[Federal Register Volume 67, Number 146 (Tuesday, July 30, 2002)]
[Rules and Regulations]
[Pages 49247-49251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19182]


-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[CS Docket No. 01-290; FCC 02-176]


Implementation of the Cable Television Consumer Protection and 
Competition Act of 1992 and the Development of Competition and 
Diversity in Video Programming Distribution: Section 628(c)(5) of the 
Communications Act--Sunset of Exclusive Contract Prohibition

AGENCY: Federal Communications Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Commission, through this document, retains for five years, 
until October 5, 2007, the prohibition on exclusive contracts contained 
in section 628(c)(2)(D) of the Communications Act of 1934, as amended. 
Section 628(c)(2)(D) generally prohibits, in areas served by a cable 
operator, exclusive contracts for satellite cable programming or 
satellite broadcast programming between vertically integrated 
programming vendors and cable operators. Under section 628(c)(5), the 
prohibition on exclusive programming contracts contained in section 
628(c)(2)(D) would cease to be effective on October 5, 2002, ten years 
after its enactment through the 1992 Cable Act, unless the Commission 
found that such prohibition continues to be necessary to preserve and 
protect competition and diversity in the distribution of video 
programming. To comply with section 628, the Commission conducted a 
proceeding in order to determine whether the exclusive contract 
prohibition should sunset. As a result of conducting its proceeding, 
the Commission found in this document that while the landscape of the 
market for the distribution of multichannel video programming changed 
for the better since 1992, the prohibition continues to be necessary to 
preserve and protect competition and diversity in the distribution of 
video programming.

DATES: Effective August 14, 2002.

FOR FURTHER INFORMATION CONTACT: Karen A. Kosar, Media Bureau at 202-
418-1053 or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order in Docket No. 01-290, FCC 02-176. The complete text of this 
Report and Order is available for inspection and copying during normal 
business hours in the FCC Reference Information Center, Portals II, 
Courtyard Level, 445 12th Street, SW., Washington, DC, 20554. This 
document may also 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, facsimile 202-863-2898, 
or via e-mail [email protected]. It is also available on the 
Commission's website at http://www.fcc.gov.

Synopsis of the Report and Order

    1. The Report and Order is issued in accordance with section 
628(c)(5) of the Communications Act of 1934, as amended. Section 
628(c)(2)(D), enacted through the 1992 Cable Act, generally prohibits, 
in areas served by a cable operator, exclusive contracts for satellite 
cable programming or satellite broadcast programming between vertically 
integrated programming vendors and cable operators. Section 628(c)(5) 
directs that the prohibition on exclusive contracts contained in 
section 628(c)(2)(D) shall cease to be effective on October 5, 2002, 
ten years after its enactment, unless the Commission finds that such 
prohibition ``continues to be necessary to preserve and protect 
competition and diversity in the distribution of video programming.'' 
The Commission issued a Notice of Proposed Rulemaking, 66 FR 54972, 
October 31, 2001, seeking comment on the possible sunset of Section 
628(c)(2)(D). The Report and Order finds that the exclusivity 
prohibition should be retained for five years, until October 5, 2007.
    2. In examining whether the exclusivity prohibition ``continues to 
be necessary,'' the Commission sought guidance in the concerns Congress 
expressed in 1992, however, the Commission's analysis places 
substantial weight on whether, in the absence of the exclusivity 
prohibition, vertically integrated programmers would currently have the 
incentive and ability to favor their affiliated cable operators over 
nonaffiliated cable operators and program distributors using other 
technologies and, if they would, whether such behavior would result in 
a failure to protect and preserve competition and diversity in the 
distribution of video programming. The Report and Order recognizes that 
enforcement of the exclusivity prohibition against all vertically 
integrated programmers may not always serve the public interest and 
notes that retention of the prohibition does not foreclose all 
exclusive arrangements between vertically integrated programmers and 
cable operators. The Report and Order finds that Congress explicitly 
recognized the existence of such programming by creating a public 
interest exception to the prohibition. The Report and Order 
acknowledges that significant changes have taken place in the 
multichannel video programming distribution (``MVPD'') market over the 
past ten years, and yet finds that vertically integrated programmers 
generally retain the incentive and ability to favor their cable 
affiliates over nonaffiliated cable operators and other competitive 
MVPDs to such a degree that, in the absence of the prohibition, 
competition and diversity in the distribution of video programming 
would not be preserved and protected.
    3. In addressing the ability of programmers to favor their cable 
affiliates over other MVPDs, the Report and Order finds that access to 
vertically integrated programming continues to be necessary in order 
for competitive MVPDs to remain viable in the marketplace. In that 
regard, an MVPD's ability to provide service that is competitive with 
an incumbent cable operator is significantly harmed if denied access to 
``must have'' vertically integrated programming for which there are no 
good substitutes. The Report and Order also finds that vertically 
integrated programmers retain the incentive to favor their affiliated 
cable operators over competitive MVPDs such that competition and 
diversity in the distribution of video programming would not be 
preserved and protected. In that regard, the Report and Order finds 
that cable operators today continue to dominate the MVPD marketplace 
and that horizontal consolidation and clustering combined with 
affiliation with regional programming, have contributed to cable's 
overall market dominance. In addition, the Report and Order determines 
that an economic basis for denial of access to vertically integrated 
programming to competitive MVPDs continues, and that such denial would 
harm such competitors' ability to compete for subscribers. The Report 
and Order further finds that a partial sunset of the exclusivity 
prohibition is not warranted at this time.
    4. The Report and Order also finds that the scope of the 
exclusivity prohibition should not be narrowed to apply to particular 
types of programming or specified geographic

