Fcc 07-71 Before the Federal Communications Commission Washington, D

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Re: Cable Carriage of Digital Television Broadcast Signals (CS Docket No. 98-120)

Given Congress’ DTV deadline, the natural next step for the Commission is to review how cable operators will carry the broadcasters’ digital signals. In this Notice, we seek comment on the obligations of cable operators, after the conclusion of the digital transition, to ensure that the digital signals of “must carry” stations are not materially degraded and are viewable by all cable subscribers, as required by law. Even though broadcasters will be all digital by the deadline, some analog cable equipment will remain in cable systems and in the homes of cable subscribers. Accordingly, we must address how to ensure that cable subscribers are able to view the higher quality signals provided by the broadcast stations in their communities. This Notice initiates our review.

Ideally, I would have preferred that we refrain from making specific proposals about these issues at this juncture. In my view, we should first build a record about the marketplace solutions being developed to address cable operators’ statutory obligations with respect to material degradation and viewability before we make judgments about what standards the government should impose. I have questions about the possible statutory and constitutional implications involved in this proposed endeavor, particularly with respect to mandating carriage of a broadcast signal in both analog and digital formats. I hope that commenting parties will enlighten us with their views of these issues. I look forward to working with my colleagues to set the appropriate standards to accomplish our common goal through this proceeding in a legally sustainable way.
I thank the Bureau for their hard work and I support this Notice.

1 47 U.S.C. § 534(b)(4)(B) (“At such time as the Commission prescribes modifications of the standards for television broadcast signals, the Commission shall initiate a proceeding to establish any changes in the signal carriage requirements of cable television systems necessary to ensure cable carriage of such broadcast signals of local commercial television stations which have been changed to conform with such modified standards.”).

2 See Deficit Reduction Act of 2005, Pub. L. No. 109-171 (2006). Among other things, Title III of that legislation, entitled the Digital Television Transition and Public Safety Act of 2005, established a hard deadline of Feb. 17, 2009 for the end of analog transmissions by full power television stations.

3 See 47 U.S.C. §§ 534, 535.

4 See Carriage of Digital Television Broadcast Signals, etc., CS Docket No. 98-120, First Report and Order and First Notice of Proposed Rulemaking, 16 FCC Rcd 2598, 2627-31, paras. 70-76 (2001) (“First Report and Order” or “Further Notice”).

5 Id. at 2629, para. 73.

6 47 U.S.C. § 534(b)(7).

7 Kagan reports that as of June 2006, there were 65.3 million cable subscribers. Kagan Research, LLC, Kagan's 10-Year Cable TV Industry Projections, Broadband Cable Financial Databook 2006, at 11. NCTA reports that as of June 2006, there were 32.9 million digital cable subscribers. NCTA Comments in Video Competition Proceeding. Also, we note that many digital cable subscribers have one or more television sets that only receive analog cable service.

8 47 U.S.C. § 534(b)(4)(B).

9 See Carriage of the Transmissions of Digital Television Broadcast Stations, CS Docket No. 98-120, Notice of Proposed Rulemaking, 13 FCC Rcd 15092, 15093, paras. 1-2 (1998) (“1998 NPRM”).

10 See First Report and Order, 16 FCC Rcd at 2606, para. 15.

11 Id. at 2630, para. 74.

12 This will be the case despite the steady rise in DTV display sales over the last several years. See, e.g., Julie Kearney, Consumer Electronics Association, DTV Update (March 22, 2006); Consumer Electronics Association, HDTV Guide, Winter 2006, available at http://www.ce.org/PDF/hdtvguidewinter06.pdf (noting that the number of DTV set purchases increased from 1.5 million in 2001 to projected sales of nearly 30 million units in 2006); Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, MB Docket No. 05-255, Twelfth Annual Report, FCC 06-11, para. 110 (rel. Mar. 3, 2006) (“Twelfth Annual Video Competition Report”)(“CEA reports that during the first six months of 2005, DTV products sold at a faster rate than during any previous comparable period of time, with 3.8 million DTV products sold, accounting for $4.6 billion in sales, a 40 percent increase in unit sales from the same time period in 2004.”); CEA DTV Update at 30; CEA HDTV Guide at 3 (stating that digital television sales will account for 62 percent of the television sets sold in 2006, surpassing sales of analog TV sets for the first time).

13 47 U.S.C. §§ 534(b)(4)(A), (b)(7).

14 47 U.S.C. § 534(b)(4)(A). See Section 615(g)(2) of the Communications Act, 47 U.S.C. § 535(g)(2) (material degradation requirements applicable to noncommercial stations). See also H.R. Conf. Rep. No. 102-862, at 67 (1992) (“The FCC is directed to adopt any carriage standards which are needed to ensure that, so far as is technically feasible, cable systems afford off-the-air broadcast signals the same quality of signal processing and carriage that they employ for any other type of programming carried on the cable system.”); S. Rep. No. 102-92, at 85 (1991) (same).

