[Federal Register Volume 77, Number 218 (Friday, November 9, 2012)]
[Rules and Regulations]
[Pages 67290-67302]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-27350]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket No. 11-69; PP Docket No. 00-67; FCC 12-126]


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

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission adopts new rules 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: Effective December 10, 2012.

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 Report 
and Order, FCC 12-126, adopted on October 10, 2012 and released on 
October 12, 2012. 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 Report and Order

    1. With this Report and Order (Order), we amend our rules to allow 
cable operators to encrypt the basic service tier in all-digital cable 
systems if they comply with certain consumer-protection measures. As 
discussed below, this rule change will benefit consumers who can have 
their cable service activated and deactivated from a remote location. 
By allowing remote activation and deactivation, we expect our amended 
rules will result in benefits to both cable operators and consumers by 
significantly reducing the number of truck rolls associated with 
provisioning service and significantly reducing the need for 
subscribers to wait for service calls to activate or deactivate cable 
service. At the same time, we recognize that this rule change will 
adversely affect a small number of cable subscribers who currently view 
the digital basic service tier without using a set-top box or other 
equipment. If a cable operator decides to encrypt the digital basic 
tier, then these subscribers will need equipment to continue viewing 
the channels on this tier. To give those consumers time to resolve the 
incompatibility between consumer electronics equipment (such as digital 
television sets) and newly encrypted cable service, we require 
operators of cable systems that choose to encrypt the basic service 
tier to comply with certain consumer protection measures for a period 
of time. In addition, we note that this rule change may impact the 
ability of a small number of subscribers that use certain third-party 
equipment that is not CableCARD compatible to access channels on the 
basic service tier. To address this issue, we require the six

[[Page 67291]]

largest incumbent cable operators to comply with additional 
requirements that are intended to ensure compatibility with certain 
third-party-provided equipment used to access the basic tier.
    2. Background. In the Cable Television Consumer Protection and 
Competition Act of 1992 (``1992 Cable Act''), Congress sought to make 
sure that consumer electronics equipment could receive cable 
programming and that compatibility issues did not limit the premium 
features of that equipment. Section 17 of that law added section 624A 
to the Communications Act of 1934, as amended. 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 in part by 
adding Sec.  76.630(a) to its rules. Section 76.630(a) prohibits cable 
operators from scrambling or encrypting signals carried on the basic 
tier of service. Encryption is an essential component of a conditional 
access system, which cable operators use to ensure that subscribers 
receive only the services that they are authorized to receive. 
Nevertheless, 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. In the mid-1990's, cable operators began to upgrade their 
systems to offer digital cable service in addition to analog cable 
service (hybrid service). More recently, many cable operators have 
transitioned to more efficient all-digital service, freeing up spectrum 
to offer new or improved products and services like higher-speed 
Internet access and high definition programming. After a cable operator 
transitions to an all-digital system, most of its subscribers have at 
least one cable set-top box or retail CableCARD device in their homes. 
We expect that the percentage of homes with set-top boxes or retail 
CableCARD devices will continue to increase as more cable operators 
eliminate analog service from their systems in favor of more efficient 
digital service.
    4. The percentage of homes with set-top boxes or CableCARD devices 
is high because most cable systems now scramble most of their signals. 
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. In addition, cable operators use encryption as 
part of their conditional access system to ensure that cable service is 
available only to those who have paid for it. Particular methods of 
encryption, however, vary across cable systems, which could lead to 
incompatibility between consumer devices and cable service. In 2003, 
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. At present, over 78 percent of all cable 
subscribers have at least one leased set-top box or retail CableCARD 
device in their home. Cable operators who offer only digital service 
indicate that all of their subscribers have at least one leased set-top 
box or retail CableCARD device. Some cable subscribers rely on QAM 
tuners in television sets and consumer electronics devices that allow 
access to unencrypted digital cable service without additional 
equipment, but, based on the record before us, we believe that few 
consumers rely on them for primary access to cable service. The fact 
that most cable subscribers already have a cable set-top box or retail 
CableCARD device significantly reduces the number of subscribers who 
benefit from the prohibition on encryption of the basic service tier in 
all-digital systems in contrast to systems that carry analog service.
    5. Our rules state that requests for waiver of the encryption 
prohibition ``must demonstrate either a substantial problem with theft 
of basic tier service or a strong need to scramble basic signals for 
other reasons.'' Prior to 2010, the Commission had waived the rule 
based only on theft of 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 
that access to the basic tier would therefore be unaffected by 
encryption for the overwhelming majority of subscribers to such systems 
because they already have a set-top box or CableCARD-equipped retail 
device. Furthermore, they contend, encrypting the basic service tier in 
an all-digital system would eliminate the need for many service calls 
because it would allow cable operators to enable and disable cable 
service remotely, activating and deactivating the encryption capability 
of set-top boxes and CableCARDs from the headend rather than visiting 
subscribers' homes. Today, cable operators typically must manually 
connect and disconnect the cable that runs to a home to activate or 
deactivate service and use traps to block access to particular 
channels. If the cable operator were allowed to encrypt every signal, 
the operator could keep every home connected to the cable plant 
regardless of whether the home subscribes to cable service. In 
addition, the operator could ensure that only paid subscribers are able 
to access the service by authorizing and deauthorizing CableCARDs, or 
other legitimate devices, as people subscribe to or cancel cable 
service.
    6. 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 occasions when they must wait at 
home for a service call, as compared to unencrypted cable systems. The 
Bureau reasoned that Cablevision would sufficiently address 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

[[Page 67292]]

