[Federal Register Volume 76, Number 208 (Thursday, October 27, 2011)]
[Proposed Rules]
[Pages 66666-66672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-27743]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket No. 11-169; PP Docket No. 00-67; FCC 11-153]


Basic Service Tier Encryption Compatibility Between Cable Systems 
and Consumer Electronics Equipment

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, we propose a new rule to allow cable 
operators to encrypt the basic service tier in all-digital systems, 
provided that those cable operators undertake certain consumer 
protection measures for a limited period of time in order to minimize 
any potential subscriber disruption.

DATES: Submit comments on or before November 28, 2011. Submit reply 
comments on or before December 12, 2011.

FOR FURTHER INFORMATION CONTACT: For additional information on this 
proceeding, contact Brendan Murray, [email protected], of the 
Media Bureau, Policy Division, (202) 418-2120.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking, FCC 11-153, adopted on October 13, 2011 and 
released on October 14, 2011. 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. This document 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 these documents in accessible formats (computer diskettes, 
large print, audio recording, and Braille), send an email to 
[email protected] or call the Commission's Consumer and Governmental 
Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

Summary of the Notice of Proposed Rulemaking

    1. With this Notice of Proposed Rulemaking (NPRM), we seek comment 
on whether to retain the basic service tier encryption prohibition for 
all-digital cable systems. As discussed below, we tentatively conclude 
that allowing cable operators to encrypt the basic service tier in all-
digital systems will not substantially affect compatibility between 
cable service and consumer electronics equipment for most subscribers. 
At the same time, however, we recognize that some consumers subscribe 
only to a cable operator's digital basic service tier and currently are 
able to do so without using a set-top box or other equipment. 
Similarly, there are consumers that may have a set-top box on a primary 
television but access the unencrypted digital basic service tier on 
second or third televisions in their home without using a set-top box 
or other equipment. Although we expect the number of subscribers in 
these situations to be relatively small, these consumers may be 
affected by lifting the encryption prohibition for all-digital cable 
systems. Accordingly, we tentatively conclude that, any operators of 
all-digital cable systems that choose to encrypt the basic service tier 
must comply with certain consumer protection measures for a limited 
period of time in order to minimize any potential subscriber 
disruption.
    2. In the Cable Television Consumer Protection and Competition Act 
of 1992 (1992 Cable Act), Congress recognized that compatibility 
problems between cable service and consumer electronics equipment were 
limiting and/or precluding the operation of premium features of 
consumer equipment and were affecting the ability of consumer equipment 
to receive cable programming. Section 624A of the Act was added by 
Section 17 of the 1992 Cable Act to address this issue. Specifically, 
section 624A requires the Commission to issue regulations to assure 
compatibility between consumer electronics equipment and cable systems. 
In 1994, the Commission implemented the requirements of section 624A. 
As part of that implementation, the Commission added Sec.  76.630(a) to 
its rules. Section 76.630(a) of the Commission's rules prohibits cable 
operators from scrambling or encrypting signals carried on the basic 
tier of service. The Commission determined that this rule would 
significantly advance compatibility by ensuring that all subscribers 
would be able to receive basic tier signals ``in the clear'' and that 
basic-only subscribers with cable-ready televisions would not need set-
top boxes. The Commission concluded that ``[t]his rule also will have 
minimal impact on the cable industry in view of the fact that most 
cable systems now generally do not scramble basic tier signals.''
    3. Subsequent to the Commission's adoption of the encryption ban, 
cable operators began to upgrade their systems to offer digital cable 
service. More recently, cable operators' transition to more efficient 
all-digital systems has freed up spectrum to offer new or improved 
products and services like higher-speed Internet access and high 
definition programming. As a result of this digital transition, most 
cable subscribers now have at least one cable set-top box or CableCARD 
device in their homes. As cable operators began to transition 
programming on their cable programming service tier (CPST) to digital, 
many program carriage agreements required cable operators to encrypt 
that programming as a condition of carriage. Encryption refers

