Implementation of the Cable Television Consumer Protection and Competition Act of 1992 Development of Competition and Diversity in Video Programming Distribution: Section 628(c)(5) of the Communications Act: Sunset of Exclusive Contract Prohibition, 9289-9297 [E7-3520]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 72, Number 40 (Thursday, March 1, 2007)]
[Proposed Rules]
[Pages 9289-9297]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-3520]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket No. 07-29; FCC 07-7]


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

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Commission initiates a review to 
determine whether the prohibition on exclusive programming contracts 
continues to be necessary to preserve and protect competition and 
diversity in the distribution of video programming. Previously, the 
Commission retained for five years, until October 5, 2007, the 
prohibition on exclusive contracts. The Commission provided that, 
during the year before the expiration of the current 5-year extension 
on October 5, 2007, a review would be undertaken to determine whether 
or not the exclusivity prohibition should sunset. The Commission also 
seeks comment on whether and how our procedures for resolving program 
access disputes under Section 628 should be modified.

DATES: Comments for this proceeding are due on or before April 2, 2007; 
reply comments are due on or before April 16, 2007.

ADDRESSES: You may submit comments, identified by MB Docket No. 07-29, 
by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Federal Communications Commission's Web Site: https://
www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
     People With Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by e-mail: FCC504@fcc.gov or phone: 202-418-
0530 or TTY: 202-418-0432.

    For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: For additional information on this 
proceeding, contact Karen Kosar, Karen.Kosar@fcc.gov of the Media 
Bureau, Policy Division, (202) 418-2120.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's NPRM 
of Proposed Rulemaking, FCC 07-7, adopted on February 7, 2007, and 
released on February 20, 2007. The full text of this document is 
available for public inspection and copying during regular business 
hours in the FCC Reference Center, Federal Communications Commission, 
445 12th Street, SW., CY-A257, Washington, DC 20554. These documents 
will also be available via ECFS (https://www.fcc.gov/cgb/ecfs/). 
(Documents will be available electronically in ASCII, Word 97, and/

[[Page 9290]]

or Adobe Acrobat.) The complete text may be purchased from the 
Commission's copy contractor, 445 12th Street, SW., Room CY-B402, 
Washington, DC 20554. To request this document in accessible formats 
(computer diskettes, large print, audio recording, and Braille), send 
an e-mail to fcc504@fcc.gov or call the Commission's Consumer and 
Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 
(TTY).

Initial Paperwork Reduction Act of 1995 Analysis

    This document does not contain proposed information collection 
requirements subject to the Paperwork Reduction Act of 1995, Public Law 
104-13. In addition, therefore, it does not contain any proposed 
information collection burden ``for small business concerns with fewer 
than 25 employees,'' pursuant to the Small Business Paperwork Relief 
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

Summary of the NPRM of Proposed Rulemaking

I. Introduction

    1. We issue this NPRM of Proposed Rulemaking (``NPRM'') pursuant to 
Section 628(c)(5) of the Communications Act of 1934, as amended 
(``Communications Act'') and Section 76.1002(c)(6) of the Commission's 
rules. In areas served by a cable operator, Section 628(c)(2)(D) 
generally prohibits exclusive contracts for satellite cable programming 
or satellite broadcast programming between vertically integrated 
programming vendors and cable operators. Section 628(c)(5) directed 
that this prohibition on exclusive programming contracts would cease to 
be effective on October 5, 2002, unless the Commission found that such 
prohibition ``continues to be necessary to preserve and protect 
competition and diversity in the distribution of video programming.'' 
In a proceeding commenced prior to the sunset date specified by 
Congress, the Commission examined whether the prohibition should sunset 
or be extended; see Implementation of the Cable Television Consumer 
Protection and Competition Act of 1992--Development of Competition and 
Diversity in Video Programming Distribution: Section 628(c)(5) of the 
Communications Act: Sunset of Exclusive Contract Prohibition, 66 FR 
54972-02 (2001) (``NPRM''). The Commission concluded that the 
prohibition remained necessary to preserve and protect competition and 
diversity in the distribution of video programming and extended the 
term of the prohibition on exclusive contracts between cable operators 
and vertically integrated programmers for five years (i.e., through 
October 5, 2007); see Implementation of the Cable Television Consumer 
Protection and Competition Act of 1992--Development of Competition and 
Diversity in Video Programming Distribution: Section 628(c)(5) of the 
Communications Act: Sunset of Exclusive Contract Prohibition, 67 FR 
49247-01 (2002) (``Sunset Report and Order''). The Commission provided 
that, during the year before the expiration of the 5-year term, a 
review would again be undertaken to determine whether the exclusivity 
prohibition continues to be necessary to preserve and protect 
competition and diversity in the distribution of video programming. 
This NPRM initiates that review. Further, this NPRM also seeks comment 
on whether and how our procedures for resolving program access disputes 
under Section 628 should be modified.