Bureau since the release of the Cablevision Waiver.
    7. In the wake of these petitions as well as requests from Public 
Knowledge and Media Access Project for the Commission to deal with the 
basic service tier encryption issue by launching a rulemaking 
proceeding, the Commission issued a Notice of Proposed Rulemaking in 
October 2011. The Commission proposed to allow cable operators to 
encrypt the basic service tier in all-digital systems, subject to 
conditions that would minimize disruption for affected subscribers by 
providing a transition period in which to make informed choices about 
purchasing or leasing new equipment to continue accessing service. 
Based on the reports that Cablevision submitted as a condition of its 
waiver, the Commission in the Encryption NPRM predicted that the rule 
change would reduce truck rolls and service calls with modest adverse 
effects on few subscribers. We received comments or reply comments on 
the Encryption NPRM from 34 parties, and a number of subsequent ex 
parte filings. The parties' positions are described in the ensuing 
Discussion.
    8. Discussion. Because of the public benefits associated with 
allowing all-digital cable operators to encrypt the basic service tier, 
we amend our rule to permit this practice as long as the cable operator 
complies with certain consumer protection measures. Encryption of all-
digital cable service will allow cable operators to activate and 
deactivate cable service remotely, thus relieving many consumers of the 
need to schedule appointments when they sign up for or cancel cable 
service. In addition, encryption will reduce the number of truck rolls 
necessary for manual installations and disconnections, reduce service 
theft, and establish regulatory parity between cable operators and 
their satellite competitors, who are not subject to the encryption 
rule. We find these benefits offset the increased burdens that may 
result from encryption of the basic service tier. Recognizing, as noted 
above, that some consumers rely on unencrypted basic tier service, we 
adopt narrowly tailored consumer protection measures to help ease the 
transition to encrypted service for those consumers. In the sections 
below, we first discuss which systems will be allowed to encrypt the 
basic service tier. Then we discuss the benefits associated with 
permitting all-digital cable operators to encrypt the basic service 
tier, as well as the burdens associated with our rule change and 
consumer protection measures we adopt to mitigate those burdens. 
Finally, we discuss the legal basis for the rule changes.
    9. Systems Eligible to Encrypt. In the Encryption NPRM, the 
Commission proposed to allow encryption of the basic service tier only 
with respect to all-digital systems ``because remote activation and 
deactivation of cable service, and its attendant benefits, are only 
feasible in all-digital systems.'' For this reason, we limit encryption 
eligibility of the basic tier to all-digital systems. The Commission 
proposed to define an ``all-digital'' system as one in which ``no 
television signals are provided using the NTSC system.'' As explained 
below, we adopt our proposed definition, finding that it will best 
achieve our goal of facilitating remote activation and deactivation of 
cable service ``while minimizing interference with the special 
functions of subscribers' television sets.''
    10. Commenters suggested several substantive changes to our 
proposed rule. Several commenters suggested that we extend encryption 
eligibility to cable operators that offer unencrypted analog ``barker 
channels.'' Mikrotec and Inter Mountain Cable suggested that operators 
should be allowed to encrypt the basic service tier as long as all 
``programming'' on the basic tier is transmitted digitally and ``if 
that condition is met, then there should be no concern that the system 
otherwise uses analog modulation.'' They also suggest that eligibility 
to encrypt should be determined subscriber-by-subscriber, not on a 
system-by-system basis, because cable operators may elect to transition 
portions of systems to all-digital piecemeal, and the rule should not 
discourage that practice.
    11. We believe the best criterion for eligibility to encrypt the 
basic service tier is that the system carries only digital signals 
aside from unencrypted analog barker channels. Encryption on hybrid 
systems (that is, systems that transmit signals in analog and digital) 
would not generate the benefits associated with encryption on all-
digital systems because the analog portion of the system will still 
require truck rolls to activate and deactivate service and the 
Commission does not have a separated security solution like CableCARD 
to ensure that retail devices can access scrambled analog cable 
programming. Therefore, permitting hybrid systems to encrypt would not 
result in the type of benefits that justify easing the encryption 
requirement for all-digital systems. We do not believe that it is 
practical to adopt Mikrotec and Inter Mountain Cable's proposal to 
determine eligibility for encryption on a consumer-by-consumer basis, 
because encryption disparity on a consumer-by-consumer basis could lead 
to consumer confusion: Under this proposal, one subscriber could be 
subject to encryption (and the commensurate consumer-protection 
measures described below), while his neighbor could face no encryption 
and be able to access channels on the basic service tier. The 
administrative burdens of determining the applicability of the rule 
would also make such a proposal unreasonable. Therefore, we believe 
that our rule, which determines eligibility for encryption on a system-
wide basis, is more reasonable and will better serve the public 
interest.
    12. Benefits of Permitting Basic Service Tier Encryption. Remote 
Activation and Deactivation. Based on examination of the record, we are 
persuaded that allowing encryption of the basic service tier on all-
digital systems will reduce the need for many consumers to schedule a 
service call and wait for the cable technician to arrive before 
initiating or terminating their cable service. ACA states in its 
comments that physical connection and disconnection of cable service in 
all-digital systems is ``unnecessary but for the existence of the basic 
service tier encryption prohibition.'' Comcast predicts that encrypting 
the basic service tier will allow the company to perform nearly half of 
its activations and 90 percent of its deactivations remotely. 
Cablevision reports that, since it received waiver of the encryption 
prohibition, 99.5 percent of its deactivations were performed remotely 
and a growing number of its new customers are eligible for remote 
activation. The result for consumers is that in many cases they will no 
longer need to rearrange their schedules to wait for cable technicians 
to arrive at their homes in order to activate and deactivate their 
cable service, making activation and deactivation of service much more 
convenient.
    13. In addition to the projected time savings for subscribers 
because of remote activation and deactivation, the record is replete 
with secondary benefits that cable operators and their customers will 
realize as a result of remote service change. These include savings for 
cable operators because of a reduction in the need to dispatch service 
technicians to customers' homes. For example, commenters assert that 
reduced costs due to truck rolls and system maintenance will save cable 
operators money that they can use to ``invest in innovative new 
products that customers demand and highly value.'' In addition, Comcast 
states that, with remote activation and deactivation,

[[Page 67293]]

``technicians would need to access drop lines less frequently, thereby 
reducing `wear-and-tear' on the lines and the need for maintenance.'' 
Many commenters also highlight the benefits remote activation and 
deactivation will have on vehicle traffic and the environment. Microtek 
and Inter Mountain Cable even suggest that these increased efficiencies 
could lead to lower rates for subscribers.
    14. Reduction of Theft and Piracy. Another benefit of basic tier 
encryption is the likely reduction in theft of cable service. In 2004, 
NCTA estimated that five percent of homes passed receive unauthorized 
cable service, which equates to five billion dollars in unrealized 
revenue that cable operators could dedicate to offering improved 
services. The resulting reduction in cable operator revenues may 
increase the rates operators charge their subscribers. In addition, 
Comcast explains that theft of service reduces the quality of cable 
service because thieves sometimes access the cable system by splitting 
cables and adding unauthorized taps, which degrade connections and can 
lead to signal leakage and lower broadband speeds. This unauthorized 
splicing also can add to wear-and-tear on the cable system and increase 
the need for maintenance. Encryption of the basic service tier will 
discourage thieves from splicing cable lines as it will not enable 
viewing of the signals without leasing an authorized set-top box or 
CableCARD from the operator. Encryption of the basic service tier could 
also benefit channels that are carried on the basic service tier, as 
developers of high-value content may be more willing to make the 
content available to basic service tier channels if they are encrypted 
and less susceptible to piracy.
    15. Regulatory Parity. Several commenters emphasized that the 
proposed rule change will increase regulatory parity between cable 
operators and satellite providers, which are not subject to the 
encryption rule. Commenters explain that the technology and market 
landscapes were quite different when the rule was adopted, when 
consumers had a reasonable expectation that they would be able to 
connect their televisions directly to a coaxial cable without the need 
for a set-top box. In the years since enactment of the 1992 Cable Act, 
consumer expectations have changed substantially. First, cable 
operators have introduced new and innovative services, such as video on 
demand and pay-per-view services, that cannot be accessed by digital 
subscribers without an authorized set-top box or, in some instances, a 
CableCARD. As a result, almost all digital subscribers already use set-
top boxes or CableCARDs to access cable service. Second, since the 1992 
Cable Act, satellite television operators have begun to offer video 
programming services to tens of millions of subscribers, who access 
these services through the use of one or more converter boxes. Our 
rules do not prohibit satellite operators from encrypting their 
services, and therefore they are able to make service changes remotely 
and in real time. Cable operators argue that this puts them at a 
regulatory disadvantage vis-[agrave]-vis their competitors that are not 
constrained by the requirements of Sec.  76.630(a). We believe that by 
amending our encryption rule we will reduce this regulatory disparity 
and enable all-digital cable operators to provide a similar level of 
customer service as their MVPD competitors.
    16. Consumer Protection Measures to Reduce Burdens on Subscribers. 
Although we expect our rule change will affect relatively few 
subscribers, we nonetheless adopt consumer protection measures to 
mitigate any resulting harm to subscribers who are impacted by 
encryption of the digital basic tier. This rule change will impact the 
few digital cable subscribers who access the basic service tier without 
a set-top box or CableCARD: They will need to obtain a set-top box or 
CableCARD from their cable operator once the operator encrypts the 
basic service tier. To give these consumers time to assess their 
options to access encrypted cable service, we will require cable 
operators that choose to encrypt to offer affected subscribers 
equipment necessary to receive the encrypted programming without charge 
for a limited time, and to notify their subscribers about encryption 
and the equipment offers. In addition, we require the six largest 
incumbent cable operators to offer equipment that is compatible with 
IP-enabled clear-QAM devices provided by third parties. We intend that 
this requirement will provide an opportunity for affected consumers to 
make informed choices about whether to purchase a CableCARD-compatible 
device, lease a set-top box from their cable operator, or use another 
method to access the broadcast and other channels carried on the basic 
service tier (for example, by accessing the signals over-the-air or via 
another MVPD). As we explained in the Encryption NPRM, such an 
opportunity will minimize the impact of encryption on clear-QAM users 
by offering a transition period during which they can continue to 
access the basic tier without an additional equipment charge while they 
consider their options for device compatibility. In this section, we 
identify the small class of subscribers that encryption may affect and 
adopt two categories of measures to protect those subscribers: 
Transitional equipment requirements and notice requirements.
    17. Subscribers That May Be Affected by Encryption of the BST. The 
Commission concluded in 1994 that adopting the basic service tier 
encryption prohibition ``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.'' Today our examination of the record 
reflects that relaxing the encryption prohibition for all-digital 
systems will have minimal impact on consumers because most subscribers 
do not rely on the clear-QAM tuners in their devices to access basic 
tier signals. Nevertheless, we recognize that lifting the encryption 
prohibition may impact some cable subscribers who use clear-QAM devices 
to access the basic tier, such as subscribers who use second or third 
television sets to access unencrypted digital basic service tier 
service without set-top boxes or CableCARDs and subscribers that use 
third-party provided IP-enabled devices that have clear-QAM tuners. 
Several cable subscribers and equipment manufacturers filed comments 
claiming that our rule change would have a negative impact on them. 
These subscribers explain that they rely on clear-QAM tuners in their 
electronic devices (such as computers and television sets) to access 
basic tier programming, and that because they have more than two 
devices on which to view BST programming (e.g., they have multiple 
televisions in their home), their monthly bills will increase because 
they will need a greater number of converter boxes than afforded under 
the free box conditions that the Commission proposed in the Encryption 
NPRM. We are concerned about the effect of this rule change on the 
small group of subscribers who access unencrypted basic service tier 
programming through clear-QAM receivers, but, at the same time, 
recognize that no consumer protection measure could fully satisfy every 
affected subscriber. Nonetheless, we believe that the consumer-
protection measures outlined below are appropriate and necessary to 
minimize disruption to affected subscribers by providing a reasonable 
transition period

