovering for the public a portion of the value of 
the spectrum, and approximating, without exceeding, the amount which 
would have been received at auction.
    13. Decision. The Commission adopted a fee based upon a percentage 
of the gross revenues generated by feeable ancillary or supplementary 
services. We believe this approach is consistent with the 1996 Act, 
supported by sound economic principles, and grounded in simplicity. We 
also believe it will afford broadcasters flexibility in developing new 
and innovative DTV services. A gross revenues approach is consistent 
with the 1996 Act because it enables the Commission to assess a fee 
that recovers for the public a portion of the value of the spectrum and 
prevents the unjust enrichment of broadcasters through the use of the 
DTV bitstream for feeable ancillary or supplementary services. While 
the amount recovered will be more a result of the percentage rate of 
the fee than of the nature of revenues on which the fee is based, 
commenters overwhelmingly support a fee based upon gross revenues as a 
means of achieving these important statutory goals.
    14. The Commission stated that a fee based upon gross revenues is 
consistent with the statutory directive that it assess a fee that ``to 
the extent feasible, equals but does not exceed (over the term of the 
license) the amount that would have been recovered had such services 
been licensed'' at auction. As stated in the Notice of Proposed Rule 
Making, and as echoed in many comments, it would be difficult if not 
impossible to determine the amount that would have been received at 
auction. To the extent possible, however, the Commission stated that a 
fee based upon gross revenues can function as a proxy for auction 
value.

[[Page 69211]]

    15. The microeconomic theory supporting this determination is laid 
out in the Notice of Proposed Rule Making. Briefly, economic theory 
indicates that gross revenues received from the ancillary or 
supplementary use of DTV capacity are related to the implicit value of 
that DTV capacity. The postulated relationship between gross revenues 
received from ancillary or supplementary services and the value of the 
bitstream used to provide those services was supported by a number of 
commenters, who found this economic rationale to be ``theoretically 
sound.''
    16. In determining the basis of the fee, the Commission sought not 
only to comply with the criteria set forth in the Act, but also to 
foster the important goal that the fee program be simple to comply with 
and to enforce. As discussed above, a fee program based upon net 
revenues or incremental profits would have entailed burdensome 
accounting by the licensees and enforcement and auditing by the 
Commission. Using gross revenues as the basis of the fee will minimize 
the accounting and auditing required, permitting licensees to calculate 
the fee based upon readily available information. It will also make the 
Commission's administration of the fee program much more efficient, and 
impose considerably fewer paperwork and compliance burdens on 
licensees.
    17. Finally, the Commission stated that a gross revenues approach 
will serve the public interest goal of giving broadcasters flexibility 
to develop new uses of the DTV bitstream. In the Notice of Proposed 
Rule Making, the Commission stated its intention to establish a fee 
program which allows broadcasters the flexibility to provide new 
services and made clear that it is not its intention to dissuade 
broadcasters from using the DTV capacity to provide feeable ancillary 
or supplementary services. Commenters generally supported this goal 
and, given the costs of implementing and enforcing a program based on 
net revenues, agreed that a fee based upon a percentage of gross 
revenues would be the least likely to discourage the development of new 
uses of broadcast spectrum. Accordingly, the Commission rejected the 
net revenues approach. A fee based upon a percentage of gross revenues 
received would not involve up-front costs, such as those that would be 
incurred by a hybrid fee based on a flat fee coupled with a percentage 
of gross revenues, that could dissuade broadcasters from initiating new 
services. In addition, the uniform application of a fee based upon 
gross revenues to all feeable ancillary or supplementary services (as 
opposed to a varying fee based on the type of service provided) will 
minimize the potential of the fee program to affect broadcasters' 
choice of one service over another. Finally, the percentage rate of the 
fee, not the revenues on which the fee is based, will ultimately affect 
broadcasters' decisions as to whether or not to offer feeable ancillary 
or supplementary services at all.

