[Federal Register Volume 72, Number 40 (Thursday, March 1, 2007)]
[Proposed Rules]
[Pages 9289-9297]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-3520]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MB Docket No. 07-29; FCC 07-7]
Implementation of the Cable Television Consumer Protection and
Competition Act of 1992 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: Proposed rule.
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SUMMARY: In this document, the Commission initiates a review to
determine whether the prohibition on exclusive programming contracts
continues to be necessary to preserve and protect competition and
diversity in the distribution of video programming. Previously, the
Commission retained for five years, until October 5, 2007, the
prohibition on exclusive contracts. The Commission provided that,
during the year before the expiration of the current 5-year extension
on October 5, 2007, a review would be undertaken to determine whether
or not the exclusivity prohibition should sunset. The Commission also
seeks comment on whether and how our procedures for resolving program
access disputes under Section 628 should be modified.
DATES: Comments for this proceeding are due on or before April 2, 2007;
reply comments are due on or before April 16, 2007.
ADDRESSES: You may submit comments, identified by MB Docket No. 07-29,
by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Federal Communications Commission's Web Site: http://www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
People With Disabilities: Contact the FCC to request
reasonable accommodations (accessible format documents, sign language
interpreters, CART, etc.) by e-mail: [email protected] or phone: 202-418-
0530 or TTY: 202-418-0432.
For detailed instructions for submitting comments and additional
information on the rulemaking process, see the SUPPLEMENTARY
INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: For additional information on this
proceeding, contact Karen Kosar, [email protected] of the Media
Bureau, Policy Division, (202) 418-2120.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's NPRM
of Proposed Rulemaking, FCC 07-7, adopted on February 7, 2007, and
released on February 20, 2007. The full text of this document is
available for public inspection and copying during regular business
hours in the FCC Reference Center, Federal Communications Commission,
445 12th Street, SW., CY-A257, Washington, DC 20554. These documents
will also be available via ECFS (http://www.fcc.gov/cgb/ecfs/).
(Documents will be available electronically in ASCII, Word 97, and/
[[Page 9290]]
or Adobe Acrobat.) The complete text may be purchased from the
Commission's copy contractor, 445 12th Street, SW., Room CY-B402,
Washington, DC 20554. To request this document in accessible formats
(computer diskettes, large print, audio recording, and Braille), send
an e-mail to [email protected] or call the Commission's Consumer and
Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432
(TTY).
Initial Paperwork Reduction Act of 1995 Analysis
This document does not contain proposed information collection
requirements subject to the Paperwork Reduction Act of 1995, Public Law
104-13. In addition, therefore, it does not contain any proposed
information collection burden ``for small business concerns with fewer
than 25 employees,'' pursuant to the Small Business Paperwork Relief
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).
Summary of the NPRM of Proposed Rulemaking
I. Introduction
1. We issue this NPRM of Proposed Rulemaking (``NPRM'') pursuant to
Section 628(c)(5) of the Communications Act of 1934, as amended
(``Communications Act'') and Section 76.1002(c)(6) of the Commission's
rules. In areas served by a cable operator, Section 628(c)(2)(D)
generally prohibits exclusive contracts for satellite cable programming
or satellite broadcast programming between vertically integrated
programming vendors and cable operators. Section 628(c)(5) directed
that this prohibition on exclusive programming contracts would cease to
be effective on October 5, 2002, unless the Commission found that such
prohibition ``continues to be necessary to preserve and protect
competition and diversity in the distribution of video programming.''
In a proceeding commenced prior to the sunset date specified by
Congress, the Commission examined whether the prohibition should sunset
or be extended; see Implementation of the Cable Television Consumer
Protection and Competition Act of 1992--Development of Competition and
Diversity in Video Programming Distribution: Section 628(c)(5) of the
Communications Act: Sunset of Exclusive Contract Prohibition, 66 FR
54972-02 (2001) (``NPRM''). The Commission concluded that the
prohibition remained necessary to preserve and protect competition and
diversity in the distribution of video programming and extended the
term of the prohibition on exclusive contracts between cable operators
and vertically integrated programmers for five years (i.e., through
October 5, 2007); see Implementation of the Cable Television Consumer
Protection and Competition Act of 1992--Development of Competition and
Diversity in Video Programming Distribution: Section 628(c)(5) of the
Communications Act: Sunset of Exclusive Contract Prohibition, 67 FR
49247-01 (2002) (``Sunset Report and Order''). The Commission provided
that, during the year before the expiration of the 5-year term, a
review would again be undertaken to determine whether the exclusivity
prohibition continues to be necessary to preserve and protect
competition and diversity in the distribution of video programming.
This NPRM initiates that review. Further, this NPRM also seeks comment
on whether and how our procedures for resolving program access disputes
under Section 628 should be modified.