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to make informed choices about the options available to access the 
basic tier.
    18. Transitional Equipment Requirements Applicable to All Cable 
Operators. To limit the costs that affected consumers may face due to 
encryption, we adopt our proposed consumer-protection measures that 
require a cable operator that chooses to encrypt the basic service tier 
to: (i) Offer to existing subscribers who subscribe only to the basic 
service tier and do not use a set-top box or CableCARD, the 
subscriber's choice of a set-top box or CableCARD on up to two 
television sets without charge for two years from the date of 
encryption; (ii) offer existing subscribers who subscribe to a level of 
service above ``basic only'' but use an additional television set to 
access only the basic service tier without the use of a set-top box or 
CableCARD at the time of encryption, the subscriber's choice of a set-
top box or CableCARD on one television set without charge for one year 
from the date of encryption; and (iii) offer existing subscribers who 
receive Medicaid, subscribe only to the basic service tier, and do not 
use a set-top box or CableCARD, the subscriber's choice of a set-top 
box or CableCARD on up to two television sets without charge for five 
years from the date of encryption. These consumer protections apply to 
televisions and devices connected to the cable system at the time of 
encryption. To ensure that any subscriber likely to be affected by 
encryption has adequate time to consider these offers, we will require 
cable operators to keep the offer open to subscribers for at least 30 
days before the date the operator begins encrypting the first basic 
tier channel on the channel lineup and for at least 120 days after that 
date. NCTA suggested that the offer extend for only 30 days after the 
date that encryption begins. We believe that 30 days after the date of 
encryption would not afford affected consumers sufficient time to learn 
about the effect of encryption and the consumer-protection measures 
available to them and act on the information. Furthermore, because 
encryption will affect only a very small number of subscribers, the 
consumer protection measures we adopt will not be unduly onerous on 
cable operators. We expect these transitional protections will 
substantially mitigate the costs to affected subscribers while they 
consider alternative means for accessing the basic service tier.
    19. Equipment Requirements Applicable to Top Six Incumbent Cable 
Operators. A few commenters assert that the free equipment conditions 
described above do not mitigate any disruption because some consumers 
may own third-party provided IP-enabled devices that do not have the 
ability to decrypt cable signals. Therefore, these commenters call for 
the Commission to reject the proposed rule, or adopt special measures 
to mitigate disruption to consumers that use those third-party devices. 
Specifically, these parties complain that existing cable set-top boxes 
and DTAs are not compatible with IP-enabled devices because they do not 
output signals in a manner that third-party-provided IP-enabled devices 
can access. Accordingly, such devices would not be compatible with the 
operator's free equipment offering--i.e., there would be no connection 
by which such devices could access the basic tier channels--thus 
rendering such devices useless if a cable operator chooses to encrypt 
the basic tier. Commenters assert that such devices were purchased or 
manufactured on the expectation that unencrypted basic service tier QAM 
signals would continue to be available from cable operators. The record 
indicates that at least four companies have developed products that 
rely on customers' ability to access clear-QAM signals, and that a 
relatively small number of consumers have purchased these devices for 
this capability. As explained above, however, we anticipate the impact 
of encryption of the basic tier on the public at large will be minimal 
because the record indicates that only a small number of consumers rely 
on clear-QAM devices to access the basic tier. And the record further 
indicates that subscribers who use IP-enabled clear-QAM devices that 
would be incompatible with the free equipment offerings by cable 
operators represent an even smaller subset of clear-QAM users.
    20. To mitigate any harm to the small group of consumers that may 
use such devices, NCTA's six largest incumbent cable members--serving 
86 percent of all cable subscribers--have committed to adopt, prior to 
encrypting, a solution that would provide basic service tier access to 
third-party provided IP-enabled clear QAM devices. Pursuant to this 
commitment, these six cable operators will make basic service tier 
channels available either via connection from operator-supplied 
equipment or by providing access to the operator's security technology. 
Specifically, these cable operators have proposed to either (i) provide 
a converter box with ``standard home networking capability'' that can 
provide IP-enabled clear QAM devices access to basic service tier 
channels on the same terms proposed in the Encryption NPRM (``Option 
1''), or (ii) enable IP-enabled clear QAM devices to access basic 
service tier channels without any additional hardware through the use 
of commercially available software upgrades (``Option 2''). NCTA 
proposed to sunset these commitments three years after we adopt this 
Order unless the Commission extends them. Boxee and CEA argue that 
these commitments do not sufficiently support the operation of IP-
enabled clear QAM devices. Instead, they advocate that all cable 
operators should be required to make the basic service tier available 
to IP-enabled devices without additional hardware. CEA further 
encourages the Commission not to sunset the commitments after three 
years. The AllVid Alliance suggests that the Commission initiate a 
Notice of Proposed Rulemaking seeking comment on ``a nationally-
portable common IP-based interface from MVPD services to consumer 
devices.''
    21. We believe that the commitments from the six largest incumbent 
cable operators will be sufficient to address the compatibility issue 
concerning IP-enabled devices and achieve the objectives of section 
624A of the Act--i.e., to ensure compatibility between cable service 
and consumer electronics equipment. We do not extend the additional 
equipment requirement to smaller cable operators because we do not 
believe it is necessary at this time. As noted above, based on the 
current record, only a small number of consumers rely on IP-enabled 
devices to access the basic tier and thus we expect this particular 
compatibility problem to be extremely limited in scope. Because the six 
largest incumbent cable operators subject to the rule serve 86 percent 
of all cable subscribers nationwide, we expect most consumers that use 
such devices will have ready access to the necessary equipment. 
Moreover, large cable operators generally dictate equipment features to 
manufacturers and commonly get priority in delivery of that equipment. 
We anticipate that the large operators' demand for this equipment 
eventually will lead all equipment to include this functionality in the 
marketplace, and thus the equipment small cable operators provide will 
eventually include the IP functionality as well, regardless whether 
they specify this particular feature. Nonetheless, we may revisit this 
issue if the equipment market does not develop as expected or if we 
find that small cable operators do not make their service compatible 
with these consumer devices.
    22. Contrary to Boxee's argument, nothing in section 624A requires 
that consumer equipment compatibility be

