[Federal Register Volume 73, Number 22 (Friday, February 1, 2008)]
[Rules and Regulations]
[Pages 6043-6054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-1915]



[[Page 6043]]

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[CS Docket No. 98-120; FCC 07-170]


Carriage of Digital Television Broadcast Signals

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This Third Report and Order finalizes the material degradation 
requirements adopted by the Commission in 2001, and establishes two 
alternative approaches that cable operators may use to meet their 
responsibility to ensure that cable subscribers with analog television 
sets can continue to view all must-carry stations after the end of the 
DTV transition. The Commission adopts rules to ensure that cable 
subscribers will continue to be able to view broadcast stations after 
the transition, and that they will be able to view those broadcast 
signals at the same level of quality in which they are delivered to the 
cable system. The Commission announces these rules now to ensure that 
cable operators and broadcasters have sufficient time to prepare to 
comply with them.

DATES: Effective March 3, 2008.

ADDRESSES: Federal Communications Commission, 445 12th Street, SW., 
Washington, DC 20554. In addition to filing comments with the Office of 
the Secretary, a copy of any comments on the Paperwork Reduction Act 
information collection requirements contained herein should be 
submitted to Cathy Williams, Federal Communications Commission, 445 
12th Street, SW., Washington, DC 20554, or via the Internet to 
[email protected].

FOR FURTHER INFORMATION CONTACT: For additional information on this 
proceeding, please contact Lyle Elder, [email protected], or Eloise 
Gore, [email protected], of the Media Bureau, Policy Division, (202) 
418-2120. For additional information concerning the Paperwork Reduction 
Act information collection requirements contained in this document, 
contact Cathy Williams on (202) 418-2918, or via the Internet at 
[email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Federal 
Communications Commission's Third Report and Order in CS Docket No. 98-
120, FCC 07-170, adopted September 11, 2007, and released November 30, 
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/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).
    Paperwork Reduction Act of 1995 Analysis:
    This document contains modified information collection 
requirements. The Commission, as part of its continuing effort to 
reduce paperwork burdens, will invite the general public to comment on 
the information collection requirements contained in this R&O as 
required by the Paperwork Reduction Act of 1995, Public Law 104-13. The 
Commission will publish a separate Federal Register Notice at a later 
date seeking these PRA comments from the public. In addition, the 
Commission notes that pursuant to the Small Business Paperwork Relief 
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), we 
previously sought specific comment on how the Commission might 
``further reduce the information collection burden for small business 
concerns with fewer than 25 employees.''

Summary of the Third Report and Order

    1. As discussed below, the Act requires that cable systems carry 
broadcast signals without material degradation and ensure that all 
subscribers can receive and view mandatory-carriage signals. This Third 
Report and Order finalizes the material degradation requirements 
adopted by the Commission in 2001, and establishes two alternative 
approaches that cable operators may use to meet their responsibility to 
ensure that cable subscribers with analog television sets can continue 
to view all must-carry stations after the end of the DTV transition. 
Cable operators may either carry such signals in analog, or, for all-
digital systems, carry the signal in digital only.

A. Material Degradation--Sections 614(b)(4)(A) and 615(g)(2)

    2. In this section, we adopt rules requiring that cable operators 
not discriminate in their carriage between broadcast and non-broadcast 
signals, and that they not materially degrade broadcast signals. As 
explained below, we reaffirm the approach adopted by the Commission in 
2001 to determining whether material degradation has occurred, as well 
as the requirement that HD signals be carried in HD.
    3. The Act requires that cable operators carry local broadcast 
signals ``without material degradation,'' and instructs the Commission 
to ``adopt carriage standards to ensure that, to the extent technically 
feasible, the quality of signal processing and carriage provided by a 
cable system for the carriage of local commercial television stations 
will be no less than that provided by the system for carriage of any 
other type of signal.'' As noted above, section 614(b)(4)(B) of the Act 
directs the Commission ``to establish any changes in the signal 
carriage requirements of cable television systems necessary to ensure 
cable carriage of such broadcast signals of local commercial television 
stations which have been changed'' as a result of the DTV transition.
    4. In the Second Further Notice of Proposed Rulemaking (Second 
FNPRM) 72 FR 312444, December 31, 2007, we sought comment on proposals 
for ensuring that broadcast signals would not be materially degraded 
after the digital transition. We proposed that the measurement by which 
we determine whether an operator is degrading the broadcast signal 
change from a subjective to an objective standard or, in the 
alternative, to maintain the comparative standard established in the 
First Report and Order 66 FR 16523, March 26, 2001. We asked whether we 
should require cable operators to pass through all primary video and 
program-related bits (``content bits''). In addition, we proposed a 
rule that would create a framework for negotiations between cable 
operators who wanted to carry fewer than all content bits and the 
broadcasters whose signals were at issue. Such a rule would require any 
operator that wished to carry fewer than all content bits to 
demonstrate to the broadcaster that it could meet the picture-quality-
nondegradation standard without carriage of all content bits. Finally, 
in the Second FNPRM, we reminded commenters of the existing requirement 
to carry high definition signals in HD to those subscribers who have 
signed up for an HD package, and

[[Page 6044]]

reiterated that this requirement will continue after the transition.
    5. We retain the requirement that HD signals be carried in HD, as 
well as the comparative approach to determining whether material 
degradation has occurred. In 2001, the First Report and Order 
established two requirements to avoid material degradation. First, ``a 
cable operator may not provide a digital broadcast signal in a lesser 
format or lower resolution than that afforded to any'' other signal on 
the system. Second, a cable operator must carry broadcast stations such 
that, when compared to the broadcast signal, ``the difference is not 
really perceptible to the viewer.'' Thus, ``a broadcast signal 
delivered in HDTV must be carried in HDTV.'' Because we decline to rely 
on measurement of bits to determine whether degradation has occurred, 
we do not require carriage of all content bits. Additionally, for the 
reasons described below, we decline to adopt the proposed negotiation 
framework.
    6. The Act requires that broadcast signals not be ``materially 
degraded.'' It also requires the Commission to ``adopt carriage 
standards to ensure that, to the extent technically feasible, the 
quality of signal processing and carriage provided by a cable system 
for the carriage of local commercial television stations will be no 
less than that provided by the system for carriage of any other type of 
signal.'' The Commission stated in 2001 that ``[f]rom our perspective, 
the issue of material degradation is about the picture quality the 
consumer receives and is capable of perceiving.'' Cable commenters 
argued that this should remain the focus of the Commission's decision 
making, and we agree.
    7. We considered the ``all content bits'' proposal, the main 
benefit of which was a clear means of measurement and consequently ease 
of enforcement. Ultimately, we conclude, however, that the all content 
bits approach is likely to stifle innovation and the very efficiency 
that digital technology offers, and may be more exacting a standard 
than necessary to ensure that a given signal will be carried without 
material degradation. We also conclude that it is unnecessary at this 
time to impose such a requirement in light of the paucity of material 
degradation complaints over the 15 years since enactment of the Must 
Carry statute.
    8. A number of commenters support the existing standard, and most 
argue that a comparative approach remains the best method of measuring 
material degradation. As these commenters point out, there is little 
evidence to indicate otherwise. We note Comcast's observations that 
there appear to have been no more than two material degradation 
complaints since the 1992 adoption of the prohibition, and that both of 
those were dismissed. Even if there has been limited opportunity to 
``test'' these rules in a digital context, there is every reason to 
believe that they will prove just as robust in an environment of 
greater attention to picture quality.
    9. Furthermore, there are technological benefits to the current 
comparative standard. Time Warner argues that the content bits standard 
proposed in the Second FNPRM would require devoting additional 
bandwidth to carriage even when it would not improve the quality of the 
transmitted image, hurting consumers by limiting other uses of the 
bandwidth. AT&T further argues that an ``all content bits'' standard 
could ``dampen[ ] incentives to invest in video compression and other 
technologies * * * that would allow even greater transmission 
efficiencies and higher quality pictures.'' We recognize these 
concerns, and do not intend to impede improvements in technology. Some 
cable operators may, currently or in the future, rely on advanced 
compression technologies such as MPEG 4 to provide service to 
subscribers with greater efficiency. We particularly recognize the 
value of compression technologies that take the broadcast signal back 
to uncompressed baseband and then re-encode it in a more efficient 
manner without materially degrading the picture. Such advanced 
compression utilizes a minimum bit rate that does not reduce the 
quality of the resolution. We agree with commenters that a comparative 
standard is currently the best way to encourage and reward 
technological innovations, like MPEG4 compression, that allow for more 
efficient use of bandwidth without diminishing viewer experience.
    10. We decline to adopt the proposal of Agape Church Inc., that we 
require carriage of secondary channels. Our rules here focus only on 
the broadcaster's primary video and program related content. The 
prohibition on material degradation adds no additional requirement to 
carry non-program-related content.
    11. Commenters requested clarification that downconversion to 
analog does not constitute material degradation. We accordingly clarify 
that it is not material degradation to downconvert that signal to 
comply with the ``viewability'' requirement discussed below.
    12. As noted above, we do not adopt the negotiation framework 
proposed in the Second FNPRM, and direct parties to continue to follow 
the rules as established in section 76.61. Both broadcasters and cable 
operators, the parties who would be involved in these negotiations, 
raised serious objections to the proposal. The National Association of 
Broadcasters (``NAB'') and The Association for Maximum Service 
Television (``MSTV'') are highly critical of any required negotiations, 
particularly ones which would begin and end upon the request of 
operators. They state that the 30 day window for carriage complaints is 
too short, and that the proposal as a whole places the burden of 
ensuring compliance on the broadcasters, rather than on the operators 
who have the duty by statute. Finally, they argue that the requirements 
and penalties for noncompliance are insufficiently detailed or strict. 
Cable commenters object to the requirement that operators make a 
showing of non material-degradation to the satisfaction of the 
broadcaster. They express concern about what they anticipate would be: 
(1) A major shift in power to must-carry broadcasters, who do not have 
an incentive to bargain; and (2) an addition of significant transaction 
costs for operators, who currently do not negotiate with must carry 
stations at all. They argue that this would add an unnecessary 
complication to mandatory carriage. As NAB and MSTV note, the goal of 
these rules is to provide cable subscribers with the full benefits of 
the digital transition. Given the broad based objections to the 
proposal, we decline to establish a formal procedure by which 
broadcasters would waive the material degradation requirements. We note 
that enforcement of the material degradation requirements is initiated 
by a broadcaster's carriage complaint, and that the rules provide for 
the broadcaster to complain first to the cable operator before filing 
such a complaint. This gives the parties an opportunity to informally 
address material degradation disputes, and if the station is satisfied 
with the resultant carriage, no complaint will be filed. No additional 
formal process is necessary. 47 CFR 76.61.

