[Federal Register Volume 66, Number 58 (Monday, March 26, 2001)]
[Rules and Regulations]
[Pages 16533-16554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7323]



  Federal Register / Vol. 66, No. 58 / Monday, March 26, 2001 / Rules 
and Regulations  

[[Page 16533]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[CS Docket No. 98-120, CS Docket No. 00-96; CS Docket No. 00-2, FCC 01-
22]


Carriage of Digital Television Broadcast Signals

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document resolves a number of technical and legal issues 
related to the carriage of digital broadcast signals pursuant to 
retransmission consent and mandatory carriage of commercial and 
noncommercial educational television stations under the Communications 
Act of 1934 (``Act''). In particular, this document clarifies that a 
digital-only television station may assert its right to mandatory 
carriage. Specifically, new television stations that transmit only 
digital signals, and current television stations that return their 
analog spectrum allocation and convert to digital operations, must be 
carried on cable systems.

DATES: These rules contain information collection requirements that 
have not yet been approved by OMB. The Federal Communications 
Commission will publish a document in the Federal Register announcing 
the effective date. Written comments by the public on the new or 
modified information collections are due May 25, 2001.

ADDRESSES: Written comments on the new or modified information 
collections should be submitted to Judy Boley, Federal Communications 
Commission, 445 12th Street, SW., Washington, DC 20544, or via the 
Internet to [email protected], and to Edward Springer, OMB Desk Officer, 
10236 NEOB, 725--17th Street, NW., Washington, DC 20503 or via the 
Internet to [email protected].

FOR FURTHER INFORMATION CONTACT: Eloise Gore at (202) 418-7200 or via 
internet at via internet at [email protected]. For additional information 
concerning the information collection(s) contained in this document, 
contact Judy Boley at 202-418-0214, or via the Internet at 
[email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order FCC 01-22, adopted January 18, 2001; released January 23, 
2001. The full text of the Commission's Order is available for 
inspection and copying during normal business hours in the FCC 
Reference Center (Room CY-A257) at its headquarters, 445 12th Street, 
SW., Washington, DC 20554, or may be purchased from the Commission's 
copy contractor, International Transcription Service, Inc., (202) 857-
3800, 1231 20th Street, NW., Washington, DC 20036, or may be reviewed 
via internet at http://www.fcc.gov/csb/.

Synopsis of the Report and Order

I. Introduction

    1. In the Notice of Proposed Rulemaking (``NPRM'') 63 FR 42330, 
Aug. 7, 1998, in this docket, we sought comment on a variety of issues 
relating to the carriage of digital television broadcast signals by 
cable television operators. With this First Report and Order (``Report 
and Order''), we resolve a number of technical and legal issues related 
to the carriage of digital broadcast signals concerning retransmission 
consent, broadcast spectrum flexibility and ancillary and supplementary 
services, mandatory carriage of commercial television stations and 
mandatory carriage of noncommercial educational television stations 
pursuant to the Communications Act of 1934 (``Act''). In addition, we 
clarify that a digital-only television station may assert its right to 
carriage. Specifically, new television stations that transmit only 
digital signals, and current television stations that return their 
analog spectrum allocation and convert to digital operations, must be 
carried.
    2. In this document, we resolve matters relating to retransmission 
consent, content-to-be-carried, channel capacity, channel placement, 
and a host of other operational issues. Our principal goal is to 
provide a framework for private resolution of the issues raised in the 
NPRM, wherever possible, and to give guidance on technical issues 
relating to the carriage of digital television signals. Based on the 
record currently before us, we believe that the statute neither 
mandates nor precludes the mandatory simultaneous carriage of both a 
television station's digital and analog signals (``dual carriage'').
    3. On this point, we tentatively conclude that, based on the 
existing record evidence, a dual carriage requirement appears to burden 
cable operators' First Amendment interests substantially more than is 
necessary to further the government's substantial interests of 
preserving the benefits of free over-the-air local broadcast 
television; promoting the widespread dissemination of information from 
a multiplicity of sources; and promoting fair competition in the market 
for television programming. However, in order to ensure that we have a 
sufficient body of evidence before us in which to evaluate this issue 
fully, so that we can ultimately resolve the issue of mandatory dual 
carriage, we find it necessary to issue a Further Notice of Proposed 
Rulemaking (``FNPRM'') addressing several critical questions at the 
center of the carriage debate (see FNPRM published elsewhere in this 
issue of the Federal Register.)
    4. At the outset, we recognize a number of statutory and public 
policy goals inherent in sections 614 and 615, and other parts of the 
Act. These include maximizing incentives for inter-industry 
negotiation; minimizing disruption to cable subscribers as well as the 
cable industry; promoting efficiency and innovation in new technologies 
and services; advancing multichannel video competition; maximizing the 
introduction of digital broadcast television; and maintaining the 
strength and competitiveness of broadcast television. Our goal is to 
facilitate an efficient market-oriented structure that implements the 
Act in a manner that, to the extent possible, permits private 
agreements to resolve issues. Based on the importance of cable 
television in the video programming marketplace, we believe that the 
cooperation and participation by the cable industry during the 
transition period would further the successful introduction of digital 
broadcast television.

II. Background

    5. Pursuant to section 614 of the Act, and the implementing rules 
adopted by the Commission in Implementation of the Cable Television 
Consumer Protection and Competition Act of 1992, Broadcast Signal 
Carriage Issues Report and Order (``Must Carry Order'') 58 FR 17350, 
Apr. 2, 1993, a commercial television broadcast station is entitled to 
request carriage on cable systems located within the station's market. 
A station's market for this purpose is its ``designated market area,'' 
or DMA, as defined by Nielsen Media Research. A DMA is a geographic 
market designation that defines each television market exclusive of 
others, based on measured viewing patterns. The Act states that systems 
with more than 12 usable activated channels must carry local commercial 
television stations, ``up to one-third of the aggregate number of 
usable activated channels of such system[s].'' A cable operator of a 
cable system with 12 or fewer usable activated channels shall carry the 
signals of at least three local commercial television stations, except 
that if such a system has 300 or fewer subscribers, it shall not be

[[Page 16534]]

subject to any requirements under this section so long as such system 
does not delete from carriage by that system any signal of a broadcast 
television station. Beyond this requirement, the carriage of additional 
television stations is at the discretion of the cable operator. In 
addition, cable systems are obliged to carry local noncommercial 
educational television stations (``NCE stations'') according to a 
different formula and based upon a cable system's number of usable 
activated channels. Noncommercial television stations are considered 
qualified, and may request carriage if they: are licensed to a 
community within fifty miles of the principal headend of the cable 
system; or place a Grade B contour over the cable operator's principal 
headend. Cable systems with 12 or fewer usable activated channels are 
required to carry the signal of one qualified local noncommercial 
educational station; 13-36 usable activated channels are required to 
carry no more than three qualified local noncommercial educational 
stations; and more than 36 usable activated channels shall carry at 
least three qualified local noncommercial educational stations. Low 
power television stations, including Class A stations, may request 
carriage if they meet six statutory criteria. A cable operator, 
however, cannot carry a low power television station in lieu of a full 
power television station.
    6. Cable operators are currently required to carry local television 
stations on a tier of service provided to every subscriber and on 
certain channel positions designated in the Act. Cable operators are 
prohibited from degrading a television station's signal, but are not 
required to carry duplicative signals or video that is not considered 
primary. Television stations may file complaints with the Commission 
against cable operators for non-compliance with sections 614 and 615. 
In addition, both cable operators and television stations may file 
petitions with the Commission to either expand or contract a commercial 
television station's market for broadcast signal carriage purposes. 
These statutory requirements were implemented by the Commission in 
1993, and are reflected in sections 76.56 through 76.64 of the 
Commission's rules.
    7. In a recent Memorandum Opinion and Order regarding band-clearing 
of the 700 MHz spectrum (``700 MHz Order'') 65 FR 42879, Jul. 12, 2000 
the Commission reiterated that cable carriage can play an important 
role as an alternative distribution channel during the transition 
period by providing continued service to viewers who would otherwise be 
deprived of broadcast service. Although the Commission stated that it 
would be considering the scope and manner of cable carriage of digital 
broadcast signals in this proceeding, it discussed the cable industry's 
carriage obligations for future digital television signals in the 700 
MHz Order. First, the Commission clarified that cable systems are 
ultimately obligated to accord carriage rights to local broadcasters' 
digital signals. Specifically, the Commission stated that existing 
analog stations that return their analog spectrum allocation and 
convert to digital are entitled to mandatory carriage for their digital 
signals consistent with applicable statutory and regulatory provisions. 
The Commission also stated that to facilitate the continuing 
availability during the transition of the analog signal of a 
broadcaster who is party to a voluntary band clearing agreement with 
new 700 MHz licensees, such a broadcaster could, in this context and at 
its own expense, provide its broadcast digital signal in an analog 
format for carriage on cable systems. Specifically, the Commission 
stated that, in these circumstances, nothing prohibits the cable system 
from providing such signals in an analog format to subscribers, in 
addition to or in place of the broadcast digital signal, pursuant to an 
agreement with the broadcaster.

III. Carriage During the DTV Transition

    8. The statutory provision triggering this rulemaking is found in 
section 614(b)(4)(b) of the Act. This section requires that:

    At such time as the Commission prescribes modifications of the 
standards for television broadcast signals, the Commission shall 
initiate a proceeding to establish any changes in the signal 
carriage requirements of cable television systems necessary to 
ensure cable carriage of such broadcast signals of local commercial 
television stations which have been changed to conform with such 
modified standards.

    There is little discussion of this provision in the Act's 
legislative history. However, the House Report states that ``when the 
FCC adopts new standards for broadcast television signals, such as the 
authorization of broadcast high definition television (HDTV), it shall 
conduct a proceeding to make any changes in the signal carriage 
requirements of cable systems needed to ensure that cable systems will 
carry television signals complying with such modified standards in 
accordance with the objectives of this section.'' The Senate Committee 
Report describes the provision as providing that when the FCC adopts 
new standards for broadcast television signals, such as the 
authorization of broadcast HDTV, ``it shall conduct a proceeding to 
make any change in the signal carriage requirements of cable systems 
needed to ensure that cable systems will carry television signals 
complying with such modified standards in accordance with the 
objectives of new section 614.''
    9. In the NPRM, we recognized that, as a policy matter, the most 
difficult carriage issues arise during the transition because there 
will exist, for a temporary period, approximately twice as many 
television broadcast signals as are now on the air. We noted that 
toward the end of the transition period, there would be an increasing 
redundancy of basic content between the analog and digital signals as 
the Commission's simulcasting requirements are phased in. We recognized 
that, to the extent that the Commission imposes a dual carriage 
requirement, cable operators could be required to carry double the 
amount of television signals, that will eventually carry identical 
content, while having to drop various and varied cable programming 
services where channel capacity is limited. We sought comment on 
several carriage options that address the needs of the broadcasters and 
the concerns of the cable operators as well as the timing of mandatory 
digital broadcast signal carriage rules. These proposals included a 
range of approaches from ``immediate'' or dual carriage, in which cable 
systems would be required to carry both analog and digital commercial 
television signals up to the one-third capacity limit; the ``either-
or'' proposal, in which broadcasters could choose must carry for either 
their analog or digital signals during the transition years; and the 
``no must carry proposal,'' under which digital signals would not have 
mandatory carriage rights during the transition period, but only when 
the transition is over.
    10. The broadcast industry generally urges the Commission to impose 
a dual carriage requirement during the transition period to ensure that 
viewers have continued access to all available local television 
programming. In contrast, NCTA and other cable industry participants 
contend that digital must carry will ``dictate technological outcomes 
before the market is ready.'' Time Warner argues that if cable 
operators were required to carry digital broadcast signals during the 
transition, an operator's channel line-up would consist of blank 
screens because most consumers will not have digital television 
receivers or converters

[[Page 16535]]

allowing them to display digital signals on their analog sets. Cable 
programmers oppose a dual carriage requirement because they fear being 
dropped or being unable to gain carriage due to the addition of digital 
television signals to a cable operators' channel line-up.
    11. There was support for the ``either-or'' proposal, particularly 
from the public interest community. The United Church of Christ and 
other consumer advocates, filing jointly (``UCC''), believe that this 
middle-ground proposal, as it applies to commercial television 
stations, is the ``most market friendly and statute friendly'' 
solution. They state that as penetration of digital receivers 
increases, compatibility between digital television receivers and cable 
equipment improves, and broadcasters finalize business plans for their 
new digital signal, each broadcaster can decide which of its signals it 
would prefer to be carried. UCC believes this option will help speed 
the transition to digital, preserve local broadcasting, and avoid 
duplicative signals that reduce diversity.
    12. After reviewing the extensive comments on the central issue of 
dual carriage during the transition period, we find it is unjustified 
for the Commission to act at this time in light of the constitutional 
questions the subject presents, including the related issues of 
economic impact. We need further information on a range of issues, 
including cable system channel capacity and digital retransmission 
consent agreements to build a substantial record upon which to develop 
the best policy for the various entities impacted in this area. 
Notwithstanding our decision to obtain further comment on these 
matters, it is important to clarify that broadcast stations operating 
only with digital signals are entitled to mandatory carriage under the 
Act. We find that the burden on a cable operator to carry such stations 
is de minimis, with regard to new digital-only stations, and is 
essentially a trade-off in the case of a station substituting its 
digital signal in the place of its analog signal. To implement this 
clarification, we amend Sec. 76.5, the definition of television 
broadcast station, and specifically include the digital television 
Table of Allotments found at Sec. 73.622 of the Commission's rules.

A. Commercial Television Stations

    13. Section 614(a) of the Communications Act of 1934, as amended, 
provides:

    Carriage Obligations.--Each cable operator shall carry, on the 
cable system of that operator, the signals of local commercial 
television stations and qualified low power stations as provided by 
this section. Carriage of additional broadcast television signals on 
such system shall be at the discretion of such operator, subject to 
section 325(b).

    This section requires carriage for local commercial stations 
subject to the other provisions of section 614. This section does not 
distinguish between analog and digital signals and supports the 
argument that digital signals are entitled to mandatory carriage. A 
similar provision, section 615(a), requires carriage of noncommercial 
stations, as discussed more fully below.
    14. More specific to this proceeding, section 614(b)(4)(B) provides 
that the Commission ``shall initiate a proceeding to establish any 
changes in the signal carriage requirements of cable television systems 
necessary to ensure cable carriage of such broadcast signals of local 
commercial television stations which have been changed to conform with 
such modified standards.'' Commenters offer differing interpretations 
of this section. NAB and other broadcasters argue that section 
614(b)(1)(B) neither distinguishes between digital and analog signals 
nor establishes a transition period. Therefore, they contend, both 
should be carried simultaneously and immediately. In contrast, NCTA and 
others in the cable industry argue that the phrase, ``which have been 
changed,'' means that cable operators should be required to carry 
digital signals only when analog signals have been changed to digital 
signals, i.e., when the broadcasters no longer have both. NCTA further 
argues that the Commission may not order mandatory carriage of both the 
DTV and analog signals during the transition period because the 
Commission is not expressly authorized to do so in the Act, and, based 
on section 624(f), the Commission's authority may not be inferred. We 
do not accept the arguments of either those commenters who say that the 
statute forbids dual carriage; nor those who argue that the statute 
compels dual carriage.
    15. With respect to carriage of digital-only signals, we do not 
agree with NCTA's interpretation to the extent that it is intended to 
suggest that this section requires a television station to wait until 
the end of the transition period before seeking digital signal 
carriage. There is nothing in the plain language of the statute or the 
legislative history to require such a restrictive reading. Indeed, as 
we noted above, section 614(a), which imposes carriage obligations on 
cable systems, does not distinguish between digital and analog signals. 
Thus, when a television station seeks carriage, the cable system must 
oblige regardless of whether the signal is in an analog or digital 
format, and provided that the station satisfies all other provisions of 
the Act and the Commission's rules.
    16. We also disagree with NCTA's argument that section 624(f) of 
the Act prohibits us from requiring the carriage of digital television 
signals. This particular section forbids Federal agencies and others 
from requiring the content of cable services except as expressly 
provided for in Title VI. Given that Congress has spoken to the issue 
of digital broadcast signal carriage in section 614(b)(4)(B), and given 
such carriage is not barred under another statutory provision, digital 
broadcast signal carriage fits within the express requirement of 
section 614(a) and thus is 'expressly authorized' within the meaning of 
section 624(f). As such we do not believe that the Commission is 
outside the scope of its authority to impose such requirements simply 
because the signals in question are in a digital rather than in an 
analog format.

