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 Federal  Communications  Commission  FCC  01-  307 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of: 
 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 


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 CS  Docket  No.  01-  290 


 NOTICE  OF  PROPOSED  RULEMAKING 
 Adopted:  October  11,  2001  Released:  October  18,  2001 
 Comment  Date:  December  3,  2001  Reply  Comment  Date:  January  7,  2002 


 By  the  Commission: 
 I.  INTRODUCTION 
 1.  We  issue  this  Notice  of  Proposed  Rulemaking  (“  Notice”)  in  accordance  with  Section 
 628(  c)(  5)  of  the  Communications  Act  of  1934,  as  amended  (“  Communications  Act”).  1  Section 
 628(  c)(  2)(  D)  generally  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.  2  Under  Section  628(  c)(  5),  the  prohibition  on  exclusive  programming  contracts  contained 
 in  Section  628(  c)(  2)(  D)  will  cease  to  be  effective  on  October  5,  2002,  unless  the  Commission  finds  that 
 such  prohibition  continues  to  be  necessary  to  preserve  competition  and  diversity  in  the  distribution  of 
 video  programming.  This  Notice  initiates  a  proceeding  in  order  to  make  that  determination. 


 II.  BACKGROUND 
 2.  The  program  access  provisions  contained  in  Section  628  of  the  Communications  Act 
 were  adopted  as  part  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992  (“  1992 
 Cable  Act”)  which  was  enacted  on  October  5,  1992.  3  In  enacting  the  program  access  provisions, 


 1  47  U.  S.  C.  §  548(  c)(  5). 
 2  47  U.  S.  C.  §  548(  c)(  2)(  D). 
 3  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992,  Pub.  L.  No.  102-  385,  106  Stat.  1460  (1992). 
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 Congress  was  concerned  that  the  majority  of  cable  operators  enjoyed  a  monopoly  in  program  distribution 
 at  the  local  level,  4  and  concluded  that  the  use  of  exclusive  contracts  between  vertically  integrated 
 programming  vendors  and  cable  operators  served  to  inhibit  the  development  of  competition  among 
 distributors.  5  Congress  concluded  that  vertically  integrated  program  suppliers  have  the  incentive  and 
 ability  to  favor  their  affiliated  cable  operators  over  other  multichannel  programming  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.  6  In 
 addition,  Congress  found  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.  7  Congress 
 determined  that  this  imbalance  of  power  limited  the  development  of  competition  and  restricted  consumer 
 choice.  8 


 3.  In  Implementation  of  Sections  12  and  19  of  the  Cable  Television  Protection  and 
 Competition  Act  of  1992:  Development  of  Competition  and  Diversity  in  Video  Programming  Distribution 
 and  Carriage,  First  Report  and  Order  (“  First  Report  and  Order”),  the  Commission  promulgated 
 regulations  implementing  the  program  access  provisions  of  Section  628.  9  The  purpose  of  Section  628  is 
 to  promote  the  public  interest,  convenience,  and  necessity  by  increasing  competition  and  diversity  in  the 
 multichannel  video  market,  to  increase  the  availability  of  satellite  cable  programming  and  satellite 
 broadcast  programming  to  persons  in  rural  and  other  areas  not  currently  able  to  receive  such 
 programming,  and  to  spur  the  development  of  communications  technologies.  10  Section  628(  b)  prohibits 
 cable  operators  and  vertically  integrated  programming  vendors  from  engaging  in  unfair  acts  or  practices, 
 the  purpose  or  effect  of  which  is  to  hinder  significantly  or  to  prevent  any  multichannel  video 
 programming  distributor  (“  MVPD”)  from  providing  satellite  cable  programming  or  satellite  broadcast 
 programming  to  subscribers  or  consumers.  11  Section  628(  b)  applies  only  to  satellite  programming. 
 Section  628(  c)  instructs  the  Commission  to  adopt  regulations  to  prohibit  a  number  of  specific  practices.  12 
 For  example,  Congress  absolutely  prohibited  exclusive  contracts  between  vertically  integrated 


 4  1992  Cable  Act,  §  2(  a)(  4);  House  Comm.  on  Energy  and  Commerce,  House  Rep.  No.  102-  268,  102d  Cong.,  2d 
 Sess.  (1992)  (“  House  Report”)  at  42. 
 5  1992  Cable  Act,  §  2(  a)(  5);  Senate  Comm.  on  Commerce,  Science,  and  Transportation,  S.  Rep.  102-  92,  102d  Cong., 


 1  st  Sess.  (1991)  (“  Senate  Report”)  at  25-  26. 
 6  Implementation  of  Sections  12  and  19  of  the  Cable  Television  Protection  and  Competition  Act  of  1992: 


 Development  of  Competition  and  Diversity  in  Video  Programming  Distribution  and  Carriage,  First  Report  and 
 Order,  8  FCC  Rcd  3359,  3366  (1993). 


 7  Id. 


 8  Id. 
 9  First  Report  and  Order,  8  FCC  Rcd  3359  (1993),  recon.,  10  FCC  Rcd  1902  (1994),  further  recon.,  10  FCC  Rcd 
 3105  (1994).  In  Implementation  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992: 
 Petition  for  Rulemaking  of  Ameritech  New  Media,  Inc.  Regarding  Development  of  Competition  and  Diversity  in 
 Video  Programming  Distribution  and  Carriage,  13  FCC  Rcd  15822  (1998),  the  Commission  amended  the  program 
 access  rules. 


 10  47  U.  S.  C.  §  548(  a). 