[[Page 66667]]

to the method that cable operators use to make sure that cable service 
is available only to subscribers who have paid for service. Because 
encryption serves such an important purpose, encryption of digital 
cable service has become more sophisticated than analog scrambling 
techniques. Encryption methods did not used to be standard across all 
cable systems, however. In 2003, therefore, the Commission adopted the 
CableCARD standard to address this incompatibility problem. The 
CableCARD, which subscribers must lease from their cable provider 
either as a part of a leased set-top box or separately for use in a 
compatible retail television or set-top box, decrypts the cable 
services that the cable operator encrypts. At present, approximately 77 
percent of cable subscribers have at least one digital cable set-top 
box or retail CableCARD device in their home.
    4. The fact that most subscribers have a cable set-top box or 
retail CableCARD device limits the impact of encryption of the basic 
service tier in all-digital systems on cable subscribers. Most 
television sets, consumer electronics devices, and leased set-top boxes 
have included QAM tuners since at least 2007, meaning that those 
devices are capable of tuning unencrypted digital cable service. As 
stated above, however, most cable operators who have transitioned to 
all-digital service encrypt the entire CPST. Therefore, many cable 
subscribers currently use CableCARDs (either in a retail device or 
leased set-top box) to decrypt their cable service. The remainder of 
digital cable subscribers use either (i) leased set-top boxes with 
integrated security (offered under waivers of the separated security 
requirement or originally deployed before the requirement became 
effective) to decrypt cable service, or (ii) television sets or devices 
with QAM tuners, but without CableCARDs, to receive any remaining 
unencrypted cable signals (typically limited to the basic service 
tier). Encryption of the basic service tier in all-digital systems 
would affect this second group, i.e., the digital cable subscribers who 
use television sets or devices with QAM tuners, but without CableCARDs. 
We do not know how many subscribers fall into this group, but based on 
the Cablevision Report discussed below, we expect it to be small.
    5. In the past, the Commission has waived the basic service tier 
encryption prohibition on a demonstration of extraordinary theft of 
service. Theft of service occurs when unauthorized users physically 
connect their outlets to the cable plant; in other words, people would 
climb poles and connect the cable operator's coaxial cable to homes 
that do not subscribe to cable service. Recently, the Commission has 
received several requests for waiver of the rule prohibiting encryption 
of the basic service tier based on the argument that the rule imposes 
more burdens than benefits as cable operators transition to all-digital 
systems. The petitioners argue that there are very few people who 
subscribe only to the basic service tier in all-digital systems and 
therefore the overwhelming majority of subscribers to all-digital 
systems already have a set-top box or CableCARD-equipped retail device 
and therefore would be unaffected by encryption of the basic service 
tier. Furthermore, they contend, encrypting the basic service tier in 
an all-digital system will eliminate the need for many service 
appointments because it will allow cable operators to enable and 
disable cable service remotely by activating and deactivating the 
encryption capability of set-top boxes and CableCARDs from the headend. 
In order to remotely activate and deactivate service, cable operators 
must leave every home connected to the cable plant rather than manually 
disconnect the cable that runs to a home, which is how many cable 