15 47 U.S.C. § 534(b)(4)(B).

16 See 1998 NPRM, 13 FCC Rcd at 15122-23, paras. 63-68.

17 See Implementation of Section 304 of the Telecommunications Act of 2006, Commercial Availability of Navigation Devices, Compatibility Between Cable Systems and Consumer Electronics Equipment, CS Docket No. 97-80, Second Report and Order and Second Further Notice of Proposed Rulemaking, 18 FCC Rcd 20885, 20900, para. 32 (2003) (describing the basic requirements for digital cable televisions or products to be labeled “digital cable ready”); see also 47 C.F.R. § 15.123.

18 See First Report and Order, 16 FCC Rcd at 2629, para. 73 (finding that the Act “requires that cable operators provide the same ‘quality of signal processing and carriage’ for broadcast signals as they provide for any other type of signal,” and that HDTV signals must be carried by the cable operator and delivered to the subscriber in HDTV). Several parties filed petitions for reconsideration of the Commission’s interpretation of the material degradation prohibition in the First Report and Order. Those petitions remain pending.

19 See First Report and Order, 16 FCC Rcd at 2629, para. 73.

20 See First Report and Order, 16 FCC Rcd at 2629, para 72 (“From our perspective, the issue of material degradation is about the picture quality the consumer receives and is capable of perceiving and not about the number of bits transmitted by the broadcaster if the difference is not really perceptible to the viewer.”).

21 See id. at 2620-22, paras. 51-57; see also Carriage of Digital Television Broadcast Signals; Amendments to Part 76 of the Commission’s Rules, CS Docket No 98-120, Second Report and Order and First Order on Reconsideration, 20 FCC Rcd at 4534-37, paras. 28-44 (2005). Bits that are not part of the primary video or program-related content need not be carried. See First Report and Order, 16 FCC Rcd at 2622, para. 57 (“[W]e conclude that ‘primary video’ means a single programming stream and other program-related content.”).

22 See First Report and Order, 16 FCC Rcd at 2629, para. 73 (“Consequently, in the context of mandatory carriage of digital broadcast signals, a cable operator may not provide a digital broadcast signal in a lesser format or lower resolution than that afforded to any digital programmer (e.g., non-broadcast cable programming, other broadcast digital program, etc.) carried on the cable system, provided, however, that a broadcast signal delivered in HDTV must be carried in HDTV.”) footnote omitted). See also 47 C.F.R. § 76.62.

23 As noted in the First Report and Order, it may be especially burdensome for small systems with limited channel capacity (such as systems with fewer than 330 MHz) to carry an HDTV signal if they are not otherwise providing HDTV programming. See First Report and Order, 16 FCC Rcd. at 2629, para. 73 n.216. Therefore, if a small system that is not otherwise carrying any HDTV signals is required to carry a broadcast signal in HDTV, such that the signal straddles two 6 MHz channels (i.e., if they are passing through the broadcaster’s 8-VSB modulated signal), the system may include all of the lost spectrum when calculating its one-third capacity for purposes of the statutory cap. See id. See also 47 U.S.C. § 534(b)(1).

24 See Broadcast Group Petition at 7; see also id. at 7-8 (advocating a standard requiring that cable operators “pass all the content bits” to assure no material degradation) (the “Broadcast Group” comprises Arizona State University, Benedek Broadcasting Corp., Midwest Television, Inc., and Raycom Media, Inc.). The Broadcast Group, Commercial Broadcasters (comprising the National Association of Broadcasters, the Association of Maximum Service Television, and the now-defunct Association of Local Television Stations), Noncommercial Broadcasters (comprising the Association of America’s Noncommercial Broadcasters, Public Broadcasting Service, and Corporation for Public Broadcasting), and Tribune seek reconsideration and/or clarification of our rules concerning material degradation. See Broadcast Group Petition at 7; Noncommercial Broadcasters Petition at 18-20. Accord Tribune Reconsideration Comments at 3 (the Commission should “strengthen its material degradation definition in the DTV context to require cable operators to pass all the program related bits in the DTV transport stream to their subscribers”). But see NCTA Opposition at 4, 5-17; Time Warner Opposition at 23-24.

25 See Broadcast Group Petition at 7. See also Noncommercial Broadcasters Petition at 18-19.

26 See Broadcast Group Petition at 20.

27 So-called “null bits” need not be passed through or included in the signal as carried, as they are, as the name implies, empty of any content.