[[Page 49248]]

areas. The Report and Order also rejects expanding the prohibition to 
terrestrially delivered programming or non-vertically integrated 
programming. Finally, during the year before the expiration of the 
exclusivity prohibition on October 5, 2007, the Commission will 
undertake a review to again determine whether the prohibition continues 
to be necessary. During the five-year period, the Commission will 
continue to evaluate petitions for exclusivity, under the public 
interest factors established by Congress. If, however, a dramatic shift 
in the competitive landscape should occur before five years, the 
Commission may initiate its review earlier on its own motion or in 
response to a petition.

Paperwork Reduction Act Analysis

    5. Although the Notice of Proposed Rulemaking (NPRM) indicated that 
some of the issues on which we sought comment might entail a modified 
information collection subject to the Paperwork Reduction Act of 1995 
(``PRA''), Public Law 104-13, the rule change adopted herein does not 
affect the information collection previously approved by the Office of 
Management and Budget (``OMB'') under Control Number: 3060-0551.

Final Regulatory Flexibility Analysis

    6. As required by the Regulatory Flexibility Act of 1980, as 
amended, (``RFA''), an Initial Regulatory Flexibility Analysis (IRFA) 
of the possible significant economic impact on small entities was 
incorporated in the Notice of Proposed Rulemaking in CS Docket No. 01-
290. The Commission sought written public comment on the proposals in 
the NPRM, including comment on the IRFA. The comments received are 
discussed below. This present Regulatory Flexibility Analysis (FRFA) 
conforms to the RFA.