II. Background
2. The focus of Congress in enacting the program access provisions,
adopted as part of the Cable Television Consumer Protection and
Competition Act of 1992 (``1992 Cable Act''), was to encourage entry
into the multichannel video programming distribution (``MVPD'') market
by existing or potential competitors to traditional cable systems by
making available to those entities the programming necessary to enable
them to become viable competitors. The 1992 Cable Act and its
legislative history reflect congressional findings that increased
horizontal concentration of cable operators, combined with extensive
vertical integration, created an imbalance of power, both between cable
operators and program vendors and between incumbent cable operators and
their multichannel competitors. Vertical integration means the combined
ownership of cable systems and suppliers of cable programming. Congress
concluded at that time that vertically integrated program suppliers had
the incentive and ability to favor their affiliated cable operators
over other multichannel program distributors, such as other cable
systems, home satellite dish (``HSD'') distributors, direct broadcast
satellite (``DBS'') providers, satellite master antenna television
(``SMATV'') systems, and wireless cable operators; see Implementation
of Sections 12 and 19 of the Cable Television Consumer Protection and
Competition Act of 1992: Development of Competition and Diversity in
Video Programming Distribution and Carriage, 58 FR 27658-02 (1993)
(``First Report and Order''), recon., 59 FR 66255-01 (1994), further
recon., 60 FR 3099-01 (1994); see 47 U.S.C. 522(13) (``multichannel
video programming distributor'' means ``a person such as, but not
limited to, a cable operator, a multichannel multipoint distribution
service, a direct broadcast satellite service, or a television receive-
only satellite program distributor, who makes available for purchase,
by subscribers or customers, multiple channels of video programming'').
3. When the Commission promulgated regulations implementing the
program access provisions of Section 628, it recognized that Congress
placed a higher value on new competitive entry into the MVPD
marketplace than on the continuation of exclusive distribution
practices when such practices impede this entry. Congress absolutely
prohibited exclusive contracts for satellite cable programming or
satellite broadcast programming between vertically integrated
programming vendors and cable operators in areas unserved by cable, and
generally prohibited exclusive contracts within areas served by cable.
The term ``satellite cable programming'' means video programming which
is transmitted via satellite and which is primarily intended for direct
receipt by cable operators for their retransmission to cable
subscribers, except that such term does not include satellite broadcast
programming. The term ``satellite broadcast programming'' means
broadcast video programming when such programming is retransmitted by
satellite and the entity retransmitting such programming is not the
broadcaster or an entity performing such retransmission on behalf of
and with the specific consent of the broadcaster. Specifically, the
prohibition with regard to served areas, Section 628(c)(2)(D), states
that:
with respect to distribution to persons in areas served by a cable
operator, [the Commission shall] prohibit exclusive contracts for
satellite cable programming or satellite broadcast programming
between a cable operator and a satellite cable programming vendor in
which a cable operator has an attributable interest or a satellite
broadcast programming vendor in which a cable operator has an
attributable interest, unless the Commission determines * * * that
such contract is in the public interest.
Thus, in areas served by cable, the prohibition is not absolute.
Congress
[[Page 9291]]
recognized that, in areas served by cable, some exclusive contracts may
serve the public interest by providing offsetting benefits to the video
programming market or assisting in the development of competition among
MVPDs. Any cable operator, satellite cable programming vendor in which
a cable operator has an attributable interest, or satellite broadcast
programming vendor in which a cable operator has an attributable
interest seeking to enforce or enter into an exclusive contract in an
area served by a cable operator must submit a ``petition for
exclusivity'' to the Commission for approval.
4. The Commission's factual findings, analysis, and rationale for
retaining the prohibition on exclusivity are fully set forth in the
Sunset Report and Order and need not be reiterated here, other than to
note that the Commission concluded that:
[t]he competitive landscape of the market for the distribution of
multichannel video programming has changed for the better since
1992. The number of MVPDs that compete with cable and the number of
subscribers served by those MVPDs have increased significantly. We
find, however, that the concern on which Congress based the program
access provisions--that in the absence of regulation, vertically
integrated programmers have the ability and incentive to favor
affiliated cable operators over nonaffiliated cable operators and
programming distributors using other technologies such that
competition and diversity in the distribution of video programming
would not be preserved and protected--persists in the current
marketplace.
Specific aspects of the Sunset Report and Order will be discussed below
where relevant to provide context for the matters upon which we seek
inquiry in this NPRM.
III. Notice of Proposed Rulemaking
A. Sunset of Exclusive Contract Prohibition
5. Congress based the program access provisions on its concern that
in the absence of regulation, vertically integrated programmers have
the incentive and ability to favor affiliated cable operators over
nonaffiliated cable operators and programming distributors using other
technologies such that competition and diversity in the distribution of
video programming would not be preserved and protected. We ask whether
this concern has diminished or increased in today's marketplace.
6. In the Sunset Report and Order, the Commission examined the
status of the MVPD market over the decade between the adoption of the
program access provisions and the sunset review. The Commission
observed that cable's overall market share declined from 95 percent in
1992 to 78 percent at the time of the Sunset Report and Order. The
Commission also considered DBS, which at the time served 18 percent of
MVPD households. Finally, the Commission noted that other competitors
such as multichannel multipoint distribution service (``MMDS''), SMATV,
and HSD, had not fared as well, comprising less than four percent of
all MVPD subscribers. As of June 2005, basic cable subscribers
comprised approximately 69 percent of all MVPD households and DIRECTV
and EchoStar Communications Corporation (``EchoStar'') (marketed as the
DISH Network) served approximately 27.7 percent of all MVPD households
nationwide. As of June 2005, MMDS, SMATV and HSD operators served less
than three percent of all MVPD subscribers. How has the exclusivity
prohibition impacted the general state of competition among MVPD
operators? We seek comment on the current status of all these current
MVPD competitors to cable and their continued viability should the
prohibition on exclusivity be permitted to sunset. In addition, how
would the absence of an exclusivity prohibition affect the likelihood
that potential MVPD competitors will enter the market?