28 Rate shaping “describes bit rate adaptation techniques applied to MPEG-2 encoded streams, to further enhance bandwidth efficiency. This technique can substitute for decoding-encoding operations that are expensive, space consuming and ultimately harmful to content quality.” Sylvain Riviere, “Seamless, Scalable HDTV Roll-Outs Over Today’s Headends” (June 10, 2003), at http://www/bigbandnet.com/technology/tech_whitepaper_hdtv_ roll.php (visited April 28, 2006).

29 The Commission is required to resolve carriage complaints within 120 days after the filing of a complaint. See 47 U.S.C. §§ 534(d)(3) (for commercial stations) and 535(j)(3) (for noncommercial stations).

30 47 U.S.C. § 534(b)(7).

31 See 47 U.S.C. § 535(h). Although Sections 534(b)(7) and 535(h) use different language, the Commission consistently has treated them as imposing identical obligations. See, e.g., Implementation of the Cable Television Consumer Protection and Competition Act of 1992, etc., MM Docket No. 92-259, Report and Order, 8 FCC Rcd. 2965, 2974, para. 32 (1993) (“Analog Must Carry Report and Order”) (noting that all must-carry signals must be available to all subscribers); see also Implementation of Section 302 of the Telecommunications Act of 1996: Open Video Systems, CS Docket No. 96-46, Second Report and Order, 11 FCC Rcd 18223, 18308, para. 162 (1996) (“Pursuant to Section 614(b)(7) and 615(h), the operator of a cable system is required to ensure that signals carried in fulfillment of the must-carry requirements are provided to every subscriber of the system.”).

32 See 47 U.S.C. § 534(b)(4)(B).

33 Analog-only television sets plainly qualify as “television receivers” under Section 614(b)(7) at the present time, and we think that it is eminently reasonable to conclude that they will continue to fall within the scope of that term as it is used in Section 614(b)(7) after the transition.

34 In the 2001 First Report and Order, the Commission afforded a digital-only station mandatory carriage rights pursuant to Sections 614 and 615, coupled with the option to request that its digital signal be carried on the cable system for delivery to subscribers in an analog format, at the station’s expense (a mechanism also referred to as “down-conversion.”). See First Report and Order, 16 FCC Rcd at 2605-082630, paras. 13-16, 74. See also WHDT-DT, Channel 59, Stuart, Florida: Petition for Declaratory Ruling that Digital Stations Have Mandatory Carriage Rights, CSR-5562-Z, Memorandum Opinion and Order, 16 FCC Rcd 2692 (2001) (petition for reconsideration pending). This interim “down-conversion” option will continue to be available to broadcasters until the end of the transition on Feb. 17, 2009. The pending petitions for reconsideration of the First Report and Order request reconsideration of this down-conversion option. We will address the merits of those arguments in a separate order.

35 8 FCC Rcd 2965, 2974.

36 See Analog Must Carry Report and Order, 8 FCC Rcd at 2974, para. 34; see also 47 C.F.R. § 76.56(d).

37 See First Report and Order, 16 FCC Rcd at 2602, para. 7.

38 First Report and Order, 16 FCC Rcd at 2632, para. 79.

39 See Second Periodic Review of the Commission’s Rules and Policies Affecting the Conversion to Digital Television, 19 FCC Rcd 18279, 18282, para. 5 (2004).

40 See 47 C.F.R. § 1.1206(b).

41 See id., § 1.1206(b)(2).

42 See 5 U.S.C. § 603. The RFA, see 5 U.S.C. §§ 601 – 612, has been amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).

43 See 5 U.S.C. § 603(a).

44 See id.

45 See Deficit Reduction Act of 2005, Pub. L. No. 109-171 (2006). Among other things, Title III, entitled the Digital Television Transition and Public Safety Act of 2005, establishes a hard deadline of February 17, 2009 for the end of analog transmissions by full power television stations.

46 See id., ¶¶ 2, 8. See also Carriage of Digital Television Broadcast Signals, etc., CS Docket No. 98-120, et al., First Report and Order, 16 FCC Rcd 2598, 2727-31 (2001).

47 See Second FNPRM, ¶¶ 2, 10-15.

48 See id., ¶¶ 16-19.

49 5 U.S.C. § 603(b)(3).

50 5 U.S.C. § 601(6).

51 5 U.S.C. § 601(3) (incorporating by reference the definition of “small-business concern” in the Small Business Act, 15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies “unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after opportunity for public comment, establishes one or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the Federal Register.”(6).

52 15 U.S.C. § 632.

53 U.S. Census Bureau, 2002 NAICS Definitions, “517510 Cable and Other Program Distribution”; http://www.census.gov/epcd/naics02/def/NDEF517.HTM.

54 13 C.F.R. § 121.201, NAICS code 517510.