B. Noncommercial Television Stations

    17. The importance of ensuring that noncommercial educational 
stations are accessible to the viewing public is consistently 
emphasized in the Act itself and its legislative history. Indeed, the 
Act mandates that cable operators devote additional channel capacity 
for the carriage of noncommercial educational television stations 
(``NCEs''). Congress found ``a substantial governmental and First 
Amendment interest in ensuring that cable subscribers have access to 
local noncommercial stations.''
    18. As stated above, section 614(b)(4)(B) requires the Commission 
to initiate a proceeding to establish any changes in the signal 
carriage requirements of cable television systems that are necessary 
``to ensure cable carriage of such broadcast signals of local 
commercial television stations * * * '' (emphasis added). In the NPRM 
we asked how, if at all, carriage rights for digital noncommercial 
educational stations are affected given that they are not explicitly 
discussed in this section.
    19. We believe that the government's interest in ensuring the 
availability of local noncommercial educational television on cable 
systems is manifest. Section 615(a) states that ``[E]ach cable operator 
of a cable system shall carry the signals of qualified noncommercial 
educational television stations in accordance with the provisions of 
this section.'' Section 615(a) does not distinguish between digital and 
analog signals with regard to the ``signals'' that

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must be carried. The Act does not contain any words or provisions 
specifically excluding the carriage of NCE digital television signals. 
The legislative history of the Act is also devoid of any language 
suggesting that Congress intended to deny mandatory carriage to digital 
NCE station signals. In addition, there is an implication in section 
336 and its legislative history that Congress intended the Commission 
to address all must carry issues in the section 614(b)(4)(B) 
proceeding, including those relating to noncommercial educational 
stations covered by section 615. Section 336 applies only to advanced 
(digital) television services; it has no application in the analog 
context. Section 336(b)(3) specifies that ancillary and supplementary 
services have no mandatory carriage rights under section 614 or 615, 
which necessarily contemplates some consideration of must carry under 
section 615 for noncommercial educational stations. The legislative 
history of the conference agreement for this section states: ``With 
respect to (b)(3), the conferees do not intend this paragraph to confer 
must carry status on advanced [digital] television or other video 
services offered on designated frequencies. Under the 1992 Cable Act, 
that issue is to be the subject of a Commission proceeding under 
section 614(b)(4)(B) of the Communications Act.'' The most logical 
inference is that Congress contemplated that the Commission would 
address the issue of must carry for digital signals in the proceeding 
authorized by section 614(b)(4)(B), which would cover both local 
commercial and noncommercial television stations.
    20. We therefore find that the digital signals of NCE stations are 
to be treated like their commercial counterparts for cable carriage 
purposes. Thus, NCE stations that broadcast only in digital are 
entitled to immediate carriage by cable systems, subject to the 
parameters set forth in section 615 of the Act and the relevant 
Commission orders. And, like our decision with regard to commercial 
television stations, we decline to address the dual carriage issue for 
NCE stations in this phase of the proceeding.
    21. AAPTS argues that the Commission should clarify the qualifying 
statutory term, ``Grade B Service Contour.'' AAPTS asserts that this 
provision should be read to refer to a station for which either the 
Grade B service contour of the station or its digital coverage contour, 
whichever is larger, encompasses the principal headend of the cable 
system on which the station seeks carriage. Given that this matter is 
tied to the dual carriage issue, we decline to address the merits of 
AAPTS's Grade B argument at this juncture.

IV. Retransmission Consent Issues

    22. Section 325 contains the Act's retransmission consent 
provisions. The law governing retransmission consent generally 
prohibits cable operators and other multichannel video programming 
distributors from retransmitting the signal of a commercial television 
station unless the station whose signal is being transmitted consents 
or chooses mandatory carriage. Every three years, analog commercial 
television stations must elect to either grant retransmission consent 
or pursue their mandatory carriage rights.
    23. The NPRM raised numerous issues related to retransmission 
consent that can be resolved in this Report and Order. The issues are 
as follows: whether separate retransmission consent/must carry 
elections are permitted for the analog and digital signals of a 
broadcast station; whether the timing of the election cycle must be 
modified; whether a broadcaster may agree to partial carriage of its 
digital signal; whether the digital replacement signals for analog 
superstations should be treated as new signals for purposes of the 
retransmission consent provisions or should have the same status as the 
ones they replace; whether to extend the prohibition on analog 
exclusive retransmission consent agreements to the digital context; 
whether the Commission should prohibit analog-digital signal tying 
arrangements; and the status of NCE stations under section 325.
    24. Separate Analog and Digital Carriage Agreements. Prior to the 
NPRM in this docket, many broadcasters commented that the 
retransmission consent process should apply separately to the analog 
and digital broadcast signals. Commenters argued that separate must 
carry/retransmission consent elections should be allowed. In the NPRM, 
we renewed this inquiry. NAB argues that a television station is 
entitled to separate elections because of the different level of 
bargaining power between the broadcaster and the cable operator with 
regard to each signal. NCTA asserts that a broadcaster's digital signal 
is not entitled to must carry rights during the transition: therefore, 
as long as a licensee is transmitting an analog signal, its digital 
signal can only be carried pursuant to retransmission consent. NCTA 
states that, in this respect, the digital signal is no different from 
any other signal, such as a distant television signal, that has no must 
carry rights; for those signals, as well as the transitional digital 
signal, the Act simply does not provide for a choice.
    25. With regard to those stations that simultaneously broadcast 
analog and digital television signals, we conclude that a broadcaster 
is permitted to treat the two differently for carriage purposes. That 
is, a television station may choose must carry or retransmission 
consent for its analog signal and retransmission consent for its 
digital signal. This policy approach is taken under section 
325(b)(1)(A) of the Act, rather than section 325(b)(1)(B), because we 
do not resolve the dual carriage question at this time. This policy 
permits the same broadcaster to negotiate a retransmission consent 
agreement for some or all of its digital signal, if that is what it 
desires. Our decision here is intended to further the digital 
transition because we believe cable operators would be more willing to 
carry certain streams of digital content or ancillary or supplementary 
data if it is offered by a particular television station, even if that 
station chose must carry for its analog signal. We believe this 
scenario would be precluded if we were to prohibit a station from 
making such a selection.
    26. We also find that DTV-only stations may choose either 
retransmission consent or mandatory carriage like their analog 
counterparts. The retransmission consent rules and regulations 
contained in Sec. 76.64 would likewise apply to digital broadcast 
television signals.
    27. Modification of the Election Cycle. In the NPRM, we indicated 
that the Act requires local commercial television stations to elect 
either must carry or retransmission consent on a triennial basis. We 
noted that new television stations can make their initial election 
anytime between 60 days prior to commencing broadcast and 30 days after 
commencing broadcast with the initial election taking effect 90 days 
after it is made. We asked whether the existing cycle should be altered 
to accommodate the introduction of digital television or if we should 
apply the current ``new station'' rule to digital signals. Pappas 
submits that a station commencing digital operations during the middle 
of an election cycle should be treated as a new station and permitted 
to make its election for the DTV transmission at any time between the 
60th day prior to commencement of such transmissions and the 30th day 
thereafter. We believe that the Commission's existing new station rules 
should be used in the digital carriage context. The existing 
requirements are non-controversial and both cable operators and 
broadcasters

[[Page 16537]]

are well accustomed to their use. Thus, for television stations 
broadcasting only a digital signal, the current rules applicable to new 
analog signals would apply. Our holding here would also apply to new 
digital-only noncommercial television signals, even though they are not 
specifically covered by Sec. 76.64 of the Commission's rules.
    28. Retransmission Consent Agreements for Partial Digital Signal 
Carriage. In the NPRM, we recognized that in the analog context ``any 
broadcast station that is eligible for must carry status, although it 
may be carried pursuant to a retransmission consent agreement must * * 
* be carried in the entirety, unless carriage of specific programming 
is prohibited * * * pursuant to our rules.'' We stated, however, that 
it may be desirable to allow partial carriage of digital signals 
pursuant to the retransmission consent process if that is what the 
parties agree to. ALTV argues that permitting cable operators to 
negotiate for partial carriage of DTV signals would place broadcasters 
in an untenable position because cherry picking of programming would 
harm the underlying economics of free, over-the-air television. Morgan 
Murphy asserts that, in the event a broadcaster elects a multicasting 
format for its DTV signal, retransmission consent should apply to the 
entire digital signal not for each programming stream.
    29. We conclude that for purposes of promoting the transition and 
encouraging voluntary cable carriage of broadcast digital signals when 
a television station chooses retransmission consent, the broadcaster 
and cable operator may negotiate for partial carriage of a local 
digital television signal. ``Partial'' carriage may be considered in 
any number of ways, including hours, bits or programming streams. We 
believe that this policy, which applies to digital-only television 
stations and television stations with both analog and digital signals, 
will benefit both parties and help to accomplish the Congressional goal 
of transitioning to digital television. In this instance, the 
broadcaster gains access to cable subscribers for some part of its 
signal, and the cable operator can conserve channel capacity and carry 
that programming which it believes subscribers will want. We note that 
this policy is a departure from the Commission's analog carriage rules 
that require a cable operator to carry local television signals in 
their entirety. In 1994, the Commission interpreted section 325 to 
provide that broadcasters may bargain with cable operators for the 
right to carriage of any part of the broadcast signal only when such 
station is not eligible under the provisions of section 614, either 
because it is not a local commercial broadcast signal or it does not 
qualify for mandatory carriage. In interpreting the statute in 1994, 
the Commission noted that the statutory language would appear to permit 
broadcasters to negotiate with cable operators for retransmission 
consent for any part of their signal. The Commission found that some 
negotiated partial carriage was clearly permitted based upon the 
language in section 325 but concluded that, as a matter of policy, the 
statutory provisions should be read in concert to require carriage of 
``must-carry qualified stations'' in their entirety even in the context 
of retransmission consent. We adopt a different approach here because 
the statute gives the Commission flexibility to devise new rules for 
digital carriage when necessary. We believe that in the case of digital 
signal carriage, the provisions should be read to permit the parties to 
freely negotiate for partial carriage in the context of retransmission 
consent. The goal of facilitating the transition to digital signals is 
furthered by this interpretation because cable operators are likely to 
negotiate retransmission consent agreements with more stations if 
carriage of something less than the full complement of a broadcaster's 
digital signal is permitted. This outcome may accelerate the digital 
transition in many markets. In arriving at this determination, we 
considered that prohibiting partial carriage in the context of 
retransmission consent would not only discourage voluntary carriage of 
programming subject to mandatory carriage, but would also be likely to 
preclude the carriage of desirable programming streams or data services 
that are not subject to mandatory carriage. We do not find ``cherry 
picking'' to be a major concern, as ALTV believes, as long as the cable 
operator has the broadcaster's permission to select which programming 
will be carried. We conclude that permitting partial carriage in the 
context of retransmission consent is appropriate at least for the 
duration of the transition. When the transition is completed or 
substantially underway, we can consider whether partial carriage 
continues to be necessary to facilitate carriage of digital signals 
over the long term.
    30. Retransmission Consent Exemption for Superstations. Section 
325(b)(2)(D) exempts cable operators from the obligation to obtain 
retransmission consent from superstations whose ``signals'' were 
available by a satellite or common carrier on May 1, 1991. This 
provision's legislative history states that an exemption from 
retransmission consent was necessary ``to avoid sudden disruption to 
established relationships'' between superstations and satellite 
carriers. United Video has explained that the exemption permits it to 
continue to uplink superstations signals and transmit them to cable 
operators and other facilities-based multichannel video providers. We 
will treat the digital signals of superstations the same as their 
analog signals for retransmission consent purposes. If the analog 
signal was exempt from section 325, it follows that the station's 
digital signal is also exempt. We believe that maintaining the status 
quo and tracking the Act's original intent will permit video program 
distributors to continue to uplink superstation signals and provide 
them to cable operators and their subscribers. This policy may speed 
the transition, and the purchase of digital television equipment, 
because cable operators may transmit digital superstations into markets 
where a full array of digital television services may be lacking.
    31. Prohibition on Exclusive Agreements. In the Must Carry Order, 
we specifically prohibited exclusive retransmission consent agreements 
between television broadcast stations and cable operators. Congress 
recently codified the Commission's exclusive retransmission consent 
prohibition as one of the many amendments to section 325 under the 
SHVIA. The Act now states that a broadcaster cannot enter into an 
exclusive retransmission consent arrangement with any MVPD until 2006. 
We have recently implemented the statutory ban on exclusive 
arrangements. Consistent with the new provision and rule, we apply the 
current prohibition on exclusive retransmission consent agreements to 
negotiations involving the carriage of digital television broadcast 
signals until January 1, 2006.
    32. Retransmission Consent Tying Arrangements. With regard to 
retransmission consent and its effect on small cable operators, the 
NPRM asked whether the Commission should prohibit ``tying'' 
arrangements, in which the broadcaster requires the operator to carry 
the broadcaster's digital signal as a precondition for carriage of the 
analog signal. The Small Cable Business Association (``SCBA'') states 
that unregulated analog retransmission consent demands, and tying in 
particular, pose a major threat to small cable's financial viability. 
To remedy the situation, SCBA urges the Commission to prohibit 
broadcasters

[[Page 16538]]

from tying analog carriage to digital carriage.
    33. While we acknowledge the important concerns raised by SCBA, we 
will not adopt rules specifically prohibiting tying arrangements at 
this time. In coming to this conclusion, we recognize that substantial 
evidence must be presented to support a claim that a tying arrangement 
exists and that the operator suffers harm as a result. Without proof to 
support the case, it is difficult for the Commission to formulate an 
appropriate remedy. We also note that broadcasters now must bargain in 
good faith with small cable operators, or any other MVPD, under recent 
revisions to the retransmission consent rules pursuant to amendments 
promulgated under the SHVIA. One example of a bargaining proposal 
presumptively consistent with the good faith negotiation requirement is 
a proposal for carriage of the analog broadcast signal conditioned on 
carriage of any other broadcaster-owned programming stream, such as the 
digital signal. While such arrangements are now permitted, we will 
continue to monitor the situation with respect to potential 
anticompetitive conduct by broadcasters in this context. If, in the 
future, cable operators can demonstrate harm to themselves or their 
subscribers due to tying arrangements, we will be in a better position 
to consider appropriate courses of action.
    34. NCE Stations. Section 325 of the Act expressly states that NCE 
stations do not have retransmission consent rights. As such, an NCE 
station cannot withhold its signal from being carried by any MVPD. An 
NCE station, however, is free to negotiate with cable systems and other 
MVPDs for voluntary carriage. In the digital context, an NCE station 
may multiplex its digital signal and air several video programming 
streams at once. In this regard, we note that an NCE station, because 
it is not covered by section 325, may enter into an exclusive digital 
carriage arrangement for any service it may offer or any programming 
stream that is not subject to a mandatory carriage requirement under 
section 615 and our findings herein. Against this backdrop, we expect 
cable operators and other MVPDs to participate in discussions with NCE 
stations concerning the voluntary carriage of their digital broadcast 
signals.