7. We request information as to whether developments in the
marketplace since the passage of the 1992 Cable Act and our 2002 sunset
review have diminished or increased the need for the exclusivity
prohibition. In this regard, we seek comment on three events which have
occurred in the multichannel programming market since our 2002 sunset
review. First, we seek comment on the increase in the provision of MVPD
service by local exchange carriers (``LECs''). For example, AT&T is
moving forward with its IP-enabled broadband network called ``Project
Lightspeed,'' using both Fiber to the Node (``FTTN'') and Fiber to the
Home (``FTTH'') to deliver video and other services to residential
customers. AT&T states that it currently has approximately 3,000
customers, with more projected once it launches beyond San Antonio,
Texas. In addition, Verizon is deploying a FTTH network that delivers
video, telephony, and high-speed Internet access service. Verizon
estimates that it had 100,000 video subscribers at the end of the 3rd
quarter, 2006, and that they will have 175,000 video subscribers and
pass 1.8 million households by the end of 2006. Second, we seek comment
on the impact of the acquisition of control of the assets of Hughes
Electronics Corporation by The News Corporation Limited (``News
Corp.''). Through this transaction, News Corp. placed under common
control DIRECTV, the nation's second largest MVPD, and the broadcast
and multichannel programming assets of the Fox Entertainment Group. We
note that in this decision, the Commission placed certain conditions on
News Corp. and DIRECTV in order to ensure that the access and non-
discrimination requirements of the program access rules would continue
to apply to News Corp.'s national and regional cable programming, and
to obtain additional protections encompassed by the parties' related
commitments. Further, the Commission stated that these conditions would
continue to apply as long as it deemed News Corp. to have an
attributable interest in DIRECTV and the Commission's program access
rules relating to satellite cable programming vendors affiliated with
cable operators are in effect. If the Commission's program access rules
are modified, then the Commission determined that these conditions
would be modified to conform to the Commission's revised rules. We note
that News Corp. recently proposed an $11 billion asset swap with
Liberty Media to trade News Corp.'s 38 percent stake in DIRECTV and
some other assets for Liberty's shareholding in News Corp. This
proposal, if approved, would give Liberty control of DIRECTV. Finally,
we seek comment on the recent acquisition by Comcast Corporation and
Time Warner, Inc. of the assets of Adelphia Communications Corporation.
We seek comment on the extent, if any, to which these specific events
should inform our analysis of whether to retain the prohibition on
exclusivity. In addition, we seek comment on any other relevant
developments in the MVPD market since our 2002 sunset review that we
should consider in deciding whether to retain the prohibition on
exclusivity.
8. We ask whether competitive MVPDs' access to what some refer to
as ``marquee'' or ``must have'' vertically integrated programming, such
as CNN, HBO, TNT, Discovery and others, remains essential to successful
implementation of competitive services. Does satellite-delivered
vertically integrated programming remain necessary to the viability of
competitive MVPDs because there is no good substitute programming
available? We also ask whether the retention of the exclusivity
prohibition affects access to national and regional sports
[[Page 9292]]
programming networks. We seek comment on the effects that the
exclusivity prohibition has had on the development and production of
programming for the current MVPD marketplace. We concluded in the
Sunset Report and Order that the retention of the exclusivity
prohibition would not reduce incentives to create new or diverse
programming. In support, we noted that the number of national
programming services increased from the exclusivity prohibition's
inception in 1992 from 87 to 294 in 2001. We also noted that the number
of vertically integrated programming services nearly doubled from 56 in
1994 to 104 in 2001 and concluded that the ban did not serve as a
disincentive for cable MSOs to develop new cable networks. Since the
extension of the exclusivity ban in 2002, has there been a significant
overall increase or decrease in the development, promotion, and launch
of new and diverse programming services? We note that, our most recent
report on the status of video competition found that, as of June 2005,
there were 531 satellite-delivered national programming networks. How
has the exclusivity prohibition affected investment incentives in the
current marketplace for both vertically integrated and independent
programming? We also ask if there has been any change in the resources
of nonaffiliated cable operators and competitive MVPDs and their
ability to develop their own programming, thereby limiting their
dependence on ``must have'' vertically integrated programming. Finally,
we ask what effect the retention of the exclusivity ban has had on the
launch of local origination programming that may have a more limited
geographic appeal.
9. We also ask how the current state of cable system clusters and
distribution of regional video programming services affiliated with
cable operators should affect our decision regarding the exclusivity
prohibition. As the Commission concluded in the Sunset Report and
Order, ``[w]e believe that clustering, accompanied by an increase in
vertically integrated regional programming networks affiliated with
cable MSOs that control system clusters, will increase the incentive of
cable operators to practice anticompetitive foreclosure of access to
vertically integrated programming.'' We seek comment on the continuing
validity of this conclusion and whether events since the Sunset Report
and Order mitigate or exacerbate the impact of clustering. In
particular, we seek comment on what impact our recent approval of the
acquisition of the assets of Adelphia Communications by Comcast and
Time Warner has on this topic. We also seek comment on whether the
current state of horizontal consolidation in the cable industry
increases incentives for anticompetitive foreclosure of access to
vertically integrated programming.
