[Federal Register Volume 66, Number 197 (Thursday, October 11, 2001)]
[Proposed Rules]
[Pages 51905-51907]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25479]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 21, 73 and 76

[CS Docket Nos. 98-82 and 96-85, MM Docket Nos. 92-264, 94-510, 92-51 
and 87-154, FCC 01-263]


The Commission's Cable Horizontal and Vertical Ownership Limits 
and Cable, Broadcast and MDS Attribution Rules

AGENCY: Federal Communications Commission.

ACTION: Further notice of proposed rulemaking.

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SUMMARY: This document examines and solicits comment on the 
Commission's cable horizontal and vertical limits and aspects of its 
attribution rules as affected by the recent D.C. Circuit decision in 
Time Warner Entertainment Co. v. FCC, 240 F.3d 1126 (D.C. Cir. 2001). 
The D.C. Circuit reversed and remanded the Commission's horizontal and 
vertical limits, and vacated two aspects of its attribution rules.

DATES: Comments are due on or before December 26, 2001, and reply 
comments are due on or before January 25, 2002.

ADDRESSES: Office of the Secretary, Federal Communications Commission, 
445 12th Street, SW., Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Daniel Hodes, Kiran Duwadi, Ava Holly 
Berland, Andrew Wise, Cable Services Bureau, (202) 418-7200, TTY (202) 
418-7365 or via Internet at [email protected], [email protected], 
[email protected], [email protected].

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Further Notice of Proposed Rulemaking (``FNPRM'') in CS Docket Nos. 98-
82, 96-85, MM Docket Nos. 92-264, 94-150, 92-51, 87-154, FCC 01-263, 
adopted September 13, 2001, and released September 21, 2001. The 
complete text of this FNPRM 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, and 
may be purchased from the Commission's copy contractor, Qualex 
International, Portals II, 445 12th Street SW., Room CY-B402, 
Washington, DC, 20554, telephone (202) 863-2893, facsimilie (202) 863-
2898, or via Internet at [email protected], or may be viewed via 
Internet at http://www.fcc.gov/csb/. This document is also available in 
alternative formats (computer diskette, large print, audio cassette, 
and Braille). Persons who need documents in such formats may contact 
Brian Millin at (202) 418-7426, TTY (202) 418-7365, or send an email to 
[email protected].

Synopsis of Notice of Inquiry

    1. As part of the 1992 Cable Act, Congress added section 613(f) to 
the Communications Act of 1934. The principal objective of section 
613(f) was to enhance competition in the acquisition and distribution 
of video programming by cable and non-cable systems. Congress expressed 
a preference for competition over regulation in achieving this 
objective, believing that the presence of alternative cable and non-
cable multi-channel video programming distributors (``MVPDs'') would 
constrain the cable operators'' market power in the acquisition and 
distribution of multi-channel programming, as well as improve their 
service and programming quality and curb their subscription rate 
increases. However, at the time, given the absence of effective 
competition to, and the trend toward increased horizontal concentration 
and vertical integration in, the cable industry, Congress believed 
structural limits were necessary. Congress thus enacted section 613(f), 
which directs the Commission to establish limits: (1) on the number of 
subscribers a cable operator may serve through its owned or affiliated 
cable systems (horizontal limit); and (2) on the number of channels a 
cable operator may devote to its owned or affiliated programming 
(vertical limit).
    2. In response to the congressional directive, the Commission 
adopted a horizontal ownership limit that barred a cable operator from 
owning or having an attributable interest in cable systems that reach 
more than 30 percent of subscribers served by all multichannel video 
programming distributors (``MVPDs'') nationwide. The Commission also 
adopted a vertical

