The Commission's Cable Horizontal and Vertical Ownership Limits, 11048-11050 [E8-3700]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 73, Number 41 (Friday, February 29, 2008)]
[Rules and Regulations]
[Pages 11048-11050]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-3700]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MM Docket No. 92-264; FCC 07-219]


The Commission's Cable Horizontal and Vertical Ownership Limits

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document adopts a rule prohibiting cable operators from 
owning or having an attributable interest in cable systems serving more 
than 30 percent of multichannel video programming subscribers 
nationwide. It also eliminates the overbuilder exception, which allowed 
cable operators to count against its horizontal limit only those cable 
subscribers served by its ``incumbent cable franchises'' and excluding 
new subscribers gained through overbuilding ``non-incumbent cable 
systems. Elimination of the exception prevents a cable operator near 
the horizontal limit from using the exception to exceed the 30 percent 
limit and thereby reduce the open field below the 70 percent necessary 
to ensure that no single operator can, by simply refusing to carry a 
video network, cause it to fail. The revised rule balances the need to 
ensure that cable operators cannot use their dominant position in the 
multichannel video programming distribution (MVPD) market to impede 
unfairly the flow of video programming to consumers with consideration 
of the efficiencies and other benefits that might be gained through 
increased ownership or control.

DATES: Effective March 31, 2008.

FOR FURTHER INFORMATION CONTACT: Elvis Stumbergs, (202) 418-7878; Mania 
Baghdadi, (202) 418-2330.

SUPPLEMENTARY INFORMATION: This is a summary of the Federal 
Communications Commission's Fourth Report and Order in MB Docket No. 
92-264, FCC 07-219, adopted December 18, 2007, and released February 
11, 2008. 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). 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 FCC's 
Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice) 
(202) 418-0432 (TTY).

Summary of the Report and Order

    1. This Order was adopted pursuant to Section 613(f)(1)(A) of the 
Telecommunications Act of 1996 (``1996 Act''), which requires the 
Commission to prescribe rules and regulations establishing reasonable 
limits on the number of cable subscribers a person is authorized to 
reach through cable systems owned by such person, or in which such 
person has an attributable interest, and to respond to the concerns of 
the United States Court of Appeals for the District of Columbia Circuit 
in Time Warner Entertainment Co. v. FCC (``Time Warner II'') that the 
Commission had failed adequately to justify the 30 percent limit.
    2. The court in Time Warner II held that Section 613(f) authorizes 
the Commission to set a limit to ensure that no single company could be 
in a position single-handedly to deal a programmer a death blow but 
does not authorize the agency to regulate the legitimate, independent 
editorial choices of multiple MSOs and further found that the 
Commission lacked evidence that cable operators would collude and that 
the Commission could not simply assume that cable operators would 
coordinate their behavior in an anticompetitive manner.
    3. The Report and Order establishes a 30% cable horizontal 
ownership limit by relying on a modified ``open field'' approach to 
ensure that no single cable operator becomes so large that a 
programming network can survive only if that operator carries it and 
eliminates the overbuilder exception to the calculation of the limit.
    4. The Commission considered comments it had received relative to 
three possible approaches to use in fashioning a horizontal ownership 
limit: (1) The open field approach, which examines whether one or more 
cable operators are large enough to effectively limit the viability of 
a programming network if they denied it carriage; (2) monopsony theory, 
which considers whether a cable operator has sufficient market power to 
restrict the price it pays for programming by purchasing less of it and 
thereby restrict the flow of programming to subscribers; and (3) 
bargaining theory, which examines the negotiations between the 
programming network and the cable operator in order to determine the 
point at which programmers will curtail their activities and thereby 
limit the quality and diversity of programming.
    5. We determine that the open field approach, suitably modified, 
represents the best method of determining an appropriate horizontal 
limit. We determine that monopsony theory does not apply to this market 
because of the lack of a single market price in the market for 
programming. Although we find that bargaining theory is useful in 
establishing the need for a limit, the record is insufficient to derive 
a specific limit using this theory.
    6. The open field approach determines whether a programming network 
would have access to alternative MVPDs of sufficient size to allow it 
to successfully enter the market, if it were denied carriage by one or 
more of the largest cable operators.
    7. To calculate a horizontal limit that meets this test, we first 
determine the minimum number of subscribers a network needs in order to 
survive in the marketplace and then estimate the percentage of 
subscribers a network is