C. Percentage of Revenues

    18. Background. As stated in the Notice of Proposed Rule Making, 
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 received had these services been licensed through 
an auction. The Notice of Proposed Rule Making also indicated our 
disinclination to set the percentage rate so high that it would 
dissuade broadcasters from providing feeable ancillary or supplementary 
services.
    19. Comments. Commenters advocated percentages for the fee that 
ranged from less than one percent to more than ten percent. Those 
commenters who proposed a low fee--two percent or less of gross 
revenues--based their proposal on the declining auction values of the 
nonbroadcast spectrum, and on the possibility that a higher fee would 
discourage broadcasters from offering innovative services. Commenters 
proposing a high fee--ten percent or more--argued that such a fee would 
be consistent with other government licensing fees, and would be 
necessary to prevent unjust enrichment, as required by the 1996 Act.
    20. Decision. The Commission set the fee for feeable ancillary or 
supplementary services provided on the DTV bitstream at five percent of 
gross revenues received from these services. The Commission stated that 
a fee of five percent of gross revenues fulfills its statutory 
obligations to impose a fee which recovers for the public some portion 
of the value of the spectrum, prevents the unjust enrichment of 
broadcasters providing feeable ancillary or supplementary services, and 
approximates, to the extent possible, the revenues that would have been 
received had the spectrum on which these services are provided been 
licensed through an auction. The Commission also stated that a five 
percent fee will not dissuade broadcasters from using their DTV 
capacity to provide new and innovative services that can greatly 
benefit consumers.
    21. As stated in the Notice of Proposed Rule Making, the Commission 
must carefully balance potentially competing requirements and goals in 
establishing a percentage rate of the fee. On the one hand, a fee set 
too high might dissuade broadcasters from providing feeable ancillary 
or supplementary services, and could therefore reduce the benefits that 
consumers receive from efficient deployment of DTV capacity. On the 
other hand, a fee 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.
    22. The Commission stated that a fee of five percent of gross 
revenues best serves its goals and the requirements of the statute. The 
1996 Act gives the Commission broad discretion in setting the amount of 
the fee for ancillary or supplementary services, relying upon the 
predictive judgment of the agency in that regard. In addition, no 
commenter has pointed to any obvious or commonly accepted formula for 
setting a fee in these circumstances. Therefore, the Commission must 
use its best judgment in balancing the relevant goals.
    23. The five percent fee satisfies the statutory mandate that the 
fee be high enough to prevent the unjust enrichment of the licensees 
and to recover compensation for the DTV capacity used by the licensees. 
The Commission takes seriously the intent of the 1996 Act that 
broadcasters providing feeable ancillary or supplementary services on 
the DTV bitstream be required to pay more than a nominal fee. We 
believe that a five percent fee is appropriate.
    24. A fee set at five percent of gross revenues also satisfies the 
statutory requirement that the fee recover ``an amount that, to the 
extent feasible, equals but does not exceed'' the amount that would 
have been recovered at auction. Looking at this mandate through the 
prism of economic theory, the reference to auctions invokes a system 
designed to foster the efficient allocation of resources and suggests 
that we should set a fee that fosters efficient resource allocation. 
The efficient allocation of the resource of DTV bitstream will allow 
the marketplace to provide those feeable ancillary or supplementary 
services demanded by consumers. A fee based on gross revenues will 
allow such efficient allocation so that it meets the statutory 
requirement.

[[Page 69212]]

    25. In setting the fee at five percent of gross revenues, the 
Commission takes into account the costs broadcasters will incur in the 
development of digital ancillary or supplementary services. While we 
note the comments of NCTA stating that a fee set too low would unfairly 
subsidize broadcasters, we are conscious of the financial burdens faced 
by digital television broadcasters in the coming years. As will be 
discussed at greater length below, the Commission anticipates that the 
fee assessment program established here will be reviewed and possibly 
adjusted within the five year period prescribed by the 1996 Act, and 
that such review will take into account the actual costs of the 
development of digital ancillary or supplementary services.
    26. Commenters advocating a higher fee have argued that fees for 
the ancillary or supplementary use of the DTV bitstream are analogous 
to mineral and oil royalty rates, which range from 12 to over 17 
percent. The Commission rejected this analogy, stating that the policy 
and economic considerations in setting DTV ancillary and supplementary 
fees are quite distinct from the considerations that would be relevant 
for leasing resources such as minerals or oil. The economic analysis 
detailed in the Notice of Proposed Rule Making specifically addresses 
the efficient allocation of DTV spectrum between free, over-the-air 
television service and feeable ancillary services, not the general 
issue of royalty rates. That economic analysis also addresses the 
unjust enrichment which may result from the provision of comparable 
services by competitors, such as multichannel video service providers 
and other competing service providers, which have incurred sunk costs 
that do not accrue to DTV licensees.
    27. The Commission also rejected commenters' analogy to recent 
auction rates for non-broadcast spectrum. Commenters argued that the 
Commission should set the fee at a rate lower than five percent based 
upon analyses they have submitted that purport to demonstrate that the 
value of non-broadcast spectrum available at auction has been declining 
in recent months. These commenters argue that these studies demonstrate 
that the fees for the ancillary or supplementary use of the broadcast 
spectrum should be set very low, as the fees should recover 
approximately the amount which would have been received at an auction 
of the spectrum.
    28. In arguing for very low fees, some commenters have drawn an 
analogy to copyright royalty rates, which are very low, rather than 
royalties for mining and oil, which are higher. The Commission stated 
that the policy concerns and economic considerations of our analysis 
here are quite distinct from the considerations of privately-
contracting parties negotiating copyright royalty rates.
    29. Based upon the foregoing, the Commission determined that a fee 
set at five percent of gross revenues received from the ancillary or 
supplementary use of the DTV bitstream will best satisfy the 
requirements of the 1996 Act and will not discourage the provision of 
these new services by DTV licensees.