10. We seek comment on whether the exclusivity prohibition
continues to be necessary to preserve and protect diversity in the
distribution of programming. Our focus in this area is not on
programming diversity, but rather on ``preserving and protecting
diversity in the distribution of video programming--i.e., ensuring that
as many MVPDs as possible remain viable distributors of video
programming.'' As the Commission observed in the Sunset Report and
Order, ``[o]ther than the two largest non-cable MVPDs, DirecTV and
EchoStar, nonaffiliated cable operators and competitive MVPDs * * *
assert that they lack the resources and ability to develop their own
programming and are thus dependent on access to the programming of
others, including `must have' vertically integrated programming.'' Does
this continue to be true for nonaffiliated cable operators and
competitive MVPDs in today's marketplace? We seek comment on whether
retention of the exclusivity prohibition in the current climate helps
to ensure that as many MVPDs as possible remain viable distributors of
video programming. One of Congress' express findings in enacting the
1992 Cable Act was that ``[t]here is a substantial governmental and
First Amendment interest in promoting a diversity of views provided
through multiple technology media.'' Would the sunset of the
exclusivity prohibition in the current state of the market limit or
foreclose access to vertically integrated programming so as to
jeopardize a diverse market of existing and potential competitors?
11. Congress initially set a 10-year period for Commission review
of Section 628(c)(2)(D) in order to determine whether the exclusive
contract prohibition continued to be necessary to preserve and protect
competition and diversity in the distribution of video programming.
After completing its review, the Commission determined in the Sunset
Report and Order that a five-year term provided a sufficient period in
which to initiate a subsequent sunset review. If we determine in this
proceeding that Section 628(c)(2)(D) should be retained and extended
for another period of years, we seek comment on what time frame would
be appropriate, taking into consideration the current and potential
future competitive environment. We also seek comment on whether the
exclusivity prohibition, if retained, should be automatically abolished
depending on the triggering of a specific event or events in the
marketplace.
12. We also seek comment on any new trends in the industry that
would indicate that the MVPD distribution and program production
sectors are moving toward the type of market structure that would
support the sunset of the exclusivity prohibition. Finally, we seek
comment on any other issues appropriate to our inquiry in accordance
with Section 628(c)(5).
B. Program Access Complaint Procedures
13. This NPRM also seeks comment on whether and how our procedures
for resolving program access disputes under Section 628 should be
modified. Our rules provide that any MVPD aggrieved by conduct that it
believes constitutes a violation of Section 628 and the Commission's
program access rules may file a complaint at the Commission in
accordance with 47 CFR 76.7 and 76.1003. The Commission's rules provide
that before an MVPD may file such a complaint, it must first notify the
cable operator or satellite programming vendor that it intends to file
the complaint. The complaining MVPD must allow the cable operator or
vendor 10 days to respond to the prefiling NPRM prior to filing its
complaint with the Commission. The necessary contents of the complaint
are specified in the rules, including a requirement that any damages
sought must be clearly stated in the complaint. Once a complaint is
filed, the cable operator or satellite programming vendor shall answer
within 20 days of service of the complaint. Replies to the answer are
due 10 days thereafter. Any program access complaint must be filed
within one year of the date on which the MVPD enters into a contract
with the programming vendor, the programming vendor offers the
programming to the MVPD, or the MVPD notifies the cable operator or
programming vendor that it intends to file a complaint with the
Commission. The rules also address the determination of the proper
damages to be assessed, including a recognition that the parties be
given an opportunity to reach agreement on damages. In addition, the
Commission has stated its goals for resolution of program access
complaints which are: five months from the submission of a complaint
for denial of programming cases, and nine months
[[Page 9293]]
for all other program access complaints, such as price discrimination
cases.
14. We seek comment on whether and how our procedures for resolving
program access disputes should be modified. The scope of our inquiry is
limited to our rules governing the program access complaint process. In
particular, we seek comment on the costs associated with the complaint
process and whether the pre-filing NPRM, pleading requirements,
evidentiary standards, timing, and potential remedies are appropriate
and effective. In addition, we seek comment on whether additional time
limits would improve the existing process. For instance, we seek
comment on whether specific time limits on the Commission, the parties,
or others would promote a speedy and just resolution of these disputes.
15. Are the Commission's program access complaint rules and
procedures adequate? We seek comment on these issues and on additional
procedures that would address infirmities. For example, are complaints
resolved in a timely manner? Are our rules governing discovery and
protection of confidential information adequate? Should the Commission
adopt alternative procedures or remedies such as mandatory standstill
agreements and/or arbitration, as it has done in two recent mergers?
Commenters that favor these alternative procedures should address the
Commission's authority to adopt them.
IV. Administrative Matters
16. Ex Parte Rules. This is a permit-but-disclose NPRM and comment
rulemaking proceeding. Ex parte presentations are permitted, except
during the Sunshine Agenda period, provided that they are disclosed as
provided in the Commission's rules. See generally 47 CFR 1.1202,
1.1203, and 1.1206(a).
17. Comment Information. Pursuant to sections 1.415 and 1.419 of
the Commission's rules, 47 CFR 1.415, 1.419, interested parties may
file comments and reply comments on or before the dates indicated on
the first page of this document. Comments may be filed using: (1) The
Commission's Electronic Comment Filing System (ECFS), (2) the Federal
Government's eRulemaking Portal, or (3) by filing paper copies. See
Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121
(1998).