[[Page 51906]]

limit that prohibited a cable operator from carrying affiliated 
programming on more than 40 percent of its channels. The Commission's 
vertical limit only applied to channel capacity up to 75 channels. 
Thus, for a cable operator that had more that 75 channels, the vertical 
limit required the operator to reserve 45 channels for non-affiliated 
programming. Finally, the Commission adopted attribution rules, which 
defined the level of ownership interests implicated by the horizontal 
and vertical limits.
    3. The DC Circuit in Time Warner reviewed the Commission's cable 
horizontal and vertical limits. The DC Circuit essentially found that 
in establishing these limits, the Commission did not adequately take 
into account the evolving and increasingly competitive MVPD 
marketplace, did not draw the necessary connections between the limits 
and the harms the limits were designed to address, and did not 
sufficiently support its limits with a full record of empirical or 
theoretical evidence. The DC Circuit thus reversed and remanded the 
horizontal and vertical limits to the Commission.
    4. The DC Circuit in Time Warner further reviewed the Commission's 
cable attribution rules. Whereas the DC Circuit upheld the Commission's 
general cable attribution benchmarks, the court vacated two of the 
Commission's rules. Specifically, the DC Circuit vacated the 
Commission's elimination of the single majority shareholder exemption, 
which did not attribute minority interests in any cable company in 
which a single shareholder held more than 50 percent of the outstanding 
voting stock. The DC Circuit also vacated the Commission's application 
of the limited partnership insulation rule, that barred an insulated 
limited partner from selling video programming to the general partner 
cable company. The DC Circuit found that the Commission did not provide 
adequate justification for both actions.
    5. The FNPRM seeks to implement section 613(f) and to respond to 
the DC Circuit's concerns, by taking a fresh look at the Commission's 
cable ownership rules affected by the Time Warner decision. The FNPRM 
examines the requirements of Section 613(f) and the underlying 
legislative history, reviews the relevant markets, as those markets 
existed in and have evolved since 1992, and considers general 
regulatory approaches. The FNPRM asks commenters to support or 
contradict these and/or alternative approaches with empirical or 
theoretical evidence, as well as address the benefits and harms posed 
by each approach. The FNPRM does not attempt to propose any specific 
numerical caps and/or mathematical formulations to compute limits. 
Rather, the objective of the FNPRM is to ask the relevant questions and 
develop a complete record that ultimately will support a regulatory 
approach, which fully addresses and takes into account cable operators' 
market power in today's dynamic communications marketplace.
    6. With respect to the horizontal limit, the FNPRM seeks to 
implement Section 613(f) by examining the state of competition, and 
cable operators' market power, in the MVPD marketplace. The FNPRM 
considers two possible regulatory approaches, the open field approach 
and the threshold/safe harbor approach, as well as invites commenters 
to suggest alternative approaches. The open field approach, which is 
the basis for the Commission's horizontal limit reviewed by the D.C. 
Circuit, restricts market share by capping the size of the largest 
cable operators to ensure that programming networks have viable 
alternatives if denied access by large cable operators, individually or 
collectively. The FNPRM asks commenters to address various issues 
related to the open field approach, such as the level of subscriber 
reach programming networks needed for viability, the adequacy of a cap 
in terms of gauging market power, the actual or predictable presence of 
collusive anti-competitive behavior amongst large cable operators, and 
the impact of non-cable outlets such as Direct Broadcast Satellite 
(``DBS''). In contrast, the threshold/safe harbor approach considers 
the state of effective competition in the MVPD marketplace, and only 
enforces regulatory ownership limits if it is determined that such 
competition has not been achieved. The FNPRM asks commenters to address 
various issues related to the threshold/safe harbor approach, such as 
the appropriate measurement of effective competition and market power 
in the MVPD industry (both in terms of acquisition ``upstream'' and 
distribution ``downstream'' markets), and the regulatory response if 
effective competition falters or is not achieved.
    7. With respect to the vertical limit, the FNPRM seeks to implement 
section 613(f) by examining significant market trends, such as the 
increase in channel capacity through the deployment of advanced 
technologies and system upgrades, the decrease in vertically integrated 
cable offerings, and the increase in competition from cable and more 
importantly non-cable sources, such as DBS. The FNPRM asks commenters 
to address whether these market trends mitigate the congressional 
concern underlying section 613(f) that cable operators will 
discriminate against unaffiliated programming networks by favoring 
affiliated over non-affiliated programming. Specifically, the FNPRM 
asks commenters to address whether current and anticipated market 
conditions warrant the modification, exemption or the possible 
elimination of the vertical limit.
    8. Finally, the FNPRM also considers the Commission's conclusions 
regarding elimination of the single majority shareholder exception and 
the application of the no-sale aspect of the limited partner's 
insulation criteria and seeks comment regarding these two provisions of 
the attribution rules. The FNPRM seeks to examine the underlying 
rationale of the Commission's prior conclusions, and to determine if 
those conclusions are still valid. The FNPRM also considers the 
Commission's elimination of the single majority shareholder exemption 
in the broadcast and the multipoint distribution service attribution 
rules, which followed the Commission's elimination of the cable 
exemption.