operators disconnect service today. If the cable operator is allowed to 
encrypt every signal, the operator can keep every home connected to the 
cable plant regardless of whether the home subscribes to cable service. 
The operator can ensure that only paid subscribers are able to access 
the service by authorizing and deauthorizing CableCARDs as people 
subscribe or cancel cable service.
    6. In waiver proceedings, certain commenters have asserted that 
while encryption of all service tiers has its benefits, it also imposes 
some burdens on consumers and device manufacturers. For example, some 
commenters explained that they own or manufacture devices like personal 
computer cable tuner cards that cable subscribers use to view or record 
unencrypted programming with their computers. These commenters 
expressed concern that those devices do not have the ability to decrypt 
cable signals and therefore could not display encrypted cable 
programming. These commenters asserted that they purchased or 
manufactured these devices based on the expectation that unencrypted 
basic service tier QAM signals would be available from cable operators, 
and that encryption of the basic service tier would make the devices 
useless. In addition, some commenters objected to the impact that 
encryption of the basic service tier would have on televisions with 
clear-QAM tuners that currently are attached to the cable network 
directly without a set-top box. Encryption of the basic service tier 
would require those subscribers to lease a set-top box to access basic 
service tier channels on those television sets.
    7. In January 2010, the Media Bureau granted a conditional waiver 
of the rule that prohibits encryption of the basic service tier to 
Cablevision with respect to Cablevision's New York City systems, which 
are all-digital. The Bureau based its decision on the fact that 
encryption of the basic service tier on Cablevision's all-digital 
systems would allow Cablevision to enable and disable cable service 
remotely. The Bureau also found that remote activation and deactivation 
of cable service would ``reduce[] costs for Cablevision, improve[] 
customer service, and reduce[] fuel consumption and CO2 
emissions.'' Remote activation and deactivation, the Bureau concluded, 
would reduce installation costs for Cablevision's subscribers and also 
benefit these subscribers by reducing the number of necessary service 
calls, as compared to unencrypted cable systems. The Bureau reasoned 
that Cablevision sufficiently addressed the problem of incompatibility 
with consumer electronics ``by providing basic-only subscribers with 
set-top boxes or CableCARDs without charge for significant periods of 
time.'' Finally, the Bureau also concluded that the waiver would 
``provide an experimental benefit that could be valuable in the 
Commission's further assessment of the utility of the encryption 
rule,'' and therefore required Cablevision to file three reports 
detailing the effect of encryption on subscribers. Four cable operators 
have filed similar petitions for waiver with the Commission's Media 
Bureau since the release of the Cablevision Waiver, and we understand 
that additional cable operators plan to file in the absence of this 
proceeding.
    8. We initiate this proceeding to determine whether the 
Commission's basic service tier encryption prohibition, which was 
adopted over 15 years ago, remains necessary to promote compatibility 
between digital cable service and consumer electronics equipment in all 
circumstances. In this regard, we note, as described above, that the 
video marketplace has changed significantly over this period. 
Specifically, most cable operators have updated their systems to 
provide bidirectional, digital signals in addition to analog service, 
and some cable operators, like RCN and BendBroadband, transmit only 
digital