[[Page 67295]]

achieved by means of a hardware-free solution. Under the equipment 
measure we adopt today, the vast majority of consumers will be able to 
access service that is encrypted using a commercially available 
security technology or via equipment with standard home-networking 
capability in much the same way they do today. In fact, if this 
standard home-networking capability is connected to a wireless home 
network, the consumer experience could improve because consumers will 
be able to access basic service tier channels without physically 
connecting a device to a coaxial plug from the wall. Thus, mandating a 
hardware-free solution is not necessary to protect consumers in the 
context of the instant proceeding.
    23. We adopt these commitments as required preconditions to 
encrypting by the top six incumbent cable operators with slight 
modifications and clarifications. These conditions will automatically 
sunset three years from the release date of this Order unless the Media 
Bureau (``Bureau'') determines prior to this date that the IP-enabled 
device protections remain necessary to protect consumers. We believe 
that a future review of these rules is warranted because the market for 
these IP-based devices is nascent and it is unclear whether consumer 
demand for this equipment will flourish. Accordingly, we delegate 
authority to the Bureau to initiate a review two years after the 
release of this Order to decide whether these IP-enabled device 
protections remain necessary to protect consumers or whether it is 
appropriate to sunset the IP-enabled device protections. If the Bureau 
does not release an order extending these protections within three 
years from the release date of this Order, then the consumer protection 
measures concerning IP-enabled devices detailed above will no longer 
apply to the top-six cable operators for purposes of encryption of the 
basic service tier. In deciding whether the sunset is appropriate, the 
Bureau shall consider the costs to cable operators and the benefits to 
consumers, whether competitive services are available, regulatory 
parity between cable and other MVPDs, the state of technology and the 
marketplace, and cable operators' efforts to meet these commitments and 
ensure compatibility. The Bureau shall also consider whether the IP-
enabled device protections should be extended to small cable operators.
    24. Second, we add some clarifying language to address Boxee and 
CEA's concerns that cable operators could use licenses to limit retail 
device manufacturers from building compatible devices. Any license 
terms that cable operators require for the ``standard home networking 
capability'' used to offer access to the basic service tier in Option 1 
and the ``requirements necessary (including any authentication 
processes)'' in Option 2 must be made available on a good faith basis. 
In adopting this ``good faith'' licensing requirement, we intentionally 
do not specify any particular technology or technology licensing model 
(e.g., we do not require or specify ``fair, reasonable, and non-
discriminatory'' licensing, as that term has been interpreted in other 
contexts, as urged by Boxee and CEA). Third, we require the operators 
that choose to offer access to the basic service tier using Option 1 to 
``publicly disclose the DLNA profile or other protocol that is being 
used for the home-networking capability on such operator-supplied 
equipment.'' Such a requirement is necessary to ensure that third-party 
manufacturers have the information necessary to build a device that 
works with cable-provided equipment. We also remind cable operators 
that Sec.  76.640(b)(4)(iii) of our rules, which goes into effect in 
December of this year, requires all high definition set-top boxes 
(except for one-way, non-recording set-top boxes) to include an IP-
compatible output based on an open industry standard that provides for 
audiovisual communications including service discovery, video 
transport, and remote control command pass-through standards for home 
networking. We believe that these additional consumer protection 
measures will ease the transition to encrypted service for the vast 
majority of the small subset of customers that rely on third-party 
provided IP-enabled devices to access the basic service tier.
    25. Other Issues. Public Knowledge and Media Access Project state 
in their comments that there have been no complaints from customers in 
Cablevision's encrypted systems about ``hidden fees'' related to the 
free device offers, and they anticipate that cable operators ``intend 
to act in good faith.'' Out of an abundance of caution, however, they 
suggest we affirmatively state that cable operators may not impose 
service fees (such as ``digital access fees'' or ``outlet fees'') in 
lieu of rental fees for the free devices. Consistent with Public 
Knowledge and Media Access Project's suggestion, we clarify that boxes 
provided by cable operators that choose to encrypt the basic service 
tier must be provided without any additional service charges related to 
the equipment.
    26. Public Knowledge and Media Access Project also suggest that we 
tie the low-income condition to Lifeline/Linkup eligibility because 
Medicaid eligibility can vary from state to state. We reject that 
suggestion as unnecessary. As several commenters point out, Medicaid 
eligibility presents an easily verifiable, bright-line test, and is 
less likely to cause confusion among subscribers and cable customer 
service representatives.
    27. We also reject calls from some commenters to require free 
equipment in perpetuity for existing subscribers, and not to limit free 
boxes to existing subscribers. The consumer protection measures we 
adopt are intended to mitigate the disruption that may be experienced 
by current cable subscribers. We do not agree that free equipment is 
necessary for new subscribers: Given the movement to digital services, 
many subscribers have become accustomed to leasing set-top devices, and 
that trend seems likely to continue. Furthermore, we agree with NCTA 
that unnecessarily burdensome conditions such as free devices for all 
new subscribers could discourage cable operators from encrypting and 
prevent the public from realizing the benefits that stem from cable 
operators' ability to remotely activate and deactivate service which 
benefits most subscribers. Accordingly, we do not condition this rule 
change on cable operators' supplying free devices in perpetuity to 
existing subscribers or to new subscribers.
    28. Certain commenters express concern about the impact that basic 
service tier encryption could have on institutional subscribers and 
schools in particular. They suggest that the Commission extend the 
free-device consumer protections to institutional subscribers to 
prevent the rule change from placing a financial burden on them. Cable 
operators, however, suggest that these commenters conflate encryption 
with digitization, and we agree. As cable operators transition to all-
digital service, these institutional subscribers will need devices to 
convert digital signals to analog regardless of whether the service is 
encrypted unless the institutional subscribers use television sets with 
clear-QAM tuners and only use those televisions to access the basic 
service tier. Furthermore, Comcast argues that cable operators 
establish agreements with local institutions on a case-by-case basis, 
and that each franchising authority negotiates consumer protection 
measures to meet its needs. We are persuaded that it is unnecessary to 
adopt consumer-protection measures