 11  47  U.  S.  C.  §  548(  b). 
 12  47  U.  S.  C.  §  548(  c). 
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 programming  vendors  and  cable  operators  in  areas  unserved  by  cable,  13  and  generally  prohibited 
 exclusive  contracts  within  areas  served  by  cable.  14  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.  15 


 4.  Congress  recognized,  however,  in  areas  served  by  cable,  that  some  exclusive  contracts 
 between  vertically  integrated  programming  vendors  and  cable  operators  may  serve  the  public  interest  by 
 providing  countervailing  benefits  to  the  programming  market  or  to  the  development  of  competition 
 among  distributors.  16  In  determining  whether  an  exclusive  contract  is  in  the  public  interest,  Congress 
 instructed  the  Commission  to  consider  each  of  the  following  factors: 


 (i)  The  effect  of  such  exclusive  contract  on  the  development  of 
 competition  in  the  local  and  national  multichannel  video  programming 
 distribution  markets; 


 (ii)  The  effect  of  such  exclusive  contract  on  competition  from 
 multichannel  video  programming  distribution  technologies  other  than 
 cable; 


 (iii)  The  effect  of  such  exclusive  contract  on  the  attraction  of  capital 
 investment  in  the  production  and  distribution  of  new  satellite  cable 
 programming; 


 (iv)  The  effect  of  such  exclusive  contract  on  diversity  of  programming 
 in  the  multichannel  video  programming  distribution  market;  and 


 (v)  The  duration  of  the  exclusive  contract.  17 
 Any  party  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.  18 


 13  47  U.  S.  C.  §  548(  c)(  2)(  C). 
 14  47  U.  S.  C.  §  548(  c)(  2)(  D). 
 15  47  U.  S.  C.  §  548(  c)(  2)(  D);  47  C.  F.  R.  §  76.  1002(  c)(  2). 
 16  47  U.  S.  C.  §  548(  c)(  2)(  4). 
 17  47  U.  S.  C.  §  548(  c)(  4);  47  C.  F.  R.  §  76.1002(  c)(  4);  see  e.  g.,  New  England  Cable  News,  9  FCC  Rcd  3231  (1994) 
 (finding  public  interest  factors  favored  limited  7  year  period  of  exclusivity  for  startup  regional  news  programmer); 
 Time  Warner  Cable,  9  FCC  Rcd  3221  (1994)  (finding  public  interest  factors  did  not  favor  requested  15  year 
 exclusivity  request  related  to  established  national  programmer,  Court  TV). 


 18  See  47  C.  F.  R.  §  76.  1002(  c)(  5). 
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 5.  The  prohibition  contained  in  Section  628(  c)(  2)(  D)  sunsets  on  October  5,  2002  unless  the 
 Commission  determines  that  the  prohibition  continues  to  be  necessary.  Section  628(  c)(  5)  of  the 
 Communications  Act  provides  that: 


 The  prohibition  required  by  paragraph  (2)(  D)  shall  cease  to  be  effective 
 10  years  after  the  date  of  enactment  of  this  section,  unless  the 
 Commission  finds,  in  a  proceeding  conducted  during  the  last  year  of  such 
 10-  year  period,  that  such  prohibition  continues  to  be  necessary  to 
 preserve  and  protect  competition  and  diversity  in  the  distribution  of 
 video  programming.  19 


 The  restrictions  on  exclusive  contracts  for  this  ten-  year  period  were  intended  to  foster  development  of 
 emerging  competitors  to  cable,  allowing  a  transition  to  a  competitive  market  for  the  distribution  of 
 programming.  20 


 III.  DISCUSSION  AND  NOTICE  OF  PROPOSED  RULEMAKING 
 6.  There  are  a  variety  of  possible  exclusive  dealing  arrangements.  This  proceeding  is 
 concerned  with  the  type  of  arrangement  in  which  a  seller  provides  access  to  a  good  or  service  to  one 
 buyer  or  a  group  of  buyers  to  the  exclusion  of  other  interested  buyers.  21  By  its  nature,  exclusivity 
 forecloses  other  buyers  from  obtaining  the  relevant  good  or  service  for  the  term  of  the  agreement.  22  Such 
 exclusive  dealing  arrangements  may  serve  legitimate  business  interests  or  they  may  be  used  to  foreclose 
 competitive  entry  or  to  stifle  competitive  development.  Exclusive  agreements  may  have  an  anti-competitive 
 impact  when  competitors  are  foreclosed  from  such  a  large  percentage  of  the  market  that  they 
 cannot  compete  effectively.  23  In  the  multichannel  video  programming  marketplace,  the  anti-  competitive 
 potential  of  exclusive  arrangements  may  be  compounded  to  the  extent  that  vertical  integration  exists 
 between  cable  operators  and  programming  producers.  24 


 7.  Congress  intended  the  program  access  rules  to  address  a  competitive  imbalance  involving 
 access  to  programming  between  incumbent  cable  operators  and  new  entrants.  Congress  enacted  the 
 prohibition  on  exclusivity  in  Section  628(  c)(  2)(  D)  as  one  measure  to  address  this  imbalance.  In  so  doing, 
 however,  Congress  envisioned  a  time  in  which  that  remedial  measure  would  be  unnecessary.  Thus,  in 
 Section  628(  c)(  5),  Congress  directed  the  Commission  to  reexamine  the  need  for  Section  628(  c)(  2)(  D) 
 after  ten  years.  To  this  end,  we  seek  comment  on  the  following  issues. 


 19  47  U.  S.  C.  §  548(  c)(  5);  see  also  47  C.  F.  R.  §  76.  1002(  c)(  6).  The  prohibition  on  exclusive  contracts  shall  cease  to 
 be  effective  on  October  5,  2002  unless  the  Commission  determines  otherwise. 
 20  See  First  Report  and  Order,  8  FCC  Rcd  at  3376,  3378;  see  also  Time  Warner  Cable,  9  FCC  Rcd  at  3225  and  New 


 England  Cable  News  at  3234. 
 21  ABA  Antitrust  Section,  Antitrust  Law  Developments  (3d.  ed.  1993)  at  196. 


 22  Id. 
 23  See,  e.  g.,  U.  S.  Healthcare  v.  Healthsource,  986  F.  2d  at  589,  595  (1  st  Cir.  1993).  There  is  an  extensive  line  of  case 
 law  and  economic  analysis  concerning  the  permissibility  of  exclusive  dealing  arrangements  in  the  motion  picture 
 entertainment  field.  See,  e.  g.,  U.  S.  v.  Paramount,  334  U.  S.  131  (1948);  U.  S.  v.  Griffith,  334  U.  S.  100  (1948);  Schine 
 Chain  Theatres  v.  U.  S.,  334  U.  S.  110  (1948). 