[[Page 66668]]

signals and have eliminated analog service in all of their systems. 
Other operators, like Cablevision and Comcast, have eliminated analog 
service on certain systems and plan to eliminate analog service in all 
systems over the coming years. As discussed above, data from SNL Kagan 
indicates that over three-quarters of cable subscribers have at least 
one device in their home that can both demodulate and decrypt digital 
cable services. Furthermore, because the Commission incorporated the 
CableCARD standard into our rules in 2003, consumer electronics 
manufacturers can build digital cable ready devices that can access 
encrypted cable service without the need for a converter box. Given 
these marketplace and regulatory developments, we tentatively conclude 
that it is appropriate to allow basic service tier encryption for all-
digital cable systems, subject to certain measures intended to 
ameliorate any potential harm to consumers in the short run. Our 
proposal is informed by the information garnered from Cablevision's 
first year of implementation under the Bureau's waiver conditions. 
Specifically, in its recently filed final report, Cablevision stated 
that basic service tier encryption led to a reduction of 2,763 truck 
rolls, and predicted that it eventually will perform over 70 percent of 
all deactivations remotely. In its waiver petition, Cablevision 
asserted that by reducing service calls it could reduce the 
environmental harms associated with use of gas-consuming, traffic-
causing trucks. Furthermore, Cablevision reports that no subscribers 
filed complaints regarding encryption of the basic service tier, which 
suggests that with the appropriate consumer protection measures, 
encryption of the basic service tier in all-digital systems does not 
affect subscribers adversely. We believe that this evidence shows that, 
where cable operators undertake appropriate consumer protection 
measures, the costs of retaining this rule (e.g., the need to schedule 
service appointments whenever a consumer subscribes to or cancels cable 
service as well as the expense and effect of cable operators' trucks on 
traffic and the environment) outweigh the benefits of retaining it 
(e.g., ensuring the continued utility of devices with clear-QAM 
tuners). We seek comment on this tentative conclusion. Specifically, we 
seek comment on the costs and benefits to subscribers and cable 
operators associated with the basic service tier encryption rule as it 
applies to all-digital cable systems. We also invite comment on any 
environmental costs and benefits associated with the rule. Would 
elimination of the encryption ban benefit the environment through 
reduction in the gas consumption and traffic associated with truck 
rolls, and would those benefits outweigh any countervailing 
environmental effects, such as energy consumption from additional set-
top boxes? To the extent feasible, commenters should quantify in 
dollars any asserted costs or benefits of the basic service tier 
encryption prohibition.
    9. We propose to allow encryption of the basic service tier only 
with respect to all-digital systems, as remote activation and 
deactivation of cable service, and its attendant benefits, are only 
feasible in all-digital systems. We seek comment on the specific 
criteria that the Commission should use to determine what constitutes 
an all-digital cable system. For example, what if a system transmits 
nearly all of its channels solely in digital, but maintains a single, 
unencrypted analog channel to inform potential subscribers about how to 
subscribe to service? We seek comment also about digital cable services 
that are not QAM-based. Is it appropriate to include IP and other non-
QAM digital cable services in the definition of an all-digital cable 
system for the purposes of the proposed rule revision? We also seek 
comment on whether the Commission should revise the encryption rule 
with respect to any hybrid (analog/digital) systems where basic service 
tier programming is provided digitally but the cable operator also 
continues to provide some analog service to its subscribers (which is 
the case in many cable systems today). Would revision of the encryption 
rule with respect to those systems have any attendant benefits given 
that remote activation and deactivation of cable service is not 
feasible in hybrid systems?
    10. We further seek comment on whether our proposed rule would 
satisfy our regulatory obligations under section 624A of the 
Communications Act. Section 624A directs the Commission to issue 
regulations as necessary to assure compatibility between televisions 
and video cassette recorders and cable systems, consistent with the 
need to prevent theft of cable service, so that cable subscribers will 
be able to enjoy the full benefit of both the programming available on 
cable systems and the functions available on their televisions and 
video cassette recorders. Essentially, with section 624A, Congress 
sought to develop a ``plug and play'' compatibility regime. We note 
that while Congress specifically cited scrambling and encryption as an 
impediment to compatibility, it nonetheless directed the Commission to 
``determine whether and, if so, under what circumstances to permit 
cable systems to scramble or encrypt signals or to restrict cable 
systems in the manner in which they encrypt or scramble signals.'' 
Section 624A further prohibits the Commission from limiting the use of 
scrambling or encryption technology where the use of such technology 
does not interfere with the functions of subscribers' television 
receivers or video cassette recorders. Based on section 624A, we 
believe the Commission has broad authority to address and regulate 
encryption technology within the parameters established by Congress.
    11. We recognize that some subscribers of only the basic service 
tier currently access digital cable service without a CableCARD or 
converter box. We tentatively conclude that if the Commission allows 
cable operators to encrypt the basic service tier in all-digital 
systems, we should, at the same time, minimize any instances of 
incompatibility due to encryption of the basic service tier by 
implementing transitional measures for the limited universe of 
subscribers who currently access the unencrypted digital basic service 
tier without a set-top box. That is, we recognize that there are some 
consumers who currently are able to access the basic service tier 
without using a set-top box because of the current encryption 
prohibition. Accordingly, to mitigate any potential harm experienced by 
these consumers, we believe our rules should implement transitional 
measures to prevent consumers from having to purchase or lease new 
equipment immediately in order to continue accessing the basic service 
tier if their cable operators choose to encrypt this tier.
    12. When the Media Bureau granted the waiver authorizing 
Cablevision to encrypt the basic service tier, it conditioned that 
waiver to limit the immediate costs that basic service tier subscribers 
would face on account of the need for additional equipment like set-top 
boxes to provide digital televisions equipped with clear QAM tuners 
access to basic service tier channels. Those conditions require 
Cablevision to offer ``(a) current basic-only subscribers up to two 
set-top boxes or CableCARDs without charge for up to two years, (b) 
digital subscribers who have an additional television set currently 
receiving basic-only service one set-top box or CableCARD without 
charge for one year, and (c) current qualified low-income basic-only 
subscribers up to two set-top boxes or