V. Digital Broadcast Signal Carriage Requirements

A. Channel Capacity

    35. Definition. Section 614(b)(1)(B) provides that a cable 
operator, with more than 12 usable activated channels, shall not have 
to devote more than ``one-third of the aggregate number of usable 
activated channels'' for the carriage of commercial television 
stations. Despite this language, there is some dispute as to how the 
terms ``usable activated channels'' and ``cable system capacity'' 
should be defined in the digital context. We requested comment on the 
definition of ``usable activated channels'' for digital television 
carriage purposes. We noted that many cable operators now have, or soon 
will have, the technical ability to fit several programming services 
into one 6 MHz cable channel. Thus, we asked how advances in signal 
compression technology should affect the definition of channel 
capacity. We also asked whether the one-third channel capacity 
requirement for digital broadcast television carriage purposes means 
one-third of a cable operator's digital channel capacity or one-third 
of all 6 MHz blocks, including both the analog and digital channels.
    36. Under the Act, a cable operator must make available for signal 
carriage purposes up to one-third of its usable activated channels. 
Because of the development of digital signal processing and signal 
compression technologies, the number of video services carried on a 
cable system is no longer a simple calculation and may change 
dynamically over time depending on the amount of motion in the video 
content, the amount of compression that takes place, and whether the 
service in question is carried in a standard or high definition digital 
format. We have taken these developments into consideration in revising 
the channel capacity determination.
    37. The channel capacity calculation can be made by taking the 
total usable activated channel capacity of the system in megahertz and 
dividing it by three. Megahertz (``MHz'') is a unit of frequency 
denoting one million Hertz or one million cycles per second and is 
closely tied to bandwidth. The telecommunications bandwidth is 
typically measured in Hertz for analog communications. For example, an 
analog NTSC television channel occupies a bandwidth of 6 MHz. In 
digital communications, bandwidth is typically measured in bits per 
second identified by a specific method of encoding. For example, an 
HDTV channel encoded in 8 VSB, would occupy a digital bandwidth of 
about 19.4 megabits per second (``mbps'') which, in turn, would require 
a 6 MHz bandwidth. In digital cable operations, where a 64 QAM encoding 
technique is used, that same 6MHz bandwidth can provide up to 27 mbps 
of digital bandwidth. That would mean a 6 MHz bandwidth in such a cable 
system can carry a 19.4 mbps HDTV channel and still be able to provide 
other video or data services with the remaining 7.6 megabits in that 
same 6 MHz bandwidth. See also Newton's Telecom Dictionary, 11th ed., 
July 1996. One third of this capacity, defined in megahertz, is the 
limit on the amount of system spectrum that a cable operator must make 
available for commercial broadcast signal carriage purposes. Carriage 
requests would then have to be accommodated to the extent of this limit 
in whatever format and by whatever technique is appropriate and is 
otherwise consistent with the rules. We believe, out of the options 
presented in the NPRM, this is the easiest for the operator to 
calculate. While a calculation based on programming or bits may be 
possible, both are more difficult than the megahertz method to quantify 
cable capacity for purposes of the one-third statutory cap. In a 
digital environment, as cable operators reallocate spectrum from analog 
to digital, the digital programming and bit carrying capacity of the 
cable system changes. The concept of bits and bit rates is applicable 
to digital programming signals, but not to analog programming signals. 
Thus, there is no way to express the part of a cable system's capacity 
attributable to analog programming in terms of bits. Therefore, neither 
programming nor bits provide a constant that can easily be applied to 
determine channel capacity. In contrast, the number of megahertz 
employed by a cable system stays constant and does not vary as the 
allocation of spectrum from analog to digital progresses.
    38. To determine the one-third cap for broadcast signal carriage 
purposes, the first step is to determine the number of ``usable 
activated channels'' on the cable system. ``Activated channels'' would 
continue to be defined by Sec. 76.5(nn), per section 602(1) of the Act, 
as those channels engineered at the headend of a cable system for the 
provision of services generally available to residential subscribers of 
the cable system, regardless of whether such services actually are 
provided, including any channel designated for public, educational or 
governmental use. ``Usable activated channels,'' would continue to be 
defined by Sec. 76.5(oo), per section 602(19) of the Act, as those 
activated channels of a cable system, except those channels whose use 
for the distribution of broadcast signals would conflict with technical 
and safety regulations. Thus, this calculation

[[Page 16539]]

includes but is not limited to the cable spectrum used for internet 
service, pay-per-view and video-on-demand, and telephony. Next, the 
number of usable activated channels is expressed in megahertz and then 
divided by three to determine the one third cap. For example, if a 
cable system's downstream operation begins at 54 MHz and continues 
through 550 MHz, but 50 MHz is unactivated, the total amount of usable 
channels on a system-wide basis is 446 MHz (i.e. 550 MHz-54 MHz-50 
MHz). One-third of this figure, approximately 149 MHz in this example, 
is the maximum amount of megahertz to be used for the carriage of local 
commercial television signals for such a system. A cable operator must 
provide each local television station that is entitled to mandatory 
carriage with a sufficient amount of capacity to carry its primary 
digital video signal. The amount of capacity devoted to carriage 
purposes for each television station will change as an operator 
upgrades to a digital cable standard. For example, a cable operator 
with an analog-based cable system would devote 6 MHz of bandwidth to 
the carriage of a high definition television signal, but a cable 
operator using the 64 QAM digital format may only have to devote 4 MHz 
to the carriage of that same high definition signal.
    39. Carriage Priority. In the NPRM, we recognized that when the 
one-third capacity limit has been reached, section 614(b)(2) provides 
that ``the cable operator shall have discretion in selecting which such 
stations shall be carried on its cable system.'' We tentatively 
concluded that this statutory directive would continue to apply in the 
digital context. In the alternative, we asked whether it would be 
desirable to adopt carriage priority rules. ALTV, Trinity, and 
Univision emphasize that if the one-third cap remains in place, a 
station's analog signal should not be displaced in order to accommodate 
a DTV signal. Sinclair asserts that in those instances in which 
carriage of all analog and DTV stations would occupy more than one-
third of such cable systems' capacity, the Commission should forbear 
from applying this limit and require full carriage of these broadcast 
signals. We find that the Act provides a cable operator with discretion 
to choose which signals it will carry if it has met its carriage quota. 
Thus, a cable operator should be able to select which signals to carry 
above the one-third limit. Under the existing carriage structure, all 
local commercial television signals that are carried, whether they have 
chosen retransmission consent or must carry, are counted as part of the 
one-third cap calculation. This policy of counting retransmission 
consent stations will continue to apply in the digital carriage 
context.
    40. NCE Stations. We recognize that the carriage of NCE stations is 
not included in the one-third statutory cap. Instead, a cable 
operator's carriage obligations are based on the number of channels on 
a particular cable system. Generally, cable systems with 12 or fewer 
activated channels shall carry 1 qualified NCE; cable systems with 13-
36 channels shall carry up to 3 qualified NCEs; and cable systems with 
36 or more activated channels shall carry 3 or more qualified NCEs. We 
see no reason to depart from the existing rules regarding NCE carriage. 
As such, cable systems with the capacity to carry 36 or more channels 
will be required to carry 3 or more qualified NCE stations, subject to 
the other provisions of the Act and our rules.

B. Signal Quality

    41. Section 614(h) of the Act specifies that, to qualify for 
carriage, stations must deliver a good quality signal to the principal 
headend of the cable system. For local commercial television stations, 
this is defined as a signal level of -45 dBm for UHF signals and -49 
dBm for VHF signals. The Act delegated to the Commission the authority 
to establish good quality signal criteria for low power television 
stations and for qualified local noncommercial educational television 
stations. We held that the commercial television station definition of 
good quality signal be applied in the same manner to noncommercial and 
LPTV television stations under the UHF/VHF paradigm.
    42. In the NPRM, we asked whether the signal quality standards 
established for analog signals are relevant for digital signals or 
whether new parameters for good signal quality should be established. 
No commenters addressed this issue. Absent comment for or against 
either alternative, we undertook our own analysis relying on the 
digital engineering methods and expertise developed in other 
proceedings. We note that in adopting the digital television 
transmission standard, the Commission recognized the differences 
between analog and digital television signals. The analog NTSC 
transmission standard is engineered so that even when a station's 
signal strength slowly decreases, a television set is still able to 
display the video and audio components, albeit at a degraded level. On 
the other hand, under the DTV transmission standard, as the station's 
signal level decreases, the digital television set continues to display 
a good picture, but then may abruptly turn blue when the signal 
strength drops below a certain threshold. This is known as the ``cliff 
effect.'' That is, if a signal is received, a good quality picture can 
be constructed at the television receiver; however, once the signal 
falls below a minimum signal level threshold, no picture can be 
reconstructed or displayed by the television receiver. Against this 
backdrop, we believe it is necessary to develop a new reception 
standard aptly suited to the new digital technology used to transmit 
digital television signals.
    43. We conclude that the signal level necessary to provide a good 
quality digital television signal at a cable system's principal headend 
is -61 dBm. We continue to believe that the principal headend should 
remain the location for signal quality testing purposes because that is 
the single location where all available signals can be uniformly 
measured and compared. We arrive at this minimum signal level by using 
the following planning factors:

Thermal Noise in 6 MHz bandwidth
    Nt -106.2 dBm
Receiver Noise Figure
    Nf 10.0 dB
Required Carrier to Noise Ratio
    C/N 15.2 dB
Propagation and implementation margin
    M 20.0 dB
Receiver input
    = (Nt+Nf+C/N+M)= -61 dBm

    We believe that providing for a 20 dB propagation variability and 
signal impairment margin (``margin'') above the minimum signal-to-noise 
ratio is sufficient to handle most over the air transmission 
disturbances encountered by a DTV signal at a cable system headend. 
These disturbances will likely include signal impairments such as 
multipath, impulsive (manmade) noise, and co-channel and adjacent 
channel interference. The video and audio quality of a digital 
television signal remain good as long as the signal-to-noise ratio is 
in excess of the minimum signal-to-noise ratio applicable to the 
transmission system after consideration of the summation of all noise 
factors (such as channel and manmade noise, noise generated by 
multipath cancellation, receiver noise, and co-channel interference). 
The tradeoff table in Sec. 73.623(c)(3)(ii) is an example of the 
relationship of signal margin to one type of interference: Analog 
signals on the same frequency. The table shows that, as the margin 
increases, the strength of the desired signal can be much less when 
compared to the strength of the

[[Page 16540]]

interfering signal, and still produce good quality video and audio. The 
primary source of erosion of the signal margin will be propagation 
variations of the received signal level with time. These variations 
result in what is generally called signal fading. However, we believe 
that these variations of the received signal level and the amount of 
signal impairments cumulatively, should be significantly less than the 
allowed 20 dB margin. We believe that when a signal level of -61 dBm is 
delivered to the cable system headend, the signal will be of sufficient 
strength that the cable operator can deliver a good quality picture to 
its subscribers. A television station that does not agree to be 
responsible for the costs of delivering to the cable system a signal of 
good quality, under the revised standard, is not eligible for carriage.

C. Content of Signals Subject to Mandatory Carriage

    44. We now address the specific content of a digital television 
signal that is subject to the mandatory carriage obligation. We note 
that analog broadcast stations generally have one video broadcast 
product. That is, only a single program is broadcast at a time and that 
program is the main feature of the broadcast. Only a relatively minor 
amount of communications capacity is available apart from that program 
transmission. Some capacity is available in the vertical blanking 
interval (``VBI'') for the transmission of communications that are 
separate from, but related to, the principal video output or are 
unrelated to that content. The related content is typically closed 
captioning and program rating information. The unrelated content would 
be typified by videotext or data-type communications.
    45. Digital television stations will operate on a much more 
flexible basis. The system described in the ATSC DTV Standard includes 
discrete subsystem descriptions, or ``layers,'' for video source coding 
and compression, audio source coding and compression, service multiplex 
and transport, and RF/transmission. In addition to being able to 
broadcast one, and under some circumstances two, high definition 
digital television programs, the standard allows for multiple streams, 
or ``multicasting,'' of standard definition digital television 
programming at a visual quality better than the current NTSC analog 
standard. Multiple programming streams may be broadcast at the same 
time or with a variety of data streams accompanying the main video 
content. These data streams may be either associated with the video 
content in some manner or completely separate from it.
    46. A critical component of digital broadcast television is the 
program and system information protocol (``PSIP''). PSIP is a 
requirement for broadcasters using the ATSC standard, however, it is 
not required by the Commission. This is the standard protocol for 
transmission of the relevant data tables, describing system information 
and event descriptions, contained within digital packets carried in the 
digital broadcast transport stream multiplex. System information allows 
navigation of, and access to, each of the channels within the transport 
stream, whereas event descriptions give the user content information 
for browsing and selection. PSIP is composed of four main tables: 
system time table; ratings region table; master guide table; and 
virtual channel table. The latter table is of particular importance in 
the carriage context because it contains a list of all the channels 
that are or will be on-line, plus their attributes. Among the 
attributes are the channel name, navigation identifiers, and stream 
components and types. PSIP allows the broadcaster to customize 
information to guide viewers to channel numbers they are familiar with.
    47. Primary Video. In the analog context it is clear that a cable 
operator subject to a mandatory carriage obligation is not required to 
carry all of the communications output of a television broadcast 
station. Three provisions of the Act provide the main focus of the 
arguments regarding this question in the context of digital broadcast 
signal carriage. First, section 614(b)(3) of the Act entitled ``Content 
to be Carried,'' states that a cable operator shall carry in its 
entirety the ``primary video'' of the station. Second, it requires 
carriage of the ``accompanying audio'' and ``line 21 closed caption 
transmission'' of each station. Third, the operator must carry ``to the 
extent technically feasible, program-related material carried in the 
vertical blanking interval or on subcarriers.'' The statute is specific 
that ``Retransmission of other material in the vertical blanking 
interval or other nonprogram-related material (including teletext and 
other subscription and advertiser-supported information services) shall 
be at the discretion of the cable operator.'' Section 614 is applicable 
to the carriage of commercial stations. Largely parallel provisions are 
contained in section 615 relating to the carriage of noncommercial 
stations. In addition to the provisions that are not specific to 
digital television broadcasting, section 336(b)(3) of the Act which has 
specific applicability to ``advanced television services'' provides 
that ``no ancillary or supplementary service shall have any right to 
carriage under section 614 or 615.''
    48. In the NPRM, we asked how we should define ``primary video'' if 
a broadcaster chooses to broadcast multiple standard definition digital 
television streams, or a mixture of high definition and standard 
definition digital television streams, as is permitted under the rules. 
We sought input on which video programming services provided by a 
licensee should be considered primary and should be entitled to 
carriage if the primary video includes less than all of the streams of 
programming broadcast. We asked whether the definition should be 
flexible, allowing the broadcaster to choose which transmissions it 
considers being primary.
    49. Many commenters argue for an expansive approach to the 
classification of primary video during the transition that would 
include much of a broadcaster's digital programming. ALTV argues that 
if a licensee broadcasts several channels of free over-the-air standard 
definition programs, all of these channels should be considered to be 
the primary video transmission of the station. NAB states that there 
can be no primary or main program since carriage of a full broadcast 
signal, including multiplexed program streams, will enable a viewer to 
switch between channels within a given program. AAPTS asserts that all 
``mission-related'' programming streams transmitted by a public 
television station should be regarded as primary and subject to 
mandatory carriage. Ameritech argues to the contrary, that the 
statutory language limiting must carry to a broadcaster's primary video 
indicates that Congress did not intend to require cable operators to 
carry all the material a station transmits. Time Warner argues that a 
station's analog signal is the primary video during the transition and 
only when a broadcaster surrenders its analog frequency and engages 
exclusively in digital transmissions will its digital signal become the 
``primary video'' transmission and thus eligible for any post-
transition must carry requirements adopted by the Commission.
    50. We recognize that the terms ``primary video'' as used in 
sections 614(b)(3) and 615(g)(1) are susceptible to different 
interpretations. Because the terms are not expressly defined in the 
Act, to determine the meaning, we analyze the terms ``primary video'' 
within their statutory context, consider the legislative history, and 
examine the