D. Services on Which Fee is to be Assessed

    30. In establishing a fee assessment program, the Commission 
determined which services are subject to the fee. The fee program 
established today applies only to ancillary or supplementary services. 
While it specifically refers to ancillary or supplementary services, 
section 336 does not define these services. Consistent with the 1996 
Act and Commission precedent, Commission rules specify that ancillary 
or supplementary services ``include, but are not limited to computer 
software distribution, data transmissions, teletext, interactive 
materials, aural messages, paging services, audio signals, [or] 
subscription video.'' Our rules also specify that ``any video broadcast 
signal provided at no direct charge to viewers shall not be considered 
ancillary or supplementary.'' 47 CFR 73.624(c).
    31. Pursuant to the 1996 Act, not all ancillary or supplementary 
services are feeable. We determine that all revenue from subscription 
services will be subject to a fee. In addition, as required by the 
statute, ancillary or supplementary services for which the licensee 
directly or indirectly receives compensation from a third party in 
exchange for the transmission of material provided by the third party, 
other than commercial advertisements used to support broadcasting, will 
be subject to a fee.
    32. Commenters provided very little guidance as to what services 
DTV licensees will provide. With this R&O, the Commission resolved 
several questions raised by commenters regarding particular types of 
services, and set out general principles that may be used to determine 
whether other non-subscription ancillary or supplementary services are 
subject to fees.
Viewer-paid Subscription Services
    33. As discussed above, the 1996 Act requires the Commission to 
establish a fee program for any ancillary or supplementary services 
``for which the payment of a subscription fee is required in order to 
receive such services.'' The legislative history of the 1996 Act 
indicates that the statute requires that a fee be assessed on ``any 
ancillary or supplementary service if subscription fees or any other 
compensation fees apart from commercial advertisements are required in 
order to receive such services.''
    34. The Commission stated that consistent with the 1996 Act, it 
will assess fees on all revenue--both subscription and advertising 
revenue--from all ancillary or supplementary services for which viewers 
must pay subscription fees to receive. The Commission rejected 
commenters' argument that advertising revenues from subscription 
services should not be subject to the fee. First, section 336(e)(1)(A) 
makes clear that those services for which ``the payment of a 
subscription fee is required in order to receive such services'' are 
feeable. The exclusion in section 336(e)(1)(B) for ``commercial 
advertisements used to support broadcasting for which a subscription 
fee is not required'' does not support NAB's position. Advertising 
revenues from services that cannot be received without payment of 
subscription fees do not fit within this exemption. The Commission 
therefore declined to allow DTV licensees to exclude from gross 
revenues subject to a fee advertising revenues received from services 
for which a subscription fee is also required. The Commission stated 
that such an approach would not be consistent with the statute and 
would unduly complicate the fee program.
Non-Subscription Ancillary or Supplementary Services for Which Licensee 
Receives Compensation From a Third-Party
    35. The 1996 Act directs that fees be assessed on ancillary or 
supplementary services ``for which the licensee directly or indirectly 
receives compensation from a third party in return for transmitting 
material furnished by such third party (other than for commercial 
advertisements used to support broadcasting for which a subscription 
fee is not required.)'' The Commission's rules state that over-the-air 
video programming provided at no charge to viewers is not an ancillary 
or supplementary service. This provision therefore applies to ancillary 
or supplementary services, consisting of material which does not 
originate with the licensee, which the viewer can receive without 
payment of a fee. These ancillary or supplementary services may