[[Page 67296]]

with respect to institutional subscribers, because we expect that cable 
operators will continue to work with local institutions--and may be 
required to do so by franchising authorities--to ensure that the 
institutions' needs will be met. We emphasize that our rules are not 
intended to limit or preempt existing, renegotiated, or future 
franchise agreements that provide institutional subscribers more 
equipment on different terms than our rules require for residential 
subscribers. We expect that cable operators will work closely with 
local franchising authorities and institutions to ensure that any 
disruption institutional subscribers experience as a result of 
encryption will be minimized.
    29. ACA and BendBroadband express concern about the effect that the 
conditions will have on small cable operators. We agree with ACA and 
BendBroadband that in some instances the benefits of encryption may be 
outweighed by the burdens of administrative upgrades to account for the 
new billing procedures needed to offer free devices for a limited 
period of time. We note, however, that the decision to encrypt the 
basic service tier will be a voluntary decision made at the sole 
discretion of the cable operator under the rules we adopt here. Thus, 
each cable operator may use its business judgment to decide whether, 
and when, the benefits of encryption outweigh the costs of upgrading 
billing software and providing equipment to its subscribers to ease the 
transition to encrypted service.
    30. Notification Requirements. Based on the record, we believe that 
notification requirements are also necessary to protect consumers. 
Therefore, we will require cable operators to notify their subscribers 
about the planned encryption and the device offers at least 30 days 
before the date encryption of the basic tier commences. We will also 
require cable operators to notify their subscribers at least 30 days, 
but no more than 60 days, before the end of the free device 
transitional period. These notifications are necessary to make the 
device-based consumer protection measures meaningful to consumers; the 
measures would be meaningless if affected consumers were not made aware 
of the offers.
    31. NCTA proposed that our rules require cable operators to notify 
their subscribers about encryption and free device offers at least 30 
days prior to the date encryption of the basic service tier commences. 
Several commenters supported NCTA's proposal, and we agree that it is 
important to identify when cable operators must notify their 
subscribers about encryption. Therefore, we will require cable 
operators to notify their subscribers that they will encrypt at least 
30 days before the date encryption of the basic service tier commences, 
at which time they must also include information about the transitional 
device requirements set forth in Section 76.630. The notice must state:
    On (DATE), (NAME OF CABLE OPERATOR) will start encrypting (INSERT 
NAME OF CABLE BASIC SERVICE TIER OFFERING) on your cable system. If you 
have a set-top box, digital transport adapter (DTA), or a retail 
CableCARD device connected to each of your TVs, you will be unaffected 
by this change. However, if you are currently receiving (INSERT NAME OF 
CABLE BASIC SERVICE TIER OFFERING) on any TV without equipment supplied 
by (NAME OF CABLE OPERATOR), you will lose the ability to view any 
channels on that TV.
    If you are affected, you should contact (NAME OF CABLE OPERATOR) to 
arrange for the equipment you need to continue receiving your services. 
In such case, you are entitled to receive equipment at no additional 
charge or service fee for a limited period of time. The number and type 
of devices you are entitled to receive and for how long will vary 
depending on your situation. If you are a (INSERT NAME OF CABLE BASIC 
SERVICE TIER OFFERING) customer and receive the service on your TV 
without (NAME OF CABLE OPERATOR)-supplied equipment, you are entitled 
to up to two devices for two years (five years if you also receive 
Medicaid). If you subscribe to a higher level of service and receive 
(INSERT NAME OF CABLE BASIC SERVICE TIER OFFERING) on a secondary TV 
without (NAME OF CABLE OPERATOR)-supplied equipment, you are entitled 
to one device for one year.
    You can learn more about this equipment offer and eligibility at 
(WEBPAGE ADDRESS) or by calling (PHONE NUMBER). To qualify for any 
equipment at no additional charge or service fee, you must request the 
equipment between (DATE THAT IS 30 DAYS BEFORE ENCRYPTION) and (DATE 
THAT IS 120 DAYS AFTER ENCRYPTION) and satisfy all other eligibility 
requirements.
    32. We believe that 30 days' notice will provide a reasonable 
opportunity for affected consumers to avail themselves of free device 
offers in advance of basic service tier encryption without unduly 
burdening cable operators. In addition, at least 30 days, but no more 
than 60 days, before the end of the free device transitional period, a 
cable operator that encrypts must notify subscribers that have taken 
advantage of the transitional period that the period is ending as 
follows:
    You currently receive equipment necessary to descramble or decrypt 
the basic service tier signals (either a set-top box or CableCARD) free 
of charge. Effective with the (MONTH/YEAR) billing cycle, (NAME OF 
CABLE OPERATOR) will begin charging you for the equipment you received 
to access (INSERT NAME OF CABLE BASIC SERVICE TIER OFFERING) when (NAME 
OF CABLE OPERATOR) started encrypting those channels on your cable 
system. The monthly charge for the (TYPE OF DEVICE) will be (AMOUNT OF 
CHARGE).
    33. While our rule prescribes the language that cable operators 
must use to notify their subscribers about encryption and the device-
based protection measures, we leave open the option for cable operators 
to supplement this notice as they see fit. We will not require the six 
largest incumbent cable operators to provide special notice to their 
subscribers about the availability of IP-enabled device compatibility, 
though they must comply with existing notice requirements. Third-party 
IP-enabled device manufacturers have an economic incentive to ensure 
their customers are aware of the functions and features of their 
devices, e.g., provide notice to their customers in marketing materials 
about the need to obtain IP-enabled equipment from their cable operator 
and the special equipment the six largest incumbent cable operators are 
required to offer their subscribers under Commission rules.
    34. Public Knowledge and Media Access Project proposed that we 
require operators to notify subscribers when their free device period 
is ending on each monthly bill for the three months preceding the end 
of the transition period. We agree that preventing ``bill shock'' is 
important, and Sec.  76.1603(d) of our rules requires cable operators 
to provide written notice of any increase in price to be charged for 
equipment necessary to access the basic service tier at least 30 days 
before the increase is effective. We do not believe that the three 
notices that Public Knowledge and Media Access Project propose are 
necessary. But we are concerned that cable operators could notify their 
subscribers too early in the transition period to render notification 
essentially meaningless. Therefore, we believe it is important to 
define the window for notices more precisely so that affected 
subscribers are notified no more than 60

[[Page 67297]]