[[Page 16541]]

technological developments at the time the must carry provisions were 
enacted.
    51. The term primary video, as found in sections 614 and 615 of the 
Act, suggests that there is some video that is primary and some that is 
not. In this instance, we rely on the canon of statutory construction 
that effect must be given to every word of a statute and that no part 
of a provision will be read as superfluous. Here, we must give effect 
to the word ``primary.'' The dictionary definitions of ``primary'' are 
``First or highest in rank, quality, or importance'' and ``Being or 
standing first in a list, series, or sequence.'' Based on the plain 
words of the Act, we conclude that, to the extent a television station 
is broadcasting more than a single video stream at a time, only one of 
such streams of each television station is considered ``primary.'' The 
choice as to which, among several possible video programming streams, 
should be considered primary is a decision left to the broadcaster.
    52. The legislative history does not definitively resolve the 
ambiguity regarding the intended application of the term ``primary 
video'' as used in this context. The legislative history does indicate, 
however, that the must carry provisions were not intended to cover all 
uses of a signal. Specifically, the legislative history provides that 
[c]arriage of other program-related material in the vertical blanking 
interval and on subcarriers or other enhancements of the primary video 
and the audio signal (such as teletext and other subscription and 
advertiser-supported information) is left to the discretion of the 
cable operator. The legislative history further states that the 
``Committee does not intend that this [must carry] provision be used to 
require carriage of secondary uses of the broadcast transmission, 
including the lease or sale of time on subcarriers or the vertical 
blanking interval for the creation or distribution of material by 
persons or entities other than the broadcast licensee.''
    53. We note that the incorporation of the primary video construct 
into the Act in 1992 was reasonably contemporaneous with the gradual 
change in common understanding of the new television service from ATV 
(advanced television) and HDTV (high definition television)--which 
focused on improving the technical quality of traditional analog NTSC 
television--to DTV (digital television) with the ability to broadcast 
high definition television, SDTV (standard definition television) with 
multicasting possibilities, as well as the broadcast of non-video 
services. Although silent on the issue of multiplexing, the legislative 
history indicates that Congress understood that HDTV was ``not limited 
to improved resolution clarity, and color parity in a television image, 
or large television sets.'' Rather, Congress recognized that ``[t]his 
advanced technology has the potential to open new and expanded markets 
for the components of advanced television systems (such as 
semiconductors, fiber optics, and flat screen displays), and to enhance 
the integration of the television and computer industries.''
    54. Based on the record currently before us, we conclude that 
``primary video'' means a single programming stream and other program-
related content. With the advent of digital television, broadcast 
stations now have the opportunity to include in their video service a 
panoply of program-related content. Indeed, far more video content is 
possible broadcasting a digital signal than broadcasting in an analog 
format. For example, a digital television broadcast of a sporting event 
could include multiple camera angles from which the viewer may select. 
The statute contemplates and our rules require that cable operators 
provide mandatory carriage for this program-related content. In 
contrast, if a digital broadcaster elects to divide its digital 
spectrum into several separate, independent and unrelated programming 
streams, only one of these streams is considered primary and entitled 
to mandatory carriage. The broadcaster must elect which programming 
stream is its primary video, and the cable operator is required to 
provide mandatory carriage to only such designated stream. While we do 
not believe that Congress specifically contemplated programming of the 
type described above (i.e., data or video that is separate from but 
associated with the primary video) in drafting section 614(b)(3), the 
policies underlying this section are consistent with our conclusion 
here in the context of digital signal carriage. Based on the language 
in 614(b)(3), Congress was concerned that mandatory carriage be limited 
to the broadcaster's primary program stream but also include related 
content as described here. In the FNPRM, published elsewhere in this 
issue of the Federal Register we seek comment on the appropriate 
parameters for ``program-related'' in the digital context.
    55. Ancillary and Supplementary Services. Section 336 of the Act 
provides that ``no ancillary or supplementary service shall have any 
right to carriage under section 614 or 615.'' Neither the Act nor the 
legislative history define the terms ``ancillary or supplementary.'' 
Section 614(b)(3) of the Act requires cable operators to carry ``to the 
extent technically feasible, program-related material carried in the 
vertical blanking interval or on subcarriers'' but states that 
``[r]etransmission of other material in the vertical blanking interval 
or other nonprogram-related material (including teletext and other 
subscription and advertiser-supported information services) shall be at 
the discretion of the cable operator.'' We sought comment on possible 
ancillary and supplementary definitions that were consistent with the 
language of section 614(b)(3). Paxson states that the Commission should 
limit the definition of ancillary or supplementary services to those 
for which viewers pay subscription fees or for which the broadcaster 
receives compensation from non-advertising third parties, thereby 
establishing mandatory carriage for free over-the-air local 
multicasting. On the other hand, Time Warner argues that all digital 
video programming, other than the ``main'' signal which the Commission 
requires the broadcaster to transmit, are ancillary and supplementary.
    56. With respect to the definition of ancillary and supplementary 
services, the Commission's DTV Fifth Report and Order states that 
ancillary and supplementary services include ``any service provided on 
the digital channel other than free, over-the-air services.'' Section 
73.624(c) of the Commission's rules specifies that ``any video 
broadcast signal provided at no direct charge to viewers shall not be 
considered ancillary or supplementary.'' While not defining the class 
exhaustively, Sec. 73.624(c) indicates that ancillary and supplementary 
services include, but are not limited to, ``computer software 
distribution, data transmissions, teletext, interactive materials, 
aural messages, paging services, audio signals, [and] subscription 
video [video programming for which the broadcaster charges a fee]. * * 
*'' Section 73.646 of the Commission's rules states that 
telecommunications services provided on the vertical blanking interval 
(``VBI'') or in the visual signal, in either analog or digital mode, 
are ancillary. Based on the foregoing, we find that the services 
specified in Secs. 73.624(c) and 73.646 are ancillary or supplementary 
in the context of digital cable carriage and are not entitled to 
mandatory carriage.
    57. In addition, we believe there may be certain services 
associated with broadcast digital video programming that while not 
ancillary or supplementary, would still not be entitled to mandatory 
carriage because they are not program related. Currently,

[[Page 16542]]

in addition to a broadcaster's primary analog video programming, 
section 614(b)(3) requires cable operators to carry ``to the extent 
technically feasible, program-related material carried in the vertical 
blanking interval or on subcarriers * * *'' However, ``[r]etransmission 
of other material in the vertical blanking interval or other 
nonprogram-related material (including teletext and other subscription 
and advertiser-supported information services) shall be at the 
discretion of the cable operator.'' In the analog context, we have 
specified certain factors for determining what material carried in the 
VBI is sufficiently program-related as to qualify for must carry 
rights. Due to the technical differences between digital and analog 
transmission, e.g., there is no VBI in a digital signal, the foregoing 
concepts cannot transfer directly into a digital environment. What is 
anticipated is that a television station will provide internet-based 
services, such as e-commerce applications, to the public. While this 
type of business plan promises to enhance a television station's 
digital presence, the carriage of internet offerings by a cable 
operator likely would not be required under the must carry provisions 
unless the broadcaster can demonstrate that such material should be 
considered program-related.
    58. In this vein, we note that there are certain over-the-air 
digital services sufficiently related to the broadcaster's primary 
digital video programming that are entitled to carriage. These include, 
but are not limited to, closed captioning information, program ratings 
data for use in conjunction with the V-chip functions of receivers, 
Source Identification Codes (``SID Codes'') used by Nielsen Media 
Research in the preparation of program ratings, and the channel mapping 
and tuning protocols that are part of PSIP. These services provide 
useful information to viewers, broadcasters, and/or cable operators, 
and are intended for use in direct conjunction with the programming. We 
note that independent of the ``program related'' and ``ancillary or 
supplementary'' concepts, cable operators are required to pass through 
closed captioning data contained in analog and digital video 
programming. In general, we will continue to use the same factors 
enumerated in WGN, that are used in the analog context to determine 
what material is considered program-related. The WGN court set out a 
three-part test for making a determination. First, the broadcaster must 
intend for the information in the VBI to be seen by the same viewers 
who are watching the video signal. Second, the VBI information must be 
available during the same interval of time as the video signal. Third, 
the VBI information must be an integral part of the program. The court 
in WGN held that if the information in the VBI is intended to be seen 
by the viewers who are watching the video signal, during the same 
interval of time as the video signal, and as an integral part of the 
program on the video signal, then the VBI and the video signal must 
both be carried if one is to be carried.
    59. As noted, digital signals do not contain a VBI. The 
Commission's rule in Sec. 76.56(e) describes what cable systems may 
carry in the VBI. This subsection is revised to revise the reference to 
VBI to take account of digital technology.
    60. Program Guides. We sought comment on the status of advanced 
programming retrieval systems and other digital channel selection 
devices that filter and prioritize video programs for viewers. To 
prevent anticompetitive conduct by cable operators, Gemstar urges the 
Commission to require the undisturbed pass-through of electronic 
program guide (``EPG'') related information as part of the 
broadcaster's digital transmission. We note that in the analog carriage 
context, Gemstar has requested a ruling from the Commission that its 
electronic program guide is program-related and must be carried by 
cable operators. NCTA claims that Gemstar provides no evidence that 
Congress intended to force cable operators to deliver any non-
programming information that might be transmitted along with a 
broadcaster's digital signal. Ameritech and BellSouth state that there 
is no legal basis for the Commission to give program guides any greater 
carriage rights than any other ancillary or supplementary service that 
must obtain carriage through private negotiations with individual cable 
operators.
    61. We find that the carriage of program guide information is a 
matter to be addressed under sections 614(b)(3) and 615(g)(1) of the 
Act. As stated earlier, all program-related broadcast material found in 
the analog signal's VBI must be carried, unless it is technically 
infeasible for the operator to do so. In the digital television 
context, there is no VBI for EPG information to be carried on, rather, 
the EPG data would be part of the PSIP. In this circumstance, we find 
that program guide data that are not specifically linked to the video 
content of the digital signal being shown cannot be considered program-
related, and, therefore, are not subject to a carriage requirement.
    62. Program Access. Section 336 of the Act states that ``no 
ancillary or supplementary service shall * * * be deemed a multichannel 
video programming distributor for purposes of section 628.'' Section 
628 contains the program access requirements pursuant to which 
multichannel video programming distributors are entitled to purchase on 
nondiscriminatory rates, terms, and conditions satellite-delivered 
cable programming in which a cable operator has an attributable 
interest. In the NPRM, we sought comment on the meaning of this 
language. We find that this provision was intended to prevent a digital 
broadcaster from asserting rights under the program access provisions 
contained in section 628. This provision affords certain rights to 
MVPDs, which are defined as entities who make ``available for purchase, 
by subscribers or customers, multiple channels of video programming.'' 
We hold that section 336 precludes a digital television station 
offering video services for a fee from asserting MVPD status under our 
rules and claiming program access rights pursuant to section 628.

D. Duplicative Signals

    63. Section 614(b)(5) of the Communications Act provides that ``a 
cable operator shall not be required to carry the signal of any local 
commercial television station that substantially duplicates the signal 
of another local television station which is carried on the cable 
system, or to carry the signals of more than one local commercial 
television station affiliated with a particular broadcast network * * 
*'' A parallel rule applies to the carriage of NCE station signals. 
Congress enacted these provisions to preserve a cable operator's 
editorial discretion while ensuring that the public has access to a 
diversity of local television signals.
    64. In the NPRM, we recognized the import of the duplication 
provisions and sought comment on what approach the Commission should 
take with regard to this matter. In response, NCTA argues that in 
section 614(b)(5), Congress intended that a cable operator not be 
compelled to carry duplicative signals. NCTA also notes that section 
614 defines a local station as a ``television broadcast station * * * 
licensed and operating on a channel regularly assigned to its community 
* * *'' Because the digital transmission takes place on a channel 
separate from the analog channel, NCTA asserts that two stations, not 
one, are in operation during the transition and that section 614(b)(5) 
should apply to programming duplicated by a broadcaster on its digital 
signal. UCC emphasizes that

[[Page 16543]]

Congress enacted section 614(b)(5) in order to ``preserve the cable 
operator's discretion while ensuring access by the public to diverse 
local signals.'' UCC asserts that when a broadcaster's digital 
programming merely duplicates its analog programming, mandatory 
carriage of the duplicative digital programming reduces the diversity 
of local signals by forcing the cable operator to drop cable 
programming in order to free capacity, thereby undermining Congress' 
goals. The Broadcast Group, however, argues that identical program 
content transmitted in an analog and digital format constitutes two 
distinct program forms targeted at different audiences and that the 
Commission should not treat it as duplicative programming. Pappas 
maintains that the Commission should not construe the limitation on 
duplicative signals to refer to the content of a program transmitted by 
a signal, but rather to refer to the signal itself.
    65. We recognize that reaching a conclusion on this matter is 
complicated by our requirements for the digital transition. The 
Commission established a staged implementation schedule for the 
introduction of digital television in the rules governing the 
transition. In the early stages of the transition, broadcasters have 
flexibility in selecting the digital programming they offer. The 
Commission refrained from imposing simulcasting requirements during 
this phase in order to afford broadcasters the freedom to experiment 
with program and service offerings. Thus, for example, a broadcaster's 
initial digital programming may be entirely original, it may simply 
duplicate a certain amount of its analog programming, or it may combine 
original digital content with analog content. Beginning April 1, 2003, 
the rules mandate an increasing level of duplication of program content 
between the analog and digital signals, eventually reaching a 100% 
simulcasting requirement which continues until a broadcaster's analog 
channel is terminated and returned to the Commission. These 
simulcasting requirements are intended to minimize viewer disruption as 
the content of the analog signal is slowly replicated on the digital 
signal.
    66. We will not revise the duplication definitions and requirements 
at this time. More information is needed on the digital programming 
currently made available by broadcasters before we act in this regard. 
Such information, which is solicited in the FNPRM, will enable us to 
determine the appropriate duplication definitions to apply during the 
transition period, when two signals of the same station are available 
over-the-air, and afterwards. In the meantime, we will continue to 
administer the duplication requirements set forth in the Act and the 
Commission's rules. We note that duplication in this context may 
encompass the following situations: DTV-only station v. DTV-only 
station; DTV-only station v. analog station; or analog station v. 
analog station. That is, two commercial television stations will be 
considered to substantially duplicate each other ``if they 
simultaneously broadcast identical programming for more than 50 percent 
of the broadcast week.'' For purposes of this definition, identical 
programming means the identical episode of the same program series. 
With regard to noncommercial television broadcasters, an NCE station 
does not substantially duplicate the programming of another NCE station 
if at least 50 percent of its typical weekly programming is distinct 
from programming on the other station either during prime time or 
during hours other than prime time. This rule is applicable to digital-
only and analog noncommercial stations during the transition period as 
well.