B. Availability of Signals--Sections 614(b)(7) and 615(h)

    13. In this section, we adopt rules requiring cable systems that 
are not ``all-digital'' to provide must-carry signals in analog, while 
``all-digital'' systems may provide them in digital form only. We also 
require that the cost of any downconversion be borne by operators, but 
that downconverted signals may count toward the cap on commercial

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broadcast carriage. Pursuant to sections 614 and 615 of the Act, cable 
operators must ensure that all cable subscribers have the ability to 
view all local broadcast stations carried pursuant to mandatory 
carriage. Specifically, section 614(b)(7) (for commercial stations) 
states that broadcast signals that are subject to mandatory carriage 
must be ``viewable via cable on all television receivers of a 
subscriber which are connected to a cable system by a cable operator or 
for which a cable operator provides a connection.'' Similarly, section 
615(h) for noncommercial stations states that ``[s]ignals carried in 
fulfillment of the carriage obligations of a cable operator under this 
section shall be available to every subscriber as part of the cable 
system's lowest priced tier that includes the retransmission of local 
commercial television broadcast signals.'' These statutory requirements 
plainly apply to cable carriage of digital broadcast signals, and, as a 
consequence, cable operators must ensure that all cable subscribers--
including those with analog television sets--continue to be able to 
view all commercial and non-commercial must-carry broadcast stations 
after February 17, 2009.
    14. These rules shall be in force for three years from the date of 
the digital transition, subject to review by the Commission during the 
last year of this period (i.e., between February 2011 and February 
2012). In light of the numerous issues associated with the transition, 
it is important to retain flexibility as we deal with emerging 
concerns. A three-year sunset ensures that both analog and digital 
cable subscribers will continue to be able to view the signals of must-
carry stations, and provides the Commission with the opportunity after 
the transition to review these rules in light of the potential cost and 
service disruption to consumers, and the state of technology and the 
marketplace. To assist the Commission in this review, we will include 
questions in our annual Cable Price Survey to assess, for example, 
digital cable penetration, cable deployment of digital set-top boxes 
with various levels of processing capabilities, and cable system 
capacity constraints.
    15. In the Second FNPRM, we sought comment on proposals that would 
ensure the viewability, for all subscribers, of signals carried 
pursuant to mandatory carriage. To that end, we proposed that

cable operators must either: (1) Carry the signals of commercial and 
non-commercial must-carry stations in analog format to all analog 
cable subscribers, or (2) for all-digital systems, carry those 
signals only in digital format, provided that all subscribers with 
analog television sets have the necessary equipment to view the 
broadcast content.

We also proposed that the cost of any down conversion rendered 
necessary by these rules be borne by the cable operators.
    16. We adopt these proposals, and note that they apply to all 
operators, regardless of their rate-regulated status. In sum, cable 
operators must comply with the statutory mandate that must-carry 
broadcast signals ``shall be viewable via cable on all television 
receivers of a subscriber which are connected to a cable system by a 
cable operator or for which a cable operator provides a connection,'' 
and they have two options of doing so. First, to the extent that such 
subscribers do not have the capability of viewing digital signals, 
cable systems must carry the signals of commercial and non-commercial 
must-carry stations in analog format to those subscribers, after 
downconverting the signals from their original digital format at the 
headend. This proposal is in line with the approach already voluntarily 
planned by many cable operators, as described in testimony by Time 
Warner CEO Glenn Britt before the House Subcommittee on 
Telecommunications and the Internet. In the alternative, operators may 
choose to operate ``all-digital systems.'' ``All-digital'' systems are 
systems that do not carry analog signals or provide analog service. 
Under this option, operators will not be required to downconvert the 
signal to analog, and may provide these stations only in a digital 
format. In any event, any downconversion costs will be borne by the 
operator.
    17. To fulfill its must-carry obligations in cases where a cable 
operator uses digital-to-analog converter boxes that do not have analog 
tuners, the operator can deliver a standard definition digital version 
of a must-carry broadcaster's high definition digital signal, in 
addition to the analog and high definition signal, or use boxes that 
convert high definition signals for viewing on an analog television 
set, or use other technical solutions so long as cable subscribers have 
the ability to view the signals.
    18. As NCTA notes, the congressionally mandated end of the Digital 
Television transition does not apply directly to cable operators. We 
thus recognize that there may be two different kinds of cable systems 
for some period of time after the DTV transition is complete. Some 
operators may choose to deliver programming in both digital and analog 
format. NAB and MSTV describe these systems as those in which they 
``keep an analog tier and continue to provide local television signals 
(and perhaps many cable channels as well) to analog receivers in a 
format that does not require additional equipment.'' Other operators 
may choose, as many already have, to operate or transition to ``all-
digital systems,'' and as NAB and MSTV further note, ``virtually all 
cable operators ultimately will do so.'' Game Show Network, LLC 
(``GSN'') questions why there should be any rules protecting owners of 
analog sets, since that is ``a format the government itself has 
determined is no longer worthy of any spectrum.'' Congress did decide 
to end analog broadcasting, but declined to turn its backs on the 
millions of Americans with analog sets. Thus, they established the NTIA 
converter box program to protect the continued availability of over-
the-air signals to all Americans; they accepted the claims of the cable 
industry that subscribers with analog sets would continue to be served; 
and we now establish these rules to ensure that those subscribers do 
continue to be served.
    19. NAB proposes that cable operators carry all broadcasters on 
their systems in the same manner; i.e., if one must carry station is 
carried in analog, all broadcasters, whether carried pursuant to 
retransmission consent or must carry, would be carried in analog. Cable 
operators object to this proposal, and we decline to adopt it. Although 
a system that is not ``all-digital'' will be required to carry analog 
versions of all must-carry signals to ensure their viewability, 
retransmission consent stations may be carried in any manner that 
comports with the private agreements of the parties.
    20. The ``viewability'' requirement that we adopt today is based on 
a straightforward reading of the relevant statutory text. While some 
cable commenters dispute our interpretation of section 614(b)(7), their 
arguments are at odds with both the plain meaning of the statutory text 
as well as the structure of the provision. These commenters principally 
argue that the viewability mandate is satisfied whenever cable 
operators transmit broadcast signals and `` `offer to sell or lease * * 
* a converter box' to their customers'' that will allow those signals 
to be viewed on their receivers. To the extent that such subscribers do 
not have the necessary equipment, however, the broadcast signals in 
question are not ``viewable'' on their receivers. In addition, it is 
important to note that the relevant question under the statute is not 
whether subscribers can view over-the-air broadcast signals using their 
receivers. Rather, it is whether