A. Need for, and Objectives of, the Report and Order

    7. The purpose of section 628 of the Communications Act is to 
promote the public interest, convenience, and necessity by increasing 
competition and diversity in the multichannel video market, to increase 
the availability of satellite cable programming and satellite broadcast 
programming to persons in rural and other areas not currently able to 
receive such programming, and to spur the development of communications 
technologies, for example new MVPDs. Specifically, this proceeding 
involves section 628(c)(2)(D), which prohibits, in areas served by a 
cable operator, exclusive contracts for satellite cable programming or 
satellite broadcast programming between vertically integrated 
programming vendors and cable operators unless the Commission 
determines that such exclusivity is in the public interest. The 
exclusivity prohibition set forth in section 628(c)(2)(D) ceases to be 
effective after a 10-year period ending October 5, 2002. Section 
628(c)(5) of the Communications Act requires that restriction on 
exclusive contracts, within areas served by cable, are to sunset unless 
the Commission finds, in a proceeding conducted during the last year of 
such 10-year period, that such prohibition continues to be necessary to 
preserve and protect competition and diversity in the distribution of 
video programming. Pursuant to this statutory mandate, we have 
concluded that the exclusivity prohibition set forth in section 
628(c)(2)(D) continues to be necessary to preserve and protect 
competition and diversity in the distribution of video programming 
because cable MSOs continue to possess significant market power and 
continue to control a significant proportion of programming, to the 
detriment of DBS and other competitive MVPDs, some of which are smaller 
entities. Retention of the exclusivity prohibition in this proceeding 
addresses the competitive imbalance that continues to exist in the 
marketplace by maintaining and securing the ability of competitive 
MVPDs to access vertically integrated programming.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    8. The American Cable Association (``ACA'') filed comments and 
states that access to satellite programming is essential for smaller 
cable systems and a sunset of the prohibition could result in small 
cable companies losing access to over one-third of their satellite 
programming services. To remedy the situation, the ACA urges the 
Commission to extend the sunset of the prohibition on exclusive 
contracts, as the loss of access rights to particular programming would 
have a significant impact on the continuing viability of many small 
cable businesses. The Commission considered the potential economic 
impact on small entities because this issue was pertinent to our 
determination whether to retain or sunset the exclusivity prohibition 
and it was a central concern raised in some comments. Cable operators 
control a formidable share of the market with 78 percent of MVPD 
subscribers receiving their video programming from a cable operator. 
DBS has made competitive strides to the point where its share of total 
MVPD subscribers has grown to 18 percent. But other competitive MVPDs, 
such as SMATV providers, OVS operators, MMDS, and cable overbuilders, 
to name a few of the competitive alternatives to cable, have not made 
similar inroads into cable's market dominance. In general, comments 
filed by competitive MVPDs, many of which are smaller entities, assert 
that the market is dominated by cable and not fully competitive. In 
enacting the exclusivity prohibition in 1992, Congress concluded that 
because cable MSOs dominated the video environment vertically 
integrated program suppliers had the incentive and ability to favor 
their affiliated cable operators over other multichannel programming 
distributors. Competitive MVPDs assert that the market dominance of 
cable has not significantly changed in the years since the enactment of 
the provision. They contend that there is a likelihood that access to 
particular programming affiliated with cable operators will be 
threatened and compromised if the prohibition against exclusivity 
contracts were allowed to sunset. Individual proposals as to how to 
address this problem generally support the position that the 
exclusivity prohibition should be retained. If the prohibition were not 
retained, these entities will not have access to significant 
programming that is vital to their subscribers. Comments from 
competitive MVPDs regarding the importance of the prohibition to their 
economic viability and survival and the Commission's decision and 
justification to continue to retain the exclusivity prohibition are 
discussed in the Section entitled Incentive and Ability in this Report 
and Order.

C. Description and Estimate of the Number of Small Entities To Which 
the Rules Will Apply

    9. The RFA 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 proposed rules. The RFA generally defines the term 
``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under 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'').

[[Page 49249]]