 24  See  First  Report  and  Order,  8  FCC  Rcd  at  3366. 
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 8.  We  seek  comment  on  whether  Section  628(  c)(  2)(  D)  of  the  Communications  Act  should 
 be  retained  or  whether  the  provision  should  cease  to  be  effective  pursuant  to  the  sunset  provision 
 contained  in  Section  628(  c)(  5).  25  We  ask  whether  the  prohibition  against  exclusive  contracts  has  been 
 effective  during  the  period  of  its  existence  as  a  deterrent  to  anticompetitive  behavior  and  whether  it  has  a 
 continuing  role  in  preventing  such  behavior.  Although  Congress  and  the  Commission  have  recognized 
 the  benefits  of  exclusivity  in  certain  circumstances,  the  1992  Cable  Act  placed  a  higher  value  on  new 
 competitive  entry  than  on  the  continuation  of  exclusive  distribution  practices  that  may  impede  that 
 entry.  26  In  this  regard,  we  note  that  in  1992,  cable  operators  served  95.5%  of  all  MVPD  subscribers.  27 
 Currently,  cable  operators  serve  80%  of  MVPD  subscribers.  28  We  ask  what  effect  Section  628(  c)(  2)(  D) 
 has  had  on  the  development  of  competition  generally  in  local  and  national  markets  and  on  competition 
 from  alternate  technologies.  We  seek  comment  on  the  general  state  of  competition  among  MVPD 
 operators  and,  in  particular,  on  the  extent  to  which  DBS  operators  impose  effective  competition  on  cable 
 operators  and  the  extent  to  which  the  exclusivity  provision  impacts  this.  We  also  seek  comment  on 
 whether  distortions  in  the  marketplace  may  have  developed  because  of  the  exclusivity  prohibition.  In  this 
 regard,  we  seek  comment  on  whether  more  affiliations  between  cable  operators  and  programmers  would 
 have  developed  in  the  absence  of  the  exclusivity  prohibition,  or  whether  the  prohibition  had  any  other 
 negative  impact  on  the  development  of  new  cable  programming  networks.  We  seek  comment  on  any 
 other  specific  developments  that  have  occurred  over  the  last  decade  in  the  marketplace  for  multichannel 
 video  programming  that  might  render  the  assumptions  underlying  Section  628(  c)(  2)(  D)  no  longer  valid. 
 In  the  alternative,  we  seek  comment  on  developments  over  the  last  decade  that  impart  continuing 
 relevance  to  the  prohibition  on  exclusivity.  We  request  that  commenters  provide  specific  information  on 
 all  programming  services  (both  vertically  integrated  and  non-  vertically  integrated,  both  satellite  and 
 terrestrially  delivered)  which  are  currently  sold  on  an  exclusive  basis,  as  well  as  the  number  of 
 subscribers  subject  to  those  exclusive  arrangements. 


 9.  The  nearly  ten-  year  period  during  which  Section  628(  c)(  2)(  D)  has  been  in  effect  has  been 
 a  period  of  consolidation  and  clustering  in  the  cable  industry.  We  seek  comment  on  what  impact 
 exclusivity  has  had  on  trends  within  the  industry.  We  seek  comment  on  the  degree,  if  any,  that  clustering 
 and  the  continuing  consolidation  within  the  communications  industry  should  inform  our  decision  with 
 regard  to  the  sunset  of  the  exclusivity  prohibition.  In  this  regard,  we  note  that  the  Commission  recently 
 has  initiated  a  proceeding  to  resolve  the  remand  of  our  horizontal  ownership  rules  by  the  United  States 
 Court  of  Appeals  for  the  District  of  Columbia  Circuit.  29  That  proceeding  will  directly  address  the  effect 


 25  We  also  note  that  in  the  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of  Video 
 Programming,  Notice  of  Inquiry,  CS  Docket  No.  01-  129,  FCC  01-  191  (rel.  June  25,  2001),  the  Commission  sought 
 comment  on  the  sunset  of  Section  628(  c)(  2)(  D).  We  received  comments  on  this  issue  from  Carolina  Broadband, 
 Comcast  Corporation,  DirecTV,  Inc.,  EchoStar  Satellite  Corporation,  the  National  Cable  &  Telecommunications 
 Association  (“  NCTA”),  the  National  Rural  Telecommunications  Cooperative  (“  NRTC”),  RCN  Corporation,  the 
 Satellite  Broadcasting  and  Communications  Association  (“  SBCA”),  and  the  Wireless  Communications  Association 
 International  (“  WCA”).  To  the  extent  they  address  the  subject  matter  of  our  inquiry  herein,  we  incorporate  these 
 comments  into  the  record  of  this  proceeding. 


 26  See  First  Report  and  Order,  8  FCC  Rcd  at  3384. 


 27  See  Implementation  of  Section  19  of  the  1992  Cable  Act  (Annual  Assessment  of  the  Status  of  Competition  in  the 
 Market  for  the  Delivery  of  Video  Programming,  Seventh  Annual  Report,  16  FCC  Rcd  6005  at  Appendix  C,  Table  C-1 
 (2001). 


 28  Id. 


 29  See  Implementation  of  Section  11  of  the  Cable  Television  Consumer  Protection  and  Competition  Act  of  1992; 
 Implementation  of  Cable  Act  Reform  Provisions  of  the  Telecommunications  Act  of  1996:  The  Commission’s  Cable 
 (continued.…) 
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 of  consolidation  and  vertical  integration  on  the  market  for  video  programming  production  and  packaging. 
 We  seek  comment  on  the  impact,  if  any,  that  this  pending  proceeding  should  have  on  our  decision 
 regarding  the  possible  sunset  of  Section  628(  c)(  2)(  D). 