days before the end of the transitional free-device period. At that 
time, affected subscribers can determine the course that best suits 
their circumstances. Some subscribers may opt to continue their current 
level of service and pay for the additional equipment charges. Other 
subscribers may choose to reduce their level of service or terminate 
their existing cable service and pursue a competitive alternative that 
better meets their service needs and budgets.
    35. The New York City Department of Information Technology and 
Telecommunications (NYC DoITT) argues that, because Cablevision's 
encryption of its New York City systems is nascent, the Commission 
cannot be sure of the long-term effects that basic service tier 
encryption may have. Therefore, NYC DoITT encourages the Commission to 
make this rule change temporary. We agree that we cannot predict how 
our rule change will affect the cable industry and subscribers with 
absolute certainty. The information before us indicates, however, that 
this rule change will result in the substantial public interest 
benefits discussed above and that any additional burdens imposed on a 
limited number of subscribers will be tempered by the consumer 
protection measures adopted herein. The Commission will keep apprised 
of the consequences of the rule change and, if the situation develops 
differently than predicted, we can revisit the issue on our own 
initiative or in response to a petition for rulemaking. In the future, 
we may seek information from the operators that have chosen to encrypt 
to ensure that the expected benefits are being achieved and any burdens 
to consumers are being minimized. However, nothing in the record 
persuades us that it is necessary to build a sunset into the rule.
    36. Legal Basis. Section 624A of the Communications Act provides 
the Commission broad authority to make changes to our encryption rule 
and to impose the consumer-protection measures we adopt today. 
Congress's objective in enacting section 624A was to ensure 
compatibility between cable systems and consumer TV (receiving and 
recording) equipment, consistent with the need to prevent theft of 
cable service. Section 624A(b)(2) directs 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(d) directs 
the Commission to periodically review and modify regulations adopted 
pursuant to section 624A ``to reflect improvements and changes in cable 
systems, television receivers, video cassette recorders and similar 
technology.'' The record suggests that to achieve the statutory goals 
of section 624A a blanket ban on encryption is no longer necessary, and 
that changes in cable technology justify relaxing the rule for all-
digital cable systems, provided consumer protection measures are 
addressed. As explained above, cable technology is markedly different 
than it was when the Commission first adopted the encryption 
prohibition set forth in Sec.  76.630. For example, the transition to 
all-digital systems means that encryption of the basic service tier 
will permit remote activation and deactivation of cable service 
resulting in significant savings of time and resources for both cable 
operators and the vast majority of cable customers. Furthermore, as 
discussed below, the CableCARD standard provides an avenue for 
consumers to purchase consumer electronics devices that are compatible 
with digital cable service, which achieves Congress' stated goal in 
section 624A.
    37. Relaxing the encryption rule in this manner will not impede 
section 624A's goal of compatibility between consumer electronics 
equipment and cable systems. The Commission has adopted a standard that 
allows for ``plug and play'' compatibility between consumer electronics 
devices and cable systems. This standard provides a clear path for 
device manufacturers to follow if they wish to build devices that are 
compatible with digital cable systems and can access all linear digital 
cable services. Montgomery County, Maryland argues that the CableCARD 
standard is not successful, and that the Commission should endeavor to 
relieve compatibility problems, rather than compound them. According to 
Montgomery County, relaxing the encryption rule will lead to 
compatibility problems because consumers will no longer be able to use 
clear-QAM tuners on non-primary television sets. However, the 
Commission has already adopted a solution for compatibility between 
consumer electronics equipment and digital cable: The CableCARD 
standard is intended to allow consumers to buy compatible retail 
devices to access all linear digital cable services as opposed to the 
basic-only service that clear-QAM tuners can access without additional 
equipment. Indeed, the Commission's cable-ready labeling rules prohibit 
device manufacturers from labeling their devices as ``digital cable 
ready'' unless they comply with the CableCARD standards. Thus, under 
our existing rules, manufacturers should not have indicated to 
consumers that devices could receive digital cable service unless those 
devices were, in fact, CableCARD-compatible. Therefore, we disagree 
with Montgomery County's characterization that encryption will lead to 
an abundance of compatibility problems due to the rule changes adopted 
herein. Section 624A(c)(1)(B) expressly directs the Commission to 
consider ``the costs and benefits to consumers of imposing 
compatibility requirements on cable operators.'' As discussed above, 
the costs associated with a blanket encryption prohibition in all-
digital systems greatly outweigh the anticipated benefits to consumers, 
particularly in light of the consumer protection measures we are also 
adopting. Furthermore, in 2010, the Commission adopted changes to the 
CableCARD rules, including streamlined device approval procedures, a 
self-installation option, and a prohibition on price discrimination 
against CableCARD devices, that should increase the retail availability 
and the quality of experience for CableCARD devices and further 
increase compatibility between consumer electronics and cable service 
by ensuring that retail devices can access all linear digital cable 
services. Given these technological and rule changes, we conclude that 
a complete prohibition on basic service tier encryption in all-digital 
systems is no longer necessary to ensure compatibility between consumer 
electronics devices and cable service, provided certain consumer 
protection measures are satisfied.
    38. We also conclude that the requirement in section 623(b)(3)(A) 
of the Act to base any price or rate standards for equipment 
installation and leasing on actual cost does not bar the Commission 
from imposing the consumer protection measures set forth in Sec.  
76.630(a)(1)(ii)-(vi) of our new rules. The commenters who addressed 
our legal authority agree that the consumer protection measures--which 
are adopted as a transitional measure and implicate a limited number of 
affected customers--do not run afoul of section 623 of the 
Communications Act, and we did not receive any comments claiming that 
the consumer protection measures, as structured, would violate section 
623. These measures are not being imposed as a regulation of equipment 
rates under section 623. Rather, the consumer protection measures are 
being adopted pursuant to section 624A(b)(2)'s broad grant of authority 
to the Commission to determine ``under what circumstances

[[Page 67298]]

to permit cable systems to scramble or encrypt signals or to restrict 
cable systems in the manner in which they encrypt or scramble 
signals.'' We have determined that relaxing the encryption prohibition 
should be permitted for all-digital systems, provided the potential 
harm to affected consumers is minimized. Our new rule permits a cable 
operator to elect to abide by the encryption prohibition without having 
any obligation to offer subscribers equipment for a transitional 
period. It is only when a cable operator chooses to encrypt the basic 
service tier that it is required to comply with the requisite 
regulatory conditions (by providing set-top boxes at no cost to 
affected subscribers for a limited transitional period). Thus, this 
requirement is imposed as a condition of a cable operator's voluntary 
election to encrypt the basic service tier, and not as a rate 
regulation imposed under section 623(b)(3)(A).
    39. Waiver Requests. As mentioned above, the Commission has pending 
before it four petitions for waiver of the encryption ban. These 
petitions have been pending for more than a year. Petitioners seek 
immediate relief, claiming that they face extraordinary theft of 
service. We find good cause to grant these waiver requests effective 
upon release of this Order to prevent further delay. For the reasons 
set forth above, these waivers are conditioned upon the petitioners' 
complying with the consumer protection requirements discussed in this 
Order.
    40. Conclusion. We conclude that allowing cable operators to 
encrypt the basic service tier in all-digital systems will result in 
substantial, tangible benefits to both consumers and cable operators 
with minimal countervailing burdens on affected subscribers. We believe 
that the consumer-protection measures that we adopt will mitigate any 
burdens that encryption will have on the limited number of consumers 
that may be affected by the instant rule change.
    41. Paperwork Reduction Act Analysis. The Report and Order in this 
document does not contain proposed information collection(s) subject to 
the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In 
addition, therefore, it does not contain any new or modified 
information collection burden for small business concerns with fewer 
than 25 employees, pursuant to the Small Business Paperwork Relief Act 
of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).
    42. Final Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act, the Commission has prepared a Final 
Regulatory Flexibility Analysis (``FRFA'') relating to this Report and 
Order. The FRFA is set forth below.
    43. Congressional Review Act. The Commission will send a copy of 
this Third Report and Order in a report to be send to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act, see 5 U.S.C. 801(a)(1)(A).
    44. Ordering Clauses. Accordingly, it is ordered that, pursuant to 
the authority contained in sections 1, 4(i), 4(j), 303(r), 601, and 
624A of the Communications Act of 1934, as amended, 47 U.S.C. 151, 
154(i), 154(j), 303(r), 521, and 544a, this Report and Order is 
adopted.
    45. It is further ordered that, pursuant to the authority contained 
in sections 1, 4(i), 4(j), 303(r), 601, and 624A of the Communications 
Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(j), 303(r), 521, 
and 544a, Part 76 of the Commission's rules is amended as set forth in 
the rules and is effective December 10, 2012. It is our intention that 
all of the rule changes adopted in this order are interdependent and 
inseparable and that if any provision of the rules, or the application 
thereof to any person or circumstance, are held to be unlawful or 
invalid, the remaining rule changes adopted herein shall not be 
effective.
    46. It is further ordered that, pursuant to Sec.  1.3 of the 
Commission's rules, 47 CFR 1.3, the requests for waiver of Sec.  
76.630(a) of the Commission's rules, 47 CFR 76.630(a), filed by RCN 
Corporation, Mikrotec CATV, LLC, Inter Mountain Cable, Inc., and 
Coaxial Cable TV are granted, to the extent described herein and 
conditioned as set forth above.
    47. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.
    48. It is further ordered that the Commission shall send a copy of 
this Report and Order in a report to be sent to Congress and the 
General Accounting Office pursuant to the Congressional Review Act, see 
5 U.S.C. 801(a)(1)(A).
    49. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Notice of Proposed Rule Making (NPRM). The 
Commission sought written public comment on the proposals in the NPRM, 
including comment on the IRFA. No commenting parties specifically 
addressed the IRFA. This present Final Regulatory Flexibility Analysis 
(FRFA) conforms to the RFA. The Commission will send a copy of the R&O, 
including this FRFA, to the Chief Counsel for Advocacy of the Small 
Business Administration. In addition, the R&O and FRFA (or summaries 
thereof) will be published in the Federal Register.
    50. Need for, and Objectives of the Proposed Rules. With this 
Report and Order, the Commission amends its rules to allow cable 
operators to encrypt the basic service tier in all-digital cable 
systems if they comply with certain consumer-protection measures. This 
rule change will benefit consumers who can have their cable service 
activated and deactivated from a remote location. By allowing remote 
activation and deactivation, we expect our amended rules will result in 
benefits to both cable operators and consumers by significantly 
reducing the number of service calls associated with provisioning 
service and significantly reducing the need for subscribers to wait for 
service calls to activate or deactivate cable service. At the same 
time, we recognize that this rule change will adversely affect a small 
number of cable subscribers who currently view the digital basic 
service tier without using a set-top box or other equipment. If a cable 
operator decides to encrypt the digital basic tier, then these 
subscribers will need equipment to continue viewing the channels on 
this tier. To give those consumers time to resolve the incompatibility 
between consumer electronics equipment (such as digital television 
sets) and newly encrypted cable service, we require operators of cable 
systems that choose to encrypt the basic service tier to comply with 
certain consumer protection measures for a period of time. The 
Commission concludes that allowing cable operators to encrypt the basic 
service tier in all-digital systems will lead to benefits like 
decreased service calls and theft of service, with few associated 
burdens on consumers. Therefore the Commission believes that this rule 
change will reduce burdens on small entities. The Commission predicts 
that encryption of the basic service tier will not substantially affect 
compatibility between cable service and consumer electronics equipment 
for most subscribers because over 75 percent of subscribers already 
have set-top boxes to decrypt the signals. Because the rule is 
voluntary--a cable operator with an all-digital system may choose 
whether to encrypt that system--each cable operator may decide whether 
the benefits of encryption (which include