    10. Small MVPDs. The SBA has developed a small business size 
standard for cable and other program distribution services, ``which 
includes all such companies generating $11 million or less in revenue 
annually. This category includes, among other, cable operators, closed 
circuit television services, direct broadcast satellite services, 
multipoint distribution services, open video systems (``OVS''). 
Satellite master antenna television (``SMATV'') systems, and 
subscription television services. According to the Census Bureau data 
from 1992, there were 1,788 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.
    11. 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. 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.
    12. The Communications Act, as amended, also contains a size 
standard for 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 67,700,000 subscribers in the United States. Therefore, an 
operator serving fewer than 677,000 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 677,000 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.
    13. Open Video Systems. Because OVS operators provide subscription 
services OVS falls within the SBA-recognized definition of ``Cable and 
Other Pay Television Services. This definition provides that a small 
entity is one with $ 11 million or less in annual receipts. The 
Commission has certified 25 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, D.C. 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.
    14. 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 (NAICS 
Code 51211), Motion Picture and Video Tape Distribution (NAICS Code 
42199), and Theatrical Producers (Except Motion Pictures) and 
Miscellaneous Theatrical Services (NAICS Codes 56131, 71111, 71141, 
561599, 71151, 71112, 71132, 51229, 53249). 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 
NAICS Codes 56131, 51211, 42199, and 51212, and $5 million or less in 
annual receipts for NAICS Codes 56131, 71111, 71141, 561599, 71151, 
71112, 71131, 71132, 51229, and 53249. Census Bureau data indicate the 
following: (a) There were 7,265 firms in the United States classified 
as Motion Picture and Video Production (NAICS Code 51211), 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 (NAICS Codes 42199 and 51212), 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 (NAICS Codes 56131, 71111, 71141, 561599, 71151, 51229, and 
53249), and 5627 of these firms had $4.999 million or less in annual 
receipts.
    15. Each of these NAICS 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.
    16. Direct Broadcast Satellite Service (``DBS''). Because DBS 
provides subscription services, DBS falls within the SBA-recognized 
definition of ``Cable and Other Pay Television Services.'' This 
definition provides that a small entity is one with $11 million or less 
in annual receipts. There are four licensees of DBS services under part 
100 of the Commission's rules. Three of those licensees are currently 
operational. Two of the licensees that are operational have annual 
revenues that may be in excess of the threshold for a small business. 
The Commission, however, does not collect annual revenue data for DBS 
and, therefore, is unable to ascertain the number of small DBS 
licensees that could be impacted by these proposed rules. DBS service 
requires a great investment of capital for operation, and we 
acknowledge, despite the absence of specific data on this point, that 
there are entrants in this field that may not yet have generated $11 
million in annual receipts, and therefore may be categorized as a small 
business, if independently owned and operated.
    17. Home Satellite Dish Service (``HSD''). Because HSD provides 
subscription services, HSD falls within the SBA-recognized definition 
of ``Cable and Other Pay Television Services.'' This definition 
provides that a small entity is one with $11 million or less in annual 
receipts. The market for HSD service is difficult to quantify. Indeed, 
the service itself bears little resemblance to other MVPDs. HSD owners 
have access to more than 265 channels of programming placed on C-band 
satellites by programmers for receipt and distribution by MVPDs, of 
which 115 channels are scrambled and approximately 150 are unscrambled. 
HSD owners can watch unscrambled channels without paying a subscription 
fee. To receive scrambled channels, however, an HSD owner must purchase

[[Page 49250]]