Electronic Filers: Comments may be filed electronically
using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/
or the Federal eRulemaking Portal: http://www.regulations.gov. Filers
should follow the instructions provided on the website for submitting
comments.
For ECFS filers, if multiple docket or rulemaking numbers
appear in the caption of this proceeding, filers must transmit one
electronic copy of the comments for each docket or rulemaking number
referenced in the caption. In completing the transmittal screen, filers
should include their full name, U.S. Postal Service mailing address,
and the applicable docket or rulemaking number. Parties may also submit
an electronic comment by Internet e-mail. To get filing instructions,
filers should send an e-mail to [email protected], and include the following
words in the body of the message, ``get form.'' A sample form and
directions will be sent in response.
Paper Filers: 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,
filers must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial
overnight courier, or by first-class or overnight U.S. Postal Service
mail (although we continue to experience delays in receiving U.S.
Postal Service mail). All filings must be addressed to the Commission's
Secretary, Office of the Secretary, Federal Communications Commission.
The Commission's contractor will receive hand-delivered or
messenger-delivered paper filings for the Commission's Secretary at 236
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing
hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be
held together with rubber bands or fasteners. Any envelopes must be
disposed of before entering the building.
Commercial overnight mail (other than U.S. Postal Service
Express Mail and Priority Mail) must be sent to 9300 East Hampton
Drive, Capitol Heights, MD 20743.
U.S. Postal Service first-class, Express, and Priority
mail should be addressed to 445 12th Street, SW., Washington DC 20554.
People with Disabilities: To request materials in accessible
formats for people with disabilities (braille, large print, electronic
files, audio format), send an e-mail to [email protected] or call the
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
18. Initial Paperwork Reduction Act Analysis. This document does
not contain proposed information collection(s) subject to the Paperwork
Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore,
it does not contain any new or modified ``information collection burden
for small business concerns with fewer than 25 employees,'' pursuant to
the Small Business Paperwork Relief Act of 2002, Public Law 107-198,
see 44 U.S.C. 3506(c)(4).
19. Initial Regulatory Flexibility Analysis. As required by the
Regulatory Flexibility Act, the Commission has prepared an Initial
Regulatory Flexibility Analysis (IRFA) of the possible significant
economic impact on a substantial number of small entities of the
proposals addressed in this NPRM of Proposed Rulemaking. The IRFA is
set forth in the Appendix. Written public comments are requested on the
IRFA. These comments must be filed in accordance with the same filing
deadlines for comments on the Further NPRM, and they should have a
separate and distinct heading designating them as responses to the
IRFA.
20. Additional Information. For additional information on this
proceeding, please contact Karen Kosar, Policy Division, Media Bureau
at (202) 418-1053.
V. Initial Regulatory Flexibility Analysis
21. As required by the Regulatory Flexibility Act of 1980, as
amended (the ``RFA'') the Commission has prepared this Initial
Regulatory Flexibility Analysis (``IRFA'') of the possible significant
economic impact of the policies and rules proposed in this NPRM of
Proposed Rulemaking (``NPRM'') on a substantial number of small
entities. Written public comments are requested on this IRFA. Comments
must be identified as responses to the IRFA and must be filed by the
deadlines for comments on the NPRM indicated on the first page of this
document. The Commission will send a copy of the NPRM, including this
IRFA, to the Chief Counsel for Advocacy of the Small Business
Administration (``SBA''). In addition, the NPRM and IRFA (or summaries
thereof) will be published in the Federal Register.
A. Need for, and Objectives of, the Proposed Regulatory Approaches
22. The focus of the enactment of the program access provisions
contained in Section 628 of the Communications Act of 1934, as amended,
adopted as part of the Cable Television Consumer Protection and
Competition Act of 1992, was to encourage entry into the multichannel
video programming distribution market (``MVPD'') by
[[Page 9294]]
existing or potential competitors to traditional cable systems by
making available to those entities the programming necessary to empower
them to become viable competitors. 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.
23. Section 628(c)(5) directed that the prohibition contained in
Section 628(c)(2)(D) should cease to be effective on October 5, 2002,
unless the Commission found that such prohibition ``continues to be
necessary to preserve and protect competition and diversity in the
distribution of video programming.'' The Commission initiated its
proceeding in the matter by issuing a NPRM of Proposed Rulemaking
seeking comment on the possible sunset of Section 628(c)(2)(D) in
October 2001. The Commission's Report and Order, issued in June 2002,
concluded that the term of the prohibition on exclusive contracts
between cable operators and vertically integrated programmers should be
extended for five (5) years from October 5, 2002. The prohibition on
exclusivity is therefore set to expire on October 5, 2007, unless
circumstances in the video programming marketplace indicate that the
prohibition continues to be necessary within the meaning of the
statute. The Commission has stated during the year before the
expiration of the 5-year term, a review again will be undertaken to
determine whether the exclusivity prohibition continues to be necessary
to preserve and protect competition and diversity in the distribution
of video programming. This NPRM initiate this review.
B. Legal Basis
24. The authority for the action proposed in the rulemaking is
contained in Section 4(i), 303 and 628 of the Communications Act of
1934, as amended, 47 U.S.C. 154(i), 303 and 548.