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CableCARDs without charge for five years.'' We believe that similar 
measures are appropriate and necessary for purposes of relaxing the 
encryption ban because of the potential harm to basic-only subscribers 
who have come to rely on access to unencrypted basic-only service. A 
transition period will provide affected subscribers time to make 
informed choices about equipment and/or other alternatives available in 
their service area. We therefore propose that cable operators that 
choose to encrypt the basic service tier in their service area provide 
to subscribers, without charge for a limited time, devices that can 
decrypt the basic service tier as described above. We seek comment on 
this proposal.
    13. Are the consumer protection measures we propose to adopt 
adequate to protect all subscribers of digital cable systems in all 
areas of the country? We seek comment on the number of subscribers that 
this rule change will affect. We also seek comment on an appropriate 
time frame for requiring cable operators to provide set-top boxes at no 
cost to current subscribers, and particularly with regard to low-income 
subscribers. Are the time frames established in the Cablevision 
proceeding appropriate to serve the goal of minimizing the immediate 
costs that basic subscribers and subscribers with additional sets 
receiving basic-only service face through this modification of the 
rules? In the context of the Cablevision waiver, the Media Bureau used 
receipt of Medicaid as an indicator of a current qualified low income 
basic-only subscriber. Does it make sense to do so in the context of 
this NPRM? We invite commenters to suggest other indicators to 
delineate what constitutes a current qualified low income basic-only 
subscriber. Are additional safeguards necessary and appropriate, and, 
if so, what are these safeguards? Would an interim 7-year time period 
or longer be more consistent with ensuring there is not an economic 
hardship on low-income subscribers who prior to the potential relaxing 
of the encryption ban would not have needed additional equipment? We 
seek comment on any other measures the Commission should take to 
protect subscribers if we decide to relax the prohibition on encryption 
of the basic service tier for all-digital cable systems.
    14. Although we propose to relax the encryption ban for all-digital 
systems, our proposal does not require cable operators operating those 
systems to encrypt the basic service tier. Rather, our proposed rule 
permits cable operators to encrypt this tier provided that they offer 
free set-top boxes to basic-only subscribers for a limited period of 
time. Because cable operators may decide whether they wish to encrypt 
under the requisite regulatory conditions (i.e., provide set-top boxes 
at no cost to affected subscribers for a limited period), we see no 
statutory or constitutional constraints to imposing such a requirement. 
In that regard, we note that the proposed regulatory conditions would 
be implemented pursuant to our authority under sections 624A, not as a 
rate regulation prescribed under section 623(b) of the Act. 
Accordingly, we do not believe section 623(b)(3)(A)'s requirement to 
base on actual cost any price or rate standards for equipment 
installation and leasing would bar the Commission from imposing the 
set-top box condition for relaxing the encryption prohibition. We seek 
comment on this analysis.
    15. Ex Parte Presentations. The proceeding this NPRM initiates 
shall be treated as a ``permit-but-disclose'' proceeding in accordance 
with the Commission's ex parte rules. Persons making ex parte 
presentations must file a copy of any written presentation or a 
memorandum summarizing any oral presentation within two business days 
after the presentation (unless a different deadline applicable to the 
Sunshine period applies). Persons making oral ex parte presentations 
are reminded that memoranda summarizing the presentation must (1) list 
all persons attending or otherwise participating in the meeting at 
which the ex parte presentation was made, and (2) summarize all data 
presented and arguments made during the presentation. If the 
presentation consisted in whole or in part of the presentation of data 
or arguments already reflected in the presenter's written comments, 
memoranda or other filings in the proceeding, the presenter may provide 
citations to such data or arguments in his or her prior comments, 
memoranda, or other filings (specifying the relevant page and/or 
paragraph numbers where such data or arguments can be found) in lieu of 
summarizing them in the memorandum. Documents shown or given to 
Commission staff during ex parte meetings are deemed to be written ex 
parte presentations and must be filed consistent with Sec.  1.1206(b) 
of the Commission's rules. In proceedings governed by Sec.  1.49(f) of 
the Commission's rules or for which the Commission has made available a 
method of electronic filing, written ex parte presentations and 
memoranda summarizing oral ex parte presentations, and all attachments 
thereto, must be filed through the electronic comment filing system 
available for that proceeding, and must be filed in their native format 
(e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this 
proceeding should familiarize themselves with the Commission's ex parte 
rules.
    16. Initial Regulatory Flexibility Analysis. The Regulatory 
Flexibility Act of 1980, as amended (RFA), requires that a regulatory 
flexibility analysis be prepared for notice and comment rule making 
proceedings, unless the agency certifies that ``the rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities.'' 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).
    17. With respect to this NPRM, an Initial Regulatory Flexibility 
Analysis (IRFA) under the Regulatory Flexibility Act is contained 
below. Written public comments are requested in the IFRA, and must be 
filed in accordance with the same filing deadlines as comments on the 
NPRM, with a distinct heading designating them as responses to the 
IRFA. The Commission will send a copy of this NPRM, including the IRFA, 
in a report to Congress pursuant to the Congressional Review Act. In 
addition, a copy of this NPRM and the IRFA will be sent to the Chief 
Counsel for Advocacy of the SBA, and will be published in the Federal 
Register.
    18. Initial Paperwork Reduction Act of 1995 Analysis Paperwork 
Reduction Act 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).
    19. Comment Filing Procedures. Pursuant to Sec. Sec.  1.415 and 
1.419 of the Commission's rules, 47 CFR 1.415 and 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 the Commission's