[[Page 69213]]

include data, audio, or any other ancillary or supplementary services 
that may be established in the future.
Home Shopping and Other Direct Marketing Programming
    36. Commenters argued that the statute requires fees to be imposed 
when broadcasters receive payments from sales on home shopping 
channels, infomercial and direct marketing programming. The Commission 
declined to impose fees on revenues received from home shopping, 
infomercial or direct marketing programming. The Commission stated that 
the purpose of this proceeding is not to exact fees from existing 
broadcasters for existing services but, rather, to design a program for 
the assessment of fees on ancillary or supplementary services which 
will be provided on the DTV bitstream. The Commission agreed with the 
commenters who argued that home shopping and infomercials are 
commercial advertisements, excluded by statute from the scope of 
ancillary and supplementary services as they are video services 
received by viewers without a fee. The Commission found that home 
shopping channels and infomercials are free, over-the-air television 
services, supported by commercial advertisements, and not subject to a 
fee.
Retransmission Consent Agreements
    37. Commenters raised the issue of whether in-kind consideration, 
in the form of retransmission consent agreements, constitutes 
compensation from a third party for the purposes of the 1996 Act. The 
Commission stated that a retransmission consent agreement constitutes 
the payment of compensation by a third party to a licensee in exchange 
for the transmission of material provided by that third party. A 
retransmission consent agreement involves in-kind consideration given 
to a licensee by a cable system operator for carriage of the licensee's 
programming on the cable system. It is not compensation given to the 
licensee for carriage of programming provided by a third party on that 
licensee's frequency.
Noncommercial Licensees
    38. In the Notice of Proposed Rule Making the Commission sought 
comment on the question of whether noncommercial television licensees 
should be exempt from fees or subject to lower fees. This argument was 
raised initially in the Petition for Reconsideration of the Fifth R&O 
filed by the Association of America's Public Television Stations and 
the Public Broadcasting Service. Petitioners further sought a 
determination as to whether they might offer feeable ancillary or 
supplementary services on their DTV capacity as a source of funding for 
their public television operations. Because the Commission has not yet 
determined whether or to what extent noncommercial licensees may 
provide revenue-generating ancillary or supplementary services, it 
stated that it is premature to determine whether such services would be 
subject to a fee and whether that fee should be lower than that paid by 
commercial broadcasters. The Commission instead initiated a proceeding 
in which it will build a record on noncommercial licensees' 
remunerative use of the DTV bitstream and whether and in what 
circumstances such uses would be subject to fees. The Commission stated 
that it will address the comments received on this issue in that 
proceeding.

E. Commencement of Fee Assessment

    39. Some commenters asked that the Commission delay imposing a fee 
on ancillary or supplementary services and proposed several different 
plans for such delay. The Commission stated that it would not delay the 
imposition of fees for ancillary or supplementary services. Even 
assuming that the Commission has authority to impose such a delay, a 
delay in the imposition of a fee would not serve the public interest. 
In addition, the Commission stated that a delay in the imposition of a 
fee would result in unjust enrichment during the time the broadcasters 
were providing feeable ancillary or supplementary services but were not 
paying a fee. A delayed fee would not effectively recover the value of 
the spectrum. The fee program established today is designed to minimize 
any detrimental effect the fee might have on the development of new and 
innovative services. A delay in the imposition of a fee would therefore 
be superfluous. Indeed, with a revenue based approach, as opposed to a 
flat fee, licensees will not have to commence paying a fee until they 
begin to collect revenues.