[[Page 11049]]

likely to serve once it secures a carriage contract. The resulting 
calculation indicates that an open field of 70 percent and an ownership 
limit of 30 percent are necessary to ensure that no single cable 
operator is able to impede unfairly the flow of programming to 
consumers.
    8. The Commission eliminated the overbuilder exception, which 
allowed counting against a cable operator's horizontal limit only those 
cable subscribers served by its ``incumbent cable franchises,'' 
excluding new subscribers gained through overbuilding ``non-incumbent 
cable systems and concluded that elimination of the exception was 
necessary to prevent a cable operator near the horizontal limit to use 
the exception to exceed the 30 percent limit, which would have the 
effect of reducing the open field below the 70 percent that is 
necessary to ensure that no single operator can, by simply refusing to 
carry a video network, cause it to fail.
    9. The revised rule balances the need to ensure that cable 
operators cannot use their dominant position in the multichannel video 
programming distribution (MVPD) market to impede unfairly the flow of 
video programming to consumers with consideration of the efficiencies 
and other benefits that might be gained through increased ownership or 
control.
    10. The Commission further clarifies 76.503(g) of its rules which 
requires any cable operator serving 20 percent or more of nationwide 
MVPD subscribers to certify prior to acquiring additional MVPDs that no 
violation of the horizontal ownership limit will occur as a result of 
its acquisition, but does not prescribe a particular form of 
certification. We clarify in the Report and Order that certifications 
must be executed by an officer of the corporation and must state that 
the number of attributable subscribers served by the applicant is 
reported accurately in the certification. If this number varies from 
subscriber counts the cable operator has provided to other government 
agencies, financial institutions, or third-party publishers of 
industry-wide subscriber data, the certification shall disclose and 
explain the nature of such discrepancies. The Commission will consider 
specific allegations of misrepresentation on a case-by-case basis.

Fourth Report and Order

Paperwork Reduction Act Analysis

    11. This document does not contain new or modified information 
collection requirements 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).
    12. Congressional Review Act. The Commission will send a copy of 
this Fourth Report and Order in a report to be sent to Congress and the 
Government Accountability Office, pursuant to the Congressional Review 
Act.
    13. Final Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act of 1980, as amended (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated in the 2005 
Second FNPRM in MB Docket No. 92-264, FCC 05-96. The Commission sought 
written public comment on the proposals in the 2005 Second FNPRM 
including comment on the IRFA. This present Final Regulatory 
Flexibility Analysis (FRFA) conforms to the RFA.

A. Need for, and Objectives of, This Fourth Report and Order

    14. In this Fourth Report and Order, we set the Commission's cable 
horizontal ownership limit to bar cable operators from having an 
attributable interest in cable systems serving more than 30 percent of 
multichannel video programming subscribers nationwide. Our action here 
responds to the court's decision in Time Warner Entertainment Co. v. 
FCC (``Time Warner II''), which remanded the Commission's 30 percent 
limit. Our decision implements the statutory directive that we impose a 
limit designed to ensure that no single cable operator or group of 
operators, because of their size, unfairly impede the flow of 
programming to consumers.
    15. In establishing the 30 percent cable horizontal ownership 
limit, we rely on a modified ``open field'' approach to ensure that no 
single cable operator becomes so large that a programming network can 
survive only if that largest operator carries it. To calculate a 
horizontal limit that meets this test, we first determine the minimum 
number of subscribers a network needs in order to survive in the 
marketplace, and then estimate the percentage of subscribers a network 
is likely to serve once it secures a carriage contract. The resulting 
calculation indicates that an open field of 70 percent and an ownership 
limit of 30 percent are necessary to ensure that no single cable 
operator is able to impede unfairly the flow of programming to 
consumers.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    16. None of the parties in this proceeding filed comments on how 
issues raised in the 2001 FNPRM or the 2005 Second FNPRM would impact 
small entities.