II. Background

    2. The focus of Congress in enacting the program access provisions, 
adopted as part of the Cable Television Consumer Protection and 
Competition Act of 1992 (``1992 Cable Act''), was to encourage entry 
into the multichannel video programming distribution (``MVPD'') market 
by existing or potential competitors to traditional cable systems by 
making available to those entities the programming necessary to enable 
them to become viable competitors. The 1992 Cable Act and its 
legislative history reflect congressional findings that increased 
horizontal concentration of cable operators, combined with extensive 
vertical integration, created an imbalance of power, both between cable 
operators and program vendors and between incumbent cable operators and 
their multichannel competitors. Vertical integration means the combined 
ownership of cable systems and suppliers of cable programming. Congress 
concluded at that time that vertically integrated program suppliers had 
the incentive and ability to favor their affiliated cable operators 
over other multichannel program distributors, such as other cable 
systems, home satellite dish (``HSD'') distributors, direct broadcast 
satellite (``DBS'') providers, satellite master antenna television 
(``SMATV'') systems, and wireless cable operators; see Implementation 
of Sections 12 and 19 of the Cable Television Consumer Protection and 
Competition Act of 1992: Development of Competition and Diversity in 
Video Programming Distribution and Carriage, 58 FR 27658-02 (1993) 
(``First Report and Order''), recon., 59 FR 66255-01 (1994), further 
recon., 60 FR 3099-01 (1994); see 47 U.S.C. 522(13) (``multichannel 
video programming distributor'' means ``a person such as, but not 
limited to, a cable operator, a multichannel multipoint distribution 
service, a direct broadcast satellite service, or a television receive-
only satellite program distributor, who makes available for purchase, 
by subscribers or customers, multiple channels of video programming'').
    3. When the Commission promulgated regulations implementing the 
program access provisions of Section 628, it recognized that Congress 
placed a higher value on new competitive entry into the MVPD 
marketplace than on the continuation of exclusive distribution 
practices when such practices impede this entry. Congress absolutely 
prohibited exclusive contracts for satellite cable programming or 
satellite broadcast programming between vertically integrated 
programming vendors and cable operators in areas unserved by cable, and 
generally prohibited exclusive contracts within areas served by cable. 
The term ``satellite cable programming'' means video programming which 
is transmitted via satellite and which is primarily intended for direct 
receipt by cable operators for their retransmission to cable 
subscribers, except that such term does not include satellite broadcast 
programming. The term ``satellite broadcast programming'' means 
broadcast video programming when such programming is retransmitted by 
satellite and the entity retransmitting such programming is not the 
broadcaster or an entity performing such retransmission on behalf of 
and with the specific consent of the broadcaster. Specifically, the 
prohibition with regard to served areas, Section 628(c)(2)(D), states 
that:

with respect to distribution to persons in areas served by a cable 
operator, [the Commission shall] prohibit exclusive contracts for 
satellite cable programming or satellite broadcast programming 
between a cable operator and a satellite cable programming vendor in 
which a cable operator has an attributable interest or a satellite 
broadcast programming vendor in which a cable operator has an 
attributable interest, unless the Commission determines * * * that 
such contract is in the public interest.

Thus, in areas served by cable, the prohibition is not absolute. 
Congress

[[Page 9291]]

recognized that, in areas served by cable, some exclusive contracts may 
serve the public interest by providing offsetting benefits to the video 
programming market or assisting in the development of competition among 
MVPDs. Any cable operator, satellite cable programming vendor in which 
a cable operator has an attributable interest, or satellite broadcast 
programming vendor in which a cable operator has an attributable 
interest seeking to enforce or enter into an exclusive contract in an 
area served by a cable operator must submit a ``petition for 
exclusivity'' to the Commission for approval.

    4. The Commission's factual findings, analysis, and rationale for 
retaining the prohibition on exclusivity are fully set forth in the 
Sunset Report and Order and need not be reiterated here, other than to 
note that the Commission concluded that:

[t]he competitive landscape of the market for the distribution of 
multichannel video programming has changed for the better since 
1992. The number of MVPDs that compete with cable and the number of 
subscribers served by those MVPDs have increased significantly. We 
find, however, that the concern on which Congress based the program 
access provisions--that in the absence of regulation, vertically 
integrated programmers have the ability and incentive to favor 
affiliated cable operators over nonaffiliated cable operators and 
programming distributors using other technologies such that 
competition and diversity in the distribution of video programming 
would not be preserved and protected--persists in the current 
marketplace.

Specific aspects of the Sunset Report and Order will be discussed below 
where relevant to provide context for the matters upon which we seek 
inquiry in this NPRM.