Procedural Matters

Ex Parte

    9. This proceeding will be treated as a ``permit-but-disclose'' 
proceeding, subject to the requirements of Sec. 1.1206(b) of the 
Commission's rules.

Filing of Comments and Reply Comments

    10. Pursuant to applicable procedures set forth in Secs. 1.415 and 
1.419 of the Commission's rules, interested parties may file comments 
on or before December 26, 2001, and reply comments on or before January 
25, 2002. Comments may be filed using the Commission's Electronic 
Comment Filing System (ECFS) or by filing paper copies.
    11. Comments filed through the ECFS can be sent as an electronic 
file via the Internet to http://www.fcc.gov/e-file/ecfs.html. 
Generally, only one copy of an electronic submission must be filed. If 
more than multiple docket or rulemaking numbers appear in the caption 
of this proceeding, commenters must transmit one electronic copy of the 
comments to each docket or rulemaking number referenced in the caption. 
In completing the transmittal screen, commenters should include their 
full name, Postal Service mailing address, and the applicable docket or 
rulemaking number. Parties may also submit an electronic comment by 
Internet e-mail.

[[Page 51907]]

To get filing instructions for e-mail comments, commenters should send 
an e-mail to [email protected], and should include the following words in 
the body of the message, ``get form your e-mail address.'' A sample 
form and directions will be sent in reply.
    12. Parties who choose to file by paper must file an original and 
four copies of each filing. If more than one docket or rulemaking 
number appears in the caption of this proceeding commenters must submit 
two additional copies for each additional docket or rulemaking number. 
All filings must be sent to the Commission's Secretary, Magalie Roman 
Salas, Office of the Secretary, Federal Communications Commission, 445 
12th Street, SW., Room TW-A325, Washington, DC 20554. The Cable 
Services Bureau contacts for this proceeding are Daniel Hodes, Kiran 
Duwadi, Ava Holly Berland, and Andrew Wise at (202) 418-7200, TTY (202) 
418-7365, or at [email protected], [email protected], [email protected] and 
[email protected].
    13. Parties who choose to file by paper must also file one copy of 
each filing with other offices, as follows: (1) Qualex International, 
Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554; 
and (2) Ava Holly Berland, Cable Services Bureau,445 12th Street, SW., 
3-A832, Washington, DC, 20554. In addition, five copies of each filing 
must be filed with Linda Senecal, Cable Services Bureau,445 12th 
Street, 3-A729, Washington, DC 20554.

Ordering Clause

    14. This FNPRM is issued pursuant to authority contained in 
sections 2(a), 4(i), 303, 307, 309, 310, and 613 of the Communications 
Act of 1934, as amended.

List of Subjects

47 CFR Parts 21 and 73

    Television.

47 CFR Part 76

    Cable television.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 01-25479 Filed 10-10-01; 8:45 am]
BILLING CODE 6712-01-P