an integrated receiver-decoder from an equipment dealer and pay a 
subscription fee to an HSD programming package. Thus, HSD users 
include: (1) Viewers who subscribe to a packaged programming service, 
which affords them access to most of the same programming provided to 
subscribers of other MVPDs; (2) viewers who receive only non-
subscription programming; and (3) viewers who receive satellite 
programming services illegally without subscribing. Because scrambled 
packages of programming are most specifically intended for retail 
consumers, these are the services most relevant to this discussion.
    18. According to the most recently available information, there are 
approximately four program packagers nationwide offering packages of 
scrambled programming to retail consumers. These program packagers 
provide subscriptions to approximately 1,476,700 subscribers 
nationwide. This is an average of about 370,000 subscribers per program 
package. This is smaller than the 400,000 subscribers used in the 
commission's definition of a small MSO. Furthermore, because this is an 
average, it is likely that some program packagers may be substantially 
smaller.
    19. Multipoint Distribution Service (``MDS''), Multichannel 
Multipoint Distribution Service (``MMDS'') and Local Multipoint 
Distribution Service (``LMDS''). MMDS systems, often referred to as 
``wireless cable,'' transmit video programming to subscribers using the 
microwave frequencies of the Multipoint Distribution Service (``MDS'') 
and Instructional Television Fixed Service (``ITFS''). LMDS is a fixed 
broadband point-to-multipoint microwave service that provides for two-
way video telecommunications.
    20. In connection with the 1996 MDS auction, the Commission defined 
small businesses as entities that had annual average gross revenues of 
less than $40 million in the previous three calendar years. This 
definition of a small entity in the context of MDS auctions has been 
approved by the SBA. The MDS auctions resulted in 67 successful bidders 
obtaining licensing opportunities for 493 Basic Trading Areas 
(``BTAs''). Of the 67 auction winners, 61 met the definition of a small 
business. MDS also includes licensees of stations authorized prior to 
the auction. As noted, the SBA has developed a definition of small 
entities for pay television services, which includes all such companies 
generating $11 million or less in annual receipts. This definition 
includes multipoint distribution services, and thus applies to MDS 
licensees and wireless cable operators that did not participate in the 
MDS auction. Information available to us indicates that there are 
approximately 850 of these licensees and operators that do not generate 
revenue in excess of $11 million annually. Therefore, for purposes of 
the IRFA, we find there are approximately 850 small MDS providers as 
defined by the SBA and the Commission's auction rules.
    21. The SBA definition of small entities for pay television 
services, which includes such companies generating $11 million in 
annual receipts, seems reasonably applicable to ITFS. There are 
presently 2,032 ITFS licensees. All but 100 of these licenses are held 
by educational institutions. Educational institutions are included in 
the definition of a small business. However, we do not collect annual 
revenue data for ITFS licensees, and are not able to ascertain how many 
of the 100 non-educational licensees would be categorized as small 
under the SBA definition. Thus, we tentatively conclude that at least 
1,932 licensees are small businesses.
    22. Additionally, the auction of the 1,030 LMDS licenses began on 
February 18, 1998 and closed on March 25, 1998. The Commission defined 
``small entity'' for LMDS licenses as an entity that has average gross 
revenues of less than $40 million in the three previous calendar years. 
An additional classification for ``very small business'' was added and 
is defined as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding calendar 
years. These regulations defining ``small entity'' in the context of 
LMDS auctions have been approved by the SBA. There were 93 winning 
bidders that qualified as small entities in the LMDS auctions. A total 
of 93 small and very small business bidders won approximately 277 A 
Block licenses and 387 B Block licenses. On March 27, 1999, the 
Commission re-auctioned 161 licenses; there were 40 winning bidders. 
Based on this information, we conclude that the number of small LMDS 
licenses will include the 93 winning bidders in the first auction and 
the 40 winning bidders in the re-auction, for a total of 133 small 
entity LMDS providers as defined by the SBA and the Commission's 
auction rules.
    23. In sum, there are approximately a total of 2,000 MDS/MMDS/LMDS 
stations currently licensed. Of the approximate total of 2,000 
stations, we estimate that there are 1,595 MDS/MMDS/LMDS providers that 
are small businesses as deemed by the SBA and the Commission's auction 
rules.
    24. Satellite Master Antenna Television (``SMATV'') Systems. The 
SBA definition of small entities for ``Cable and Other Pay Television 
Services'' specifically includes SMATV services and, thus, small 
entities are defined as all such companies generating $11 million or 
less in annual receipts. Industry sources estimate that approximately 
5,200 SMATV operators were providing service as of December 1995. Other 
estimates indicate that SMATV operators serve approximately 1.5 million 
residential subscribers as of June 2000. The best available estimates 
indicate that the largest SMATV operators serve between 15,000 and 
55,000 subscribers each. Most SMATV operators serve approximately 
3,000-4,000 customers. Because these operators are not rate regulated, 
they are not required to file financial data with the Commission. 
Furthermore, we are not aware of any privately published financial 
information regarding these operators. Based on the estimated number of 
operators and the estimated number of units served by the largest ten 
SMATVs, we believe that a substantial number of SMATV operators qualify 
as small entities.

D. Description of Projected Reporting, Recordkeeping and Other 
Compliance Requirements

    25. In this Report and Order the Commission concludes that section 
628(c)(2)(D) of the Communications Act continues to be necessary to 
preserve and protect competition and diversity in the video programming 
marketplace. The Report and Order does not present any specific 
reporting, recordkeeping or other compliance requirements adopted 
herein, other than complying with the prohibition against engaging in 
exclusive contracting between cable operators and vertically integrated 
program suppliers. Thus, the classes of small entities that potentially 
will be affected and required to comply with the continuing prohibition 
includes entities conducting business in these areas.