C. Description and Estimate of the Number of Small Entities To Which
the Proposed Rules Will Apply
25. The RFA directs agencies to provide a description of, and where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted. 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'').
26. Cable and Other Program Distribution. The Census Bureau defines
this category as follows: ``This industry comprises establishments
primarily engaged as third-party distribution systems for broadcast
programming. The establishments of this industry deliver visual, aural,
or textual programming received from cable networks, local television
stations, or radio networks to consumers via cable or direct-to-home
satellite systems on a subscription or fee basis. These establishments
do not generally originate programming material.'' The SBA has
developed a small business size standard for Cable and Other Program
Distribution, which is: all such firms having $13.5 million or less in
annual receipts. According to Census Bureau data for 2002, there were a
total of 1,191 firms in this category that operated for the entire
year. Of this total, 1,087 firms had annual receipts of under $10
million, and 43 firms had receipts of $10 million or more but less than
$25 million. An additional 61 firms had annual receipts of $25 million
or more. Thus, under this size standard, the majority of firms can be
considered small.
27. Cable Companies and Systems. The Commission has also developed
its own small business size standards, for the purpose of cable rate
regulation. Under the Commission's rules, a ``small cable company'' is
one serving 400,000 or fewer subscribers, nationwide. The Commission
determined that this size standard equates approximately to a size
standard of $100 million or less in annual revenues. Industry data
indicate that, of 1,076 cable operators nationwide, all but eleven are
small under this size standard. In addition, under the Commission's
rules, a ``small system'' is a cable system serving 15,000 or fewer
subscribers. Industry data indicate that, of 7,208 systems nationwide,
6,139 systems have under 10,000 subscribers, and an additional 379
systems have 10,000-19,999 subscribers. Thus, under this second size
standard, most cable systems are small.
28. Cable System Operators. The Communications Act of 1934, as
amended, also contains a size standard for small cable system
operators, which is ``a cable operator that, directly or through an
affiliate, serves in the aggregate fewer than 1 percent 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 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
its affiliates, do not exceed $250 million in the aggregate. Industry
data indicate that, of 1,076 cable operators nationwide, all but ten
are small under this size standard. We note that the Commission neither
requests nor collects information on whether cable system operators are
affiliated with entities whose gross annual revenues exceed $250
million, and therefore we are unable to estimate more accurately the
number of cable system operators that would qualify as small under this
size standard. The Commission does receive such information on a case-
by-case basis if a cable operator appeals a local franchise authority's
finding that the operator does not qualify as a small cable operator
pursuant to section 76.901(f) of the Commission's rules.
29. Direct Broadcast Satellite (``DBS'') Service. DBS service is a
nationally distributed subscription service that delivers video and
audio programming via satellite to a small parabolic ``dish'' antenna
at the subscriber's location. Because DBS provides subscription
services, DBS falls within the SBA-recognized definition of Cable and
Other Program Distribution. This definition provides that a small
entity is one with $13.5 million or less in annual receipts. Currently,
only four operators hold licenses to provide DBS service, which
requires a great investment of capital for operation. All four
currently offer subscription services. Two of these four DBS operators,
DIRECTV and EchoStar Communications Corporation (``EchoStar''), report
annual revenues that are in excess of the threshold for a small
business. A third operator, Rainbow DBS, is a subsidiary of
Cablevision's Rainbow Network, which also reports annual revenues in
excess of $13.5 million, and thus does not qualify as a small business.
The fourth DBS operator, Dominion Video Satellite, Inc. (``Dominion''),
offers religious (Christian) programming and does not report its annual
receipts. The Commission does not know of any source which provides
this information and, thus, we have no way of confirming whether
Dominion qualifies
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as a small business. Because DBS service requires significant capital,
we believe it is unlikely that a small entity as defined by the SBA
would have the financial wherewithal to become a DBS licensee.
Nevertheless, given the absence of specific data on this point, we
acknowledge the possibility that there are entrants in this field that
may not yet have generated $13.5 million in annual receipts, and
therefore may be categorized as a small business, if independently
owned and operated.
30. Private Cable Operators (PCOs) also known as Satellite Master
Antenna Television (SMATV) Systems. PCOs, also known as SMATV systems
or private communication operators, are video distribution facilities
that use closed transmission paths without using any public right-of-
way. PCOs acquire video programming and distribute it via terrestrial
wiring in urban and suburban multiple dwelling units such as apartments
and condominiums, and commercial multiple tenant units such as hotels
and office buildings. The SBA definition of small entities for Cable
and Other Program Distribution Services includes PCOs and, thus, small
entities are defined as all such companies generating $13.5 million or
less in annual receipts. Currently, there are approximately 135 members
in the Independent Multi-Family Communications Council (IMCC), the
trade association that represents PCOs. Individual PCOs often serve
approximately 3,000-4,000 subscribers, but the larger operations serve
as many as 15,000-55,000 subscribers. In total, PCOs currently serve
approximately 1.1 million subscribers. 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 PCOs, we believe that a substantial number of PCO may
qualify as small entities.