F. Other Issues

Cap on the Amount of the Fee
    40. One commenter argued that the Commission should cap the 
aggregate payments made by any broadcaster for feeable services. The 
statutory provision referenced is the provision which states that the 
fee shall recover an amount that ``equals but does not exceed'' the 
amount that would have been recovered at auction. This statutory 
provision does not require us to establish a cap on the fee amount. As 
discussed above, gross revenues from feeable ancillary or supplementary 
services are related to the implicit value of the DTV spectrum used to 
provide such services. If the Commission were to establish an upper 
limit on the total fees that it collected, then the theoretical linkage 
established in our analysis would no longer hold, and the Commission 
would fail to satisfy its mandate from Congress. The Commission also 
declined to adopt this proposal as it would unduly complicate the 
implementation and enforcement of the fee assessment program. 
Establishing a cap on the amount of the fee might involve a calculation 
that takes into account the size of a station, the market it serves, 
the amount of feeable ancillary or supplementary services provided, and 
numerous other factors which would certainly complicate the 
establishment and enforcement of the fee assessment program. It would 
be difficult, if not impossible, to determine on a license by license 
basis what the auction value of that spectrum should be and thus where 
a cap should be placed. Thus, ease of administration of the fee program 
would be compromised by a cap on the total amount of fee payments.
Variable Fee Rate Depending Upon the Type of Service
    41. The Commission sought comment as to whether the percentage rate 
of the fee should vary with the type of service provided. Commenters 
argued that the Commission should not take into account preferences for 
one type of service over another in setting the fee and that varying 
the level of the fee depending upon the service could discourage new 
services and would exceed the Commission's authority. The percentage 
rate of the fee will be fixed at five percent, for all services subject 
to a fee. The Commission agreed that a varying fee rate could have the 
effect of dissuading licensees from providing particular services. To 
the extent that the fee is set lower for one service than for another, 
it would create an incentive for a licensee to provide the service with 
a lower fee rate over a service subject to a higher fee. The Commission 
stated that it wished to establish a fee program that does not affect 
broadcasters' decisions to provide one service over another, other than 
the mandated free, over-the-air television service, and therefore did 
not establish a fee which varies based upon the type of services 
provided. In addition, a varying fee rate would be difficult to adhere 
to and to enforce, in contravention of the Commission's goal of a fee 
program that

[[Page 69214]]

is simple to comply with and administer.
Review of Fee Assessment Program
    42. The 1996 Act requires the Commission to adjust the fee ``from 
time to time in order to continue to comply with the requirements of'' 
the statute and to ``report to the Congress on the implementation of 
the program'' within five years of the enactment of the 1996 Act.
    43. The fee program established concerns services which are not yet 
available to consumers. Once digital television licensees have 
implemented ancillary or supplementary services, the Commission and the 
licensees will have a better concept of what these services might 
include and of the profit-making capacity of these services. The 
Commission intends to review the fee assessment program established 
herein by the time of our mandated report to Congress. Also, the 
Commission may adjust our fee program as necessary to continue to 
comply with the requirements of the statute.