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Electronic Comment Filing System (ECFS). See Electronic Filing of 
Documents in Rulemaking Proceedings, 63 FR 24121 (1998).
    20. Electronic Filers: Comments may be filed electronically using 
the Internet by accessing the ECFS: http://fjallfoss.fcc.gov/ecfs2/.
    21. Paper Filers: Parties who choose to file by paper must file an 
original and one copy 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. All filings must be addressed to the Commission's 
Secretary, Office of the Secretary, Federal Communications Commission. 
All hand-delivered or messenger-delivered paper filings for the 
Commission's Secretary must be delivered to FCC Headquarters at 445 
12th St., SW., Room TW-A325, Washington, DC 20554. The filing hours are 
8 a.m. to 7 p.m. All hand deliveries must be held together with rubber 
bands or fasteners. Any envelopes and boxes 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 must be addressed to 445 12th 
Street, SW., Washington DC, 20554.
    22. People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to [email protected] or call the 
Consumer & Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 
418-0432 (tty).
    23. Additional Information: For additional information on this 
proceeding, please contact Brendan Murray of the Media Bureau, Policy 
Division, [email protected], (202) 418-1573.
    24. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 1, 4(i), 4(j), 303(r), 403, and 624A of the 
Communications Act of 1934, as amended, 47 U.S.C. sections 151, 154(i), 
154(j), 303(r), 403, and 544a, this Notice of Proposed Rulemaking is 
adopted.
    25. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA) the Commission has prepared this Initial Regulatory 
Flexibility Analysis (IRFA) of the possible significant economic impact 
on small entities by the policies and rules proposed in this NPRM. 
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 provided above. The Commission will send a 
copy of the NPRM, including this IRFA, to the Chief Counsel for 
Advocacy of the Small Business Administration. In addition, the NPRM 
and IRFA (or summaries thereof) will be published in the Federal 
Register.
    26. Need for, and Objectives of the Proposed Rules. With this NPRM, 
the Commission seeks comment on elimination of the basic service tier 
encryption prohibition for all-digital cable systems.The need for FCC 
regulation in this area derives from changing technology in the cable 
services market. When the Commission adopted technical rules in the 
1990s, digital cable service was in its infancy, and therefore the 
rules were adopted with analog cable service in mind. Today, digital 
cable service is common, and certain technical rules related to cable 
service do not translate well. Therefore, the Commission proposes to 
allow all-digital cable operators to encrypt the basic service tier.
    27. Legal Basis. The authority for the action proposed in this 
rulemaking is contained in sections 1, 4(i) and (j), 303, 403, 601, 
624, and 624A of the Communications Act of 1934, as amended, 47 U.S.C. 
151, 154(i) and (j), 303, 403, 521, 544, and 544a.
    28. Description and Estimate of the Number of Small Entities to 
Which the Proposed Rules Will Apply. The RFA directs the Commission to 
provide a description of and, where feasible, an estimate of the number 
of small entities that will be affected by the proposed rules. The RFA 
generally defines the term ``small entity'' as having the same meaning 
as the terms ``small business,'' ``small organization,'' and ``small 
governmental entity'' under section 3 of the Small Business Act. 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'').
    29. Wired Telecommunications Carriers. The 2007 North American 
Industry Classification System (NAICS) defines ``Wired 
Telecommunications Carriers'' as follows: ``This industry comprises 
establishments primarily engaged in operating and/or providing access 
to transmission facilities and infrastructure that they own and/or 
lease for the transmission of voice, data, text, sound, and video using 
wired telecommunications networks. Transmission facilities may be based 
on a single technology or a combination of technologies. Establishments 
in this industry use the wired telecommunications network facilities 
that they operate to provide a variety of services, such as wired 
telephony services, including VoIP services; wired (cable) audio and 
video programming distribution; and wired broadband Internet services. 
By exception, establishments providing satellite television 
distribution services using facilities and infrastructure that they 
operate are included in this industry.'' The SBA has developed a small 
business size standard for wireline firms within the broad economic 
census category, ``Wired Telecommunications Carriers.'' Under this 
category, the SBA deems a wireline business to be small if it has 1,500 
or fewer employees. Census Bureau data for 2002 show that there were 
2,432 firms in this category that operated for the entire year. Of this 
total, 2,395 firms had employment of 999 or fewer employees, and 37 
firms had employment of 1,000 employees or more. Thus, under this 
category and associated small business size standard, the majority of 
firms can be considered small.
    30. Wired Telecommunications Carriers--Cable and Other Program 
Distribution. This category includes, among others, cable operators, 
direct broadcast satellite (DBS) services, home satellite dish (HSD) 
services, satellite master antenna television (SMATV) systems, and open 
video systems (OVS). The data we have available as a basis for 
estimating the number of such entities were gathered under a superseded 
SBA small business size standard formerly titled Cable and Other 
Program Distribution. The former Cable and Other Program Distribution 
category is now included in the category of Wired Telecommunications 
Carriers, the majority of which, as discussed above, can be considered 
small. According to Census Bureau data for 2002, there were a total of 
1,191 firms in this previous 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. Thus, we believe that a substantial number of entities 
included in the former Cable and Other Program Distribution category 
may have been categorized as small entities under the now superseded 
SBA small business size standard for Cable