III. Notice of Proposed Rulemaking

A. Sunset of Exclusive Contract Prohibition
    5. Congress based the program access provisions on its concern that 
in the absence of regulation, vertically integrated programmers have 
the incentive and ability to favor affiliated cable operators over 
nonaffiliated cable operators and programming distributors using other 
technologies such that competition and diversity in the distribution of 
video programming would not be preserved and protected. We ask whether 
this concern has diminished or increased in today's marketplace.
    6. In the Sunset Report and Order, the Commission examined the 
status of the MVPD market over the decade between the adoption of the 
program access provisions and the sunset review. The Commission 
observed that cable's overall market share declined from 95 percent in 
1992 to 78 percent at the time of the Sunset Report and Order. The 
Commission also considered DBS, which at the time served 18 percent of 
MVPD households. Finally, the Commission noted that other competitors 
such as multichannel multipoint distribution service (``MMDS''), SMATV, 
and HSD, had not fared as well, comprising less than four percent of 
all MVPD subscribers. As of June 2005, basic cable subscribers 
comprised approximately 69 percent of all MVPD households and DIRECTV 
and EchoStar Communications Corporation (``EchoStar'') (marketed as the 
DISH Network) served approximately 27.7 percent of all MVPD households 
nationwide. As of June 2005, MMDS, SMATV and HSD operators served less 
than three percent of all MVPD subscribers. How has the exclusivity 
prohibition impacted the general state of competition among MVPD 
operators? We seek comment on the current status of all these current 
MVPD competitors to cable and their continued viability should the 
prohibition on exclusivity be permitted to sunset. In addition, how 
would the absence of an exclusivity prohibition affect the likelihood 
that potential MVPD competitors will enter the market?
    7. We request information as to whether developments in the 
marketplace since the passage of the 1992 Cable Act and our 2002 sunset 
review have diminished or increased the need for the exclusivity 
prohibition. In this regard, we seek comment on three events which have 
occurred in the multichannel programming market since our 2002 sunset 
review. First, we seek comment on the increase in the provision of MVPD 
service by local exchange carriers (``LECs''). For example, AT&T is 
moving forward with its IP-enabled broadband network called ``Project 
Lightspeed,'' using both Fiber to the Node (``FTTN'') and Fiber to the 
Home (``FTTH'') to deliver video and other services to residential 
customers. AT&T states that it currently has approximately 3,000 
customers, with more projected once it launches beyond San Antonio, 
Texas. In addition, Verizon is deploying a FTTH network that delivers 
video, telephony, and high-speed Internet access service. Verizon 
estimates that it had 100,000 video subscribers at the end of the 3rd 
quarter, 2006, and that they will have 175,000 video subscribers and 
pass 1.8 million households by the end of 2006. Second, we seek comment 
on the impact of the acquisition of control of the assets of Hughes 
Electronics Corporation by The News Corporation Limited (``News 
Corp.''). Through this transaction, News Corp. placed under common 
control DIRECTV, the nation's second largest MVPD, and the broadcast 
and multichannel programming assets of the Fox Entertainment Group. We 
note that in this decision, the Commission placed certain conditions on 
News Corp. and DIRECTV in order to ensure that the access and non-
discrimination requirements of the program access rules would continue 
to apply to News Corp.'s national and regional cable programming, and 
to obtain additional protections encompassed by the parties' related 
commitments. Further, the Commission stated that these conditions would 
continue to apply as long as it deemed News Corp. to have an 
attributable interest in DIRECTV and the Commission's program access 
rules relating to satellite cable programming vendors affiliated with 
cable operators are in effect. If the Commission's program access rules 
are modified, then the Commission determined that these conditions 
would be modified to conform to the Commission's revised rules. We note 
that News Corp. recently proposed an $11 billion asset swap with 
Liberty Media to trade News Corp.'s 38 percent stake in DIRECTV and 
some other assets for Liberty's shareholding in News Corp. This 
proposal, if approved, would give Liberty control of DIRECTV. Finally, 
we seek comment on the recent acquisition by Comcast Corporation and 
Time Warner, Inc. of the assets of Adelphia Communications Corporation. 
We seek comment on the extent, if any, to which these specific events 
should inform our analysis of whether to retain the prohibition on 
exclusivity. In addition, we seek comment on any other relevant 
developments in the MVPD market since our 2002 sunset review that we 
should consider in deciding whether to retain the prohibition on 
exclusivity.
    8. We ask whether competitive MVPDs' access to what some refer to 
as ``marquee'' or ``must have'' vertically integrated programming, such 
as CNN, HBO, TNT, Discovery and others, remains essential to successful 
implementation of competitive services. Does satellite-delivered 
vertically integrated programming remain necessary to the viability of 
competitive MVPDs because there is no good substitute programming 
available? We also ask whether the retention of the exclusivity 
prohibition affects access to national and regional sports

[[Page 9292]]