55 U.S. Census Bureau, 2002 Economic Census, Subject Series: Information, Table 4, Receipts Size of Firms for the United States: 2002, NAICS code 517510 (issued November 2005).

56 Id. An additional 61 firms had annual receipts of $25 million or more.

57 The proposals would also apply to OVS operators.

58 On this point, we note that the proposals do not, for example, apply to DBS services.

59 47 C.F.R. § 76.901(e). The Commission determined that this size standard equates approximately to a size standard of $100 million or less in annual revenues. Implementation of Sections of the 1992 Cable Act: Rate Regulation, Sixth Report and Order and Eleventh Order on Reconsideration, 10 FCC Rcd 7393, 7408 (1995).

60 These data are derived from: R.R. Bowker, Broadcasting & Cable Yearbook 2006, “Top 25 Cable/Satellite Operators,” pages A-8 & C-2 (data current as of June 30, 2005); Warren Communications News, Television & Cable Factbook 2006, “Ownership of Cable Systems in the United States,” pages D-1805 to D-1857.

61 47 C.F.R. § 76.901(c).

62 Warren Communications News, Television & Cable Factbook 2006, “U.S. Cable Systems by Subscriber Size,” page F-2 (data current as of Oct. 2005). The data do not include 718 systems for which classifying data were not available.

63 47 U.S.C. § 543(m)(2); see 47 C.F.R. § 76.901(f) & nn. 1-3.

64 47 C.F.R. § 76.901(f); see Public Notice, FCC Announces New Subscriber Count for the Definition of Small Cable Operator, DA 01‑158 (Cable Services Bureau, Jan. 24, 2001).

65 These data are derived from: R.R. Bowker, Broadcasting & Cable Yearbook 2006, “Top 25 Cable/Satellite Operators,” pages A-8 & C-2 (data current as of June 30, 2005); Warren Communications News, Television & Cable Factbook 2006, “Ownership of Cable Systems in the United States,” pages D-1805 to D-1857.

66 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 § 76.901(f) of the Commission’s rules. See 47 C.F.R. § 76.909(b).

67 See 13 C.F.R. § 121.201, NAICS Code 515120.

68 Id. This category description continues, “These establishments operate television broadcasting studios and facilities for the programming and transmission of programs to the public. These establishments also produce or transmit visual programming to affiliated broadcast television stations, which in turn broadcast the programs to the public on a predetermined schedule. Programming may originate in their own studios, from an affiliated network, or from external sources.” Separate census categories pertain to businesses primarily engaged in producing programming. See Motion Picture and Video Production, NAICS code 512110; Motion Picture and Video Distribution, NAICS Code 512120; Teleproduction and Other Post-Production Services, NAICS Code 512191; and Other Motion Picture and Video Industries, NAICS Code 512199.

69 Although we are using BIA’s estimate for purposes of this revenue comparison, the Commission has estimated the number of licensed commercial television stations to be 1,368. See News Release, “Broadcast Station Totals as of June 30, 2005” (dated Aug. 29, 2005); see http://www.fcc.gov/mb/audio/totals/bt050630.html.

70 “[Business concerns] are affiliates of each other when one concern controls or has the power to control the other or a third party or parties controls or has to power to control both.” 13 C.F.R. § 121.103(a)(1).

71 13 C.F.R. § 121.201, NAICS code 517510. This NAICS code applies to all services listed in this paragraph.

72 See notes 72-73 and accompanying text, supra.

73 In addition, the term “small entity” under SBREFA applies to small organizations (nonprofits) and to small governmental jurisdictions (cities, counties, towns, townships, villages, school districts, and special districts with populations of less than 50,000). 5 U.S.C. §§ 601(4)-(6). We do not collect annual revenue data on ITFS licensees.

74 U.S. Census Bureau, 2002 NAICS Definitions, “334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing”; http://www.census.gov/epcd/naics02/def/NDEF334.HTM#N3342.

75 13 C.F.R. § 121.201, NAICS code 334220.

76 U.S. Census Bureau, American FactFinder, 2002 Economic Census, Industry Series, Industry Statistics by Employment Size, NAICS code 334220 (released May 26, 2005); http://factfinder.census.gov. The number of “establishments” is a less helpful indicator of small business prevalence in this context than would be the number of “firms” or “companies,” because the latter take into account the concept of common ownership or control. Any single physical location for an entity is an establishment, even though that location may be owned by a different establishment. Thus, the numbers given may reflect inflated numbers of businesses in this category, including the numbers of small businesses. In this category, the Census breaks-out data for firms or companies only to give the total number of such entities for 2002, which was 929.

77 Id. An additional 18 establishments had employment of 1,000 or more.

78 5 U.S.C. § 603(c)(1) – (c)(4).

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