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subscribers can view the signals of broadcast stations that are carried 
through their cable system. See 47 U.S.C. 534(b)(7). To be sure, ``[i]f 
a cable operator authorizes subscribers to install additional receiver 
connections, but does not provide the subscriber with such connections, 
or with the equipment and materials for such connections, the operator 
[is only required to] notify such subscribers of all broadcast stations 
carried on the cable system which cannot be viewed without a converter 
box and * * * offer to sell or lease such a converter box to such 
subscribers at rates in accordance with section 623(b)(3).'' But these 
commenters confuse the separate mandates set forth in the second and 
third sentences of section 614(b)(7), a distinction we clarified as 
early as 1993. As NAB and MSTV observe, ``there is no evidence that the 
third sentence of section 614(b)(7) was intended to narrow the scope of 
the viewability requirement for sets connected by cable operators.'' 
For every receiver ``connected to a cable system by a cable operator or 
for which a cable operator provides a connection,'' that operator must 
ensure that the broadcast signals in question are actually viewable on 
their subscribers' receivers.
    21. As we explained in the Second FNPRM, the operators of either 
all-digital or mixed digital-analog systems will be responsible under 
the statute for ensuring that mandatory carriage stations are actually 
viewable by all subscribers, ``including those with analog television 
sets.'' Two commenters argued that our proposed rules were overbroad, 
because analog-only televisions will not ``qualify as `television 
receivers' after the transition for purposes of the viewability 
requirement.'' These arguments fail to recognize, however, that the 
hard deadline set by Congress does not apply to Low Power television 
stations, including translators and Class A stations. Thus, Low Power 
broadcasters, operating hundreds of channels, will still be lawfully 
transmitting analog signals on February 18, 2009, and for some period 
of time afterwards. Those consumers who rely on Low Power stations and 
turn on their over-the-air analog sets that morning to watch a local 
newscast will be using a device ``engaged or able to engage in `the 
process of * * * radio transmission.' '' More broadly, as NAB and MSTV 
point out, the Commission's authority over these sets is not predicated 
merely on their ability to receive over the air signals. Rather, we 
believe that a device that allows subscribers to view signals sent by 
their cable operator is a television receiver for purposes of section 
614(b)(7) of the Act.
    22. NCTA also argues that the situation in the early 1990s that 
spurred the creation of these viewability requirements was different 
from the situation that will be faced by consumers post-transition. 
Therefore, they posit, it is inappropriate to rely on sections 
614(b)(7) and 615(h) to address viewability on analog receivers. To 
begin with, it is our primary task to implement the text of the 
statutory provision. While the enactment of a statute may be 
principally aimed at a particular set of circumstances present at the 
time, it is often written in general language so that it applies to 
similar sets of circumstances in the future. As the United States 
Supreme Court has instructed, ``statutory prohibitions often go beyond 
the principal evil to cover reasonably comparable evils, and it is 
ultimately the provisions of our laws rather than the principal 
concerns of our legislators by which we are governed.'' In any event, 
the cable commenters' own descriptions of the driving force behind the 
statutory provision demonstrate that the situation at hand is directly 
analogous. NCTA explains that ``[a]t the time [of the provision's 
enactment], certain television sets were not `cable-ready' and could 
not receive [some] channels at all,'' and observes that the Commission 
therefore required converter boxes provided by cable operators to 
contain ``the necessary channel capacity to permit a subscriber to 
access a UHF must-carry signal through the converter.'' Replace 
``cable-ready'' with ``digital cable-ready,'' and ``UHF'' with 
``digital,'' and NCTA has described the problem at hand, and one of the 
options the Commission has again offered to resolve it. The 
Commission's charge is to implement the statutory language enacted by 
Congress, and this language reflects Congress's unambiguous 
determination that broadcast signals must be viewable by all cable 
subscribers. Indeed, as NAB and MSTV note, ``the authority that 
Congress gave the Commission under section 614(b)(4)(B) to make rules 
regarding advanced television reflects Congress' understanding that 
broadcast technology certainly would change over time, and that the 
Commission was expected to modify the carriage rules as needed.'' While 
the circumstances today differ from those present at the time of the 
provision's enactment, the basic issue, ensuring the viewability of 
broadcast signals, is the same.
    23. Time Warner argues that we do not have the authority to read 
section 614(b)(7) as a ``manner of carriage'' requirement, even to 
offer analog carriage as one option for complying with the statute. 
They see the Commission's early interpretation of the viewability 
provision as a statement that operators must provide converter boxes 
``in a specific and limited context,'' and that the section cannot 
serve as the basis for a carriage requirement. On the contrary, the 
Commission has frequently allowed cable operators to meet their 
614(b)(7) obligations by placing must carry signals on a channel 
viewable to all subscribers instead of by providing boxes. The rules we 
adopt today are firmly grounded in longstanding Commission practice, 
and echo previous solutions to similar problems.
    24. Some cable programmer commenters, such as the Weather Channel, 
argue that the proposal ``unquestionably would consume vast amounts of 
cable system bandwidth'' with duplicative programming. In actuality, as 
Time Warner admits, these rules will not have an impact on the carriage 
of most stations; the ``vast majority of broadcasters opt for 
retransmission consent.'' Thus, as NAB notes in its reply, any 
incremental increase of bandwidth devoted to must-carry stations will 
be ``negligible.'' Gospel Music Channel, LLC (Gospel) articulates a 
concern that flows from Weather Channel's: That these rules could 
reduce their chances of carriage on any given system. While we 
recognize Gospel's concerns, Congress already acknowledged them when it 
mandated that systems with more than 12 usable activated channels need 
carry local commercial television stations only ``up to one-third of 
the aggregate number of usable activated channels of such system[s].'' 
Furthermore, Gospel fails to recognize that to the extent operators 
choose the second option and become ``all-digital,'' these rules could 
contribute to a very positive impact on independent programmers' 
ability to make carriage deals due to the concomitant effective 
increase in channel capacity. The Africa Channel, et al. (``TAC'') also 
argue that the potential loss of independent cable programmers serving 
focused audiences ``are digital transition issues as important as a 
consideration of what constitutes viewability or material degradation 
for broadcasters who are the least likely television market 
participants to be left behind with or without burdensome new must-
carry rules.'' In essence, TAC argues that independent cable 
programmers deserve protections on par with must-carry broadcasters. 
Congress, however, disagrees, and the Supreme Court has

[[Page 6047]]

upheld the must-carry regime to ensure the viewability and prevent the 
material degradation of the signals of those broadcasters.
    25. Some commenters have incorrectly characterized our rule as 
``dual carriage.'' Comcast attempts to frame this requirement as ``a 
requirement to carry broadcast signals in [analog] * * * in 
perpetuity.'' Not only is this not the Commission's rule, Comcast's 
proposal for avoiding ``dual carriage'' would read ``viewability'' 
itself out of the Act. Dual carriage, as considered and rejected by the 
Commission, would have required cable operators ``to carry both the 
digital and analog signals of a station during the transition when 
television stations are still broadcasting analog signals''; that is, 
the mandatory simultaneous carriage of two different channels broadcast 
by the same station. The Commission ultimately rejected this concept. 
The rule we establish in this Third Report and Order is quite distinct. 
It requires carriage only of a single broadcast signal, and gives 
operators the freedom to choose how to ensure that signal is viewable 
by all subscribers. It does not require carriage of more than one 
broadcast signal from a given must-carry broadcaster, and it does not 
require carriage of an analog version of a signal unless an operator 
chooses not to operate an all-digital system.
    26. NCTA notes that the Act allows a cable operator to decline to 
carry signals from stations whose programming substantially duplicates 
that of a station it already carries. The commenter argues from this 
that the statute can not be read to require carriage of additional 
versions of a signal under any circumstances. The connection, however, 
is tenuous at best. Section 614(b)(5) speaks specifically to the issue 
of the carriage of different stations providing substantially identical 
programming, and does not address a requirement to carry multiple 
versions of a single station's signals. In the former case, subscribers 
would be receiving multiple channels all showing the same programs at 
virtually the same time. In this case, however, some subscribers will 
not be able to see any of a station's programming unless a 
downconverted version is carried. From the perspective of these 
subscribers, the actual people sections 614 and 615 were designed to 
reach, there need not be more than one viewable version of a 
broadcaster's signal--but there must be at least one.
    27. Comcast argues that enforcement of the viewability provisions 
of the Act will force the Commission into conflict with other sections 
of the Act, particularly the effective competition provisions of 
section 623(b). Comcast misstates the case, however, when it says that 
a deregulated system may provide must carry stations ``in any format 
that it wishes.'' Indeed, as the Commission made clear in the 2001 
Order, signals broadcast in HD must be carried by cable operators in 
HD, regardless of whether or not the system is rate-regulated. While 
some requirements are lifted when an operator is deregulated, 
deregulation is not an exemption from the carriage requirements of the 
statute. Stations electing mandatory carriage must be carried, they 
must not be materially degraded, and they must be made viewable.
    28. If an operator chooses not to operate an ``all-digital system'' 
and therefore ensures viewability by providing a digital broadcast 
signal and a downconverted version of the signal for analog 
subscribers, it will in some cases use more than the 6 MHz of bandwidth 
occupied by an analog must-carry signal alone. Comcast argues that this 
improperly forecloses the use of the bandwidth for other purposes. 
Congress recognized the importance of preserving cable bandwidth for 
non-broadcast programmers when it mandated that systems with more than 
12 usable activated channels need carry local commercial television 
stations only ``up to one-third of the aggregate number of usable 
activated channels of such system[s].'' This limit has been upheld by 
the courts and will continue to ensure that operators have sufficient 
bandwidth for carriage of non-broadcast programming and other services. 
Moreover, to the extent that a cable operator wishes to free bandwidth 
for other purposes, it may choose to operate an ``all-digital'' system.
    29. We are bound by statute to ensure that commercial and non-
commercial mandatory carriage stations are actually viewable by all 
cable subscribers. The Commission also believes, however, that it is 
important to provide cable operators flexibility in meeting the 
requirements of sections 614(b)(7) and 615(h). Therefore, we have 
declined to require a specific approach, instead allowing operators to 
choose whether or not to operate ``all-digital systems,'' and therefore 
whether or not to provide mandatory carriage stations in an analog 
format. This is in accord with the Commission's decision, in the First 
Report and Order, not to require operators to provide set-top boxes.
    30. Time Warner argues that the requirement of section 629, that 
navigation devices be available at retail, supersedes the requirements 
of section 614(b)(7), which was enacted four years earlier. We 
disagree. Section 629(f) provides that ``[n]othing in this section 
shall be construed as expanding or limiting any authority that the 
Commission may have under [the] law'' prior to the 1996 
Telecommunications Act. This includes the viewability provisions of 
section 614(b)(7). Furthermore, Time Warner's argument is premised on 
an interpretation of section 614(b)(7) that we decline to adopt, namely 
that it requires cable operators to provide set top boxes. Indeed, the 
retail availability of set-top boxes should facilitate subscriber 
purchase of digital equipment and lessen the burden on all-digital 
cable operators to provide such boxes. However, we adopt the analog 
downconversion option to address these very concerns, and provide an 
option which does not even potentially implicate set-top boxes. An 
operator may choose not to go ``all-digital,'' and instead satisfy its 
section 614(b)(7) obligations by downconverting must carry stations to 
analog, until the operator concludes that the local market is ready for 
an all-digital cable system.
    31. We note that Americans for Tax Reform, Ovation, LLC, and other 
commenters appear to misapprehend the functionality of the ``converter 
boxes'' that will be available through the NTIA coupon program. These 
boxes will, by design, be limited to use in converting over-the-air 
digital signals into analog signals that can be interpreted by an 
analog television. Because of differences in the modulation used by 
digital broadcasters and digital cable systems, these boxes will not be 
usable by digital cable subscribers to connect their analog receivers. 
Such converters will be available, but it is important to ensure that 
the public understands that there are different functionalities 
provided by different boxes.
    32. Discovery observes that, during the transition period, a 
digital-only broadcaster has had the right to request carriage in 
digital only, rendering it non-viewable to analog subscribers. As the 
Commission explained in the First Report and Order, however, this is an 
interim policy, assisting both broadcasters and cable operators to 
adjust to digital broadcasting over a limited period of time. Discovery 
argues that the post-transition period will ``similarly be limited,'' 
and indeed, eventually analog-only sets will be as rare as VHF tuner-
only sets are today. There are still important differences, however. In 
the post-transition period, every channel subject to mandatory carriage 
will be broadcast solely in digital, while the use of analog receivers