E. Material Degradation

    67. Section 614(b)(4)(A) of the Act discusses the cable operator's 
treatment and processing of analog broadcast station signals and 
provides that the signals of local commercial television stations shall 
be carried without material degradation. The NPRM asked to what extent 
this provision precludes cable operators from altering the digital 
format of digital broadcast television signals when the transmission is 
processed at the system headend or in customer premises equipment. 
Under the Act, the Commission's carriage standards must ensure that, 
``to the extent technically feasible, the quality of signal processing 
and carriage provided by a cable system for the carriage of local 
commercial television stations will be no less than that provided by 
the system for carriage of any other type of signal.'' To address this 
provision, the NPRM sought comment on whether the Act requires an 
operator to carry all local commercial television stations that 
broadcast in a 1080I high definition format if it carries a cable 
programming service such as HBO in the 1080I HDTV format.
    68. We note that the Advanced Television Systems Committee 
(``ATSC'') DTV Standard adopted by the Commission was recommended by 
the Advisory Committee on Advanced Television Service (``ACATS'') and 
developed by the Grand Alliance. It provides for 19.4 megabits per 
second (``mbps'') for each 6 MHz channel over-the-air. The Commission 
neither adopted a single standard for high definition television nor 
imposed a HDTV requirement on broadcasters. Rather, the Commission drew 
the distinction between standard definition (``SDTV'') and high 
definition (``HDTV'') in the digital context. The electronics industry 
and ATSC define high definition television as having a vertical display 
resolution of 720p, 1080I, or higher; an aspect ratio capable of 
displaying a 16:9 image at the minimum resolution level; and receiving 
and reproducing Dolby digital audio. In contrast, standard definition 
digital displays resolution lower than high definition, requires no 
specific ratio, and produces ``usable'' audio and picture.
    69. NAB argues that a digital signal would be materially degraded 
if it were not transmitted to the viewer in the format that the 
broadcaster intended. MSTV states that cable systems should not be 
permitted to block or delete any of the bits comprising the free over 
the air broadcast material. Granite adds that if cable operators are 
not required to pass through the entire digital signal, the ability of 
viewers to receive and experience higher quality television programming 
formats will be reduced. We believe that these arguments do not address 
the fundamental concern of the prohibition against material 
degradation. From our perspective, the issue of material degradation is 
about the picture quality the consumer receives and is capable of 
perceiving and not about the number of bits transmitted by the 
broadcaster if the difference is not really perceptible to the viewer. 
Such an interpretation is consistent with the language of the Act, 
which applies to material degradation, not merely technical changes in 
the signals. This interpretation is also consistent with the Act's 
general mandate of ensuring that cable operators do not favor their own 
cable programming video services over those video services provided by 
broadcasters. Moreover, as discussed above, the Act prohibits mandatory 
carriage for ancillary or supplementary services and our rules provide 
that material that is not program-related is not subject to the 
mandatory carriage requirement. If such bitstream material that is not 
subject to mandatory carriage is subtracted from the entire 6 MHz over-
the-air digital signal, by necessity there will be fewer than 19.4 mbps 
to be carried on the cable system. Moreover, whenever a

[[Page 16544]]

digital signal is remodulated for carriage on a cable system, fewer 
bits are needed than to transmit the signal over the air. A 
broadcaster's over-the-air HDTV signal, for example, requires 19.4 
mbps, which accounts for both the programming or data, as well as an 
overhead data stream that includes error correction. When a cable 
system carries this HDTV signal using QAM modulation, it removes the 
broadcaster's overhead data stream and replaces it with the overhead 
stream appropriate for the specific cable system. Generally the 
resulting bit rate is somewhat less than 19.4. This reduction in bit 
rate does not affect picture quality and is not considered material 
degradation. Thus, it is inappropriate to use 19.4 mbps, or any 
specific number of bits, to denote what constitutes a degraded signal. 
The number of bits appropriate for mandatory carriage will vary based 
on the programming and service choices of each broadcaster.
    70. With regard to defining picture quality for digital carriage 
purposes, Microsoft advocates that the Commission should require only 
that cable operators not carry non-broadcast signals at a higher 
quality than broadcast signals. Pappas argues, however, that a 
subscriber watching a HDTV digital program on cable should see the same 
quality picture as a consumer watching a HDTV digital program over-the-
air. Adelphia argues that as long as high definition broadcast signals 
are retransmitted in either the 1080I or 720p format, the alteration of 
the digital television signal's format does not constitute material 
degradation. We agree with Microsoft and find that language of the Act 
provides the answer to the material degradation question. Section 
614(b)(4)(A) requires that cable operators shall provide the same 
``quality of signal processing and carriage'' for broadcasters'' 
signals as they provide for any other type of signal. Consequently, in 
the context of mandatory carriage of digital broadcast signals, a cable 
operator may not provide a digital broadcast signal in a lesser format 
or lower resolution than that afforded to any digital programmer (e.g., 
non-broadcast cable programming, other broadcast digital program, etc.) 
carried on the cable system, provided, however, that a broadcast signal 
delivered in HDTV must be carried in HDTV. This result also protects 
the interests of cable subscribers by focussing on the comparable 
resolution of the picture, as visible to a consumer, rather than the 
number of lines or bits transmitted, which may not make a viewable 
difference on a consumer's equipment. We recognize that it may be 
especially burdensome for small systems with limited channel capacity 
(such as systems with fewer than 330 MHz) to carry a HDTV signal if 
they are not otherwise providing any HDTV programming. In this regard, 
we note that mandatory carriage is limited to one-third of the cable 
system's capacity, as defined infra. We also recognize that carriage of 
a HDTV signal using 8 VSB pass-through may require the allocation of 
more than 6 MHz of bandwidth due to the difference in channel 
alignments between broadcast over-the-air transmission and cable 
carriage. An 8-VSB pass-through of a broadcast station may straddle two 
cable channels and result in the loss of additional channels in the 
system (i.e., the cable operator is not able to use these additional 
channels to carry other programming). Therefore, if a small system, 
which is not otherwise carrying any HDTV signals, is required to carry 
a broadcast signal in HDTV such that it straddles two channels in this 
way, it may include all of its lost spectrum when calculating its one-
third capacity.
    71. We also find that for purposes of supporting the ultimate 
conversion to digital signals and facilitating the return of the analog 
spectrum, a television station may demand that one of its HDTV or SDTV 
television signals be carried on the cable system for delivery to 
subscribers in an analog format. We do not believe the conversion of a 
digital signal to an analog format under these specific and temporary 
circumstances is precluded by the nondegradation requirement in 
sections 614(b)(4)(A) and 615(g)(2). Many cable subscribers do not yet 
have television sets capable of receiving or displaying digital signals 
in their fully advanced format. Thus, if we were to mandate digital-to-
digital transmission at this stage of the transition period, cable 
subscribers would be unable to properly receive the signals. Obviously 
this was not the intended goal of the nondegradation requirement in 
sections 614(b)(4)(A) and 615(g)(2). Allowing digital-to-analog 
conversion for a limited time during a critical stage of the transition 
period will further the digital transition because a television station 
would be more willing to return its analog spectrum to the government, 
and convert to digital service, knowing that cable subscribers without 
digital equipment may still be able to view the relevant programming. 
We recognize, that permitting digital-to-analog conversion will not 
provide an impetus for cable subscribers to purchase digital television 
sets, but will allow new digital stations and stations that return 
their analog spectrum to continue to reach cable subscribers who have 
only analog receivers while commencing over-the-air service to attract 
and reach non-cable viewers who purchase digital television sets. With 
these points in mind, we will allow a television station to provide one 
of its digital signals to cable systems in an analog format only during 
the early stages of the transition period. We will revisit this policy 
after 2003 to ensure that this policy is fostering the conversion to 
digital television service and to determine when equipment is available 
so that broadcast signals can be delivered and carried in digital 
format. We understand that for some time the technology has been 
available to manufacture cable boxes that can either deliver a digital 
signal to the subscriber's digital equipment or downconvert the signal 
to be displayed on analog equipment. Apparently there is not as yet 
sufficient demand to produce these boxes for retail purchase or for 
rental from the cable operator. We will monitor the market's progress 
to ensure that our permission for analog conversion at the headend does 
not interfere with the marketplace availability of such boxes. As the 
transition moves forward, television broadcast stations will be 
required to deliver their signals in digital format and cable operators 
will be required to carry them in digital format, as discussed above.
    72. Measurement. The NPRM asked what standards and measurement 
tools were available to address disputes relating to the quality of the 
digital broadcast television signal. We also asked how, and where, 
degradation should be measured. To determine if an operator is 
materially degrading a digital signal, the signal should be tested at 
the input terminal of either the television set or set-top box if the 
subscriber owns that piece of equipment. The signal should be tested at 
the output point of the set top box if the subscriber rents that 
equipment from the cable operator. We believe that this location, 
rather than the headend, will best capture the signal's strength and 
characteristics after being processed by the cable plant. Broadcasters 
and cable operators may use commercially available devices to detect 
signal degradation. We do not endorse any particular model, but stress 
that such equipment must meet sound engineering practices and good 
equipment specifications.
    73. Digital Modulation Techniques. We are mindful that digital 
television signals are transmitted in the 8 VSB digital broadcast 
modulation technique

[[Page 16545]]

while operators will use either 64 or 256 QAM as the cable digital 
modulation technique. Both 64 and 256 QAM likely will provide cable 
operators with a greater degree of operating efficiency than does 8 
VSB, and also permits the carriage of a higher data rate, with less 
bits devoted to error correction, when compared with the digital 
broadcast system. Therefore, we will permit cable operators to 
remodulate digital broadcast signals from 8 VSB to 64 or 256 QAM. For 
purposes of Sec. 76.630 of our rules, we clarify that we do not 
consider the utilization of QAM modulation by a cable operator in the 
provision of digital cable television service to involve scrambling, 
encryption or similar technologies of the type referenced therein. We 
will not require cable operators to pass through 8 VSB. Notwithstanding 
this conclusion, we believe that cable pass-through of a digital 
broadcast signal without alteration is an option for allowing the first 
purchasers of digital television sets to receive digital signals from 
their cable systems. Under this scenario, the 8 VSB signal could pass 
through the cable system and the cable set-top box without change and 
connect to the digital television set, or the cable could bypass the 
set-top box and be connected to a cable coaxial connection on the 
digital television receiver. We believe that pass-through is an option 
for operators of certain cable systems that will not be providing any 
digital cable programming or systems not wanting to incur the 
additional expense of converting 8 VSB to either 64 or 256 QAM at the 
headend or in the set-top box, but that wish to offer subscribers 
digital broadcast channels. We recognize that in the long term, pass-
through is not an effective solution for the majority of cable systems.

F. Set Top Box Availability

    74. In the NPRM, we observed that the Act mandates that all 
commercial television signals shall be provided to every subscriber of 
a cable system and be viewable on all television receivers of 
subscribers that are connected by the cable operator or for which the 
cable operator provides a connection. Section 615(h) provides that 
noncommercial educational stations, that are entitled to carriage, 
shall be ``available to every subscriber as part of the cable system's 
lowest price service tier that includes the retransmission of local 
commercial television broadcast signals.'' In general, most cable 
subscribers are able to view analog broadcast stations on analog cable-
ready television sets. In the case of the new digital television 
service, the Commission has recently adopted labeling requirements for 
digital television receivers. Based on an industry agreement on 
technical standards, any receiver labeled as ``Digital Cable Ready'' 
will be ``capable of receiving analog basic, digital basic, and digital 
premium cable television programming by direct connection to a cable 
system providing digital programming. * * * A security card (or POD) 
provided by the cable operator is required to view encrypted 
programming.'' The digital cable ready receivers will include QAM 
demodulation capability. In the case of digital television receivers 
that do not meet the digital cable ready criteria, a subscriber may 
need a set top box to view broadcast digital signals delivered via 
cable.
    75. In the NPRM, we asked if the Act requires cable operators to 
offer set top boxes to every subscriber if digital television signals 
cannot be received without some device facilitating reception. We also 
asked about viewing digital television signals on analog equipment. 
MediaOne states that Congress did not intend for all cable subscribers 
to incur substantial additional costs in order to ensure that all 
digital broadcast programming is viewable on their televisions, 
especially when most of the digital programming would be duplicative of 
the broadcaster's analog feed. ALTV, on the other hand, believes that 
section 614(b)(7) should be applied to digital signals in the same 
manner as it is applied to analog signals.
    76. We will not require a cable operator to provide subscribers 
with a set top box capable of processing digital signals for display on 
analog sets. We recognize that if we were to impose such a requirement, 
all subscribers would be forced to pay for equipment that converts 
digital programming that may be identical in content to the analog 
programming to which they already have access without a set top box. 
The result would be that subscribers without the capability of viewing 
digital signals and who will receive duplicate analog programming when 
the Commission's simulcasting requirements commence in 2003, would be 
required to pay for a converter box to receive duplicate digital 
signals. We do not believe that this result is what Congress intended 
in enacting section 614(b)(7).
    77. Furthermore, we believe that requiring cable operators to make 
available set top boxes capable of processing digital signals for 
display on analog sets might be inconsistent with section 629 of the 
Act. Section 629 was enacted to ensure the commercial availability of 
navigation devices, the equipment used to access video programming and 
other services from multichannel video programming systems. Pursuant to 
our statutory mandate, we adopted rules to expand opportunities to 
purchase such equipment from sources other than the service provider. 
Thus, to now require cable operators to make such equipment available 
to subscribers would impede the overarching goal of the Navigation 
Devices proceeding, that is to assure competition in the availability 
of set-top boxes and other customer premises equipment. Moreover, we 
believe that as the digital television transition moves forward, 
subscribers will have the ability to purchase or lease a converter to 
permit the digital signal to be displayed on their analog televisions. 
We also expect that a conversion function is one which manufacturers 
may consider adding to digital set-top boxes. We note that the 
Commission's navigation devices rules allow manufacturers the ability 
to incorporate additional features and functions in set-top boxes, and 
to sell those boxes at retail. As such, subscribers will be able to 
view both the analog and digital signals as the competitive market 
develops. Further, our decision ensures that the option to pay for a 
converter or digital set-top box with that function remains at the 
discretion of the cable subscriber and is not mandated through 
government regulation.