 10.  We  also  seek  comment  on  the  potential  beneficial  effects  of  exclusivity  in  the 
 multichannel  video  programming  marketplace.  We  seek  comment  on  whether  and  how  exclusivity  has 
 been  significant  in  the  development,  promotion  and  launch  of  new  programming  services.  We  note  that 
 DIRECTV’s  exclusive  arrangement  with  the  National  Football  League  to  make  available  to  subscribers  a 
 substantial  package  of  NFL  games  each  Sunday  has  been  credited  with  attracting  significant  numbers  of 
 subscribers  to  DIRECTV’s  service.  We  ask  how  important  exclusivity  has  been  to  the  launch  of  local 
 origination  programming  that  may  have  a  more  limited  geographic  appeal.  We  seek  comment  on  whether 
 exclusivity  has  acted  as  an  investment  incentive,  such  that  without  the  incentive  the  programming  service 
 would  not  be  launched  or  become  viable.  We  also  ask  whether  a  continued  prohibition  on  exclusivity  will 
 chill  future  investments  in  new  programming.  In  addition,  we  seek  comment  on  whether  the  existing 
 public  interest  waiver  provision  set  forth  in  Section  628(  c)(  4)  would  sufficiently  protect  instances  of 
 beneficial  exclusivity  should  the  Commission  retain  the  prohibition  on  exclusivity. 


 11.  We  seek  comment  on  what  impact  the  prohibition  on  exclusivity  has  had  on  diversity  in 
 programming.  We  ask  if  the  prohibition  on  exclusivity  has  helped  to  increase  diversity  by  providing 
 additional  news,  public  affairs,  informational  and  children’s  programming.  In  the  alternative,  we  seek 
 comment  on  whether  the  restriction  in  Section  628(  c)(  2)(  D)  has  impeded  programming  diversity.  We 
 generally  seek  comment  on  how  diversity  of  programming  will  be  affected  if  the  prohibition  on 
 exclusivity  sunsets. 


 12.  The  program  access  requirements  of  Section  628  have  at  their  heart  the  objective  of 
 making  available  programming  to  the  existing  or  potential  competitors  of  traditional  cable  systems  so  that 
 the  public  may  benefit  from  the  development  of  competitive  programming  distributors.  30  In  this  regard, 
 we  note  that  Section  628(  c)(  5)  permits  the  sunset  only  of  the  exclusivity  prohibition  of  Section 
 628(  c)(  2)(  D)  while  preserving  the  overall  structure  of  program  access  and  Section  628.  We  ask  how  the 
 remaining  program  access  provisions  will  function  should  the  exclusivity  prohibition  sunset  and  we  seek 
 comment  on  whether  the  statute  will  continue  to  serve  the  purpose  for  which  it  was  intended. 


 13.  Section  628(  c)(  2)(  C)  of  the  Communications  Act  prohibits  all  “practices,  understandings, 
 arrangements  and  activities,  including  exclusive  contracts”  that  prevent  an  MVPD  from  obtaining 
 vertically  integrated  programming  “for  distribution  to  persons  in  areas  not  served  by  a  cable  operator  as 
 of  the  date  of  enactment”  of  the  1992  Cable  Act  (October  5,  1992).  31  Section  628(  c)(  2)(  C)  is  not  subject 
 to  potential  sunset.  By  contrast,  the  prohibition  on  exclusive  arrangements  of  Section  628(  c)(  2)(  D) 
 applies  to  “areas  served  by  a  cable  operator”  and  is  subject  to  the  sunset  provision  of  Section  628(  c)(  5).  32 
 We  seek  comment  on  the  relationship  between  Section  628(  c)(  2)(  D)  and  Section  628(  c)(  2)(  C).  What 
 impact,  if  any,  would  the  sunset  of  Section  628(  c)(  2)(  D)  have  on  the  prohibition  set  forth  in  Section 


 (…  continued  from  previous  page) 
 Horizontal  and  Vertical  Ownership  Limits  and  Attribution  Rules,  Further  Notice  of  Proposed  Rulemaking,  FCC  01-263 
 (rel.  Sept.  21,  2001);  Time  Warner  Entertainment  Co.  v.  FCC,  240  F.  3d  1126  (D.  C.  Cir.  2001). 


 30  First  Report  and  Order,  8  FCC  Rcd  at  3365. 


 31  47  U.  S.  C.  §  548(  c)(  2)(  C);  see  47  C.  F.  R.  §  76.1002(  c)(  1)  (emphasis  added). 
 32  47  U.  S.  C.  §  548(  c)(  2)(  D);  see  47  C.  F.  R.  §  76.  1002(  c)(  2). 
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 628(  c)(  2)(  C)?  Specifically,  if  the  prohibition  in  Section  628(  c)(  2)(  D)  were  to  sunset,  would  the 
 prohibition  in  Section  628(  c)(  2)(  C)  continue  to  bar  exclusive  agreements  in  areas  that  were  not  served  by 
 a  cable  operator  before  October  5,  1992,  but  in  which  cable  service  has  commenced  in  the  intervening 
 period?  Would  such  areas  be  regarded  as  “areas  served  by  a  cable  operator”  under  Section  628(  c)(  2)(  D), 
 or  would  such  areas  continue  to  be  regarded  as  unserved  under  Section  628(  c)(  2)(  C)?  We  also  seek 
 comment  as  to  how  many  areas  are  actually  affected  by  the  prohibition  contained  in  Section  628(  c)(  2)(  C). 
 We  also  ask  what  impact  has  the  prohibition  contained  in  Section  628(  c)(  2)(  C)  had  on  increasing  the 
 availability  of  satellite  cable  programming  and  satellite  broadcast  programming  to  persons  in  rural 
 areas?  33 