programming networks. We seek comment on the effects that the 
exclusivity prohibition has had on the development and production of 
programming for the current MVPD marketplace. We concluded in the 
Sunset Report and Order that the retention of the exclusivity 
prohibition would not reduce incentives to create new or diverse 
programming. In support, we noted that the number of national 
programming services increased from the exclusivity prohibition's 
inception in 1992 from 87 to 294 in 2001. We also noted that the number 
of vertically integrated programming services nearly doubled from 56 in 
1994 to 104 in 2001 and concluded that the ban did not serve as a 
disincentive for cable MSOs to develop new cable networks. Since the 
extension of the exclusivity ban in 2002, has there been a significant 
overall increase or decrease in the development, promotion, and launch 
of new and diverse programming services? We note that, our most recent 
report on the status of video competition found that, as of June 2005, 
there were 531 satellite-delivered national programming networks. How 
has the exclusivity prohibition affected investment incentives in the 
current marketplace for both vertically integrated and independent 
programming? We also ask if there has been any change in the resources 
of nonaffiliated cable operators and competitive MVPDs and their 
ability to develop their own programming, thereby limiting their 
dependence on ``must have'' vertically integrated programming. Finally, 
we ask what effect the retention of the exclusivity ban has had on the 
launch of local origination programming that may have a more limited 
geographic appeal.
    9. We also ask how the current state of cable system clusters and 
distribution of regional video programming services affiliated with 
cable operators should affect our decision regarding the exclusivity 
prohibition. As the Commission concluded in the Sunset Report and 
Order, ``[w]e believe that clustering, accompanied by an increase in 
vertically integrated regional programming networks affiliated with 
cable MSOs that control system clusters, will increase the incentive of 
cable operators to practice anticompetitive foreclosure of access to 
vertically integrated programming.'' We seek comment on the continuing 
validity of this conclusion and whether events since the Sunset Report 
and Order mitigate or exacerbate the impact of clustering. In 
particular, we seek comment on what impact our recent approval of the 
acquisition of the assets of Adelphia Communications by Comcast and 
Time Warner has on this topic. We also seek comment on whether the 
current state of horizontal consolidation in the cable industry 
increases incentives for anticompetitive foreclosure of access to 
vertically integrated programming.
    10. We seek comment on whether the exclusivity prohibition 
continues to be necessary to preserve and protect diversity in the 
distribution of programming. Our focus in this area is not on 
programming diversity, but rather on ``preserving and protecting 
diversity in the distribution of video programming--i.e., ensuring that 
as many MVPDs as possible remain viable distributors of video 
programming.'' As the Commission observed in the Sunset Report and 
Order, ``[o]ther than the two largest non-cable MVPDs, DirecTV and 
EchoStar, nonaffiliated cable operators and competitive MVPDs * * * 
assert that they lack the resources and ability to develop their own 
programming and are thus dependent on access to the programming of 
others, including `must have' vertically integrated programming.'' Does 
this continue to be true for nonaffiliated cable operators and 
competitive MVPDs in today's marketplace? We seek comment on whether 
retention of the exclusivity prohibition in the current climate helps 
to ensure that as many MVPDs as possible remain viable distributors of 
video programming. One of Congress' express findings in enacting the 
1992 Cable Act was that ``[t]here is a substantial governmental and 
First Amendment interest in promoting a diversity of views provided 
through multiple technology media.'' Would the sunset of the 
exclusivity prohibition in the current state of the market limit or 
foreclose access to vertically integrated programming so as to 
jeopardize a diverse market of existing and potential competitors?
    11. Congress initially set a 10-year period for Commission review 
of Section 628(c)(2)(D) in order to determine whether the exclusive 
contract prohibition continued to be necessary to preserve and protect 
competition and diversity in the distribution of video programming. 
After completing its review, the Commission determined in the Sunset 
Report and Order that a five-year term provided a sufficient period in 
which to initiate a subsequent sunset review. If we determine in this 
proceeding that Section 628(c)(2)(D) should be retained and extended 
for another period of years, we seek comment on what time frame would 
be appropriate, taking into consideration the current and potential 
future competitive environment. We also seek comment on whether the 
exclusivity prohibition, if retained, should be automatically abolished 
depending on the triggering of a specific event or events in the 
marketplace.
    12. We also seek comment on any new trends in the industry that 
would indicate that the MVPD distribution and program production 
sectors are moving toward the type of market structure that would 
support the sunset of the exclusivity prohibition. Finally, we seek 
comment on any other issues appropriate to our inquiry in accordance 
with Section 628(c)(5).
B. Program Access Complaint Procedures
    13. This NPRM also seeks comment on whether and how our procedures 
for resolving program access disputes under Section 628 should be 
modified. Our rules provide that any MVPD aggrieved by conduct that it 
believes constitutes a violation of Section 628 and the Commission's 
program access rules may file a complaint at the Commission in 
accordance with 47 CFR 76.7 and 76.1003. The Commission's rules provide 
that before an MVPD may file such a complaint, it must first notify the 
cable operator or satellite programming vendor that it intends to file 
the complaint. The complaining MVPD must allow the cable operator or 
vendor 10 days to respond to the prefiling NPRM prior to filing its 
complaint with the Commission. The necessary contents of the complaint 
are specified in the rules, including a requirement that any damages 
sought must be clearly stated in the complaint. Once a complaint is 
filed, the cable operator or satellite programming vendor shall answer 
within 20 days of service of the complaint. Replies to the answer are 
due 10 days thereafter. Any program access complaint must be filed 
within one year of the date on which the MVPD enters into a contract 
with the programming vendor, the programming vendor offers the 
programming to the MVPD, or the MVPD notifies the cable operator or 
programming vendor that it intends to file a complaint with the 
Commission. The rules also address the determination of the proper 
damages to be assessed, including a recognition that the parties be 
given an opportunity to reach agreement on damages. In addition, the 
Commission has stated its goals for resolution of program access 
complaints which are: five months from the submission of a complaint 
for denial of programming cases, and nine months

[[Page 9293]]

for all other program access complaints, such as price discrimination 
cases.
    14. We seek comment on whether and how our procedures for resolving 
program access disputes should be modified. The scope of our inquiry is 
limited to our rules governing the program access complaint process. In 
particular, we seek comment on the costs associated with the complaint 
process and whether the pre-filing NPRM, pleading requirements, 
evidentiary standards, timing, and potential remedies are appropriate 
and effective. In addition, we seek comment on whether additional time 
limits would improve the existing process. For instance, we seek 
comment on whether specific time limits on the Commission, the parties, 
or others would promote a speedy and just resolution of these disputes.
    15. Are the Commission's program access complaint rules and 
procedures adequate? We seek comment on these issues and on additional 
procedures that would address infirmities. For example, are complaints 
resolved in a timely manner? Are our rules governing discovery and 
protection of confidential information adequate? Should the Commission 
adopt alternative procedures or remedies such as mandatory standstill 
agreements and/or arbitration, as it has done in two recent mergers? 
Commenters that favor these alternative procedures should address the 
Commission's authority to adopt them.