[[Page 66671]]

and Other Program Distribution. With respect to OVS, the Commission has 
approved approximately 120 OVS certifications with some OVS operators 
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 2006, BSPs served approximately 1.4 million 
subscribers, representing 1.46 percent of all MVPD households. Among 
BSPs, however, those operating under the OVS framework are in the 
minority. 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.
    31. Cable System Operators (Rate Regulation Standard). 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. As of 2006, 7,916 cable operators qualify as small cable 
companies under this 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 6,139 systems have under 
10,000 subscribers, and an additional 379 systems have 10,000-19,999 
subscribers. Thus, under this standard, most cable systems are small.
    32. Cable System Operators (Telecom Act Standard). 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.'' There are approximately 65.3 million 
cable subscribers in the United States today. Accordingly, an operator 
serving fewer than 654,000 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. Based on available data, we find that the number of cable 
operators serving 654,000 subscribers or less totals approximately 
7,916. 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. Although it 
seems certain that some of these cable system operators are affiliated 
with entities whose gross annual revenues exceed $250,000,000, we are 
unable at this time to estimate with greater precision the number of 
cable system operators that would qualify as small cable operators 
under the definition in the Communications Act.
    33. 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 all firms with $15 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.
    34. Computer Terminal Manufacturing. ``Computer terminals are 
input/output devices that connect with a central computer for 
processing.'' The SBA has developed a small business size standard for 
this category of manufacturing; that size standard is 1,000 or fewer 
employees. According to Census Bureau data, there were 71 
establishments in this category that operated with payroll during 2002, 
and all of the establishments had employment of under 1,000. 
Consequently, we estimate that all of these establishments are small 
entities.
    35. Other Computer Peripheral Equipment Manufacturing. Examples of 
peripheral equipment in this category include keyboards, mouse devices, 
monitors, and scanners. The SBA has developed a small business size 
standard for this category of manufacturing; that size standard is 
1,000 or fewer employees. According to Census Bureau data, there were 
860 establishments in this category that operated with payroll during 
2002. Of these, 851 had employment of under 1,000, and an additional 
five establishments had employment of 1,000 to 2,499. Consequently, we 
estimate that the majority of these establishments are small entities.
    36. Audio and Video Equipment Manufacturing. These establishments 
manufacture ``electronic audio and video equipment for home 
entertainment, motor vehicle, public address and musical instrument 
amplifications.'' The SBA has developed a small business size standard 
for this category of manufacturing; that size standard is 750 or fewer 
employees. According to Census Bureau data, there were 571 
establishments in this category that operated with payroll during 2002. 
Of these, 560 had employment of under 500, and ten establishments had 
employment of 500 to 999. Consequently, we estimate that the majority 
of these establishments are small entities.
    37. Description of Reporting, Recordkeeping and Other Compliance 
Requirements. The rules proposed in the NPRM will not impose additional 
reporting, recordkeeping, and compliance requirements on cable 
operators.
    38. Steps Taken To Minimize Significant Impact on Small Entities, 
and Significant Alternatives Considered. The RFA requires an agency to 
describe any significant alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (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.
    39. As indicated above, the NPRM seeks comment on elimination of 
the basic service tier encryption prohibition for all-digital cable 
systems. The Commission considered leaving the current rule in place. 
The Commission tentatively concludes, however, that an exemption of the 
rule for all-digital cable systems could reduce the service calls that 
a cable operator must perform, and therefore the Commission believes 
that this proposed rule change will reduce burdens on small entities.
    40. We welcome comments that suggest modifications of any proposal 
if based on evidence of potential differential impact on smaller 
entities. In addition, the Regulatory Flexibility