IV. Collection of Fees

    44. The 1996 Act requires that the Commission ``establish a program 
to assess and collect . . . an annual fee or other schedule or method 
of payment that promotes the objectives described'' above and that the 
fee ``be adjusted by the Commission from time to time in order to 
continue to comply with [these] requirements.'' The statute requires 
that ``all proceeds obtained pursuant to the regulations required by 
this subsection . . . be deposited in the Treasury.'' In addition, the 
1996 Act requires that ``within 5 years after the date of enactment of 
the [1996 Act] . . . the Commission shall report to the Congress on the 
implementation of the program required by this subsection, and shall 
annually thereafter advise the Congress on the amounts collected 
pursuant to such program.'' Commenters did not address the collection 
of fees pursuant to this program.
    45. In order that the Commission fulfill its statutory obligation 
to report to Congress on the program established here, and in order 
that the Commission have the information necessary to adjust the fee 
program as appropriate consistent with the use of the spectrum, as 
discussed above, we will require all commercial DTV licensees to report 
to the Commission on their use of the DTV bitstream. Each DTV licensee 
will be required to file a new FCC form annually on December 1.
    46. Pursuant to a Public Notice to be issued as soon as possible, 
the Mass Media Bureau will issue a new reporting form, to be filed by 
each DTV licensee on December 1 of each year. Beginning on December 1, 
1999 all licensees will annually file the new reporting form 
electronically with the Mass Media Bureau. For the report filed 
December 1, 1999 only, licensees are to report on services provided 
from the effective date of this R&O through September 30, 1999.
    47. In filing licensees will report whether they provided ancillary 
or supplementary services in the twelve-month period ending on the 
preceding September 30. Licensees will further report, for the 
applicable period: (1) a brief description of the services provided; 
(2) which services were feeable ancillary or supplementary services; 
(3) whether any ancillary or supplementary services provided were not 
subject to a fee; (4) gross revenues received from all feeable 
ancillary and supplementary services provided during the applicable 
period; and (5) the amount of bitstream used to provide ancillary or 
supplementary services during the applicable period. The licensee's 
signature on the form will certify under penalty of perjury the 
accuracy of the information reported. Failure to file the form 
regardless of revenues from ancillary or supplementary services or 
provision of such services may result in appropriate sanctions.
    48. If a licensee has provided feeable ancillary or supplementary 
services at any point during any twelve-month period ending on 
September 30, the licensee must additionally annually file the FCC's 
standard remittance form (Form 159) on the subsequent December 1. 
Licensees will certify the amount of gross revenues received from 
feeable ancillary or supplementary services for the applicable twelve-
month period and will remit the payment of the required fee. For 
revenues reported December 1, 1999 only, licensees are to certify 
revenues received from feeable ancillary or supplementary services 
provided from the effective date of this R&O through September 30, 1999 
and remit payment of the required fee for that period.
    49. The instructions for Form 159 will be amended by Public Notice 
to require DTV licensees to specify the amount of gross revenues 
received from feeable ancillary or supplementary services and the fees 
due. Pursuant to this R&O, section 1 of the Commission's rules is 
amended to specify that licensees file Form 159 annually. The 
instructions for Form 159 will be amended to require commercial DTV 
licensees providing feeable ancillary or supplementary services to 
annually file Form 159 on December 1 and to specify on line 19A the 
call sign by which they are registered with the Commission; on line 20A 
the payment type code; on line 23A the amount of gross revenues 
received from feeable ancillary or supplementary services; on line 22A 
the fee which they remit with Form 159, in the amount of five percent 
of the amount specified on line 23A; and on line 24A the facility 
identification number assigned to them by the Commission. The 
licensee's signature on line 27 certifies under penalty of perjury the 
accuracy of the information reported on Form 159.
    50. The Mass Media Bureau will issue a Public Notice amending the 
Advice Reference Guide for FCC Form 159, and the Mass Media Services 
Fee Filing Guide. The Commission delegates authority to the Office of 
the Managing Director to specify by Public Notice procedures for filing 
and processing the fees required by this R&O. The Commission reserves 
the right to audit each licensee's records which support the 
calculation of the amount specified on line 23A of Form 159. Each 
licensee, therefore, is required to retain such records for three years 
from the date of remittance of fees pursuant to this R&O.
    51. While the Commission does not here include automatic 
confidentiality for information submitted pursuant to this R&O, 
submission of the required reporting form, and/or remittance of fee 
payment may be accompanied by a request for confidentiality pursuant to 
47 CFR 0.459.

V. Conclusion

    52. By this R&O and the accompanying rule, the Commission 
establishes a program to assess a fee of five percent of gross revenues 
received from the provision of feeable ancillary and supplementary 
services as defined herein.

VI. Administrative Matters

    53. Paperwork Reduction Act of 1995 Analysis. The action contained 
herein has been analyzed with respect to the Paperwork Reduction Act of 
1995 and found to impose new or modified reporting and recordkeeping 
requirements or burdens on the public. Implementation of these new or 
modified reporting and recordkeeping requirements will be subject to 
approval by the Office of Management and Budget as prescribed by the 
Act. Accordingly, it is ordered that, pursuant to the authority 
contained in section 4(i), 303, 336 and 403 of the Communications Act 
of 1934, as amended, 47 U.S.C. 154(i), 303, 336 and 403, part 73 of the 
Commission's Rules is amended.

[[Page 69215]]

    54. It is further ordered that, pursuant to the Contract with 
America Advancement Act of 1996, the rule amendments shall be effective 
the later of either thirty days after publication in the Federal 
Register, or upon receipt by Congress of a report in compliance with 
the Contract with America Advancement Act of 1996, Public Law 104-121, 
or as soon thereafter as may be approved by the Office of Management 
and Budget.
    55. It is further ordered that the Commission's Office of Public 
Affairs, Reference Operations Division, shall send a copy of this R&O, 
including the FRFA, to the Chief Counsel for Advocacy of the Small 
Business Administration.
    56. It is further ordered that this proceeding is terminated.