[[Page 67299]]

reduced service calls and reduced theft) outweigh the cost of providing 
its subscribers with the equipment they will need to continue viewing 
the channels on the basic service tier.
    51. 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 the encryption rule does 
not translate well in systems that offer all-digital service. 
Therefore, the Commission will allow all-digital cable operators to 
encrypt the basic service tier.
    52. 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 extremely small, these consumers may be affected by 
lifting the encryption prohibition for all-digital cable systems. To 
address this problem, we conclude that 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, including a 
requirement that the six largest cable operators offer IP-enabled set-
top boxes to subscribers as part of these protections.
    53. The Commission believes that the rule will save small entities 
money. The consumer protection element of the rule--the requirement 
that cable operators offer existing basic tier customers set-top boxes 
without charge for certain lengths of time--does associate a cost with 
the rule. But the Commission believes that the financial benefit to 
small cable operators in reduced truck rolls and theft of services will 
far outweigh that cost. Furthermore, because the decision of whether to 
encrypt the basic tier is voluntary, small businesses will be able to 
make a business decision about whether to encrypt.
    54. Legal Basis. The authority for the action proposed in this 
rulemaking is contained in sections 1, 4(i) and (j), 303(r), 601, and 
624A of the Communications Act of 1934, as amended, 47 U.S.C. 151, 
154(i) and (j), 303(r), 521, and 544a.
    55. 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'').
    56. Cable and Other Program Distribution. Since 2007, these 
services have been defined within the broad economic census category of 
Wired Telecommunications Carriers; that category is defined 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.'' The SBA has developed a small business size standard 
for this category, which is: All such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were a total 
of 955 firms in this previous category that operated for the entire 
year. Of this total, 939 firms had employment of 999 or fewer 
employees, and 16 firms had employment of 1000 employees or more. Thus, 
under this size standard, the majority of firms can be considered small 
and may be affected by rules adopted pursuant to the NPRM.
    57. Cable Companies and Systems (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 2008, out of 814 cable operators, all but 10 (that 
is, 804) 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. Current Commission records 
show 6,000 cable systems. Of these, 726 have 20,000 subscribers or 
more, based on the same records. We estimate that there are 5,000 small 
systems based upon this standard.
    58. 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 63.7 million 
cable subscribers in the United States today. Accordingly, an operator 
serving fewer than 637,000 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 637,000 subscribers or less is also 804. 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.
    59. Direct Broadcast Satellite (``DBS'') Service. DBS service is a 
nationally distributed subscription service that delivers video and 
audio programming via satellite to a small parabolic ``dish'' antenna 
at the subscriber's location. DBS, by exception, is now included in the 
SBA's broad economic census category, ``Wired Telecommunications 
Carriers,'' which was developed for small wireline firms. Under this 
category, the SBA deems a wireline business to be small if it has 1,500 
or fewer employees. However, the data we have available as a basis for 
estimating the number of such small entities were gathered under a 
superseded SBA small business size standard formerly titled ``Cable and 
Other Program Distribution.'' The definition of Cable and Other Program 
Distribution provided that a small entity is one with $12.5 million or 
less in annual receipts. Currently, only two entities provide DBS 
service, which requires a great investment of capital for operation:

[[Page 67300]]

DIRECTV and EchoStar Communications Corporation (``EchoStar'') 
(marketed as the DISH Network). Each currently offer subscription 
services. DIRECTV and EchoStar each report annual revenues that are in 
excess of the threshold for a small business. Because DBS service 
requires significant capital, we believe it is unlikely that a small 
entity as defined by the SBA would have the financial wherewithal to 
become a DBS service provider. We seek comments that have data on the 
annual revenues and number of employees of DBS service providers.
    60. Satellite Master Antenna Television (SMATV) Systems, also known 
as Private Cable Operators (PCOs). SMATV systems or PCOs are video 
distribution facilities that use closed transmission paths without 
using any public right-of-way. They acquire video programming and 
distribute it via terrestrial wiring in urban and suburban multiple 
dwelling units such as apartments and condominiums, and commercial 
multiple tenant units such as hotels and office buildings. SMATV 
systems or PCOs are now included in the SBA's broad economic census 
category, ``Wired Telecommunications Carriers,'' which was developed 
for small wireline firms. Under this category, the SBA deems a wireline 
business to be small if it has 1,500 or fewer employees. However, the 
data we have available as a basis for estimating the number of such 
small entities were gathered under a superseded SBA small business size 
standard formerly titled ``Cable and Other Program Distribution.'' The 
definition of Cable and Other Program Distribution provided that a 
small entity is one with $12.5 million or less in annual receipts. As 
of June 2004, there were approximately 135 members in the Independent 
Multi-Family Communications Council (IMCC), the trade association that 
represents PCOs. The IMCC indicates that, as of June 2006, PCOs serve 
about 1 to 2 percent of the multichannel video programming distributors 
(MVPD) marketplace. Individual PCOs often serve approximately 3,000-
4,000 subscribers, but the larger operations serve as many as 15,000-
55,000 subscribers. In total, as of June 2006, PCOs serve approximately 
900,000 subscribers. Because these operators are not rate regulated, 
they are not required to file financial data with the Commission. 
Furthermore, we are not aware of any privately published financial 
information regarding these operators. Based on the estimated number of 
operators and the estimated number of units served by the largest 10 
PCOs, we believe that a substantial number of PCOs may have been 
categorized as small entities under the now superseded SBA small 
business size standard for Cable and Other Program Distribution.
    61. Open Video Services. The open video system (``OVS'') framework 
was established in 1996, and is one of four statutorily recognized 
options for the provision of video programming services by local 
exchange carriers. The OVS framework provides opportunities for the 
distribution of video programming other than through cable systems. 
Because OVS operators provide subscription services, OVS falls within 
the SBA small business size standard covering cable services, which is 
``Wired Telecommunications Carriers.'' The SBA has developed a small 
business size standard for this category, which is: All such firms 
having 1,500 or fewer employees. According to Census Bureau data for 
2007, there were a total of 3,188 firms in this previous category that 
operated for the entire year. Of this total, 3,144 firms had employment 
of 999 or fewer employees, and 44 firms had employment of 1000 
employees or more. Thus, under this size standard, most cable systems 
are small and may be affected by rules adopted pursuant to the NPRM. In 
addition, we note that the Commission has certified some OVS operators, 
with some now providing service. Broadband service providers (``BSPs'') 
are currently the only significant holders of OVS certifications or 
local OVS franchises. The Commission does not have financial or 
employment information regarding the entities authorized to provide 
OVS, some of which may not yet be operational. Thus, again, at least 
some of the OVS operators may qualify as small entities.
    62. 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 2007 Census Bureau data, there were 42 
establishments in this category that operated during 2007. Only 3 had 
more than 100 employees. Consequently, we estimate that all of these 
establishments are small entities.
    63. 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 2007 Census Bureau data, there 
were 647 establishments in this category that operated in 2007. Of 
these, only 62 had more than 100 employees. Consequently, we estimate 
that the majority of these establishments are small entities.
    64. Audio and Video Equipment Manufacturing. The SBA has classified 
the manufacturing of audio and video equipment under in NAICS Codes 
classification scheme as an industry in which a manufacturer is small 
if it has less than 750 employees. Data contained in the 2007 U.S. 
Census indicate that 491 establishments operated in that industry for 
all or part of that year. In that year, 376 establishments had between 
1 and 19 employees; 80 had between 20 and 99 employees; and 35 had more 
than 100 employees. Thus, under the applicable size standard, a 
majority of manufacturers of audio and video equipment may be 
considered small.
    65. Description of Reporting, Recordkeeping and Other Compliance 
Requirements. The rules adopted in the Order will require cable 
operators to notify their subscribers about offers of free equipment 
associated with encryption. The rule also requires a cable operator to 
notify its subscribers when those subscribers are subject to charges at 
the end of the free equipment period.
    66. 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.
    67. As an alternative to the rules the Commission adopted, the 
Commission considered leaving the current rule in place--with the 
result that no cable operator would realize the benefits of 
encryption--or exempting small cable companies from the consumer 
protection rules that require encrypting cable operators to provide 
certain subscribers with free set-top boxes for a limited time. The 
Commission rejected