 14.  We  also  seek  comment  on  whether  the  Commission  should  consider  an  approach  that 
 narrows  the  scope  of,  rather  than  completely  eliminates,  the  exclusivity  restriction.  The  Commission  has 
 recognized  that  certain  programming  services  may  be  more  essential  than  others  to  the  viability  and 
 success  of  competing  program  distributors.  34  Given  the  proliferation  of  new  programming  and  competing 
 programming  services,  we  seek  comment  on  the  extent  to  which  this  assumption  still  holds  true.  To  the 
 extent  the  assumption  remains  valid,  we  seek  comment  on  whether,  and  in  what  manner,  the  prohibition 
 on  exclusivity  could  be  limited  to  cover  only  essential  programming  services.  To  what  extent  would 
 tailoring  the  rules  based  on  the  success  or  popularity  of  particular  services  raise  First  Amendment 
 concerns?  We  also  seek  comment  on  any  other  potential  alternative  approaches.  For  example,  should  the 
 limitation  of  exclusivity  be  tied  to  the  specific  geographic  or  competitive  circumstances  of  the  area  in 
 question?  Should  the  exclusivity  restriction  continue  to  be  applied  when  the  programming  service  in 
 question  is  vertically  integrated  with  cable  television  systems  in  some  locations  but  is  not  vertically 
 integrated  with  those  in  the  area  where  exclusivity  might  be  sought?  Should  the  restriction  continue  in 
 areas  in  which  the  level  of  MVPD  competition  reaches  a  certain  level?  In  the  latter  example,  we  seek 
 comment  on  whether  the  prohibition  should  be  lifted  as  to  all  MVPD  competitors  or  solely  for  MVPDs  of 
 sufficient  competitive  presence.  We  seek  comment  on  the  statutory  basis  for  any  of  these  approaches  and 
 what  standards  and  analysis  the  Commission  could  use  to  define  and  implement  any  such  approach. 


 15.  If  Section  628(  c)(  2)(  D)  is  retained,  we  seek  comment  on  future  procedures  necessarily 
 related  to  the  retention  of  Section  628(  c)(  2)(  D).  We  seek  comment  on  whether  the  provision  should  be 
 retained  in  perpetuity  or  for  a  fixed  period  of  years.  If  retained  for  a  fixed  period  of  years,  what  is  the 
 appropriate  period?  We  note  that  on  January  1,  2006,  the  existing  prohibition  on  exclusive  retransmission 
 consent  agreements  between  television  broadcast  stations  and  MVPDs  expires.  35  We  seek  comment  on 
 whether  the  provision,  if  retained  pursuant  to  this  proceeding,  should  automatically  sunset  at  the  end  of 
 that  further  period,  or  whether  the  Commission  should  undertake  the  same  analysis  required  by  Section 
 628(  c)(  5)  to  determine  at  that  time  the  continuing  value  of  and  need  for  Section  628(  c)(  2)(  D).  We  also 
 seek  comment  on  whether  Section  628(  c)(  2)(  D)  should  be  eliminated  depending  on  certain  triggering 
 events,  such  as  a  significant  change  in  market  conditions.  Finally,  we  seek  comment  on  any  other  issues 
 appropriate  to  our  inquiry  in  accordance  with  Section  628(  c)(  5). 


 33  See  47  U.  S.  C.  §  548(  a). 
 34  Competition,  Rate  Deregulation  and  the  Commission’s  Policies  Relating  to  the  Provision  of  Cable  Television 
 Service,  5  FCC  Rcd  4962,  5027  (1990). 
 35  47  U.  S.  C.  §  325(  b)(  3)(  C)(  2). 
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 IV.  ADMINISTRATIVE  MATTERS 
 A.  INITIAL  REGULATORY  FLEXIBILITY  ACT  STATEMENT 
 16.  The  initial  regulatory  flexibility  analysis  is  attached  to  this  Notice  as  Appendix  A. 
 B.  INITIAL  PAPERWORK  REDUCTION  ACT  OF  1995  ANALYSIS 
 17.  This  NPRM  contains  either  a  proposed  or  modified  information  collection.  As  part  of  its 
 continuing  effort  to  reduce  paperwork  burdens,  we  invite  the  general  public  and  the  Office  of 
 Management  and  Budget  (OMB)  to  take  this  opportunity  to  comment  on  the  information  collections 
 contained  in  this  NPRM,  as  required  by  the  Paperwork  Reduction  Act  of  1995,  Public  Law  104-  13. 
 Public  and  agency  comments  are  due  at  the  same  time  as  other  comments  on  this  NPRM;  OMB 
 comments  are  due  60  days  from  date  of  publication  of  this  NPRM  in  the  Federal  Register.  Comments 
 should  address:  (a)  whether  the  proposed  collection  of  information  is  necessary  for  the  proper 
 performance  of  the  functions  of  the  Commission,  including  whether  the  information  shall  have  practical 
 utility;  (b)  the  accuracy  of  the  Commission's  burden  estimates;  (c)  ways  to  enhance  the  quality,  utility, 
 and  clarity  of  the  information  collected;  and  (d)  ways  to  minimize  the  burden  of  the  collection  of 
 information  on  the  respondents,  including  the  use  of  automated  collection  techniques  or  other  forms  of 
 information  technology. 


 C.  PROCEDURAL  PROVISIONS 
 18.  Comments  and  Reply  Comments.  Pursuant  to  applicable  procedures  set  forth  in  Sections 
 1.415  and  1.419  of  the  Commission's  rules,  36  interested  parties  may  file  comments  on  or  before 
 December  3,  2001  and  reply  comments  on  or  before  January  7,  2002.  Comments  may  be  filed  using  the 
 Commission's  Electronic  Comment  Filing  System  (ECFS)  or  by  filing  paper  copies.  37  Comments  filed 
 through  the  ECFS  can  be  sent  as  an  electronic  file  via  the  Internet  to  <http://  www.  fcc.  gov/  e-file/ 
 ecfs.  html>.  Generally,  only  one  copy  of  an  electronic  submission  must  be  filed.  If  multiple  docket  or 
 rulemaking  numbers  appear  in  the  caption  of  this  proceeding,  however,  commenters  must  transmit  one 
 electronic  copy  of  the  comments  to  each  docket  or  rulemaking  number  referenced  in  the  caption.  In 
 completing  the  transmittal  screen,  commenters  should  include  their  full  name,  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  for  e-  mail  comments,  commenters  should  send  an  e-  mail  to 
 ecfs@  fcc.  gov,  and  should  include  the  following  words  in  the  body  of  the  message,  "get  form  <your  e-mail 
 address."  A  sample  form  and  directions  will  be  sent  in  reply. 