IV. Administrative Matters

    16. Ex Parte Rules. This is a permit-but-disclose NPRM and comment 
rulemaking proceeding. Ex parte presentations are permitted, except 
during the Sunshine Agenda period, provided that they are disclosed as 
provided in the Commission's rules. See generally 47 CFR 1.1202, 
1.1203, and 1.1206(a).
    17. Comment Information. Pursuant to sections 1.415 and 1.419 of 
the Commission's rules, 47 CFR 1.415, 1.419, interested parties may 
file comments and reply comments on or before the dates indicated on 
the first page of this document. Comments may be filed using: (1) The 
Commission's Electronic Comment Filing System (ECFS), (2) the Federal 
Government's eRulemaking Portal, or (3) by filing paper copies. See 
Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 
(1998).
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: https://www.fcc.gov/cgb/ecfs/ or the Federal eRulemaking Portal: https://www.regulations.gov. Filers 
should follow the instructions provided on the website for submitting 
comments.
     For ECFS filers, if multiple docket or rulemaking numbers 
appear in the caption of this proceeding, filers must transmit one 
electronic copy of the comments for each docket or rulemaking number 
referenced in the caption. In completing the transmittal screen, filers 
should include their full name, U.S. Postal Service mailing address, 
and the applicable docket or rulemaking number. Parties may also submit 
an electronic comment by Internet e-mail. To get filing instructions, 
filers should send an e-mail to ecfs@fcc.gov, and include the following 
words in the body of the message, ``get form.'' A sample form and 
directions will be sent in response.
     Paper Filers: Parties who choose to file by paper must 
file an original and four copies of each filing. If more than one 
docket or rulemaking number appears in the caption of this proceeding, 
filers must submit two additional copies for each additional docket or 
rulemaking number.
    Filings can be sent by hand or messenger delivery, by commercial 
overnight courier, or by first-class or overnight U.S. Postal Service 
mail (although we continue to experience delays in receiving U.S. 
Postal Service mail). All filings must be addressed to the Commission's 
Secretary, Office of the Secretary, Federal Communications Commission.
     The Commission's contractor will receive hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary at 236 
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing 
hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be 
held together with rubber bands or fasteners. Any envelopes must be 
disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743.
     U.S. Postal Service first-class, Express, and Priority 
mail should be addressed to 445 12th Street, SW., Washington DC 20554.
    People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an e-mail to fcc504@fcc.gov or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
    18. Initial Paperwork Reduction Act Analysis. This document does 
not contain proposed information collection(s) subject to the Paperwork 
Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, 
it does not contain any new or modified ``information collection burden 
for small business concerns with fewer than 25 employees,'' pursuant to 
the Small Business Paperwork Relief Act of 2002, Public Law 107-198, 
see 44 U.S.C. 3506(c)(4).
    19. Initial Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act, the Commission has prepared an Initial 
Regulatory Flexibility Analysis (IRFA) of the possible significant 
economic impact on a substantial number of small entities of the 
proposals addressed in this NPRM of Proposed Rulemaking. The IRFA is 
set forth in the Appendix. Written public comments are requested on the 
IRFA. These comments must be filed in accordance with the same filing 
deadlines for comments on the Further NPRM, and they should have a 
separate and distinct heading designating them as responses to the 
IRFA.
    20. Additional Information. For additional information on this 
proceeding, please contact Karen Kosar, Policy Division, Media Bureau 
at (202) 418-1053.

V. Initial Regulatory Flexibility Analysis

    21. As required by the Regulatory Flexibility Act of 1980, as 
amended (the ``RFA'') the Commission has prepared this Initial 
Regulatory Flexibility Analysis (``IRFA'') of the possible significant 
economic impact of the policies and rules proposed in this NPRM of 
Proposed Rulemaking (``NPRM'') on a substantial number of small 
entities. Written public comments are requested on this IRFA. Comments 
must be identified as responses to the IRFA and must be filed by the 
deadlines for comments on the NPRM indicated on the first page of this 
document. The Commission will send a copy of the NPRM, including this 
IRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration (``SBA''). In addition, the NPRM and IRFA (or summaries 
thereof) will be published in the Federal Register.
A. Need for, and Objectives of, the Proposed Regulatory Approaches
    22. The focus of the enactment of the program access provisions 
contained in Section 628 of the Communications Act of 1934, as amended, 
adopted as part of the Cable Television Consumer Protection and 
Competition Act of 1992, was to encourage entry into the multichannel 
video programming distribution market (``MVPD'') by

[[Page 9294]]