31. Home Satellite Dish (``HSD'') Service. Because HSD provides
subscription services, HSD falls within the SBA-recognized definition
of Cable and Other Program Distribution, which includes all such
companies generating $13.5 million or less in revenue annually. HSD or
the large dish segment of the satellite industry is the original
satellite-to-home service offered to consumers, and involves the home
reception of signals transmitted by satellites operating generally in
the C-band frequency. Unlike DBS, which uses small dishes, HSD antennas
are between four and eight feet in diameter and can receive a wide
range of unscrambled (free) programming and scrambled programming
purchased from program packagers that are licensed to facilitate
subscribers' receipt of video programming. There are approximately 30
satellites operating in the C-band, which carry over 500 channels of
programming combined; approximately 350 channels are available free of
charge and 150 are scrambled and require a subscription. HSD is
difficult to quantify in terms of annual revenue. HSD owners have
access to program channels placed on C-band satellites by programmers
for receipt and distribution by MVPDs. Commission data shows that,
between June 2003 and June 2004, HSD subscribership fell from 502,191
subscribers to 335,766 subscribers, a decline of more than 33 percent.
The Commission has no information regarding the annual revenue of the
four C-Band distributors.
32. Wireless Cable Systems. Wireless cable systems use the
Multipoint Distribution Service (``MDS'') and Instructional Television
Fixed Service (``ITFS'') frequencies in the 2 GHz band to transmit
video programming and provide broadband services to subscribers. Local
Multipoint Distribution Service (``LMDS'') is a fixed broadband point-
to-multipoint microwave service that provides for two-way video
telecommunications. As previously noted, the SBA definition of small
entities for Cable and Other Program Distribution, which includes such
companies generating $13.5 million in annual receipts, appears
applicable to MDS, ITFS and LMDS. In addition, the Commission has
defined small MDS and LMDS entities in the context of Commission
license auctions.
33. In the 1996 MDS auction, the Commission defined a small
business as an entity 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. In the MDS auction, 67 bidders won 493 licenses. Of the 67
auction winners, 61 claimed status as a small business. At this time,
the Commission estimates that of the 61 small business MDS auction
winners, 48 remain small business licensees. In addition to the 48
small businesses that hold BTA authorizations, there are approximately
392 incumbent MDS licensees that have gross revenues that are not more
than $40 million and are thus considered small entities. We also note
that MDS licensees and wireless cable operators that did not
participate in the MDS auction must rely on the SBA definition of small
entities for Cable and Other Program Distribution, which is: Such
entities do not generate revenue in excess of $13.5 million annually.
We estimate that the majority of these entities are small.
34. While SBA approval for a Commission-defined small business size
standard applicable to ITFS is pending, educational institutions are
included in this analysis as small entities. There are currently 2,032
ITFS licensees, and all but 100 of these licenses are held by
educational institutions. Thus, the Commission estimates that at least
1,932 ITFS licensees are small businesses.
35. In the 1998 and 1999 LMDS auctions, the Commission defined a
small business as an entity that had annual average gross revenues of
less than $40 million in the previous three calendar years. Moreover,
the Commission added an additional classification for a ``very small
business,'' which was defined as an entity that had annual average
gross revenues of less than $15 million in the previous three calendar
years. These definitions of ``small business'' and ``very small
business'' in the context of the LMDS auctions have been approved by
the SBA. In the first LMDS auction, 104 bidders won 864 licenses. Of
the 104 auction winners, 93 claimed status as small or very small
businesses. In the LMDS re-auction, 40 bidders won 161 licenses. Based
on this information, we believe 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.
36. Open Video Systems (``OVS''). The OVS framework provides
opportunities for the distribution of video programming other than
through cable systems. Because OVS operators provide subscription
services, OVS falls within the SBA-recognized definition of Cable and
Other Program Distribution Services, which provides that a small entity
is one with $13.5 million or less in annual receipts. The Commission
has certified 25 OVS operators with some now providing service.
Broadband service providers (BSPs) are currently the only significant
holders of OVS certifications or local OVS franchises, even though OVS
is one of four statutorily-recognized options for local exchange
carriers (LECs) to offer video programming services. As of June 2003,
BSPs served approximately 1.4 million subscribers, representing 1.49
percent of all MVPD households. Among BSPs, however, those operating
under the OVS framework are in the minority, with
[[Page 9296]]
approximately eight percent operating with an OVS certification.
Serving approximately 460,000 of these subscribers, Affiliates of
Residential Communications Network, Inc. (``RCN'') is currently the
largest BSP and 11th largest MVPD. RCN received approval to operate OVS
systems in New York City, Boston, Washington, D.C. and other areas. The
Commission does not have financial information regarding the entities
authorized to provide OVS, some of which may not yet be operational. We
thus believe that at least some of the OVS operators may qualify as
small entities.
37. Cable and Other Subscription Programming. The Census Bureau
defines this category as follows: ``This industry comprises
establishments primarily engaged in operating studios and facilities
for the broadcasting of programs on a subscription or fee basis * * *.
These establishments produce programming in their own facilities or
acquire programming from external sources. The programming material is
usually delivered to a third party, such as cable systems or direct-to-
home satellite systems, for transmission to viewers.'' The SBA has
developed a small business size standard for firms within this
category, which is: firms with $13.5 million or less in annual
receipts. According to Census Bureau data for 2002, there were 270
firms in this category that operated for the entire year. Of this
total, 217 firms had annual receipts of under $10 million and 13 firms
had annual receipts of $10 million to $24,999,999. Thus, under this
category and associated small business size standard, the majority of
firms can be considered small.