 19.  Written  comments  by  the  public  on  the  proposed  and/  or  modified  information  collections 
 are  due  December  3,  2001.  Written  comments  must  be  submitted  by  the  Office  of  Management  and 
 Budget  (OMB)  on  the  proposed  and/  or  modified  information  collections  on  or  before  [60  days  after  date 
 of  publication  in  the  Federal  Register].  In  addition  to  filing  comments  with  the  Secretary,  a  copy  of  any 
 comments  on  the  information  collection(  s)  contained  herein  should  be  submitted  to  Judy  Boley,  Federal 
 Communications  Commission,  Room  1-  C804,  445  12th  Street,  SW,  Washington,  DC  20554,  or  via  the 
 Internet  to  jboley@  fcc.  gov  and  to  Edward  Springer,  OMB  Desk  Officer,  Room  10236  NEOB,  725  17th 
 Street,  N.  W.,  Washington,  DC  20503  or  via  the  Internet  to  edward.  springer@  omb.  eop.  gov. 


 36  47  C.  F.  R.  §§  1.415  and  1.419. 
 37  See  Electronic  Filing  of  Documents  in  Rulemaking  Proceedings,  63  Fed.  Reg.  24121  (1998). 
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 20.  Parties  who  choose  to  file  by  paper  must  file  an  original  and  four  copies  of  each  filing.  If 
 participants  want  each  Commissioner  to  receive  a  personal  copy  of  their  comments,  an  original  plus  nine 
 copies  must  be  filed.  If  more  than  one  docket  or  rulemaking  number  appears  in  the  caption  of  this 
 proceeding  commenters  must  submit  two  additional  copies  for  each  additional  docket  or  rulemaking 
 number.  All  filings  must  be  sent  to  the  Commission's  Secretary,  Magalie  Roman  Salas,  Office  of  the 
 Secretary,  Federal  Communications  Commission,  445  12th  Street,  S.  W.,  Washington  D.  C.  20554.  The 
 Cable  Services  Bureau  contact  for  this  proceeding  is  Karen  A.  Kosar  at  (202)  418-  7200,  TTY  (202)  418- 
 7172,  or  at  kkosar@  fcc.  gov. 


 21.  Comments  and  reply  comments  will  be  available  for  public  inspection  during  regular 
 business  hours  in  the  FCC  Reference  Center,  Federal  Communications  Commission,  445  12th  Street,  SW, 
 CY-  A257,  Washington,  DC  20554.  Persons  with  disabilities  who  need  assistance  in  the  FCC  Reference 
 Center  may  contact  Bill  Cline  at  (202)  418-  0270,  TTY  (202)  418-  2555,  or  bcline@  fcc.  gov.  Comments 
 and  reply  comments  are  available  electronically  in  ASCII  text,  Word  97,  and  Adobe  Acrobat. 


 22.  This  document  is  available  in  alternative  formats  (computer  diskette,  large  print,  audio 
 cassette,  and  Braille).  Persons  who  need  documents  in  such  formats  may  contact  Brian  Millin  at  (202) 
 418-  7426,  TTY  (202)  418-  7365,  or  bmillin@  fcc.  gov. 


 23.  Ex  Parte  Rules.  This  proceeding  will  be  treated  as  a  “permit-  but-  disclose”  proceeding, 
 subject  to  the  “permit-  but-  disclose”  requirements  under  Section  1.1206(  b)  of  the  Commission’s  rules.  38 
 Ex  parte  presentations  are  permissible  if  disclosed  in  accordance  with  Commission  rules,  except  during 
 the  Sunshine  Agenda  period  when  presentations,  ex  parte  or  otherwise,  are  generally  prohibited.  Persons 
 making  oral  ex  parte  presentations  are  reminded  that  a  memorandum  summarizing  a  presentation  must 
 contain  a  summary  of  the  substance  and  not  merely  a  listing  of  the  subjects  discussed.  More  than  a  one  or 
 two  sentence  description  of  the  views  and  arguments  presented  is  generally  required.  39  Additional  rules 
 pertaining  to  oral  and  written  presentations  are  set  forth  in  Section  1.1206(  b)  of  the  Commission’s  rules. 


 V.  ORDERING  CLAUSES 
 24.  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  Notice  of  Proposed  Rulemaking. 


 25.  IT  IS  FURTHER  ORDERED  that  the  Commission’s  Consumer  Information  Bureau, 
 Reference  Information  Center,  shall  send  a  copy  of  this  Notice  of  Proposed  Rulemaking,  including  the 
 Initial  Regulatory  Flexibility  Analysis,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business 
 Administration. 


 FEDERAL  COMMUNICATIONS  COMMISSION 


 Magalie  Roman  Salas 
 Secretary 


 38  47  C.  F.  R.  §  1.  1206(  b). 
 39  See  47  C.  F.  R.  §  1.1206(  b)(  2). 
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 Appendix  A 
 Initial  Regulatory  Flexibility  Act  Analysis 
 1.  As  required  by  the  Regulatory  Flexibility  Act  of  1980,  as  amended,  ("  RFA"),  40  the 
 Commission  has  prepared  this  Initial  Regulatory  Flexibility  Analysis  ("  IRFA")  of  the  possible  significant 
 economic  impact  on  small  entities  by  the  policies  and  rules  referenced  in  this  Notice.  Written  public 
 comments  are  requested  on  this  IRFA.  Comments  must  be  identified  as  responses  to  this  IRFA  and  must 
 be  filed  by  the  deadlines  for  comments  in  the  Notice  provided  in  para.  18.  The  Commission  will  send  a 
 copy  of  the  Notice,  including  this  IRFA,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business 
 Administration.  41  In  addition,  the  IRFA  (or  summaries  thereof)  will  be  published  in  the  Federal 
 Register.  42 