existing or potential competitors to traditional cable systems by 
making available to those entities the programming necessary to empower 
them to become viable competitors. Specifically, this proceeding 
involves Section 628(c)(2)(D), which prohibits, in areas served by a 
cable operator, exclusive contracts for satellite cable programming or 
satellite broadcast programming between vertically integrated 
programming vendors and cable operators unless the Commission 
determines that such exclusivity is in the public interest.
    23. Section 628(c)(5) directed that the prohibition contained in 
Section 628(c)(2)(D) should cease to be effective on October 5, 2002, 
unless the Commission found that such prohibition ``continues to be 
necessary to preserve and protect competition and diversity in the 
distribution of video programming.'' The Commission initiated its 
proceeding in the matter by issuing a NPRM of Proposed Rulemaking 
seeking comment on the possible sunset of Section 628(c)(2)(D) in 
October 2001. The Commission's Report and Order, issued in June 2002, 
concluded that the term of the prohibition on exclusive contracts 
between cable operators and vertically integrated programmers should be 
extended for five (5) years from October 5, 2002. The prohibition on 
exclusivity is therefore set to expire on October 5, 2007, unless 
circumstances in the video programming marketplace indicate that the 
prohibition continues to be necessary within the meaning of the 
statute. The Commission has stated during the year before the 
expiration of the 5-year term, a review again will be undertaken to 
determine whether the exclusivity prohibition continues to be necessary 
to preserve and protect competition and diversity in the distribution 
of video programming. This NPRM initiate this review.
B. Legal Basis
    24. The authority for the action proposed in the rulemaking is 
contained in Section 4(i), 303 and 628 of the Communications Act of 
1934, as amended, 47 U.S.C. 154(i), 303 and 548.
C. Description and Estimate of the Number of Small Entities To Which 
the Proposed Rules Will Apply
    25. The RFA directs agencies to provide a description of, and where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A ``small business concern'' is one which: (1) Is independently 
owned and operated; (2) is not dominant in its field of operation; and 
(3) satisfies any additional criteria established by the Small Business 
Administration (``SBA'').
    26. Cable and Other Program Distribution. The Census Bureau defines 
this category as follows: ``This industry comprises establishments 
primarily engaged as third-party distribution systems for broadcast 
programming. The establishments of this industry deliver visual, aural, 
or textual programming received from cable networks, local television 
stations, or radio networks to consumers via cable or direct-to-home 
satellite systems on a subscription or fee basis. These establishments 
do not generally originate programming material.'' The SBA has 
developed a small business size standard for Cable and Other Program 
Distribution, which is: all such firms having $13.5 million or less in 
annual receipts. According to Census Bureau data for 2002, there were a 
total of 1,191 firms in this category that operated for the entire 
year. Of this total, 1,087 firms had annual receipts of under $10 
million, and 43 firms had receipts of $10 million or more but less than 
$25 million. An additional 61 firms had annual receipts of $25 million 
or more. Thus, under this size standard, the majority of firms can be 
considered small.
    27. Cable Companies and Systems. The Commission has also developed 
its own small business size standards, for the purpose of cable rate 
regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers, nationwide. The Commission 
determined that this size standard equates approximately to a size 
standard of $100 million or less in annual revenues. Industry data 
indicate that, of 1,076 cable operators nationwide, all but eleven are 
small under this size standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that, of 7,208 systems nationwide, 
6,139 systems have under 10,000 subscribers, and an additional 379 
systems have 10,000-19,999 subscribers. Thus, under this second size 
standard, most cable systems are small.
    28. Cable System Operators. The Communications Act of 1934, as 
amended, also contains a size standard for small cable system 
operators, which is ``a cable operator that, directly or through an 
affiliate, serves in the aggregate fewer than 1 percent of all 
subscribers in the United States and is not affiliated with any entity 
or entities whose gross annual revenues in the aggregate exceed 
$250,000,000.'' The Commission has determined that an operator serving 
fewer than 677,000 subscribers shall be deemed a small operator, if its 
annual revenues, when combined with the total annual revenues of all 
its affiliates, do not exceed $250 million in the aggregate. Industry 
data indicate that, of 1,076 cable operators nationwide, all but ten 
are small under this size standard. We note that the Commission neither 
requests nor collects information on whether cable system operators are 
affiliated with entities whose gross annual revenues exceed $250 
million, and therefore we are unable to estimate more accurately the 
number of cable system operators that would qualify as small under this 
size standard. The Commission does receive such information on a case-
by-case basis if a cable operator appeals a local franchise authority's 
finding that the operator does not qualify as a small cable operator 
pursuant to section 76.901(f) of the Commission's rules.
    29. Direct Broadcast Satellite (``DBS'') Service. DBS service is a 
nationally distributed subscription service that delivers video and 
audio programming via satellite to a small parabolic ``dish'' antenna 
at the subscriber's location. Because DBS provides subscription 
services, DBS falls within the SBA-recognized definition of Cable and 
Other Program Distribution. This definition provides that a small 
entity is one with $13.5 million or less in annual receipts. Currently, 
only four operators hold licenses to provide DBS service, which 
requires a great investment of capital for operation. All four 
currently offer subscription services. Two of these four DBS operators, 
DIRECTV and EchoStar Communications Corporation (``EchoStar''), report 
annual revenues that are in excess of the threshold for a small 
business. A third operator, Rainbow DBS, is a subsidiary of 
Cablevision's Rainbow Network, which also reports annual revenues in 
excess of $13.5 million, and thus does not qualify as a small business. 
The fourth DBS operator, Dominion Video Satellite, Inc. (``Dominion''), 
offers religious (Christian) programming and does not report its annual 
receipts. The Commission does not know of any source which provides 
this information and, thus, we have no way of confirming whether 
Dominion qualifies