[[Page 67301]]

leaving the rule in place because that alternative would not lead to 
the benefits of reduced service calls and reduced cable theft. The 
Commission rejected exempting small cable companies from the consumer 
protection rules because it concluded that the protections are 
necessary to give affected consumers time to consider how to make 
consumer electronics equipment (such as digital television sets) 
compatible with newly encrypted cable service. For these reasons, the 
Commission concluded that basic service tier encryption prohibition 
should be relaxed. The Commission also concluded that transitional 
consumer protection measures are necessary to serve the limited number 
of consumers who currently access unencrypted cable service without the 
use of a set-top box.
    68. 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 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, 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.


0
2. Amend Sec.  76.630 by revising paragraph (a) and revising section 
notes 1 and 2 and removing notes 3 and 4.
    The revisions read as follows:


Sec.  76.630  Compatibility with consumer electronics equipment.

    (a) Cable system operators shall not scramble or otherwise encrypt 
signals delivered to a subscriber on the basic service tier.
    (1) This prohibition shall not apply in systems in which:
    (i) No encrypted signals are carried using the NTSC system; and
    (ii) The cable system operator offers to its existing subscribers 
who subscribe only to the basic service tier without use of 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 television sets 
without charge or service fee for two years from the date encryption of 
the basic service tier commences; and
    (iii) The cable system operator offers to its existing subscribers 
who subscribe to a level of service above ``basic only'' but use a 
digital television or other device with a clear-QAM tuner to receive 
only the basic service tier without use of 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 one television set without charge or 
service fee for one year from the date encryption of the basic service 
tier commences; and
    (iv) The cable system operator offers to its existing subscribers 
who receive Medicaid and also subscribe only to the basic service tier 
without use of 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 television sets without charge or service fee for five years 
from the date encryption of the basic service tier commences;
    (v) The cable system operator notifies its existing subscribers of 
the availability of the offers described in paragraphs (ii) through 
(iv) of this section at least 30 days prior to the date encryption of 
the basic service tier commences and makes the offers available for at 
least 30 days prior to and 120 days after the date encryption of the 
basic service tier commences. The notification to subscribers must 
state:
    On (DATE), (NAME OF CABLE OPERATOR) will start encrypting (INSERT 
NAME OF CABLE BASIC SERVICE TIER OFFERING) on your cable system. If you 
have a set-top box, digital transport adapter (DTA), or a retail 
CableCARD device connected to each of your TVs, you will be unaffected 
by this change. However, if you are currently receiving (INSERT NAME OF 
CABLE BASIC SERVICE TIER OFFERING) on any TV without equipment supplied 
by (NAME OF CABLE OPERATOR), you will lose the ability to view any 
channels on that TV.
    If you are affected, you should contact (NAME OF CABLE OPERATOR) to 
arrange for the equipment you need to continue receiving your services. 
In such case, you are entitled to receive equipment at no additional 
charge or service fee for a limited period of time. The number and type 
of devices you are entitled to receive and for how long will vary 
depending on your situation. If you are a (INSERT NAME OF CABLE BASIC 
SERVICE TIER OFFERING) customer and receive the service on your TV 
without (NAME OF CABLE OPERATOR)-supplied equipment, you are entitled 
to up to two devices for two years (five years if you also receive 
Medicaid). If you subscribe to a higher level of service and receive 
(INSERT NAME OF CABLE BASIC SERVICE TIER OFFERING) on a secondary TV 
without (NAME OF CABLE OPERATOR)-supplied equipment, you are entitled 
to one device for one year.
    You can learn more about this equipment offer and eligibility at 
(WEBPAGE ADDRESS) or by calling (PHONE NUMBER). To qualify for any 
equipment at no additional charge or service fee, you must request the 
equipment between (DATE THAT IS 30 DAYS BEFORE ENCRYPTION) and (DATE 
THAT IS 120 DAYS AFTER ENCRYPTION) and satisfy all other eligibility 
requirements.
    (vi) The cable system operator notifies its subscribers who have 
received equipment described in paragraphs (a)(1)(ii) through (iv) of 
this section at least 30 days, but no more than 60 days, before the end 
of the free device transitional period that the transitional period 
will end. This notification must state:
    You currently receive equipment necessary to descramble or decrypt 
the basic service tier signals (either a set-top box or CableCARD) free 
of charge. Effective with the (MONTH/YEAR) billing cycle, (NAME OF 
CABLE OPERATOR) will begin charging you for the equipment you received 
to access (INSERT NAME OF CABLE BASIC SERVICE TIER OFFERING) when (NAME 
OF CABLE OPERATOR) started encrypting those channels on your cable 
system. The monthly charge for the (TYPE OF DEVICE) will be (AMOUNT OF 
CHARGE).
    (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 30 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

[[Page 67302]]

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).
    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.


0
3. Section 76.1603 is amended by revising paragraph (d) to read as 
follows:


Sec.  76.1603  Customer service--rate and service changes.

* * * * *
    (d) A cable operator shall provide written notice to a subscriber 
of any increase in the price to be charged for the basic service tier 
or associated equipment at least 30 days before any proposed increase 
is effective. If the equipment is provided to the consumer without 
charge pursuant to Sec.  76.630, the cable operator shall provide 
written notice to the subscriber no more than 60 days before the 
increase is effective. The notice should include the price to be 
charged, and the date that the new charge will be effective, and the 
name and address of the local franchising authority.
* * * * *
[FR Doc. 2012-27350 Filed 11-8-12; 8:45 am]
BILLING CODE 6712-01-P