 A.  Need  for,  and  Objectives  of,  the  Proposed  Regulatory  Approaches 
 2.  The  purpose  of  Section  628  of  the  Communications  Act  is  to  promote  the  public  interest, 
 convenience,  and  necessity  by  increasing  competition  and  diversity  in  the  multichannel  video  market,  to 
 increase  the  availability  of  satellite  cable  programming  and  satellite  broadcast  programming  to  persons  in 
 rural  and  other  areas  not  currently  able  to  receive  such  programming,  and  to  spur  the  development  of 
 communications  technologies.  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.  The  exclusivity 
 prohibition  set  forth  in  Section  628(  c)(  2)(  D)  ceases  to  be  effective  after  a  10-  year  period  ending 
 October  5,  2002.  Section  628(  c)(  5)  of  the  Communications  Act  requires  that  restrictions  on  exclusive 
 contracts,  within  areas  served  by  cable,  are  to  sunset  unless  the  Commission  finds,  in  a  proceeding 
 conducted  during  the  last  year  of  such  10-  year  period,  that  such  prohibition  continues  to  be  necessary  to 
 preserve  and  protect  competition  and  diversity  in  the  distribution  of  video  programming.  Pursuant  to  this 
 statutory  mandate  and  by  this  Notice  of  Proposed  Rulemaking,  we  seek  comment  on  whether  Section 
 628(  c)(  2)(  D)  should  be  retained  or  eliminated. 


 B.  Legal  Basis 
 3.  The  authority  for  the  action  proposed  in  this  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. 


 40  See  5  U.  S.  C.  §603.  The  RFA  has  been  amended  by  the  Contract  With  America  Advancement  Act  of  1996,  Pub.  L. 
 No.  104-  121,  110  Stat.  847  (1996)  (CWAAA).  See  5  U.  S.  C.  §601  et.  seq.  Title  II  of  the  CWAAA  is  the  Small 
 Business  Regulatory  Enforcement  Fairness  Act  of  1996  (“  SBREFA”). 
 41  See  5  U.  S.  C.  §603(  a). 


 42  Id. 
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 C.  Description  and  Estimate  of  the  Number  of  Small  Entities  to  Which  the  Proposed  Rules  Will  Apply. 
 4.  The  RFA  directs  the  Commission  to  provide  a  description  of  and,  where  feasible,  an 
 estimate  of  the  number  of  small  entities  that  will  be  affected  by  the  proposed  rules.  43  The  RFA  defines 
 the  term  "small  entity"  as  having  the  same  meaning  as  the  terms  "small  business,"  "small  organization," 
 and  "small  governmental  jurisdiction.  44  In  addition,  the  term  “small  business”  has  the  same  meaning  as 
 the  term  “small  business  concern”  under  the  Small  Business  Act.  45  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").  46 


 5.  SBA  has  developed  a  definition  of  small  entities  for  cable  and  other  pay  television 
 services,  which  includes  all  such  companies  generating  $11  million  or  less  in  annual  receipts.  47  This 
 definition  includes  cable  system  operators,  closed  circuit  television  services,  direct  broadcast  satellite 
 services,  multipoint  distribution  systems,  satellite  master  antenna  systems  and  subscription  television 
 services.  According  to  the  Census  Bureau  data  from  1992,  there  were  1,758  total  cable  and  other  pay 
 television  services  and  1,423  had  less  than  $11  million  in  revenue.  48  We  address  below  each  service 
 individually  to  provide  a  more  precise  estimate  of  small  entities. 


 6.  Cable  Systems.  The  Commission  has  developed,  with  SBA's  approval,  our  own 
 definition  of  a  small  cable  system  operator  for  the  purposes  of  rate  regulation.  Under  the  Commission's 
 rules,  a  "small  cable  company"  is  one  serving  fewer  than  400,000  subscribers  nationwide.  49  We  last 
 estimated  that  there  were  1,439  cable  operators  that  qualified  as  small  cable  companies.  50  Since  then, 
 some  of  those  companies  may  have  grown  to  serve  over  400,000  subscribers,  and  others  may  have  been 
 involved  in  transactions  that  caused  them  to  be  combined  with  other  cable  operators.  Consequently,  we 
 estimate  that  there  are  fewer  than  1,439  small  entity  cable  system  operators  that  may  be  affected  by  the 
 decisions  and  rules  proposed  in  this  Notice. 


 7.  The  Communications  Act  also  contains  a  definition  of  a  small  cable  system  operator, 
 which  is  "a  cable  operator  that,  directly  or  through  an  affiliate,  serves  in  the  aggregate  fewer  than  1%  of 


 43  5  U.  S.  C.  §603(  b)(  3). 
 44  5  U.  S.  C.  §601(  6). 
 45  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.” 


 46  15  U.  S.  C.  §632. 


 47  13  C.  F.  R.  §121.201  (SIC  4841). 
 48  See  U.  S.  Department  of  Commerce,  Bureau  of  the  Census,  Industry  and  Enterprise  Receipts  Size  Report,  Table 
 2D,  SIC  4841  (Bureau  of  the  Census  data  under  contract  to  the  Office  of  Advocacy  of  the  SBA). 
 49  47  C.  F.  R.  §76.901(  e).  The  Commission  developed  this  definition  based  on  its  determinations  that  a  small  cable 


 system  operator  is  one  with  annual  revenues  of  $100  million  or  less.  Sixth  Report  and  Order  and  Eleventh  Order  on 
 Reconsideration,  MM  Doc.  Nos.  92-  266  and  93-  215,  10  FCC  Rcd  7393  (1995). 
 50  Paul  Kagan  Associates,  Inc.,  Cable  TV  Investor,  Feb.  29,  1996  (based  on  figures  for  Dec.  30,  1995). 
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 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."  51  The  Commission  has  determined  that  there  are 
 67,700,  000  subscribers  in  the  United  States.  52  Therefore,  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  of  its  affiliates,  do  not  exceed  $250  million  in  the  aggregate.  53  Based  on  available  data,  we 
 find  that  the  number  of  cable  operators  serving  677,000  subscribers  or  less  totals  approximately  1450.  54 
 Although  it  seems  certain  that  some  of  these  cable  system  operators  are  affiliated  with  entities  whose 
 gross  annual  revenues  exceed  $250,000,000,  we  are  unable  at  this  time  to  estimate  with  greater  precision 
 the  number  of  cable  system  operators  that  would  qualify  as  small  cable  operators  under  the  definition  in 
 the  Communications  Act. 