C. Description and Estimate of the Number of Small Entities to Which 
the Rule Will Apply

    17. 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 rules adopted herein. 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).
    18. Cable and Other Program Distribution. The Census Bureau 
recently updated the NAICS so that these firms are included in the 
Wired Telecommunications Carriers category which is described as 
follows: ``This industry comprises establishments primarily engaged in 
operating and/or providing access to transmission facilities and 
infrastructure that they own and/or lease for the transmission of 
voice, data, text, sound, and video using wired telecommunications 
networks. Transmission facilities may be based on a single technology 
or a combination of technologies. Establishments in this industry use 
the wired telecommunications network facilities that they operate to 
provide a variety of services, such as wired telephony services, 
including VoIP services; wired (cable) audio and video programming 
distribution; and wired broadband Internet services. By exception, 
establishments providing satellite television distribution services 
using facilities and infrastructure that they operate are included in 
this industry.'' The SBA has updated the small business size standards 
to accord with the revised NAICS. The size standard for Wired 
Telecommunications Carriers is all firms having an average of 1,500 or 
fewer employees. The Census Bureau has not collected information on the 
size distribution of firms in the revised classification of Wired

[[Page 11050]]

Telecommunications Carriers. Accordingly we will apply the new size 
standard to Census Bureau data for 2002 regarding the size distribution 
of Cable and Other Program Distribution. There were a total of 1,191 
firms in this category that operated for the entire year. Of this 
total, 1,178 firms had fewer than 1,000 employees. Thus, under this 
size standard, the majority of firms can be considered small.
    19. 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 653,000 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 994 cable operators nationwide, all but thirteen 
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.
    20. 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 Wired 
Telecommunications Carriers includes PCOs or SMATV systems and, thus, 
small entities are defined as all such companies with 1,500 or fewer 
employees. Currently, there are approximately 76 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 900,000 subscribers. Because these operators are not rate 
regulated, they are not required to file employment data with the 
Commission. Furthermore, we are not aware of any privately published 
employment 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.

D. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements

    21. The new rule imposes a 30 percent limit on the number of MVPD 
subscribers nationwide that one person or entity may serve. No new 
reporting, recordkeeping or other compliance requirements are adopted.

E. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    22. The RFA requires an agency to describe any significant 
alternatives that it has considered in developing its 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 and reporting requirements under the rule for such 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 
such small entities.''
    23. In this Fourth Report and Order, based on its calculations 
using an open field approach, the Commission sets a 30 percent 
horizontal ownership limit. This rule limits the size of large MSOs and 
does not prevent small cable operators from growing larger. We also 
continue to base the limit on the number of actual MVPD subscribers, a 
figure used by cable operators when they negotiate with and purchase 
programming from video programmers. See Id. Finally, the horizontal cap 
would not change pursuant to the Order. Accordingly, we do not find 
that the Order will impose new burdens on small cable operators.
    24. The Commission considered other alternatives, with respect to 
the horizontal limit, but the Order adopted a 30 percent horizontal 
ownership limit based on evidence that this is the level necessary to 
preserve programmer viability. The Commission believes that the 
decisions it adopts in the Order serve our public interest goals and 
comport with the evidence.

F. Report to Congress

    25. The Commission will send a copy of the Fourth Report and Order, 
including this Supplemental FRFA, in a report to be sent to Congress 
pursuant to the Congressional Review Act. In addition, the Commission 
will send a copy of the Fourth Report and Order, including this 
Supplemental FRFA, to the Chief Counsel for the advocacy of the SBA. A 
copy of the Fourth Report and Order and the Supplemental FRFA (or 
summaries thereof) will also be published in the Federal Register.

List of Subjects in 47 CFR Part 76

    Multichannel video and Cable television service.

Federal Communications Commission.

Marlene H. Dortch,
Secretary.

Rule Changes

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR part 76 as follows:

PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

0
1. The authority citations for part 76 continue to read as follows:

    Authority: 47 U.S.C. 152(a), 154(i), 303, 307, 309, 310, 533.


0
2. Amend Sec.  76.503 by revising paragraph (a) and by removing and 
reserving paragraphs (b), (c) and (d) as follows:


Sec.  76.503  National subscriber limits.

    (a) No cable operator shall serve more than 30 percent of all 
multichannel-video programming subscribers nationwide through 
multichannel video programming distributors owned by such operator or 
in which such cable operator holds an attributable interest.
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 [FR Doc. E8-3700 Filed 2-28-08; 8:45 am
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