Final Regulatory Flexibility Analysis

    57. As required by the Regulatory Flexibility Act (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice 
of Proposed Rule Making is R&O. The Commission sought written public 
comment on the proposals in the Notice of Proposed Rule Making, 
including comment on the IRFA. This present Final Regulatory 
Flexibility Analysis (FRFA) conforms to the RFA.
    Need for, and Objectives of, the Report and Order: 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 R&O we established rules 
permitting broadcasters to offer feeable ancillary or supplementary 
services on the DTV spectrum. As directed by Congress, in this 
proceeding we adopt a program for assessing and collecting a fee for 
the feeable ancillary or supplementary use of the DTV spectrum.
    Summary of Significant Issues Raised by Public Comments In Response 
to the IRFA: No comments were received specifically in response to the 
IRFA attached to the Notice of Proposed Rule Making.

Description and Estimate of the Number of Small Entities To Which Rules 
Will Apply Definition of a ``Small Business''

    58. Under the RFA, small entities may include small organizations, 
small businesses, and small governmental jurisdictions. 5 U.S.C. 
601(6). The RFA, 5 U.S.C. 601(3), 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 4 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.'' As discussed below, the SBA defines a television 
broadcast station that has no more than $10.5 million in annual 
receipts as a small business.

Issues in Applying the Definition of a ``Small Business''

    59. The estimates, below, reflect the Commission's best judgments 
based on the data available to us. An element of the definition of 
``small business'' is that the entity not be dominant in its field of 
operation. The Commission is unable at this time to define or quantify 
the criteria that would establish whether a specific radio or 
television station is dominant in its field of operation. Accordingly, 
the following estimates of small businesses to which the new rules will 
apply do not exclude any radio or television station from the 
definition of a small business on this basis and are therefore 
overinclusive to that extent. An additional element of the definition 
of ``small business'' is that the entity must be independently owned 
and operated.
    60. With respect to applying the revenue cap, the SBA has defined 
``annual receipts'' specifically in 13 CFR 121.104, and its 
calculations include an averaging process. We do not currently require 
submission of financial data from licensees that we could use in 
applying the SBA's definition of a small business. Thus, for purposes 
of estimating the number of small entities to which the rules apply, we 
are limited to considering the revenue data that are publicly 
available, and the revenue data on which we rely may not correspond 
completely with the SBA definition of annual receipts.
    61. Under SBA criteria for determining annual receipts, if a 
concern has acquired an affiliate or been acquired as an affiliate 
during the applicable averaging period for determining annual receipts, 
the annual receipts in determining size status include the receipts of 
both firms. 13 CFR 121.104(d)(1). The SBA defines affiliation in 13 CFR 
121.103. In this context, the SBA's definition of affiliate is 
analogous to our attribution rules. Generally, under the SBA's 
definition, concerns are affiliates of each other when one concern 
controls or has the power to control the other, or a third party or 
parties controls or has the power to control both. 13 CFR 
121.103(a)(1). The SBA considers factors such as ownership, management, 
previous relationships with or ties to another concern, and contractual 
relationships, in determining whether affiliation exists. 13 CFR 
121.103(a)(2). Instead of making an independent determination of 
whether television stations were affiliated based on SBA's definitions, 
we relied on the databases available to us to provide us with that 
information.

Estimates Based on Census Data

    62. The rules adopted in this Report and Order will apply to 
commercial DTV 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. 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 are classified under 
another SIC number.
    63. There were 1,509 television stations operating in the nation in 
1992. That number has remained fairly constant as indicated by the 
approximately 1,583 operating television broadcasting stations in the 
nation as of September 1998. For 1992, the (approximately 77%) number 
of television stations that produced less than $10.0 million in 
revenue, and we estimate that was approximately 1,155 establishments. 
Thus, the rules adopted here may affect approximately 1,583 television 
stations; approximately 77%, or 1,219 of those stations are considered 
small businesses. These estimates may overstate the number of small 
entities because the revenue figures on which they are based do not 
include or aggregate revenues from non-television affiliated companies.
    Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements: The R&O adopts modifications to existing 
reporting and recordkeeping requirements. The fee program established 
here will require

[[Page 69216]]

licensees annually to file a new reporting form to be issued later. 
Licensees will be required to report whether they provided ancillary or 
supplementary services, the ancillary or supplementary services 
provided, the services provided which are subject to a fee, gross 
revenues received from all feeable ancillary and supplementary 
services, and the amount of bitstream used to provide ancillary or 
supplementary services. Licensees providing services subject to a fee 
will additionally be required annually to file FCC Form 159 in 
remittance of the fee. So that the Commission may audit licensees' 
records supporting the calculation of the fees due, each licensee will 
be required to retain such records for three years from the date of 
remittance of fees.