[[Page 6048]]

will continue for an indefinite time. Furthermore, making stations 
actually viewable to cable subscribers is the most fundamental interest 
expressed in the must carry rules that have been upheld by the Supreme 
Court. If we declined to enforce the viewability requirement it would 
render the regime almost meaningless, contrary to the clearly expressed 
will of the Congress as upheld by the Supreme Court.
    33. Because the interim policy governing downconversion makes it an 
option exercised by broadcasters, they are responsible for any 
associated costs. Cequel argues that post-transition analog 
downconversion would only be necessary because the broadcaster itself 
is no longer providing an analog signal, and that any costs should 
therefore be borne by the broadcaster. Agape Church Inc. and other 
broadcast commenters agree with our proposal that, because the decision 
will shift to cable operators after the transition, so should the 
costs. NAB and MSTV further argue that these downconversion costs would 
be modest. ACA says that one of its members paid as much as $4,390.25 
per channel to downconvert from HD to analog, and argues in an ex parte 
that these costs could approach $16,500 per channel. We find this 
estimate surprisingly high and note that $12,000 of this total appears 
to be dedicated to format conversion, rather than digital to analog 
conversion. It is also unclear whether or not the prices or equipment 
quoted are industry standards, or whether some of the equipment costs 
presented cumulatively are actually redundant or usable for more than 
just analog downconversion of one broadcast signal. Nevertheless, we 
are taking up the issue of flexibility for small cable operators in the 
Third FNPRM, infra. Entravision Holdings, LLC (Entravision) notes that, 
while it supports our proposal, it would not object to a requirement 
that broadcasters pay the cost of downconversion if it became necessary 
in order to ensure the continued viewability of must-carry stations for 
analog subscribers. However, since the post-transition downconversion 
will be undertaken by operators at their discretion, in order to comply 
with the Act, we adopt the proposal that any expense necessary for an 
operator's compliance with the requirements of sections 614(b)(7) and 
615(h) shall be borne by the operator, and not the broadcaster. 
Specifically, operators of systems that provide analog service are 
responsible for the cost of downconverting a digital must-carry signal 
to analog at the headend. To the extent that a standard definition 
digital subscriber is unable to view a high definition signal via their 
equipment, operators have a similar responsibility to ensure that the 
signal is viewable.
    34. Such downconverted signals will, however, count toward the one-
third carriage cap. Section 614(b)(1)(B) of the Act requires that cable 
systems with more than ``12 usable activated channels'' devote ``up to 
one-third of the aggregate number of usable activated channels of such 
system[s]'' to the carriage of local commercial television stations. 
Beyond this requirement, the carriage of additional commercial 
television stations is at the discretion of the cable operator. The 
Commission determined in the First Report and Order that with respect 
to carriage of digital broadcast signals, the channel capacity 
calculation will be made by taking the total usable activated channel 
capacity of the system in megahertz and dividing it by three to find 
the limit on the amount of system spectrum that a cable operator must 
make available for commercial broadcast signal carriage purposes. After 
the transition, when calculating whether an operator has reached or 
exceeded the one-third cap, we will count the system spectrum occupied 
by all versions of a commercial broadcast signal (both digital and 
analog).
    35. We also find that operators of systems with an activated 
channel capacity of 552 MHz or less that do not have the capacity to 
carry the additional digital must-carry stations may seek a waiver from 
the Commission. Such systems must, however, commit to continue carrying 
an analog version such that their subscribers are assured of being able 
to view all must-carry stations carried on the system.
    36. We observe that a number of cable comments imply or state that 
it is not possible to transition from a system that provides analog 
service to an all-digital system without the agreement of all current 
subscribers. While each operator will choose to transition or not based 
on local market conditions and other business considerations, it is 
clear that this choice is fully within their discretion. Both of these 
options are available to all operators at any time, a fact unaffected 
by this rule. We do note, that as with any change in programming 
service, particularly one which will have an impact on the 
compatibility of subscriber equipment, cable operators must comply with 
certain notice requirements. We remind operators who transition their 
systems to all-digital that they must provide written notice to 
subscribers about the switch, containing any information they need or 
actions they will have to take to continue receiving service.
    37. Entravision, licensee of a number of commercial broadcast 
stations, argues that analog downconversion is the best way to ensure 
continued viewability, but does not object to the use of other methods 
by cable operators so long as the result is the same. As an alternative 
to the option we proposed for systems that continue to carry analog 
programming, Entravision proposes that must-carry stations be provided 
in analog, but only until such time as 85% of subscribers in each zip 
code served by a given operator have the means to view those signals if 
provided in digital. As Entravision acknowledges, however, the statute 
requires that must carry broadcast stations be made available to all 
cable subscribers with analog television sets. As we have noted before, 
we do not believe we have the authority to exempt any class of 
subscribers from this requirement, no matter how few the analog 
subscribers. Therefore, we decline to adopt the proposal offered by 
Entravision.
    38. The Consumer Electronics Association (CEA) asks that the 
Commission rely on technical solutions shaped by earlier rules and 
developed by the market to resolve concerns about viewability. CEA 
suggests that the agency can rely on the retail availability of sets 
with digital tuners to ensure continued viewability of high quality 
programming. It argues that this can be assured by requiring the 
carriage of must carry signals to conform to three requirements: (1) 
Unencrypted, unscrambled, and in QAM (i.e., ``in the clear''); (2) 
modulated using MPEG-2, a widely used and accepted codec; and (3) not 
in switched digital. CEA expresses concern that the requirement to 
carry must-carry stations ``in the clear'' is not sufficiently 
articulated outside the context of rate-regulated systems. Although we 
decline to reach the question of requiring MPEG-2 and prohibiting 
switched digital, as they are beyond the scope of this proceeding, we 
do address CEA's essential concern, which is at the heart of our 
viewability proceeding. Like CEA's proposals, our rules are designed to 
ensure that all subscribers to a cable system have ``in the clear'' 
access to all must carry stations.