[[Page 66672]]

Act requires agencies to seek comment on possible small entity-related 
alternatives, as noted above. We therefore seek comment on alternatives 
to the proposed rules that would assist small entities while ensuring 
improved customer support by cable operators for digital cable products 
purchased at retail.
    41. Federal Rules Which Duplicate, Overlap, or Conflict with the 
Commission's Proposals. None.

List of Subjects in 47 CFR Part 76

    Administrative practice and procedure, Cable television, Equal 
employment opportunity, Political candidates, Reporting and 
recordkeeping requirements.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Rule Changes

    For the reasons discussed in the preamble, the Federal 
Communications Commission proposes to amend 47 CFR Part 76 as follows:

PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

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

    Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 302a, 303, 
303a, 307, 308, 309, 312, 315, 317, 325, 339, 340, 341, 503, 521, 
522, 531, 532, 534, 535, 536, 537, 543, 544, 544a, 545, 548, 549, 
552, 554, 556, 558, 560, 561, 571, 572, 573.

    2. Section 76.630 is amended by revising paragraph (a) and Note 1 
and 2 to read as follows:


Sec.  76.630  Compatibility with consumer electronics equipment.

    (a) Cable system operators shall not scramble or otherwise encrypt 
signals carried on the basic service tier.
    (1) This prohibition shall not apply in systems in which:
    (i) No television signals are provided using the NTSC system; and
    (ii) The cable operator offers to its existing basic service tier 
subscribers (who do not use a set-top box or CableCARD at the time of 
encryption) the equipment necessary to descramble or decrypt the basic 
service tier signals (the subscriber's choice of a set-top box or 
CableCARD) on up to two separate television sets without charge for two 
years from the date of encryption; and
    (iii) The cable operator offers to its existing digital subscribers 
who have an additional television set currently receiving basic-only 
service without a set-top box, the equipment necessary to descramble or 
decrypt the basic service tier signals on one television set without 
charge for one year from the date of encryption; and
    (iv) The cable operator offers to all existing basic-only 
subscribers who receive Medicaid the equipment necessary to descramble 
or decrypt the basic service tier signals on up to two separate 
television sets without charge for five years from the date of 
encryption.
    (2) Requests for waivers of this prohibition must demonstrate 
either a substantial problem with theft of basic tier service or a 
strong need to scramble basic signals for other reasons. As part of 
this showing, cable operators are required to notify subscribers by 
mail of waiver requests. The notice to subscribers must be mailed no 
later than thirty calendar days from the date the request for waiver 
was filed with the Commission, and cable operators must inform the 
Commission in writing, as soon as possible, of that notification date. 
The notification to subscribers must state: On (date of waiver request 
was filed with the Commission), (cable operator's name) filed with the 
Federal Communications Commission a request for waiver of the rule 
prohibiting scrambling of channels on the basic tier of service. 47 CFR 
76.630(a). The request for waiver states (a brief summary of the waiver 
request). A copy of the request for waiver shall be available for 
public inspection at (the address of the cable operator's local place 
of business).
    (3) Individuals who wish to comment on this request for waiver 
should mail comments to the Federal Communications Commission by no 
later than 30 days from (the date the notification was mailed to 
subscribers). Those comments should be addressed to the: Federal 
Communications Commission, Media Bureau, Washington, DC 20554, and 
should include the name of the cable operator to whom the comments are 
applicable. Individuals should also send a copy of their comments to 
(the cable operator at its local place of business). Cable operators 
may file comments in reply no later than 7 days from the date 
subscriber comments must be filed.
* * * * *
    Note 1 to Sec.  76.630: 47 CFR 76.1621 contains certain 
requirements pertaining to a cable operator's offer to supply 
subscribers with special equipment that will enable the simultaneous 
reception of multiple signals.
    Note 2 to Sec.  76.630: 47 CFR 76.1622 contains certain 
requirements pertaining to the provision of a consumer education 
program on compatibility matters to subscribers.
* * * * *
[FR Doc. 2011-27743 Filed 10-26-11; 8:45 am]
BILLING CODE 6712-01-P