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as a small business. Because DBS service requires significant capital, 
we believe it is unlikely that a small entity as defined by the SBA 
would have the financial wherewithal to become a DBS licensee. 
Nevertheless, given the absence of specific data on this point, we 
acknowledge the possibility that there are entrants in this field that 
may not yet have generated $13.5 million in annual receipts, and 
therefore may be categorized as a small business, if independently 
owned and operated.
    30. Private Cable Operators (PCOs) also known as Satellite Master 
Antenna Television (SMATV) Systems. PCOs, also known as SMATV systems 
or private communication operators, are video distribution facilities 
that use closed transmission paths without using any public right-of-
way. PCOs acquire video programming and distribute it via terrestrial 
wiring in urban and suburban multiple dwelling units such as apartments 
and condominiums, and commercial multiple tenant units such as hotels 
and office buildings. The SBA definition of small entities for Cable 
and Other Program Distribution Services includes PCOs and, thus, small 
entities are defined as all such companies generating $13.5 million or 
less in annual receipts. Currently, there are approximately 135 members 
in the Independent Multi-Family Communications Council (IMCC), the 
trade association that represents PCOs. Individual PCOs often serve 
approximately 3,000-4,000 subscribers, but the larger operations serve 
as many as 15,000-55,000 subscribers. In total, PCOs currently serve 
approximately 1.1 million subscribers. Because these operators are not 
rate regulated, they are not required to file financial data with the 
Commission. Furthermore, we are not aware of any privately published 
financial information regarding these operators. Based on the estimated 
number of operators and the estimated number of units served by the 
largest ten PCOs, we believe that a substantial number of PCO may 
qualify as small entities.
    31. Home Satellite Dish (``HSD'') Service. Because HSD provides 
subscription services, HSD falls within the SBA-recognized definition 
of Cable and Other Program Distribution, which includes all such 
companies generating $13.5 million or less in revenue annually. HSD or 
the large dish segment of the satellite industry is the original 
satellite-to-home service offered to consumers, and involves the home 
reception of signals transmitted by satellites operating generally in 
the C-band frequency. Unlike DBS, which uses small dishes, HSD antennas 
are between four and eight feet in diameter and can receive a wide 
range of unscrambled (free) programming and scrambled programming 
purchased from program packagers that are licensed to facilitate 
subscribers' receipt of video programming. There are approximately 30 
satellites operating in the C-band, which carry over 500 channels of 
programming combined; approximately 350 channels are available free of 
charge and 150 are scrambled and require a subscription. HSD is 
difficult to quantify in terms of annual revenue. HSD owners have 
access to program channels placed on C-band satellites by programmers 
for receipt and distribution by MVPDs. Commission data shows that, 
between June 2003 and June 2004, HSD subscribership fell from 502,191 
subscribers to 335,766 subscribers, a decline of more than 33 percent. 
The Commission has no information regarding the annual revenue of the 
four C-Band distributors.
    32. Wireless Cable Systems. Wireless cable systems use the 
Multipoint Distribution Service (``MDS'') and Instructional Television 
Fixed Service (``ITFS'') frequencies in the 2 GHz band to transmit 
video programming and provide broadband services to subscribers. Local 
Multipoint Distribution Service (``LMDS'') is a fixed broadband point-
to-multipoint microwave service that provides for two-way video 
telecommunications. As previously noted, the SBA definition of small 
entities for Cable and Other Program Distribution, which includes such 
companies generating $13.5 million in annual receipts, appears 
applicable to MDS, ITFS and LMDS. In addition, the Commission has 
defined small MDS and LMDS entities in the context of Commission 
license auctions.
    33. In the 1996 MDS auction, the Commission defined a small 
business as an entity that had annual average gross revenues of less 
than $40 million in the previous three calendar years. This definition 
of a small entity in the context of MDS auctions has been approved by 
the SBA. In the MDS auction, 67 bidders won 493 licenses. Of the 67 
auction winners, 61 claimed status as a small business. At this time, 
the Commission estimates that of the 61 small business MDS auction 
winners, 48 remain small business licensees. In addition to the 48 
small businesses that hold BTA authorizations, there are approximately 
392 incumbent MDS licensees that have gross revenues that are not more 
than $40 million and are thus considered small entities. We also note 
that MDS licensees and wireless cable operators that did not 
participate in the MDS auction must rely on the SBA definition of small 
entities for Cable and Other Program Distribution, which is: Such 
entities do not generate revenue in excess of $13.5 million annually. 
We estimate that the majority of these entities are small.
    34. While SBA approval for a Commission-defined small business size 
standard applicable to ITFS is pending, educational institutions are 
included in this analysis as small entities. There are currently 2,032 
ITFS licensees, and all but 100 of these licenses are held by 
educational institutions. Thus, the Commission estimates that at least 
1,932 ITFS licensees are small businesses.
    35. In the 1998 and 1999 LMDS auctions, the Commission defined a 
small business as an entity that had annual average gross revenues of 
less than $40 million in the previous three calendar years. Moreover, 
the Commission added an additional classification for a ``very small 
business,'' which was defined as an entity that had annual average 
gross revenues of less than $15 million in the previous three calendar 
years. These definitions of ``small business'' and ``very small 
business'' in the context of the LMDS auctions have been approved by 
the SBA. In the first LMDS auction, 104 bidders won 864 licenses. Of 
the 104 auction winners, 93 claimed status as small or very small 
businesses. In the LMDS re-auction, 40 bidders won 161 licenses. Based 
on this information, we believe that the number of small LMDS licenses 
will include the 93 winning bidders in the first auction and the 40 
winning bidders in the re-auction, for a total of 133 small entity LMDS 
providers as defined by the SBA and the Commission's auction rules.
    36. Open Video Systems (``OVS''). The OVS framework provides 
opportunities for the distribution of video programming other than 
through cable systems. Because OVS operators provide subscription 
services, OVS falls within the SBA-recognized definition of Cable and 
Other Program Distribution Services, which provides that a small entity 
is one with $13.5 million or less in annual receipts. The Commission 
has certified 25 OVS operators with some now providing service. 
Broadband service providers (BSPs) are currently the only significant 
holders of OVS certifications or local OVS franchises, even though OVS 
is one of four statutorily-recognized options for local exchange 
carriers (LECs) to offer video programming services. As of June 2003, 
BSPs served approximately 1.4 million subscribers, representing 1.49 
percent of all MVPD households. Among BSPs, however, those operating 
under the OVS framework are in the minority, with