C. Constitutional Issues

1. The Viewability Requirements Are Consistent With the First Amendment
    39. A number of commenters assert that the rules we adopt herein 
constitute ``mandatory dual carriage'' and are unconstitutional. We 
disagree. The

[[Page 6049]]

statutory must-carry provisions upheld by the Supreme Court in Turner 
II include the requirement that must-carry signals ``shall be 
viewable'' on all television receivers of a subscriber which are 
connected to a cable system by a cable operator or for which a cable 
operator provides a connection. The rules we adopt in this order do 
nothing more than ensure the continued fulfillment of this statutory 
mandate at the conclusion of the digital television (``DTV'') 
transition in February 2009. The must-carry obligation is meaningful 
only if all cable subscribers are able to view local broadcasters' 
signals, even if they have analog televisions. If we fail to act, 
however, analog cable subscribers will be unable to view must-carry 
stations after the DTV transition. Rather than mandating downconversion 
to prevent this loss of signals after the transition, however, we offer 
cable operators a choice: those operators that choose not to operate an 
``all-digital system'' must down-convert the broadcasters' digital 
signal for their analog subscribers. Cable operators that elect to 
operate ``all-digital'' systems, on the other hand, do not have to 
down-convert these signals and may provide them solely in a digital 
format. The choice rests with the individual cable operator. In this 
way, cable operators decide for themselves, taking into account their 
particular circumstances, how best to operate following the digital 
transition.
    40. We reject the argument of cable commenters that the ``second 
option is effectively no option at all,'' or that we have presented 
cable operators with a ``Hobson's Choice.'' Rather, we believe that the 
second option represents a viable choice for complying with the 
viewability mandate. Cable operators complain about the burden of 
transitioning to ``all-digital systems.'' In particular, they object to 
requiring subscribers with analog television sets who do not yet have 
digital-set top boxes to use such boxes because, they argue, it is not 
``feasible'' to require those customers to install set-top boxes, 
because customers do not want set-top boxes, or because of the expense 
associated with providing the boxes. After the DTV transition, however, 
some sort of set-top or converter box will be the rule rather than the 
exception for those Americans with analog television sets. Whether 
consumers currently obtain video programming through over-the-air 
broadcasts, cable, or DBS, they generally will need either set-top 
boxes or digital televisions to receive programming once the transition 
is complete. Thus, cable operators' fear that they will lose customers 
to other providers of video programming if they pursue this option 
seems misplaced. As to cable operators' concerns about the expense of 
providing set-top boxes, nothing in this order precludes them from 
recovering the costs of those boxes from subscribers, and cable 
operators offer no evidence to support their claim that they will lose 
a meaningful number of customers because of such charges. Indeed, such 
claims are rather ironic in light of the cable industry's recent 
practice of raising its prices at a rate significantly in excess of 
inflation.
    41. Cable operators' complaints about the second option are also 
belied by these same parties' assurances that they have both the 
incentive and the means to ``mak[e] the digital transition as seamless 
as possible for their customers.'' NCTA asserts, for example, that 
cable operators have committed to ``ensure that cable viewers do not 
experience disruption after February 17, 2009,'' and that they 
``already have the means to ensure continuing service to analog 
television sets with no government intervention or subsidy required.'' 
Cequel Communications notes that it has every incentive to continue 
providing must-carry stations to all subscribers after the transition, 
if only because it welcomes free programming. Comcast similarly assures 
us that ``cable operators have powerful incentives to meet their 
customers' demands'' and that ``no cable operator will allow its 
subscribers to become `disenfranchised' since to do so would be 
economically irrational.'' If cable operators, in fact, ``have every 
incentive to move customers to digital'' and ``equipment will be 
available to enable cable customers to view digital broadcast 
signals,'' then we do not understand the cable companies' complaint 
that the all-digital option is so burdensome that it is merely a 
``fantasy.'' Indeed, numerous cable operators have indicated to the 
Commission their intent to convert to all-digital operations prior to 
February 2009. The record in this proceeding also demonstrates that 
cable operators are already reducing analog programming and moving it 
to digital tiers. For all of these reasons, we conclude that the second 
option set forth in this item offers cable operators a meaningful 
choice about how to fulfill their must-carry obligations.
    42. Turning to the First Amendment challenge, we do not believe 
that the ``all-digital'' option for complying with the statute's 
viewability mandate implicates any First Amendment interest beyond that 
inherent in the must-carry mandate for digital signals already adopted 
by the Commission. We note, moreover, that this mandate is 
significantly less burdensome than the analog must-carry mandate upheld 
by the Supreme Court in Turner II because digital signals occupy much 
less bandwidth on a cable system than do analog signals. The ``all-
digital'' option does not require cable operators to carry any 
additional signals over its system or to displace any additional 
programming beyond that required by the Commission's previously adopted 
digital must-carry mandate. Rather, it simply requires cable operators 
to take steps to ensure that all subscribers are able to view signals 
that will already be carried on their systems, and we do not believe 
that such a mandate can reasonably be described as an independent 
``infringement'' of cable operators' free speech rights.
    43. While cable commenters argue that the second option triggers 
additional First Amendment scrutiny, we do not find their claims to be 
persuasive. We do not agree that the second option coerces operators 
into downconverting broadcaster's digital signals or impermissibly 
penalizes them for failing to downconvert. The purpose and effect of 
the second option are neither to coerce operators into downconverting 
nor to penalize them for failing to do so. Rather, they are to provide 
cable operators with an alternative means of fulfilling the statutory 
requirement that the signals of must-carry stations must be viewable by 
all subscribers.
    44. However, even if we were to find that the second option 
implicates a First Amendment interest beyond that inherent in the must-
carry mandate for digital signals already adopted by the Commission or, 
for that matter, that the second option did not represent a realistic 
choice for cable operators, we would still conclude that our approach 
here is constitutional because we believe that both options for 
complying with the viewability mandate are fully and independently 
consistent with the First Amendment.
    45. Content-Neutral Regulation. As articulated by the Supreme Court 
in Turner II, ``[a] content-neutral regulation will be sustained under 
the First Amendment if it advances important governmental interests 
unrelated to the suppression of free speech and does not burden 
substantially more speech than necessary to further those interests.'' 
There can be little argument that must-carry obligations are content-
neutral regulations. The Supreme Court held in Turner I that must-carry 
does not ``distinguish favored speech from disfavored speech on the 
basis of the

[[Page 6050]]

ideas or views expressed'' but is instead a content-neutral regulation 
subject to intermediate-level scrutiny under the First Amendment. 
Similarly, with respect to the first option provided to cable operators 
today, requiring downconversion of digital signals does not distinguish 
speech on the basis of content; it merely requires cable operators to 
carry whatever message the must-carry stations choose to transmit. We 
thus reject the notion that ensuring that cable subscribers with analog 
television sets are able to view must-carry stations reflects an 
``effort to exercise content control'' that triggers strict scrutiny. 
With respect to the ``all-digital'' option, we do not think that 
permitting cable operators to fulfill their must-carry obligations by 
providing digital must-carry signals that are viewable by all of their 
subscribers changes the analysis. This option does not distinguish 
speech on the basis of content; instead, it simply requires that 
subscribers can view broadcasters' digital signals--regardless of the 
content those signals contain.
    46. We also reject the argument that, in light of ``enormous 
technological and market changes,'' a First Amendment challenge to 
must-carry regulations today would be subject to strict scrutiny. This 
argument is premised on the mistaken notion that the Supreme Court 
applied intermediate scrutiny to must-carry regulation due to the 
existence of cable market power. The Court made clear, however, that 
the applicable level of scrutiny was tied to the content-neutral 
character of must-carry regulation. Like the regulations upheld in the 
Turner decisions, requiring cable operators to down-convert digital 
must-carry signals or make such signals viewable by all subscribers is 
a content-neutral regulation that guarantees the carriage of broadcast 
programming regardless of content and is not designed to promote speech 
of a particular content.
    47. Moreover, to the extent cable operators' arguments about market 
power are meant to suggest that they no longer represent the threat to 
free, over-the-air broadcasting that drove the Turner decisions, the 
evidence convinces us otherwise. Although it faces competition by DBS 
operators and others, the cable industry by far remains the dominant 
player in the MVPD market, commanding approximately 69 percent of all 
MVPD households. By contrast, the percentage of households that rely on 
over-the-air broadcast signals has declined significantly since the 
Turner decisions. In 1992, 40 percent of American households continued 
to rely on over-the-air signals for television programming. Today, 
however, that figure has shrunk to 14 percent. The shift in the 
competitive balance between broadcast and cable can also be seen in 
viewership trends. Between 1995 and 2006, ad-supported cable channels' 
total day share of the market increased from 28 to 49.5 percent, 
whereas the total day share of ABC, CBS, and NBC affiliates shrunk 
precipitously from 44 percent to 23.5 percent. As cable capacity and 
the number of cable programming networks have grown, the fragmentation 
of the market for video programming has accelerated, further weakening 
broadcast stations.
    48. In addition, cable operators continue to ``exercise `control 
over most (if not all) of the television programming that is channeled 
into the subscriber's home [and] can thus silence the voice of 
competing speakers with a mere flick of the switch.''' As in 1992, few 
consumers have the choice of more than one cable operator. Cable 
systems also are more clustered than they were in 1992. While 
clustering may have beneficial effects, the Supreme Court has 
recognized that it also may increase cable's threat to local 
broadcasters and the risk of anticompetitive carriage denials. 
Furthermore, the share of subscribers served by the 10 largest multiple 
system operators (``MSOs'') has continued to accelerate since Congress 
recognized a trend toward horizontal concentration of the cable 
industry, ``giving MSOs increasing market power.'' The figure was 
nearly 54 percent in 1989 and over 60 percent in 1994. The figure 
remains over 60 percent in 2005. And there remains a significant amount 
of vertical integration in the cable industry. In 2005, approximately 
22 percent of the 531 nonbroadcast video programming networks were 
vertically integrated with at least one cable operator. ``Congress 
concluded that vertical integration gives cable operators the incentive 
and ability to favor their affiliated programming services.''
    49. The incentives that the Turner II Court recognized for cable 
operators to drop local broadcasters in favor of other programmers less 
likely to compete with them for audience and advertisers also have 
steadily increased. The Court explained that:

    Independent local broadcasters tend to be the closest 
substitutes for cable programs, because their programming tends to 
be similar, and because both primarily target the same type of 
advertiser: those interested in cheaper (and more frequent) ad spots 
than are typically available on network affiliates. The ability of 
broadcast stations to compete for advertising is greatly increased 
by cable carriage, which increases viewership substantially. With 
expanded viewership, broadcast presents a more competitive medium 
for television advertising. Empirical studies indicate that cable-
carried broadcasters so enhance competition for advertising that 
even modest increases in the numbers of broadcast stations carried 
on cable are correlated with significant decreases in advertising 
revenue for cable systems. Empirical evidence also indicates that 
demand for premium cable services (such as pay-per-view) is reduced 
when a cable system carries more independent broadcasters. Thus, 
operators stand to benefit by dropping broadcast stations.

In addition, the Court observed that ``[t]he incentive to subscribe to 
cable is lower in markets with many over-the-air viewing options.''
    50. Consistent with the Turner II Court's analysis, the evidence 
confirms that local advertising revenue has become an increasingly 
important source of revenue for the cable industry, ``providing a 
steady, increasing incentive to deny carriage to local broadcasters in 
an effort to capture their advertising revenue.'' For example, between 
1992 and 2003, cable revenue from local advertising rose dramatically, 
increasing by approximately 525 percent. Thus, cable operators have 
even greater incentives today to withhold carriage of broadcast 
stations.
    51. We also cannot conclude that the option of switching between 
cable and broadcast input significantly weakens cable operators' 
ability to harm broadcasters. With respect to the A/B switch, the 
Supreme Court found, inter alia, that many households lack adequate 
antennas to receive broadcast signals and that installation and use of 
such switches with other video equipment could be cumbersome or 
impossible. Notwithstanding technical improvements since then, 
moreover, there is no evidence of consumer acceptance of the switch, or 
that more households have adequate antennas to receive broadcast 
signals. And since the percentage of television viewers relying solely 
on broadcast signals has dropped from approximately 40 percent to 14 
percent in the years since Turner II, the number of households with 
adequate antennas to receive broadcast signals through an A/B switch 
has almost certainly dropped. Thus, while A/B switches have largely 
moved from mechanical to electronic in the decade since the Turner 
decisions, switching signal sources still remains cumbersome or 
impossible for television viewers and does not represent an adequate 
alternative to must-carry regulation. In sum, we cannot conclude that 
technological and market changes dictate that must-carry obligations

[[Page 6051]]

would now be subject to strict constitutional scrutiny.
    52. Important Governmental Interests. The Supreme Court has already 
recognized that must-carry regulations serve important governmental 
interests. In particular, it held that there was substantial evidence 
to support a finding that must-carry requirements serve the important, 
and interrelated, governmental interests of (1) preserving the benefits 
of free, over-the-air local broadcast television; and (2) promoting the 
widespread dissemination of information from a multiplicity of sources. 
Congress found, and the Court agreed, that both these interests were 
threatened by cable operators' refusals to carry local broadcast 
stations. Broadcasters denied carriage on cable systems lose a 
substantial portion of their audience, which, in turn, translates into 
lost advertising revenues. As a result, the stations have less money to 
invest in equipment and programming, leading to further reductions in 
audience size. This cycle of audience loss followed by revenue loss 
repeats to the point that the stations ``deteriorate to a substantial 
degree or fail altogether.'' Thus, the viability of local broadcast 
stations and, consequently, the availability of over-the-air broadcasts 
for non-cable households depend to a material extent on cable carriage. 
Furthermore, we note that the must-carry mandate found by the Court in 
Turner II to advance these governmental interests required that the 
signals of must-carry stations be viewable by all cable subscribers; it 
did not merely require cable operators to carry such signals and make 
them viewable to a limited class of their customers.
    53. The steps we take here to ensure that cable operators comply 
with the statutory viewability requirement after the DTV transition 
serve these same interests. Cable operators are free to choose whether 
or not to operate as all-digital systems. We require cable operators 
that choose not to operate ``all-digital systems'' to down-convert the 
digital broadcast signals; otherwise, their analog subscribers will 
lose access to must-carry stations altogether on February 17, 2009. 
This fact distinguishes the present circumstances from those the 
Commission addressed in 2005 when it decided not to require cable 
operators to carry both the digital and analog signals of broadcast 
stations during the DTV transition, while television stations continue 
to broadcast analog signals. At that time, the Commission concluded 
that a dual carriage requirement was not needed to preserve over-the-
air broadcasting for viewers who lack cable because local analog 
broadcasts were already carried on virtually every cable system. 
Therefore, the lack of a dual carriage requirement would not have any 
meaningful effect on a station's viewership, and there was thus no 
evidence that the absence of dual carriage would diminish the 
availability of broadcast signals to non-cable subscribers. In 
contrast, this order addresses the impact of the end of the DTV 
transition, where the signals of must-carry stations will be completely 
unavailable to analog cable subscribers, absent the actions we take 
here. This obviously poses a much more serious challenge for must-carry 
stations. For this reason, we do not agree that this order is at odds 
with the Commission's 2005 constitutional analysis. If cable operators 
did not downconvert the digital signals, broadcasters would stand to 
lose an audience of millions of households that are analog cable 
subscribers and the concomitant advertising revenues, thus jeopardizing 
their continued health and viability. Should these stations deteriorate 
or cease to exist, the impact of these lost programming options would 
fall most heavily on those that most need them: the roughly fifteen 
percent of Americans who rely solely on over-the-air television, which 
disproportionately consist of low-income and minority households. This 
is precisely the harm that Congress sought to prevent when it enacted 
the must-carry provisions upheld by the Supreme Court in Turner II, and 
no party has suggested a plausible argument that preserving free, over-
the-air broadcast television no longer qualifies as an important 
governmental interest. The Court also recognized that ``preserving a 
multiplicity of broadcasters'' serves the related governmental interest 
of ``promoting the widespread dissemination of information from a 
multiplicity of sources.'' All cable programming other than that 
carried in fulfillment of must-carry obligations is under the control 
of cable operators. Unless we act, analog cable subscribers and 
households that rely solely on over-the-air broadcast television may 
well face ``a reduction in the number of media voices'' and the loss of 
``the widest possible dissemination of information from diverse and 
antagonistic sources.'' Thus, this Order clearly advances the important 
governmental interests identified by Congress and upheld by the Supreme 
Court. Alternatively, cable operators may fulfill their must-carry and 
viewability obligations by providing digital signals that are viewable 
by all of their subscribers, thus serving the same governmental 
interests upheld in the Turner cases.
    54. In addition, the actions we take here advance a separate, but 
also important, governmental interest of minimizing adverse consumer 
impacts associated with the DTV transition. The DTV transition results 
in the return of analog spectrum that can be allocated for other 
important, indeed critical, purposes, but Congress also recognized the 
need to protect consumers by ensuring that their television sets 
continue to work at the end of the transition just as they do today. To 
that end, Congress created a program to make available coupons that 
consumers can use to buy digital-to-analog converter boxes for the 
analog television sets in their homes. Just as Congress sought to 
minimize the burden of the DTV transition on consumers who rely on 
over-the-air broadcasting, we act here to minimize the impact of the 
DTV transition on cable subscribers. Analog downconversion minimizes 
the impact of the DTV transition on cable subscribers who do not own 
digital television sets. By ensuring that these consumers continue to 
receive local broadcast signals, we ensure that they experience little 
or no disruption in service due to the DTV transition. We do not agree 
that requiring cable systems offering analog programming to down-
convert digital signals undermines, rather than promotes, the digital 
conversion by encouraging continued dependence on analog televisions. 
Just as Congress's set-top box program does not undermine but merely 
smoothes the transition for certain vulnerable consumers, we act here 
to promote widespread consumer acceptance of the DTV transition by 
addressing a major source of potential consumer confusion and 
frustration. Similarly, subscribers to cable systems that convert to 
all-digital operations will continue to receive local broadcast signals 
without interruption and thus will experience minimal disruption due to 
the DTV transition.
    55. For all of these reasons, we conclude that both options 
available to cable operators--downconversion of digital signals and the 
operation of all-digital systems--advance numerous important 
governmental interests.
    56. Burden on Speech. The thrust of the cable operators' objections 
to downconversion is the ``severe burden'' they allege it imposes on 
protected speech. They contend that a downconversion obligation imposes 
a greater burden than the must-carry rules upheld in Turner II because 
cable