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

    26. The RFA requires an agency to describe any significant 
alternatives that it has considered in proposing regulatory approaches, 
which may include the following four alternatives: (1) The 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2)

[[Page 49251]]

the clarification, consolidation, or simplification of compliance or 
reporting requirements under the rule for small entities; (3) the use 
of performance, rather than design, standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for small entities.
    27. In the NPRM the Commission sought comment on whether section 
628(c)(2)(D) should cease to be effective, pursuant to the sunset 
provision in section 628(c)(5), or whether section 628(c)(2)(D) should 
be retained. Thus, the NPRM invited comments on a number of issues that 
may significantly impact small entities. In this Report and Order, the 
Commission discusses the effect that section 628(c)(2)(D) has had on 
the video programming marketplace and provides justification for 
retention of the provision. In enacting the exclusivity prohibition 
contained in section 628(c)(2)(D), the underlying rationale was that 
vertically integrated programming suppliers had the incentive and 
ability to favor in an unfair manner, affiliated cable operators in 
programming arrangements. Thus, the prohibition served to guard against 
such a practice and helped to encourage competition and diversity. 
While the provision has succeeded to a certain extent in achieving its 
objectives, the video landscape has not changed markedly since the 
inception of the exclusivity protection provision. Cable MSOs continue 
to hold market power, and while DBS has increased its subscribership 
levels in recent years, the levels do not compare to cable. Other 
smaller video competitors, such as MMDS, OVS, SMATV and HDS, have not 
fared as well and represent a small percentage of MVPD subscribership. 
These competitive MVPDs argue that they continue to face hurdles in 
seeking access to critical programming because cable MSOs continue to 
control essential video programming services and are concerned about 
the potential loss of such programming absent the section 628(c)(2)(D) 
prohibition. In its Initial Regulatory Flexibility Analysis Comments, 
while it supports extending the exclusivity prohibition, ACA suggests 
that an additional alternative that would achieve the objective of the 
statute and minimize the impact on small entities is exemption from 
coverage of the rule, or any part thereof, for small entities.
    28. In this Report and Order we discuss the present state of 
competition among MVPDs and the availability of vertically integrated 
programming in the section entitled Incentive and Ability. We conclude 
that while there is a wide variety of programming services available 
from non-vertically integrated providers in recent years, nevertheless 
the market dominance of cable remains a concern because of the threat 
that cable MSOs will engage in exclusive arrangements and deprive 
competitive MVPDs and their subscribers of ``must have,'' vertically 
integrated programming.
    29. We considered the possibility of sunsetting section 
628(c)(2)(D). However, we recognized that the marketplace had not 
progressed to the point where there were assurances that there is 
significant enough competition in the cable industry to forestall the 
domination by cable of ``must have'' programming. Therefore, we retain 
section 628(c)(2)(D) because it prohibits, in areas served by a cable 
operator, exclusive contracts for satellite cable programming or 
satellite broadcast programming between vertically integrated 
programming vendors and cable operators. The decision reached in this 
Report and Order to retain the prohibition against engaging in 
exclusive contracts allows for greater competition and diversity, which 
provides for increased participation by various competitive MVPDs and 
programming suppliers, a number of which are smaller entities. 
Therefore we conclude that our decision to retain section 628(c)(2)(D) 
benefits smaller entities as well as larger entities.

Report to Congress

    30. The Commission will send a copy of the Report and Order, 
including this RFA, 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.

Ordering Clauses

    31. Accordingly, it is ordered that, pursuant to authority found in 
sections 4(i), 303(r) and 628 of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 303(r) and 548, the Commission's rules are 
hereby amended as set forth in the rule changes.
    32. It is further ordered that the rule adopted herein will become 
effective August 14, 2002.
    33. It is further ordered that the Commission's Consumer and 
Government Affairs Bureau shall send a copy of this Report and Order, 
including the Final Regulatory Flexibility Analysis, to the Chief 
Counsel of the Small Business Administration.

List of Subjects in 47 CFR Part 76

    Administrative practice and procedure and Cable television.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Rule Changes

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 76 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, 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 76.1002 is amended by revising paragraph (c)(6) to read 
as follows:


Sec. 76.1002  Specific unfair practices prohibited.

* * * * *
    (c) * * *
    (6) Sunset provision. The prohibition of exclusive contracts set 
forth in paragraph (c)(2) of this section shall cease to be effective 
on October 5, 2007, unless the Commission finds, during a proceeding to 
be conducted during the year preceding such date, that said prohibition 
continues to be necessary to preserve and protect competition and 
diversity in the distribution of video programming.
* * * * *
[FR Doc. 02-19182 Filed 7-29-02; 8:45 am]
BILLING CODE 6712-02-P