38. A ``small business'' under the RFA is one that, inter alia,
meets the pertinent small business size standard (e.g., a telephone
communications business having 1,500 or fewer employees), and ``is not
dominant in its field of operation.'' The SBA's Office of Advocacy
contends that, for RFA purposes, small incumbent local exchange
carriers are not dominant in their field of operation because any such
dominance is not ``national'' in scope.
39. Incumbent Local Exchange Carriers (``LECs''). Neither the
Commission nor the SBA has developed a small business size standard
specifically for incumbent local exchange services. The appropriate
size standard under SBA rules is for the category Wired
Telecommunications Carriers. Under that size standard, such a business
is small if it has 1,500 or fewer employees. According to Commission
data, 1,303 carriers have reported that they are engaged in the
provision of incumbent local exchange services. Of these 1,303
carriers, an estimated 1,020 have 1,500 or fewer employees and 283 have
more than 1,500 employees. Consequently, the Commission estimates that
most providers of incumbent local exchange service are small
businesses.
40. Competitive Local Exchange Carriers, Competitive Access
Providers (CAPs), ``Shared-Tenant Service Providers,'' and ``Other
Local Service Providers.'' Neither the Commission nor the SBA has
developed a small business size standard specifically for these service
providers. The appropriate size standard under SBA rules is for the
category Wired Telecommunications Carriers. Under that size standard,
such a business is small if it has 1,500 or fewer employees. According
to Commission data, 769 carriers have reported that they are engaged in
the provision of either competitive access provider services or
competitive local exchange carrier services. Of these 769 carriers, an
estimated 676 have 1,500 or fewer employees and 93 have more than 1,500
employees. In addition, 12 carriers have reported that they are
``Shared-Tenant Service Providers,'' and all 12 are estimated to have
1,500 or fewer employees. In addition, 39 carriers have reported that
they are ``Other Local Service Providers.'' Of the 39, an estimated 38
have 1,500 or fewer employees and one has more than 1,500 employees.
Consequently, the Commission estimates that most providers of
competitive local exchange service, competitive access providers,
``Shared-Tenant Service Providers,'' and ``Other Local Service
Providers'' are small entities.
41. Electric Power Generation, Transmission and Distribution. The
Census Bureau defines this category as follows: ``This industry group
comprises establishments primarily engaged in generating, transmitting,
and/or distributing electric power. Establishments in this industry
group may perform one or more of the following activities: (1) Operate
generation facilities that produce electric energy; (2) operate
transmission systems that convey the electricity from the generation
facility to the distribution system; and (3) operate distribution
systems that convey electric power received from the generation
facility or the transmission system to the final consumer.'' The SBA
has developed a small business size standard for firms in this
category: ``A firm is small if, including its affiliates, it is
primarily engaged in the generation, transmission, and/or distribution
of electric energy for sale and its total electric output for the
preceding fiscal year did not exceed 4 million megawatt hours.''
According to Census Bureau data for 2002, there were 1,644 firms in
this category that operated for the entire year. Census data do not
track electric output and we have not determined how many of these
firms fit the SBA size standard for small, with no more than 4 million
megawatt hours of electric output. Consequently, we estimate that 1,644
or fewer firms may be considered small under the SBA small business
size standard.
D. Description of Proposed Reporting, Recordkeeping and Other
Compliance Requirements
42. The NPRM seeks comment on the possible sunset or the retention
of Section 628(c)(2)(D) of the Communications Act. The NPRM also seeks
comment on whether and how our procedures for resolving program access
disputes under Section 628 should be modified. The NPRM does not
propose any specific reporting, recordkeeping or other compliance
requirements.
E. Steps Taken To Minimize Significant Impact on Small Entities and
Significant Alternatives Considered
43. 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 (among others): (1)
The establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) 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. The NPRM again seeks 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 invites comment on issues that may impact some small
entities. The NPRM seeks comment on what impact the retention of the
exclusivity prohibition has had on the multichannel video programming
distribution market (``MVPD'') overall. More specifically, the NPRM
inquires what impact the provision has had on the entry of new
competitive MVPDs into the marketplace. It further inquires about
access by competitive MVPDs to ``marquee'' or ``must have'' programming
and whether these services still remain essential to the successful
implementation of
[[Page 9297]]
competitive services. The NPRM also seeks information on what impact
cable system clusters, the distribution of regional programming
services, and horizontal consolidation have on the programming
marketplace. The NPRM also inquires about whether there has been any
change in the resources and ability of nonaffiliated cable operators
and competitive MVPDs to develop their own programming. In addition,
comment is sought on what effect the prohibition has had on preserving
and protecting diversity in the distribution of video programming.
F. Federal Rules Which Duplicate, Overlap, or Conflict With the
Commission's Proposals
None.
VI. Ordering Clauses
44. Accordingly, it is ordered that, pursuant to the authority
contained in Sections 4(i), 303 and 628 of the Communications Act of
1934, as amended, 47 U.S.C. 154(i), 303 and 548, notice is hereby given
of the proposals described in this NPRM of Proposed Rulemaking.
45. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, will send a
copy of this NPRM of Proposed Rule Making, including the IRFA, to the
Chief Counsel for Advocacy of the Small Business Administration, in
accordance with the Regulatory Flexibility Act.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. E7-3520 Filed 2-28-07; 8:45 am]
BILLING CODE 6712-01-P