[[Page 6052]]

companies will now be required to transmit the must-carry stations' 
digital signal and down-convert it to analog, thus displacing 
additional speech. Even assuming that analog downconversion, together 
with digital must-carry, requires greater bandwidth than existing must-
carry requirements, we do not agree that it burdens ``substantially 
more speech than necessary'' to further the government's important 
interests.
    57. The relative burden that must-carry regulation places on cable 
operators must be measured in context. At the time of the Turner cases, 
cable capacity was significantly more constrained than it is today. In 
the early 1990s, most cable systems were all-analog and offered far 
fewer than 100 channels. In 1995, for example, the Commission defined a 
``high capacity'' cable system as a system with 54 or more channels. By 
contrast, analog carriage today accounts for only a small percentage of 
the total number of cable channels and spectrum capacity. By 2004, 
cable operators were providing, on average, 70 analog video channels 
and approximately 150 digital video channels, with enough additional 
bandwidth to provide high-definition television, video-on-demand, 
Internet access services, and both circuit-switched and IP-based voice 
services. As a result, the relative burden of the first option set 
forth above on cable operators today would be far less of a burden than 
was the analog mandate upheld by the Supreme Court in Turner II.
    58. The Supreme Court foresaw in 1994 that ``rapid advances in 
fiber optics and digital compression technology'' might one day result 
in ``no practical limitation on the numbers of speakers that may use 
the cable medium.'' And today, we have every reason to expect that 
cable capacity will continue to expand in future years, thus further 
decreasing the relative burden on cable operators. Cable operators 
continue to develop ways to use their available capacity more 
efficiently. For example, cable operators, in order to keep pace with 
their competitors, are beginning to deploy ``switched digital'' 
capability in their networks. In a switched digital environment, a 
channel is transmitted via coaxial cable to a subscriber's premises 
only when the subscriber tunes to that channel. Time Warner already has 
deployed switched digital in three cities. Time Warner has said that 
switched digital gives cable operators the means of adding channels and 
never running out of capacity. Moreover, because digital cable systems 
offer so much more capacity, the proportion of overall bandwidth 
devoted to must-carry signals is that much smaller than was the case at 
the time of the Turner decisions. For example, NAB and MSTV explain 
that 18 basic analog channels, which includes all must-carry stations, 
represent about 4.2 percent of the total number of channels and about 
6.8 percent of the total downstream spectrum of a typical cable system 
today. In 1993, by contrast, the same number of channels represented 33 
percent of the capacity of a ``high capacity'' cable system. We believe 
that the typical cable operator electing to down-convert digital 
signals will devote significantly less than one-third of its channel 
capacity to local broadcasters, the cap that was upheld in Turner II.
    59. We also conclude that the relative burden on speech of 
downconversion is outweighed by the benefits. Unless we act, 
subscribers of cable systems that choose not to operate ``all-digital 
systems'' will suffer both the loss of local broadcasts and confusion 
over that loss, and non-MVPD consumers risk deterioration, if not loss, 
of over-the-air broadcasting options. Preserving local television 
broadcasting will help these consumers more than a downconversion 
obligation will hurt cable operators, particularly given that 
downconversion is necessary only until cable operators complete the 
transition to all-digital systems. We also reject Time Warner's 
contention that a downconversion requirement burdens more speech than 
is necessary because the governmental interests at issue can be 
promoted in a less burdensome manner--namely by providing digital set-
top boxes to subscribers. Time Warner's objection proves too much, of 
course, for we have provided cable operators with precisely that 
choice: they may avoid analog downconversion by converting to all-
digital systems, including by providing their subscribers with set-top 
boxes. Also, to the extent that cable operators do not take the 
necessary steps to ensure that the digital signals of must-carry 
stations can be viewed by all subscribers, the carriage of analog 
signals is necessary to advance the governmental interests identified 
above. Although we conclude that downconversion is in fact necessary to 
advance important governmental interests, we note that a regulation is 
not invalid under the intermediate scrutiny analysis even if the 
government's interest might be adequately served by some less-
restrictive alternative. Finally, we note that the cable operators' 
arguments about the burdens of downconversion are undercut by their 
admission that they might down-convert on a purely voluntary basis. For 
all these reasons, we find that analog-down conversion does not burden 
``substantially more speech'' than is necessary and, therefore, this 
option does not violate the First Amendment.
    60. We also conclude that the ``all-digital'' option does not 
burden ``substantially more speech than necessary'' to further the 
important governmental interests discussed above. Indeed, this option 
imposes less of a burden on speech than the must-carry regulations 
upheld in Turner II. The transmission of digital signals requires far 
less bandwidth than that required for analog signals, so cable 
companies transmitting signals, including must-carry signals, in 
digital rather than analog will gain bandwidth. In addition, while 
cable operators complain that transitioning to ``all-digital systems'' 
will impose an onerous burden on them and therefore does not represent 
a meaningful choice, we reject those arguments for the reasons 
discussed above.
    61. We conclude, therefore, that both analog downconversion and the 
``digital-only'' options are consistent with the First Amendment on a 
stand-alone basis. By offering cable operators the flexibility to 
choose, based on their particular circumstances, either option to 
fulfill their must-carry obligations, moreover, we have minimized the 
burden imposed on any particular cable operator.
2. The Viewability Requirements Are Consistent With the Fifth Amendment
    62. In addition to the First Amendment issue, some parties contend 
that requiring downconversion of digital must-carry signals constitutes 
a taking of property without just compensation in violation of the 
Fifth Amendment. To begin with, as discussed above, we provide cable 
operators here with two options for complying with the statutory 
viewability requirement and do not mandate the downconversion of 
digital signals. But in any event, for the reasons stated below, we 
also conclude that requiring cable operators to down-convert the 
digital must-carry signals so that they are viewable by their 
subscribers with analog televisions would present no problems under the 
Fifth Amendment.
    63. The ``takings'' clause of the Fifth Amendment provides: ``[N]or 
shall private property be taken for public use, without just 
compensation.'' In general, there are two types of Fifth Amendment 
takings: ``per se'' takings and ``regulatory'' takings. Government 
authorization of a permanent physical occupation of property 
constitutes a per

[[Page 6053]]

se taking. A permanent physical occupation of property is a taking 
without regard to the public interest that it may serve, the size of 
the occupation, or the economic impact on the property owner. NAB has 
argued elsewhere that must carry regulation cannot constitute a per se 
taking because no physical property is involved; rather the 
``property'' taken consists of electronic bits. Moreover, we agree that 
the downconversion obligation does not affect the takings analysis. As 
NAB states:
If requiring cable operators to carry channels of broadcast signals 
indeed takes `private property for public use' without compensation, 
then the requirement is unconstitutional regardless of whether the 
cable companies must accommodate one, five, or one hundred channels.