G. Channel Location

    78. Section 614(b)(6) generally provides that commercial television 
stations carried pursuant to the mandatory carriage provision are 
entitled to be carried on a cable system on the same channel number on 
which the station broadcasts over-the-air. Under section 615(g)(5) 
noncommercial television stations generally have the same right. The 
Act also permits commercial and noncommercial television stations to 
negotiate a mutually beneficial channel position with the cable 
operator. In seeking comment on the applicability of these types of 
requirements in the digital context, we noted that station licensees 
received new digital broadcast frequency assignments and channel 
numbers that are different from their analog channel numbers. We 
pointed out that the advent of advanced programming retrieval systems 
and other channel selection devices may alleviate the need for specific 
channel positioning requirements. In this regard, the ATSC established 
channel identification protocols, or PSIPs, that link the digital 
channel number with

[[Page 16546]]

that assigned to the analog channel. Given these developments, we asked 
whether the Commission should refrain from promulgating digital channel 
positioning requirements and allow technology to resolve the matter.
    79. In the digital environment it is generally anticipated that 
broadcast signals will be identified and tuned to through the PSIP 
information process rather than by identification with the specific 
frequency on which the station is broadcasting. Given the new digital 
table of allotments, we find that there is no need to implement channel 
positioning requirements for digital television signals of the same 
type currently applicable to analog signals. Rather, as the majority of 
commenters have suggested, we find that the channel mapping protocols 
contained in the PSIP identification stream adequately address location 
issues consistent with Congress's concerns about nondiscriminatory 
treatment of television stations by cable operators. We believe this 
technology-based solution will resolve broadcaster concerns. PSIP 
assures that cable subscribers are able to locate a desired digital 
broadcast signal and ensures that digital television stations are able 
to fairly compete with cable programming services in the digital 
environment. Therefore, as stated in the content-to-be-carried section 
above, a cable operator will be required to pass-through channel 
mapping PSIP information as it is considered to be program-related to 
the primary digital video signal. We point out that questions related 
to the technical aspects of PSIP are being dealt with by the cable and 
consumer electronics industry as they proceed with establishing digital 
cable-consumer equipment compatibility standards. We note again that 
the Commission has asked for PSIP progress reports as part of the 
digital cable compatibility proceeding.

H. Market Modifications

    80. Commercial television stations have carriage rights throughout 
the market to which they are assigned by Nielsen Media Research. 
Pursuant to section 614(h)(1)(c) of the Act, at the request of either a 
broadcaster or a cable operator, the Commission may, with respect to a 
particular television broadcast station, include additional communities 
within its television market or exclude communities from such station's 
television market to better effectuate the purposes of the Act's must 
carry provisions. In considering such market modification requests, the 
Act provides that the Commission shall afford particular attention ``to 
the value of localism'' by taking into account such factors as whether 
the station, or other stations located in the same area, have been 
historically carried on the cable system or systems within such 
community; whether the television station provides coverage or other 
local service to such community; whether any other television station 
that is eligible to be carried by a cable system in such community in 
fulfillment of the requirements of this section provides news coverage 
of issues of concern to such community or provides carriage or coverage 
of sporting and other events of interest to the community; and evidence 
of viewing patterns in cable and noncable households within the areas 
served by the cable system or systems in such community. The inclusion 
of additional communities within a station's market imposes new must 
carry requirements on cable operators subject to the modification 
request while the grant to exclude communities from a station's market 
removes a cable operator's obligation to carry a certain station's 
signal on the relevant system. We sought comment on whether any change 
to the market modification process was warranted to accommodate the 
difference between analog and digital broadcasting.
    81. We find that our current reliance on Nielsen's market 
designations, publications, and assignments for analog signal carriage 
issues should continue for digital signal carriage issues. The 
presumption, therefore, is that the market of the station's digital 
signal is coterminous with the station's market area for its analog 
signal during the transition period. In addition, we find that the 
statutory factors in section 614(h), the current process for requesting 
market modifications, and the evidence needed to support such 
petitions, will be applicable to digital television cases during the 
transition period. We realize, of course, that the technical coverage 
area of a digital television signal may not exactly replicate the 
technical coverage area of the analog television signal. Therefore, in 
deciding DTV market modification cases, we will take into consideration 
changes in signal strength and Grade B contour coverage because of new 
digital television channel assignments and power limits. All other 
matters concerning the modification process for digital television 
signals will be decided on a case-by-case basis.

I. Digital Signal Carriage on PEG Channels

    82. The Act provides that a cable operator required to add the 
signals of qualified local noncommercial educational stations and 
qualified low power television stations, respectively, may do so by 
placing such additional stations on unused public, educational or 
governmental (``PEG'') channels not in use for their designated 
purposes, subject to the approval of local franchising authorities. 
Pursuant to section 611 of the Act, the local franchising authority, in 
discussions with a cable operator, determines how much channel 
capacity, if any, will be set aside for PEG use. The Commission, when 
implementing the analog must carry rules, declined to adopt stringent 
requirements regarding the use of PEG channels for must carry purposes 
because it believed that these matters were more appropriately resolved 
by local franchising authorities. We sought comment on whether DTV 
signals of NCE stations and LPTV stations should be allowed on PEG 
channels under the same framework accorded analog television signals. 
We agree with comments submitted by CBA and Pappas that the carriage of 
digital LPTV and NCE stations on unused PEG channels should be 
permitted. We find that this approach will likely advance the digital 
transition by allowing another way for cable subscribers to access 
digital NCE signals. We also find that continuing this policy will 
promote program diversity by enabling LPTV analog signals and NCE 
analog and digital signals, that otherwise may not be afforded 
carriage, to reach their intended audience. To this end, we encourage 
local franchising authorities to engage digital public broadcasters and 
low power broadcasters in discussions concerning the carriage of their 
respective broadcast signals.

J. Complaints and Enforcement

    83. Under our current rules, whenever a television station believes 
that a cable operator has failed to meet its must carry obligations, 
the station may file a complaint with the Commission. Section 614(d)(3) 
requires the Commission to adjudicate a must carry complaint within 120 
days from the date it is filed. The Commission may grant the complaint 
and order the cable operator to carry the station or it may dismiss the 
complaint if it is determined that the cable operator has fully met its 
must carry obligations with regard to that station. We sought comment 
on whether the current procedures should apply to DTV must carry 
complaints. We agree with AAPTS that the current scheme is working and 
see no need to depart from it. Therefore, we will continue to use the 
existing must carry complaint process for digital television carriage 
disputes.

[[Page 16547]]

VI. Changes to Other Part 76 Requirenments

A. Open Video Systems

    84. Section 653(c)(1) of the Act provides that any provision that 
applies to cable operators under sections 614, 615 and 325, shall apply 
to open video system operators certified by the Commission. Section 
653(c)(2)(A) provides that, in applying these provisions to open video 
system operators, the Commission ``shall, to the extent possible, 
impose obligations that are no greater or lesser'' than the obligations 
imposed on cable operators. The Commission, in implementing the 
statutory language, held that there are no public policy reasons to 
justify treating an open video system operator differently from a cable 
operator in the same local market for purposes of broadcast signal 
carriage. Thus, OVS operators generally have the same requirements for 
the carriage of local television stations as do cable operators except 
that these entities are under no obligation to place television 
stations on a basic service tier. We note, however, that an OVS 
operator must make qualified local commercial and noncommercial 
educational television stations available to every subscriber. OVS 
operators are also obligated to abide by section 325 and the 
Commission's rules implementing retransmission consent. In the NPRM, we 
asked whether digital carriage rules adopted for the cable industry 
should apply to OVS Operators, to which Paxson commented in the 
affirmative. Given the statutory directive to treat OVS operators like 
cable operators with regard to broadcast signal carriage, we find that 
OVS operators must carry digital-only television stations pursuant to 
this Report and Order and Sec. 76.1506 of the Commission's rules.

B. Subscriber Notification

    85. Cable operators are required to notify subscribers of any 
changes in rates, programming services or channel positions. When the 
change involves the addition or deletion of channels, each channel 
added or deleted must be separately identified. We sought comment on 
how digital broadcast television carriage requirements will affect the 
notification provisions described above. Pappas believes that cable 
systems should be required to notify subscribers whenever a DTV signal 
is added or analog is withdrawn, as specified in the Commission's 
current rules for system notification to subscribers of channel 
additions or deletions. ALTV agrees, but adds that an operator should 
notify subscribers whenever an SDTV programming stream is available on 
the cable system. We will require a cable operator to notify its 
subscribers whenever a digital television signal is added to the cable 
channel line-up or whenever such a signal is moved to another channel 
location. We will not require an operator to notify subscribers of the 
actual programming available on each possible SDTV digital stream, if 
such is carried under retransmission consent, because the mix of 
programs and services may change frequently. We find it would be 
unnecessarily burdensome for operators to constantly notify their 
subscribers, especially in large television markets where there is a 
potential for dozens of possible programming streams. We also believe 
that EPGs, or other cable system generated guides, will provide 
subscribers with relevant and up-to-date information in a more 
convenient manner than if we were to require operators to provide 
separate notifications. Nevertheless, we encourage operators to alert 
subscribers to the possibility that a broadcaster may offer several 
programming alternatives over the course of the day, where applicable.

C. Cable Antenna Relay Service

    86. In the NPRM, we recognized that cable operators are frequently 
dependent on cable television relay service (``CARS'') microwave 
stations to relay broadcast television signals to and within their 
cable systems. CARS stations distribute signals to microwave hubs where 
it may be physically impossible or too expensive to run actual cable 
wire. In many instances, a cable operator may not be able to string 
cable through an area because of geographic impediments such as rivers, 
mountains or superhighways or due to other restrictions, such as the 
inability or the expense of laying underground cable. Under such 
circumstances, the cable operator may be able to use CARS band 
microwave for point-to-point and point-to-multi-point locations to 
intra-connect the cable system. For example, a cable system may run 
cable up to a CARS transmitter site, convert all the radio frequency 
(RF) channels to microwave frequencies for transmission, receive the 
microwave at a receive location, downconvert back to the RF channels, 
and complete delivery of the channels via physical wiring to the 
subscribers. We sought comment on whether the introduction of digital 
broadcast television affects the CARS system, and, if so, how. We did 
not receive any comments on CARS and the transition to digital 
television. We have no reason to expect that digital television service 
will interfere with CARS, and we decline to revise our Part 78 rules at 
this time. However, if issues arise as the transition progresses, we 
will revisit the matter. The Commission is currently considering 
expanding eligibility for CARS licenses to include all MVPDs. To the 
extent issues related to the digital transition are raised in that 
proceeding, they will be addressed in a forthcoming Report and Order.

D. Program Exclusivity Rules

    87. The program exclusivity regulations, as implemented in 
Secs. 76.92 and 76.101 of the Commission's rules, protect exclusive 
distribution rights afforded to network and syndicated programming 
through private contractual arrangements. Television broadcast station 
licensees with exclusive programming rights are entitled to protect 
such programming by exercising blackout rights against local cable 
systems importing the same programming from distant television 
broadcast stations. Licensees may assert their rights regardless of 
whether their signals are actually carried on the cable system in 
question.
    88. Currently, television stations are entitled to exercise network 
and syndicated blackout rights within certain geographic areas. In 
Implementation of the Satellite Home Viewer Improvement Act of 1999: 
Application of Network Non-duplication, Syndicated Exclusivity and 
Sports Blackout Rules to Satellite Retransmission of Broadcast Signals, 
Report and Order, (65 FR 68082, Nov. 14, 2000) the Commission recently 
applied to satellite carriers' retransmission of nationally distributed 
superstations the network non-duplication, syndicated exclusivity and 
sports blackout requirements that currently apply to cable operators.
    89. In general, a local television broadcast station may assert its 
exclusivity rights against cable systems located within 35 miles of the 
broadcaster's city of license. By exercising its rights, a local 
television broadcast station that has secured exclusive distribution 
rights to programming, can prohibit cable systems within 35 miles from 
importing that same programming from distant television stations. A 
cable operator, however, importing the same programming from an 
otherwise distant station, is not required to honor a blackout request 
from a local broadcaster if the distant station is ``significantly 
viewed'' in the cable community. The concept of significant viewing is 
defined in Sec. 76.5(i) of the

[[Page 16548]]

Commission's rules. In addition to the Commission's network and 
syndicated exclusivity rules, significant viewing is also applicable to 
the Commission sports blackout rule, and, through incorporation by 
reference, to the compulsory copyright licensing process.
    90. In the NPRM, we sought comment on how the transition to digital 
television may affect these rules. We specifically asked how digital 
broadcast multiplexing impacts these rules and whether the cable 
operator will be able to accommodate such black-out requests on various 
programming streams. We also asked whether these rules were applicable 
in the digital age, with or without must carry, and whether it would be 
possible to repeal these rules and instead rely on the retransmission 
consent provisions of section 325 of the Act to protect the rights in 
question.
    91. We find that there is an inadequate record in this proceeding 
upon which to base a change or repeal of the exclusivity rules. In 
addition, we note that the Act, as amended by the SHVIA, required the 
Commission to implement program exclusivity rules for satellite 
carriers that import certain defined superstations. Therefore, we agree 
with numerous commenters that the topic of changing the rules be 
addressed at a future date, where a more complete and focused record 
can be developed. Until that time occurs, we will maintain our existing 
exclusivity framework for digital television signals. In addition, we 
shall make the appropriate change to Sec. 76.5 as suggested by MSTV. 
With respect to how SDTV multiplexing impacts the exclusivity rules and 
whether the cable operator will be able to accommodate blackout 
requests on various programming streams, we believe that it is not 
necessary to resolve this issue here.
    92. As we stated in the SHVIA Non-Duplication, Syndicated 
Exclusivity and Sports Blackout Order, only those exclusive contracts 
that provide for exclusivity vis a vis signals delivered by satellite 
carriers or are broad enough to encompass the delivery of duplicating 
programming by any delivery means entitle a station to assert 
exclusivity rights under the rules. Likewise, in the digital context, 
only those exclusive contracts that specifically cover digital signals 
entitle a station to assert exclusivity rights. We note also that, in 
the SHVIA Non-Duplication, Syndicated Exclusivity and Sports Blackout 
Order, we stated that we were disinclined, in the early stage of the 
DTV transition, to allow a broadcaster to use an exclusive contract for 
digital programming only to prevent a cable system or satellite carrier 
from providing that programming in analog form to its subscribers. 
Therefore, neither satellite carriers nor cable operators are permitted 
to carry the digital version of a program when the contract expressly 
provides exclusivity for both, any or all formats.
    93. Significantly Viewed. In the NPRM, we stated that the 
significant viewing standard supplements other ``local'' station 
definitions by permitting stations that would otherwise be considered 
``distant,'' for program exclusivity purposes, to be considered local 
based on viewing surveys directly demonstrating that over-the-air 
viewers have access to the signals in question. Because digital 
broadcast television stations will not, in the early stages of their 
deployment, have a significant over-the-air audience, we sought comment 
on methods to address the kinds of issues that the significant viewing 
standard addresses in the analog environment. We asked, for example, 
whether a new method should be developed that measures viewing in 
places that are equipped with digital receivers. In the alternative, we 
asked whether the ``significant viewing'' status of analog stations 
should be transferred to their digital counterparts. With respect to 
these rules, we note that in adopting technical rules for the digital 
transmission of broadcast signals, the Commission attempted to insure 
that a station's digital over-the-air coverage area would replicate as 
closely as possible its current over-the-air analog coverage area. In 
view of this, and consistent with the comments received on this 
subject, we believe that the public interest is best served by 
according the digital signal of a television broadcast station the same 
significantly viewed status accorded the analog signal. We note, 
however, that DTV-only television stations must petition the Commission 
for significantly viewed status under the same requirements for analog 
stations in Sec. 76.54 of the Commission's rules.