Steps Taken to Minimize Significant Economic Impact on Small Entities, 
and Significant Alternatives Considered:

    64. This Report and Order establishes a program for assessing and 
collecting fees for the ancillary or supplementary use of the digital 
television spectrum. In the Notice of Proposed Rule Making, a variety 
of alternatives were proposed and we additionally sought comment on 
whether any of the proposed approaches would have a significant 
economic impact on any class of small licensee or permittee. We 
considered all alternatives presented in the comments. The rules 
adopted here 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 rules adopted here are 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.

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

    65. Adoption of this Report and Order will necessitate the revision 
of 47 CFR 73.624 to add a new Sec. 73.624(g).

Report to Congress:

    66. The Commission will send a copy of the R&O, including this 
FRFA, in a report to be sent to Congress pursuant to the Small Business 
Regulatory Enforcement Fairness Act of 1996, see 5 U.S.C. 801(a)(1)(A). 
In addition, the Commission will send a copy of the R&O, including 
FRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration. A copy of the R&O and FRFA (or summaries thereof) will 
also be published in the Federal Register. See 5 U.S.C. 604(b).

List of Subjects in 47 CFR Part 73

    Television, television broadcasting.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Part 73 of Title 47 of the Code of Federal Regulations is amended 
to read as follows:

PART 73--[AMENDED]

    1. The authority citation for part 73 continues to read as follows: 
47 U.S.C. 154, 303, 334, 336
    2. Section 73.624 is revised by adding a new paragraph (g) to read 
as follows:


Sec. 73.624  Digital Television Broadcast Stations

* * * * *
    (g) Commercial DTV licensees must annually remit a fee of five 
percent of the gross revenues derived from all ancillary or 
supplementary services, as defined by paragraph (b) hereof, which are 
feeable, as defined in paragraphs (i) through (ii) hereof.
    (1)(i) All ancillary or supplementary services for which payment of 
a subscription fee or charge is required in order to receive the 
service are feeable. The fee required by this provision shall be 
imposed on any and all revenues from such services, including revenues 
derived from subscription fees and from any commercial advertisements 
transmitted on the service.
    (ii) Any ancillary or supplementary service for which no payment is 
required from consumers in order to receive the service is feeable if 
the DTV licensee directly or indirectly receives compensation from a 
third party in return for the transmission of material provided by that 
third party (other than commercial advertisements used to support 
broadcasting for which a subscription fee is not required). The fee 
required by this provision shall be imposed on any and all revenues 
from such services, other than revenues received from a third party in 
return for the transmission of commercial advertisements used to 
support broadcasting for which a subscription fee is not required.
    (2) Payment of fees. (i) Each December 1, all commercial DTV 
licensees will electronically report whether they provided ancillary or 
supplementary services in the twelve-month period ending on the 
preceding September 30. Licensees will further report, for the 
applicable period: (A) a brief description of the services provided; 
(B) which services were feeable ancillary or supplementary services; 
(C) whether any ancillary or supplementary services provided were not 
subject to a fee; (D) gross revenues received from all feeable 
ancillary and supplementary services provided during the applicable 
period; and (E) the amount of bitstream used to provide ancillary or 
supplementary services during the applicable period. Licensees will 
certify under penalty of perjury the accuracy of the information 
reported. Failure to file regardless of revenues from ancillary or 
supplementary services or provision of such services may result in 
appropriate sanctions.
    (ii) If a commercial DTV licensee has provided feeable ancillary or 
supplementary services at any point during a twelve-month period ending 
on September 30, the licensee must additionally file the FCC's standard 
remittance form (Form 159) on the subsequent December 1. Licensees will 
certify the amount of gross revenues received from feeable ancillary or 
supplementary services for the applicable twelve-month period and will 
remit the payment of the required fee.
    (iii) The Commission reserves the right to audit each licensee's 
records which support the calculation of the amount specified on line 
23A of Form 159. Each licensee, therefore, is required to retain such 
records for three years from the date of remittance of fees.

[FR Doc. 98-33065 Filed 12-15-98; 8:45 am]
BILLING CODE 6712-01-P