    64. Applying the above framework to the issue here, we believe that 
a court would find that a per se takings analysis would not apply. The 
Supreme Court has advised that a per se taking is ``relatively rare and 
easily identified,'' and this is not one of those rare and easily 
identifiable instances. Mandatory carriage regulation effectuates no 
permanent physical occupation of a cable operator's property, such as 
the installation of physical equipment that was at issue in Loretto v. 
Teleprompter Manhattan CATV Corp. Rather, multiple programming streams 
are simply transmitted in bits of data over cable bandwidth through 
electrons or photons at the speed of light while the cable operator 
retains complete control over its physical property (i.e., headend 
equipment). Courts have consistently rejected attempts to apply the 
concept of permanent physical occupation to the technological realm, 
and we believe these decisions to be consistent with the Supreme 
Court's admonition that a permanent physical occupation of property is 
easily identified and, where found, ``presents relatively few problems 
of proof.''
    65. We therefore turn to whether requiring downconversion of 
digital must-carry signals would constitute a regulatory taking. An 
allegation that a regulation is so onerous as to constitute a 
regulatory taking is analyzed under the multi-factor inquiry set forth 
by the Supreme Court in Penn Central Transportation Co. v. City of New 
York. A court will examine the following factors identified in Penn 
Central to determine whether a regulatory taking has occurred: (1) The 
character of the governmental action; (2) its economic impact; and (3) 
its interference with reasonable investment-backed expectations. 
Applying this test here, we easily conclude that requiring 
downconversion of digital signals does not effectuate a regulatory 
taking.
    66. First, looking at the character of the governmental action at 
issue here, we believe it to be a quite modest attempt to ``adjust the 
benefits and burdens of economic life to promote the common good.'' As 
explained above, requiring downconversion of digital must-carry signals 
will likely impose only a modest burden on a cable operator's system as 
a whole and will materially advance the government's important 
interests in preserving over-the-air broadcasting, promoting the 
widespread dissemination of information from a multiplicity of sources, 
and minimizing any adverse consumer impacts associated with the DTV 
transition. Moreover, it is critical to recognize that the government 
action here involves what traditionally has been and remains a heavily 
regulated industry.
    67. Second, there is no evidence in the record that the economic 
impact on cable operators of requiring downconversion will cause 
significant harm. As we explain above, mandatory carriage of analog 
signals accounts for only a small percentage of the total number of 
cable channels and total spectrum capacity. As cable operators continue 
to convert to digital programming, must-carry signals will impose a 
decreasing relative capacity burden. Given that the cable channels 
devoted to the mandatory carriage of commercial broadcast signals is 
capped at one-third of the cable system's usable capacity and in 
practice is likely to be significantly less than one-third, we find the 
economic burden on cable operators to be modest.
    68. Third, there is no evidence in the record that requiring 
downconversion will interfere with reasonable investment-backed 
expectations. Based upon the statutory cap for commercial stations and 
the numerical limit for non-commercial stations, cable operators should 
reasonably expect to devote up to one-third of their capacity to 
carriage of local broadcast stations. Requiring downconversion of 
digital must-carry signals does not change this limit. Finally, cable 
operators should have reasonably expected that they would be required 
to comply with the statutory viewability mandate after the digital 
transition. For all of these reasons, we conclude that requiring 
downconversion does not interfere with reasonable investment-backed 
expectations.
    69. We do not find evidence or persuasive argument in the record 
that requiring downconversion transforms must-carry regulation into a 
per se taking or a regulatory taking.

D. Other Issues

    70. In its comments, United Communications Corporation made an 
argument for a revision of the Must Carry rules generally, to increase 
the carriage rights of low power stations, particularly Class A 
stations that serve as local network affiliates. Ensuring the continued 
viability of low power broadcasters is a major concern of the 
Commission; these proposals, however, are beyond the scope of the 
current proceeding. We will consider whether there is some alternative 
or future proceeding in which they could be more fully addressed.
    71. Given the statutory directive to treat OVS operators like cable 
operators with regard to broadcast signal carriage, we find that OVS 
operators must carry digital-only television stations pursuant to 
section 76.1506 of the Commission's Rules. Thus, OVS operators must 
comply with all requirements set forth in this Third Report and Order. 
Section 653(c)(1) of the Act provides that any provision that applies 
to cable operators under sections 614, 615, and 325 shall apply to open 
video system operators certified by the Commission. Section 
653(c)(2)(A) provides that, in applying these provisions to open video 
system operators, the Commission ``shall, to the extent possible, 
impose obligations that are no greater or lesser'' than the obligations 
imposed on cable operators. The Commission, in implementing the 
statutory language, held that there are no public policy reasons to 
justify treating an open video system operator differently from a cable 
operator in the same local market for purposes of broadcast signal 
carriage. Thus, OVS operators generally have the same requirements for 
the carriage of local television stations as do cable operators except 
that these entities are under no obligation to place television 
stations on a basic service tier. OVS operators are also obligated to 
abide by section 325 and the Commission's Rules implementing 
retransmission consent. We note that section 76.1506(e) specifically 
emphasizes the mandate to make must-carry signals viewable, and 
reiterates that the requirements established in this Third Report and 
Order apply equally to cable operators and OVS operators.

E. Conclusion

    For the reasons discussed above, we adopt these rules with respect 
to material degradation and viewability. A number of detailed issues 
must be addressed now that the broad

[[Page 6054]]

framework of rules has been established. We believe it is appropriate 
to provide stakeholders and the public with an opportunity to weigh in 
on these matters; therefore the Third Further Notice seeks comment on 
some specific applications of these general rules.

II. Procedural Matters

A. Third Report and Order

1. Final Regulatory Flexibility Analysis
    72. As required by the Regulatory Flexibility Act of 1980 
(``RFA''), the Commission has prepared a Final Regulatory Flexibility 
Analysis (``FRFA'') relating to this Third Report and Order. The FRFA 
is set forth in Appendix A of the order.
2. Final Paperwork Reduction Act Analysis
    73. This Third Report and Order contains modified information 
collection requirements subject to the Paperwork Reduction Act of 1995 
(``PRA''), Public Law 104-13. The modified information collection 
requirements relate solely to Office of Management and Budget (``OMB'') 
Control No. 3060-0647, the Commission's Annual Cable Price Survey. They 
will be submitted to OMB for review under section 3507(d) of the PRA. 
OMB, the general public, and other Federal agencies will be invited to 
comment on the modified information collection requirements contained 
in this proceeding. The Commission will publish a separate Federal 
Register Notice at a later date seeking these PRA comments from the 
public. In addition, we note that pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4), we have considered how the Commission might ``further 
reduce the information collection burden for small business concerns 
with fewer than 25 employees.'' We find that the modified requirements 
must apply fully to small entities (as well as to others) to protect 
consumers and further other goals, as described in the Order.
3. Congressional Review Act
    74. The Commission will send a copy of this Third Report and Order 
in a report to be sent to Congress and the Government Accountability 
Office, pursuant to the Congressional Review Act.

III. Ordering Clauses

    75. It is ordered that, pursuant to the authority contained in 
sections 4, 303, 614, and 615 of the Communications Act of 1934, as 
amended, 47 U.S.C. 154, 303, 534, and 535, this Third Report and Order 
and Third Further Notice of Proposed Rule Making is adopted and the 
Commission's Rules are hereby amended as set forth in Appendix C of the 
order.
    76. It is further ordered that this Third Report and Order and the 
rules in Appendix C are adopted and shall be effective March 3, 2008. 
The modified information collection requirements concerning the Annual 
Cable Price Survey will become effective upon approval by the Office of 
Management and Budget and our publication in the Federal Register of a 
notice announcing the effective date of the modified requirements.
    77. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Third Report and Order and Third Further Notice of 
Proposed Rule Making, including the Initial and Final Regulatory 
Flexibility Analyses, to the Chief Counsel for Advocacy of the Small 
Business Administration.
    78. It is further ordered that the Commission shall send a copy of 
this Third Report and Order and Third Further Notice of Proposed Rule 
Making in a report to be sent to Congress and the Government 
Accountability Office pursuant to the Congressional Review Act, see 
5U.S.C. 801(a)(1)(A).

List of Subjects in 47 CFR Part 76

    Cable television.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

0
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

0
1. The authority citation for part 76 continues to read as follows:

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


0
2. Section 76.56 is amended by adding paragraphs (d)(3), (d)(4), (d)(5) 
and paragraph (f) to read as follows:


Sec.  76.56  Signal carriage obligations.

* * * * *
    (d) * * *
    (3) The viewability and availability requirements of this section 
require that, after the broadcast television transition from analog to 
digital service for full power television stations cable operators must 
either:
    (i) Carry the signals of commercial and non-commercial must-carry 
stations in analog format to all analog cable subscribers, or
    (ii) For all-digital systems, carry those signals in digital 
format, provided that all subscribers, including those with analog 
television sets, that are connected to a cable system by a cable 
operator or for which the cable operator provides a connection have the 
necessary equipment to view the broadcast content.
    (4) Any costs incurred by a cable operator in downconverting or 
carrying alternative-format versions of signals under Sec.  
76.56(d)(3)(i) or (ii) shall be the responsibility of the cable 
operator.
    (5) The requirements set forth in paragraph (d)(3) of this section 
shall cease to be effective three years from the date on which all 
full-power television stations cease broadcasting analog signals, 
unless the Commission extends the requirements in a proceeding to be 
conducted during the year preceding such date.
* * * * *
    (f) Calculation of Broadcast Signals Carried. When calculating the 
portion of a cable system devoted to carriage of local commercial 
television stations under paragraph (b) of this section, a cable 
operator may count the primary video and program-related signals of all 
such stations, and any alternative-format versions of those signals, 
that they carry.


0
3. Section 76.62 is amended by revising paragraph (b) and adding 
paragraph (h) to read as follows:


Sec.  76.62  Manner of carriage.

* * * * *
    (b) Each digital television broadcast signal carried shall be 
carried without material degradation. Each analog television broadcast 
signal carried shall be carried without material degradation and in 
compliance with technical standards set forth in subpart K of this 
part.
* * * * *
    (h) If a digital television broadcast signal is carried in 
accordance with Sec.  76.62(b) and either (c) or (d), the carriage of 
that signal in additional formats does not constitute material 
degradation.

 [FR Doc. E8-1915 Filed 1-31-08; 8:45 am]
BILLING CODE 6712-01-P