E. Tiers and Rates

    94. Tier Placement. Sections 614 and 615 are silent on the question 
of where signals subject to mandatory carriage must be placed, but 
section 623(b)(7), one of the Act's rate regulation provisions, 
requires that ``all signals carried in fulfillment of the requirements 
of section 614 and 615'' must be provided to subscribers on a 
``separately available basic service tier to which subscription is 
required for access to any other tier of service.'' In the NPRM, we 
sought comment on whether a cable operator must place a broadcaster's 
digital signal on the same basic tier where the analog signals are 
found or whether a separate digital basic service tier could be 
established that would be available only to subscribers capable of 
viewing digital broadcast signals. Adelphia argues that cable operators 
should be allowed to create a separate digital tier that could be 
purchased as an accompaniment to the analog basic tier for an extra 
fee. ALTV, on the other hand, submits that the Act applies to local 
television stations' DTV signals just as it applies to analog signals; 
that is, DTV signals must be placed on the cable system's basic service 
tier and made available to every subscriber.
    95. In the context of analog must carry, it has been the 
Commission's view that the Act contemplates there be one basic service 
tier. We believe that in the context of the new digital carriage 
requirements, it is consistent with the statutory language to require 
that a broadcaster's digital signal must be available on a basic tier 
such that all broadcast signals are available to all cable subscribers 
at the lowest priced tier of service, as Congress envisioned. The basic 
service tier, including any broadcast signals carried, will continue to 
be under the jurisdiction of the local franchising authority, and as 
such, will be rate regulated if the local franchising authority has 
been certified under section 623 of the Act. We note, however, that if 
a cable system faces effective competition under one of the four 
statutory tests, and is deregulated pursuant to a Commission order, the 
cable operator is free to place a broadcaster's digital signal on upper 
tiers of service or on a separate digital service tier. This finding is 
based upon the belief that section 623(b)(7) is one of those rate 
regulation requirements that sunsets once competition is present in a 
given franchise area. We believe that the decision in Time Warner v. 
FCC supports this interpretation.
    96. Rates. As noted above, digital broadcast signal carriage also 
has potential consequences for the cable television rate regulation 
process. In communities where there has not been a finding of effective 
competition or where there is local rate enforcement, rates for the 
basic service tier (``BST'') are subject to regulation by local 
franchise authorities. Regulated cable systems have established initial 
regulated rates using either the ``benchmark'' or ``cost of service'' 
methodologies pursuant to the Commission's rules. Once initial rates 
are established, cable operators are permitted to adjust rates for 
changes in external costs and inflation. Regulated

[[Page 16549]]

cable operators seeking to adjust their BST rates to reflect these 
changes must justify rate increases using the applicable forms. There 
are also cost pass-through mechanisms for defined categories of 
``external'' costs, including franchise fees and certain local 
franchise costs, as well as fees paid for programming, retransmission 
consent, and copyright. Compliance costs associated with must carry are 
not covered by the definition of external costs.
    97. The Commission is charged with adopting a rate regulation 
scheme appropriate for the BST. The present rate rules take into 
account, inter alia, ``the direct costs (if any) of obtaining, 
transmitting, and otherwise providing signals carried on the basic 
service tier * * * and changes in such costs.'' In the NPRM, we sought 
comment on what, if any, changes in the Commission's rate rules may be 
necessary or desirable. We also asked parties to refresh the record on 
the specific technical modifications needed to enable cable systems to 
deliver digital broadcast television to subscribers. Relatively few 
parties addressed the rate regulation issues we raised or provided data 
on the anticipated costs of providing digital broadcast programming to 
subscribers. Therefore, it is difficult to specify how costs 
attributable to providing digital programming, if any, might be 
reflected in cable rates. Armstrong, a mid-size cable operator, states 
that the costs for digital conversion will include upgrading tower 
capacity, building or leasing additional tower space, and adding new 
digital antennas. SCBA estimates the cost for digital broadcast signal 
carriage will be at least $2,000 per digital channel at the headend, 
which would amount to $10,000 or more for the average television market 
with five local stations. In contrast, ALTV contends there is only a 
marginal cost to add a few additional DTV signals. As to the issue of 
whether the carriage costs could be passed along to subscribers, ALTV 
cautions that the Commission should not allow the cable industry to 
exploit fears of rate increases due to digital carriage. AAPTS asserts 
that even without must carry requirements, cable operators will be 
buying equipment to carry digital signals, so there is no basis to 
impose these costs on smaller broadcasters, especially noncommercial 
educational television stations.
    98. With regard to the rate issues, we first note that there are 
costs for carrying digital television signals at different stages of 
the cable system transmission process. First, antennas and/or other 
equipment necessary to receive the broadcast signal at the cable 
headend are required. In the must carry context, these costs are the 
broadcasters' responsibility under the Act. In the retransmission 
consent context, the broadcaster and the cable operator may agree to 
any cost arrangement that is mutually agreeable. Then there are costs 
for processing the digital television signal in the cable headend and 
at other points in the cable system up to the point in which the cable 
is installed inside the cable subscribers' premises. The treatment of 
these kinds of costs is considered below. Finally, there are costs 
associated with providing subscribers with customer premises equipment, 
such as set top boxes. As explained below, we find no need to change 
the rules relating to such equipment. We also note that we are 
considering adopting a per channel adjustment methodology for those 
operators that add digital broadcast signals to their channel line-ups. 
This topic is discussed in the FNPRM published elsewhere in this 
Federal Register.
    99. In general, rate adjustments for channels added to the BST are 
limited to the recovery of external costs, including a 7.5% mark-up for 
new programming costs. ``External costs'' have been specifically 
limited to taxes, franchise fees, franchise compliance costs (including 
PEG), retransmission and copyright fees, other programming costs, and 
Commission regulatory fees. There are also rules and forms in place 
that address situations where cable systems are upgrading physical 
plant to provide digital programming to cable subscribers. Section 
76.922(j)(1) of the Commission's rules states: ``Cable operators that 
undertake significant network upgrades requiring added capital 
investment may justify an increase in rates for regulated services by 
demonstrating that the capital investment will benefit subscribers.'' 
FCC Form 1235 is an abbreviated cost of service filing used for network 
upgrades pursuant to section 76.922(j). This form permits operators to 
adjust rates by reporting the cost of a system upgrade, which is added 
to a system's tier rate to generate a maximum permitted rate. The 
benchmark rates and price cap adjustments for inflation will generally 
allow systems to recover normal capital costs, but cable operators may 
use Form 1235 to recover costs for ``significant'' upgrades, such as 
expansion of bandwidth, conversion to fiber optics, or system rebuilds, 
without doing a cost of service analysis for the whole system. The 
original goals of the abbreviated cost-of-service showing for network 
upgrades, to ``promote the availability of diverse cable services and 
facilities [and] encourage economically justified upgrades,'' are as 
relevant now as they were in 1994.
    100. For an operator to justify rate adjustments using the FCC Form 
1235, the Commission currently requires: that the upgrade be 
``significant'' and require added capital investment, such as expansion 
of bandwidth capacity, conversion to fiber optics or system rebuilds; 
that the upgrade actually benefit subscribers through improvements in 
the regulated services subject to the rate increase; that the upgrade 
rate increase not be assessed until the upgrade is complete and 
providing benefits to subscribers of regulated services; that the 
operator demonstrate its net increase in costs, taking into account 
current depreciation expense, projected changes in maintenance and 
other expenses, and changes in other revenues; and that the operator 
allocate its costs to ensure that only costs allocable to subscribers 
of regulated services are imposed upon them. Based on the lack of 
comment about the need for rate adjustments, we expect that many cable 
systems will be able to accommodate digital television signals through 
the normal improvements and expansions of service that are reflected in 
the rate adjustments allowed by FCC Forms 1210 and 1240. However, some 
systems are also undertaking significant overall system upgrades, a 
part of which will include a digital buildout, and for which a Form 
1235 upgrade rate adjustment would be appropriate.
    101. There may also be systems, requiring significant technical 
improvements to carry digital signals, that do not necessarily qualify 
as an ``upgrade'' under FCC Form 1235. For these kinds of systems as 
well, we believe it will be appropriate for operators to use FCC Form 
1235 for a rate adjustment. Allowing operators to pursue this option 
may hasten the digital transition as it will provide an incentive to 
add headend and other system equipment to accommodate the carriage of 
digital television signals.
    102. The current instructions for Form 1235 require the cable 
operator to qualify for an upgrade rate adjustment by certifying that 
the upgrade meets the Minimum Technical Specifications or describing 
how the upgrade will be significant and will benefit subscribers. The 
instructions for the second option include, where applicable, the 
number of channels added to a tier and the level of improvement in 
picture quality. Thus, we find that Form 1235 can be an appropriate 
vehicle for allowing a cable

[[Page 16550]]

operator to adjust rates commensurate with their upgrade costs to the 
extent such upgrades are necessary to provide digital broadcast 
programming to its subscribers. We note, however, that an operator may 
file a Form 1235, even if it had done so before, if it can demonstrate 
new costs are not being recovered through the surcharge calculation on 
a previous Form 1235. Section 76.922(j) is amended to clarify that it 
is appropriate to use the network upgrade form in these circumstances, 
(cable operators that undertake significant network upgrades requiring 
added capital investment may justify an increase in rates for regulated 
services by demonstrating that the capital investment will benefit 
subscribers, including providing television broadcast programming in a 
digital format).
    103. While these upgrades will make digital broadcast programming 
available to all basic cable television subscribers, we believe the 
rate adjustments should only apply to those that purchase digital 
programming. We note that rate increases based on upgrades shall not be 
assessed on these subscribers until the upgrade is complete and the 
subscriber is receiving digital television signals. If the digital 
broadcast programming were offered on the BST, the basic tier rate 
would consist of the maximum permitted rate for the basic tier plus the 
FCC Form 1235 surcharge which represents the portion of the digital 
upgrade cost allocated to the basic tier. An operator could continue to 
allocate all of its digital upgrade costs to the CPST.
    104. Finally, we note that regulated cable systems may charge 
subscribers for customer premises equipment, such as the set-top box, 
that may likely be necessary for digital subscribers. In communities 
where there has not been a finding of effective competition, these 
equipment rates are subject to regulation. Our rules permit cable 
operators to charge subscribers for set top boxes and other equipment 
provided the charges do not exceed actual costs. In addition, the Act 
provides that cable operators can aggregate their equipment costs on a 
franchise, system, regional, or company level and can aggregate the 
costs into broad categories, regardless of the varying levels of 
functionality of the equipment within these broad categories. As we 
find that the regulatory framework in place for cable subscriber 
premises equipment is adequate to account for the costs of adding 
digital television signals, there is no need to make rule adjustments 
here.

VII. Procedural Matters

A. Paperwork Reduction Act of 1995 Analysis

    105. The requirements contained in this Report and Order have been 
analyzed with respect to the Paperwork Reduction Act of 1995 (the 
``1995 Act'') and would impose new and modified information collection 
requirements on the public. The Commission, as part of its continuing 
effort to reduce paperwork burdens, invites the general public and the 
Office of Management and Budget (OMB) to take this opportunity to 
comment on the new or modified information collection requirements 
contained in this Report and Order as required by the 1995 Act. 
Comments should address: (a) Whether the new or modified collection of 
information is necessary for the proper performance of the functions of 
the Commission, including whether the information would 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. Written 
comments by the public on the new or modified information collections 
are due on or before May 25, 2001. Any comments on the information 
collections contained herein should be submitted to Judy Boley, Federal 
Communications Commission, 445 12th St, SW., Room 1-0804, Washington, 
DC 20554, or via the Internet to [email protected].
    OMB Control Number: 3060-0844.
    Title: Digital Broadcast Carriage.
    From Number: n/a.
    Type of Review: Revision of a currently approved collection.
    Respondents: 99,278.
    Estimated Time Per Response: .5-1 hours.
    Total Annual Burden: 2,355.
    Total Annual Costs: $2,355.12.
    Needs and Uses: The information collection requirements under this 
control number are used to seek comment on possible changes to 
mandatory carriage rules, and explore the impact that cable carriage of 
digital television signals may have on other Commission rules.
Final Regulatory Flexibility Act Analysis
    106. As required by the Regulatory Flexibility Act (``RFA''), the 
Commission has prepared this Final Regulatory Flexibility Analysis 
(``FRFA'') of the possible significant economic impact on small 
entities by the policies and rules found in this Report and Order. The 
Report and Order and FRFA (or summaries thereof) will be published in 
the Federal Register.
    107. Need for, and Objectives of, the Final Rule Changes. The 
objective of the Report and Order is to make certain technical and 
substantive rule changes that bear on the issue of carriage of digital 
broadcast signals.
    108. Summary of Significant Issues Raised by Public Comments in 
Response to the IRFA. The Small Cable Business Association (``SCBA,'' 
now known as the American Cable Association, ACA) filed comments as 
described in the Report and Order, supra. SCBA stated that unregulated 
analog retransmission consent demands, and tying in particular, 
threatens small cable operators' financial viability. To remedy the 
situation, the SCBA urged the Commission to prohibit broadcasters from 
tying analog carriage to digital carriage.
    109. Description and Estimate of the Number of Small Entities To 
Which the Final Rules Will Apply. The FRFA directs the Commission to 
provide a description of and, where feasible, an estimate of the number 
of small entities that will be affected by the final rules. The FRFA 
defines the term ``small entity'' as having the same meaning as the 
terms ``small business,'' ``small organization,'' and ``small business 
concern'' under section 3 of the Small Business Act. Under the Small 
Business Act, a small business concern is one which: (1) Is 
independently owned and operated; (2) is not dominant in its field of 
operation; and (3) satisfies any additional criteria established by the 
Small Business Administration (``SBA''). The rules we adopt in this 
Report & Order will affect cable operators and OVS operators.
    110. Small MVPDs. SBA has developed a definition of small entities 
for cable and other pay television services, which includes all such 
companies generating $11 million or less in annual receipts. This 
definition includes cable system operators, closed circuit television 
services, direct broadcast satellite services, multipoint distribution 
systems, satellite master antenna systems and subscription television 
services. According to the Census Bureau data from 1992, there were 
1,758 total cable and other pay television services and 1,423 had less 
than $11 million in revenue. We address below each service individually 
to provide a more precise estimate of small entities.