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approximately eight percent operating with an OVS certification. 
Serving approximately 460,000 of these subscribers, Affiliates of 
Residential Communications Network, Inc. (``RCN'') is currently the 
largest BSP and 11th largest MVPD. RCN received approval to operate OVS 
systems in New York City, Boston, Washington, D.C. and other areas. The 
Commission does not have financial information regarding the entities 
authorized to provide OVS, some of which may not yet be operational. We 
thus believe that at least some of the OVS operators may qualify as 
small entities.
    37. Cable and Other Subscription Programming. The Census Bureau 
defines this category as follows: ``This industry comprises 
establishments primarily engaged in operating studios and facilities 
for the broadcasting of programs on a subscription or fee basis * * *. 
These establishments produce programming in their own facilities or 
acquire programming from external sources. The programming material is 
usually delivered to a third party, such as cable systems or direct-to-
home satellite systems, for transmission to viewers.'' The SBA has 
developed a small business size standard for firms within this 
category, which is: firms with $13.5 million or less in annual 
receipts. According to Census Bureau data for 2002, there were 270 
firms in this category that operated for the entire year. Of this 
total, 217 firms had annual receipts of under $10 million and 13 firms 
had annual receipts of $10 million to $24,999,999. Thus, under this 
category and associated small business size standard, the majority of 
firms can be considered small.
    38. A ``small business'' under the RFA is one that, inter alia, 
meets the pertinent small business size standard (e.g., a telephone 
communications business having 1,500 or fewer employees), and ``is not 
dominant in its field of operation.'' The SBA's Office of Advocacy 
contends that, for RFA purposes, small incumbent local exchange 
carriers are not dominant in their field of operation because any such 
dominance is not ``national'' in scope.
    39. Incumbent Local Exchange Carriers (``LECs''). Neither the 
Commission nor the SBA has developed a small business size standard 
specifically for incumbent local exchange services. The appropriate 
size standard under SBA rules is for the category Wired 
Telecommunications Carriers. Under that size standard, such a business 
is small if it has 1,500 or fewer employees. According to Commission 
data, 1,303 carriers have reported that they are engaged in the 
provision of incumbent local exchange services. Of these 1,303 
carriers, an estimated 1,020 have 1,500 or fewer employees and 283 have 
more than 1,500 employees. Consequently, the Commission estimates that 
most providers of incumbent local exchange service are small 
businesses.
    40. Competitive Local Exchange Carriers, Competitive Access 
Providers (CAPs), ``Shared-Tenant Service Providers,'' and ``Other 
Local Service Providers.'' Neither the Commission nor the SBA has 
developed a small business size standard specifically for these service 
providers. The appropriate size standard under SBA rules is for the 
category Wired Telecommunications Carriers. Under that size standard, 
such a business is small if it has 1,500 or fewer employees. According 
to Commission data, 769 carriers have reported that they are engaged in 
the provision of either competitive access provider services or 
competitive local exchange carrier services. Of these 769 carriers, an 
estimated 676 have 1,500 or fewer employees and 93 have more than 1,500 
employees. In addition, 12 carriers have reported that they are 
``Shared-Tenant Service Providers,'' and all 12 are estimated to have 
1,500 or fewer employees. In addition, 39 carriers have reported that 
they are ``Other Local Service Providers.'' Of the 39, an estimated 38 
have 1,500 or fewer employees and one has more than 1,500 employees. 
Consequently, the Commission estimates that most providers of 
competitive local exchange service, competitive access providers, 
``Shared-Tenant Service Providers,'' and ``Other Local Service 
Providers'' are small entities.
    41. Electric Power Generation, Transmission and Distribution. The 
Census Bureau defines this category as follows: ``This industry group 
comprises establishments primarily engaged in generating, transmitting, 
and/or distributing electric power. Establishments in this industry 
group may perform one or more of the following activities: (1) Operate 
generation facilities that produce electric energy; (2) operate 
transmission systems that convey the electricity from the generation 
facility to the distribution system; and (3) operate distribution 
systems that convey electric power received from the generation 
facility or the transmission system to the final consumer.'' The SBA 
has developed a small business size standard for firms in this 
category: ``A firm is small if, including its affiliates, it is 
primarily engaged in the generation, transmission, and/or distribution 
of electric energy for sale and its total electric output for the 
preceding fiscal year did not exceed 4 million megawatt hours.'' 
According to Census Bureau data for 2002, there were 1,644 firms in 
this category that operated for the entire year. Census data do not 
track electric output and we have not determined how many of these 
firms fit the SBA size standard for small, with no more than 4 million 
megawatt hours of electric output. Consequently, we estimate that 1,644 
or fewer firms may be considered small under the SBA small business 
size standard.
D. Description of Proposed Reporting, Recordkeeping and Other 
Compliance Requirements
    42. The NPRM seeks comment on the possible sunset or the retention 
of Section 628(c)(2)(D) of the Communications Act. The NPRM also seeks 
comment on whether and how our procedures for resolving program access 
disputes under Section 628 should be modified. The NPRM does not 
propose any specific reporting, recordkeeping or other compliance 
requirements.
E. Steps Taken To Minimize Significant Impact on Small Entities and 
Significant Alternatives Considered
    43. The RFA requires an agency to describe any significant 
alternatives that it has considered in proposing regulatory approaches, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities. The NPRM again seeks comment on whether Section 628(c)(2)(D) 
should cease to be effective, pursuant to the sunset provision in 
Section 628(c)(5), or whether Section 628(c)(2)(D) should be retained. 
Thus, the NPRM invites comment on issues that may impact some small 
entities. The NPRM seeks comment on what impact the retention of the 
exclusivity prohibition has had on the multichannel video programming 
distribution market (``MVPD'') overall. More specifically, the NPRM 
inquires what impact the provision has had on the entry of new 
competitive MVPDs into the marketplace. It further inquires about 
access by competitive MVPDs to ``marquee'' or ``must have'' programming 
and whether these services still remain essential to the successful 
implementation of

[[Page 9297]]

competitive services. The NPRM also seeks information on what impact 
cable system clusters, the distribution of regional programming 
services, and horizontal consolidation have on the programming 
marketplace. The NPRM also inquires about whether there has been any 
change in the resources and ability of nonaffiliated cable operators 
and competitive MVPDs to develop their own programming. In addition, 
comment is sought on what effect the prohibition has had on preserving 
and protecting diversity in the distribution of video programming.
F. Federal Rules Which Duplicate, Overlap, or Conflict With the 
Commission's Proposals
    None.

VI. Ordering Clauses

    44. Accordingly, it is ordered that, pursuant to the authority 
contained in Sections 4(i), 303 and 628 of the Communications Act of 
1934, as amended, 47 U.S.C. 154(i), 303 and 548, notice is hereby given 
of the proposals described in this NPRM of Proposed Rulemaking.
    45. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, will send a 
copy of this NPRM of Proposed Rule Making, including the IRFA, to the 
Chief Counsel for Advocacy of the Small Business Administration, in 
accordance with the Regulatory Flexibility Act.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
 [FR Doc. E7-3520 Filed 2-28-07; 8:45 am]
BILLING CODE 6712-01-P