[[Page 16551]]

    111. Cable Systems. The Commission has developed, with SBA's 
approval, our own definition of a small cable system operator for the 
purposes of rate regulation. Under the Commission's rules, a ``small 
cable company'' is one serving fewer than 400,000 subscribers 
nationwide. The Commission developed this definition based on its 
determinations that a small cable system operator is one with annual 
revenue of $100 million or less. We last estimated that there were 1439 
cable operators that qualified as small cable companies. Since then, 
some of those companies may have grown to serve over 400,000 
subscribers, and others may have been involved in transactions that 
caused them to be combined with other cable operators. Consequently, we 
estimate that there are fewer than 1439 small entity cable system 
operators that may be affected by the decisions and rules adopted in 
this Report and Order.
    112. The Communications Act also contains a definition of a small 
cable system operator, which is ``a cable operator that, directly or 
through an affiliate, serves in the aggregate fewer than 1% of all 
subscribers in the United States and is not affiliated with any entity 
or entities whose gross annual revenues in the aggregate exceed 
$250,000,000.'' The Commission has determined that there are 61,700,000 
subscribers in the United States. Therefore, an operator serving fewer 
than 617,000 subscribers shall be deemed a small operator, if its 
annual revenues, when combined with the total annual revenues of all of 
its affiliates, do not exceed $250 million in the aggregate. Based on 
available data, we find that the number of cable operators serving 
617,000 subscribers or less totals approximately 1450. Although it 
seems certain that some of these cable system operators are affiliated 
with entities whose gross annual revenues exceed $250,000,000, we are 
unable at this time to estimate with greater precision the number of 
cable system operators that would qualify as small cable operators 
under the definition in the Communications Act.
    113. Open Video Systems. The Commission has certified 31 OVS 
operators with some now providing service. Affiliates of Residential 
Communications Network, Inc. (``RCN'') received approval to operate OVS 
systems in New York City, Boston, Washington, DC and other areas. RCN 
has sufficient revenues to assure us that they do not qualify as small 
business entities. Little financial information is available for the 
other entities authorized to provide OVS that are not yet operational. 
Given that other entities have been authorized to provide OVS service 
but have not yet begun to generate revenues, we conclude that at least 
some of the OVS operators qualify as small entities.
    114. Program Producers and Distributors. The Commission has not 
developed a definition of small entities applicable to producers or 
distributors of cable television programs. Therefore, we will use the 
SBA classifications of Motion Picture and Video Tape Production (SIC 
7812), Motion Picture and Video Tape Distribution (SIC 7822), and 
Theatrical Producers (Except Motion Pictures) and Miscellaneous 
Theatrical Services (SIC 7922). These SBA definitions provide that a 
small entity in the cable television programming industry is an entity 
with $21.5 million or less in annual receipts for SIC 7812 and SIC 
7822, and $5 million or less in annual receipts for SIC 7922. Census 
Bureau data indicate the following: (a) There were 7,265 firms in the 
United States classified as Motion Picture and Video Production (SIC 
7812), and that 6,987 of these firms had $16.999 million or less in 
annual receipts and 7,002 of these firms had $24.999 million or less in 
annual receipts; (b) there were 1,139 firms classified as Motion 
Picture and Video Tape Distribution (SIC 7822), and 1007 of these firms 
had $16.999 million or less in annual receipts and 1013 of these firms 
had $24.999 million or less in annual receipts; and (c) there were 
5,671 firms in the United States classified as Theatrical Producers and 
Services (SIC 7922), and 5627 of these firms had $4.999 million or less 
in annual receipts.
    115. Each of these SIC categories is very broad and includes firms 
that may be engaged in various industries, including cable programming. 
Specific figures are not available regarding how many of these firms 
exclusively produce and/or distribute programming for cable television 
or how many are independently owned and operated. Thus, we estimate 
that our rules may affect approximately 6,987 small entities primarily 
engaged in the production and distribution of taped cable television 
programs and 5,627 small producers of live programs that may be 
affected by the rules adopted in this proceeding.
    116. Television Stations. The proposed rules and policies will 
apply to television broadcasting licensees, and potential licensees of 
television service. 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. Separate 
establishments primarily engaged in producing taped television program 
materials are classified under another SIC number.
    117. 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.''
    118. An element of the definition of ``small business'' is that the 
entity not be dominant in its field of operation. We are unable at this 
time to define or quantify the criteria that would establish whether a 
specific television station is dominant in its field of operation. 
Accordingly, the estimates that follow of small businesses to which 
rules may apply do not exclude any 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. As discussed further below, we could not fully apply this 
criterion, and our estimates of small businesses to which rules may 
apply may be overinclusive to this extent. The SBA's general size 
standards are developed taking into account these two statutory 
criteria. This does not preclude us from taking these factors into 
account in making our estimates of the numbers of small entities.
    119. There were 1,509 television stations operating in the nation 
in 1992. That number has remained fairly constant as indicated by the 
approximately 1,616 operating television broadcasting stations in the 
nation as of September 30, 1999. For 1992, the number of television 
stations that produced less than $10.0 million in revenue was 1,155 
establishments. Thus, the new rules will affect approximately 1,616 
television stations; approximately 77%, 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

[[Page 16552]]

or aggregate revenues from non-television affiliated companies.
    120. Small Manufacturers. The SBA has developed definitions of 
small entity for manufacturers of household audio and video equipment 
(SIC 3651) and for radio and television broadcasting and communications 
equipment (SIC 3663). In each case, the definition includes all such 
companies employing 750 or fewer employees. Census Bureau data 
indicates that there are 858 U.S. firms that manufacture radio and 
television broadcasting and communications equipment, and that 778 of 
these firms have fewer than 750 employees and would be classified as 
small entities.
    121. Electronic Equipment Manufacturers. The Commission has not 
developed a definition of small entities applicable to manufacturers of 
electronic equipment. Therefore, we will use the SBA definition of 
manufacturers of Radio and Television Broadcasting and Communications 
Equipment. According to the SBA's regulations, a TV equipment 
manufacturer must have 750 or fewer employees in order to qualify as a 
small business concern. The Census Bureau category is very broad, and 
specific figures are not available as to how many of these firms are 
exclusive manufacturers of television equipment or how many are 
independently owned and operated. We conclude that there are 
approximately 778 small manufacturers of radio and television 
equipment.
    122. Electronic Household/Consumer Equipment. The Commission has 
not developed a definition of small entities applicable to 
manufacturers of electronic equipment used by consumers, as compared to 
industrial use by television licensees and related businesses. 
Therefore, we will use the SBA definition applicable to manufacturers 
of Household Audio and Visual Equipment. According to the SBA's 
regulations, a household audio and visual equipment manufacturer must 
have 750 or fewer employees in order to qualify as a small business 
concern. Census Bureau data indicates that there are 410 U.S. firms 
that manufacture radio and television broadcasting and communications 
equipment, and that 386 of these firms have fewer than 500 employees 
and would be classified as small entities. The remaining 24 firms have 
500 or more employees; however, we are unable to determine how many of 
those have fewer than 750 employees and therefore, also qualify as 
small entities under the SBA definition. Furthermore, the Census Bureau 
category is very broad, and specific figures are not available as to 
how many of these firms are exclusive manufacturers of television 
equipment for consumers or how many are independently owned and 
operated. We conclude that there are approximately 386 small 
manufacturers of television equipment for consumer/household use.
    123. Computer Manufacturers. The Commission has not developed a 
definition of small entities applicable to computer manufacturers. 
Therefore, we will use the SBA definition of Electronic Computers. 
According to SBA regulations, a computer manufacturer must have 1,000 
or fewer employees in order to qualify as a small entity. Census Bureau 
data indicates that there are 716 firms that manufacture electronic 
computers and of those, 659 have fewer than 500 employees and qualify 
as small entities. The remaining 57 firms have 500 or more employees; 
however, we are unable to determine how many of those have fewer than 
1,000 employees and therefore also qualify as small entities under the 
SBA definition. We conclude that there are approximately 659 small 
computer manufacturers.
    124. Description of Projected Reporting, Record Keeping and other 
Compliance Requirements. There are compliance requirements for cable 
operators and OVS operators as a result of the Report and Order. An 
attempt has been made to streamline compliance requirements. For 
example, we have declined to adopt specific channel positioning 
requirements for digital television signals.
    125. Steps Taken to Minimize Significant Impact on Small Entities, 
and Significant Alternatives Considered. The RFA requires an agency to 
describe any significant alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives: The establishment of differing compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities; the clarification, consolidation, or 
simplification of compliance or reporting requirements under the rule 
for small entities; the use of performance, rather than design, 
standards; and an exemption from coverage of the rule, or any part 
thereof, for small entities. The Small Cable Business Association 
(``SCBA,'' now known as the American Cable Association, ACA) filed 
comments as described in the Report and Order, supra. SCBA stated that 
unregulated analog retransmission consent demands, and tying in 
particular, threatens small cable operators' financial viability. To 
remedy the situation, the SCBA urged the Commission to prohibit 
broadcasters from tying analog carriage to digital carriage. We have 
deferred imposing a dual analog and digital broadcast signal carriage 
requirement on cable operators, including small cable operators, as 
well as OVS operators, at this time. However, we have adopted several 
retransmission consent policies and digital-only carriage requirements 
applicable to all cable operators and OVS operators. Due to lack of 
sufficient evidence on the record, we have decided not to prohibit 
retransmission consent tying arrangements, as requested by the SCBA. 
However, we are seeking further comment on this issue in the FNPRM. In 
the aggregate, we believe that there will be minimal impact on small 
entities as a result of the Report and Order. However, we are mindful 
of the concerns raised by small entities throughout this proceeding and 
will carefully scrutinize our policy determinations as we go forward.
    126. Federal Rules Which Duplicate, Overlap, or Conflict with the 
Commission's Proposals. None.
    127. Report to Congress. The Commission will send a copy of the 
Report and Order, including this FRFA, in a report to be sent to 
Congress pursuant to the Small Business Regulatory Enforcement Fairness 
Act of 1996. In addition, the Commission will send a copy of the Report 
and Order, including FRFA, to the Chief Counsel for Advocacy of the 
Small Business Administration. A copy of the Report and Order and FRFA 
(or summaries thereof) will also be published in the Federal Register.

F. Ordering Clauses

    128. Accordingly, it is ordered that, pursuant authority found in 
sections 4(i) 4(j), 303(r), 325, 336, 614, and 615 of the 
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 
303(r), 325, 336, 534, and 535, the Commission's rules are hereby 
amended.
    129. It is further ordered that the Consumer Information Bureau, 
Reference Information Center, shall send a copy of this Report and 
Order including the Final Regulatory Flexibility Analysis, to the Chief 
Counsel for Advocacy of the Small Business Administration.
    130. It is further ordered that upon OMB approval of the 
information collection requirements contained in these revisions the 
Federal Communications Commission will publish a document in the 
Federal Register announcing the effective date.

[[Page 16553]]

List of Subjects in 47 CFR Part 76

    Cable television, Carriage, Digital television, Mandatory carriage, 
Television broadcast stations.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends Part 76 of Title 47 of the Code of 
Federal Regulations as follows:

PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

    1. The authority citation for Part 76 continues to read as follows:

    Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a, 
307, 308, 309, 312, 315, 317, 325, 336, 338, 339, 503, 521, 522, 
531, 532, 533, 534, 535, 536, 537, 543, 544, 544a, 545, 548, 549, 
552, 554, 556, 558, 560, 561, 571, 572, 573.


    2. Section 76.5(b) is revised to read as follows:


Sec. 76.5  Definitions.

* * * * *
    (b) Television station; television broadcast station. Any 
television broadcast station operating on a channel regularly assigned 
to its community by Sec. 73.606 or Sec. 73.622 of this chapter, and any 
television broadcast station licensed by a foreign government: 
Provided, however, That a television broadcast station licensed by a 
foreign government shall not be entitled to assert a claim to carriage, 
program exclusivity, or retransmission consent authorization pursuant 
to subpart D or F of this part, but may otherwise be carried if 
consistent with the rules on any service tier. Further provided that a 
television broadcast station operating on channels regularly assigned 
to its community by both Secs. 73.606 and 73.622 of this chapter may 
assert a claim for carriage pursuant to subpart D of this part only for 
a channel assigned pursuant to Sec. 73.606.
* * * * *

    3. Section 76.56(e) is revised to read as follows:


Sec. 76.56  Signal carriage obligations.

* * * * *
    (e) Carriage of additional broadcast television signals on such 
system shall be at the discretion of the cable operator, subject to the 
retransmission consent rules, Sec. 76.64. A cable system may also carry 
any ancillary or other transmission contained in the broadcast 
television signal.
* * * * *

    4. Section 76.57 is amended by redesignating paragraphs (c), (d), 
(e) as paragraphs (d), (e), (f), adding a new paragraph (c), revising 
the newly redesignated paragraph (e), and the note that follows newly 
redesignated paragraph (e) is designated as ``Note to Sec. 76.57'' to 
read as follows:


Sec. 76.57  Channel positioning.

* * * * *
    (c) With respect to digital signals of a television station carried 
in fulfillment of the must-carry obligations, a cable operator shall 
carry the information necessary to identify and tune to the broadcast 
television signal.
* * * * *
    (e) At the time a local commercial station elects must-carry status 
pursuant to Sec. 76.64, such station shall notify the cable system of 
its choice of channel position as specified in paragraphs (a), (b), and 
(d) of this section. A qualified NCE stations shall notify the cable 
system of its choice of channel position when it requests carriage. 
Channel positioning requests from local commercial stations shall be 
fulfilled by the cable operator no later than October 6, 1993.
* * * * *

    5. Section 76.62 is amended by revising paragraph (b) and adding 
paragraph (g) to read as follows:


Sec. 76.62  Manner of carriage.

* * * * *
    (b) Each such television broadcast signal carried shall be carried 
without material degradation, and, for analog signals, in compliance 
with technical standards set forth in subpart K of this part.
* * * * *
    (g) With respect to carriage of digital signals, operators are not 
required to carry ancillary or supplementary transmissions or non-
program related video material.

    6. Section 76.64 is amended by revising paragraphs (f) introductory 
text, (f)(4), and (k) to read as follows:


Sec. 76.64  Retransmission consent.

* * * * *
    (f) Commercial television stations are required to make elections 
between retransmission consent and must-carry status according to the 
following schedule:
* * * * *
    (4) New television stations and stations that return their analog 
spectrum allocation and broadcast in digital only shall make their 
initial election any time between 60 days prior to commencing broadcast 
and 30 days after commencing broadcast or commencing broadcasting in 
digital only; such initial election shall take effect 90 days after it 
is made.
* * * * *
    (k) Retransmission consent agreements between a broadcast station 
and a multichannel video programming distributor shall be in writing 
and shall specify the extent of the consent being granted, whether for 
the entire signal or any portion of the signal. This rule applies for 
either the analog or the digital signal of a television station.
* * * * *

[[Page 16554]]


    7. Section 76.922 is amended by adding paragraph (f)(1)(vii) and 
revising paragraph (j)(1) to read as follows:


Sec. 76.922  Rates for the basic service tier and cable programming 
service tiers.

* * * * *
    (f) * * *
    (vii) Headend equipment costs necessary for the carriage of digital 
broadcast signals.
* * * * *
    (j) Network upgrade rate increase. (1) Cable operators that 
undertake significant network upgrades requiring added capital 
investment may justify an increase in rates for regulated services by 
demonstrating that the capital investment will benefit subscribers, 
including providing television broadcast programming in a digital 
format.
* * * * *

    8. Section 76.1603(c) is revised to read as follows:


Sec. 76.1603  Customer service--rate and service changes.

* * * * *
    (c) In addition to the requirement of paragraph (b) of this section 
regarding advance notification to customers of any changes in rates, 
programming services or channel positions, cable systems shall give 30 
days written notice to both subscribers and local franchising 
authorities before implementing any rate or service change. Such notice 
shall state the precise amount of any rate change and briefly explain 
in readily understandable fashion the cause of the rate change (e.g., 
inflation, change in external costs or the addition/deletion of 
channels). When the change involves the addition or deletion of 
channels, each channel added or deleted must be separately identified. 
For purposes of the carriage of digital broadcast signals, the operator 
need only identify for subscribers, the television signal added and not 
whether that signal may be multiplexed during certain dayparts.
* * * * *
[FR Doc. 01-7323 Filed 3-23-01; 8:45 am]
BILLING CODE 6712-01-P