 8.  Open  Video  Systems:  Because  OVS  operators  provide  subscription  services,  55  OVS  falls 
 within  the  SBA-  recognized  definition  of  “Cable  and  Other  Pay  Television  Services.”  56  This  definition 
 provides  that  a  small  entity  is  one  with  $11  million  or  less  in  annual  receipts.  57  The  Commission  has 
 certified  approximately  25  OVS  operators  to  serve  75  areas,  and  some  of  those  are  currently  providing 
 service.  58  Affiliates  of  Residential  Communications  Network,  Inc.  (“  RCN”)  received  approval  to  operate 
 OVS  systems  in  New  York  City,  Boston,  Washington,  D.  C.  and  other  areas.  RCN  has  sufficient  revenues 
 to  assure  us  that  they  do  not  qualify  as  small  business  entities.  Little  financial  information  is  available  for 
 the  other  entities  authorized  to  provide  OVS  that  are  not  yet  operational.  Given  that  other  entities  have 
 been  authorized  to  provide  OVS  service  but  have  not  yet  begun  to  generate  revenues,  we  conclude  that  at 
 least  some  of  the  OVS  operators  qualify  as  small  entities.  59 


 9.  Program  Producers  and  Distributors:  The  Commission  has  not  developed  a  definition 
 of  small  entities  applicable  to  producers  or  distributors  of  cable  television  programs.  Therefore,  we  will 
 use  the  SBA  classifications  of  Motion  Picture  and  Video  Tape  Production  (NAICS  Code  51211),  60 
 Motion  Picture  and  Video  Tape  Distribution  (NAICS  Code  42199),  61  and  Theatrical  Producers  (Except 
 Motion  Pictures)  and  Miscellaneous  Theatrical  Services  (NAICS  Codes  56131,  71111,  71141,  561599, 


 51  47  U.  S.  C.  §543(  m)(  2). 
 52  See  FCC  Announces  New  Subscriber  Count  for  the  Definition  of  Small  Cable  Operator,  Public  Notice  DA  01-  158 
 (January  24,  2001). 
 53  47  C.  F.  R.  §76.1403(  b). 


 54  Paul  Kagan  Associates,  Inc.,  Cable  TV  Investor,  Feb.  29,  1996  (based  on  figures  for  Dec.  30,  1995). 
 55  See  47  U.  S.  C.  §  573. 
 56  13  C.  F.  R.  §  121.  201,  NAICS  Codes  51321  and  51322. 
 57  Id. 
 58  See  http://  www.  fcc.  gov/  csb/  ovs/  csovscer.  html. 
 59  13  C.  F.  R.  §  121.  201,  NAICS  Codes  51321  and  51322. 
 60  Establishments  primarily  engaged  in  the  production  of  theatrical  and  nontheatrical  motion  pictures  and  video  tapes 
 for  exhibition  or  sale,  including  educational,  industrial,  and  religious  films.  Included  in  the  industry  are 
 establishments  engaged  in  both  production  and  distribution.  Such  producers  of  live  radio  and  television  programs 
 are  classified  in  NAICS  Code  51211. 


 61  Such  establishments  primarily  engaged  in  the  distribution  (rental  or  sale)  of  theatrical  and  nontheatrical  motion 


 picture  films  or  in  the  distribution  of  video  tapes  and  disks,  except  to  the  general  public.  Motion  pictures  and  video 
 tape  distribution  are  classified  in  NAICS  Codes  42199  and  51212. 
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 71151,  71112,  71132,  51229,  53249).  62  These  SBA  definitions  provide  that  a  small  entity  in  the  cable 
 television  programming  industry  is  an  entity  with  $21.5  million  or  less  in  annual  receipts  for  NAICS 
 Codes  51211,  42199  and  51212,  and  $5  million  or  less  in  annual  receipts  for  NAICS  Codes  56131, 
 71111,  71141,  561599,  71151,  71112,  51229,  and  53249.  63  Census  Bureau  data  indicate  the  following: 
 (a)  there  were  7,265  firms  in  the  United  States  classified  as  Motion  Picture  and  Video  Production  (NAICS 
 Code  51211),  and  that  6,987  of  these  firms  had  $16.999  million  or  less  in  annual  receipts  and  7,002  of 
 these  firms  had  $24.999  million  or  less  in  annual  receipts;  64  (b)  there  were  1,139  firms  classified  as 
 Motion  Picture  and  Video  Tape  Distribution  (NAICS  Codes  42199  and  51212),  and  1007  of  these  firms 
 had  $16.999  million  or  less  in  annual  receipts  and  1013  of  these  firms  had  $24.999  million  or  less  in 
 annual  receipts;  and  (c)  there  were  5,671  firms  in  the  United  States  classified  as  Theatrical  Producers  and 
 Services  (NAICS  Codes  56131,  71111,  71141,  561599,  71151,  71121,  51229,  and  53249),  and  5627  of 
 these  firms  had  $4.999  million  or  less  in  annual  receipts.  65 


 10.  Each  of  these  NAICS  categories  are  very  broad  and  include  firms  that  may  be  engaged  in 
 various  industries,  including  cable  programming.  Specific  figures  are  not  available  regarding  how  many 
 of  these  firms  exclusively  produce  and/  or  distribute  programming  for  cable  television  or  how  many  are 
 independently  owned  and  operated.  Thus,  we  estimate  that  our  rules  may  affect  approximately  6,987 
 small  entities  primarily  engaged  in  the  production  and  distribution  of  taped  cable  television  programs  and 
 5,627  small  producers  of  live  programs  that  may  be  affected  by  the  rules  adopted  in  this  proceeding. 


 11.  Direct  Broadcast  Satellite  Service  (“  DBS”):  Because  DBS  provides  subscription 
 services,  DBS  falls  within  the  SBA-  recognized  definition  of  “Cable  and  Other  Pay  Television  Services.”  66 
 This  definition  provides  that  a  small  entity  is  one  with  $11  million  or  less  in  annual  receipts.  67  There  are 
 four  licensees  of  DBS  services  under  Part  100  of  the  Commission's  Rules.  Three  of  those  licensees  are 
 currently  operational.  Two  of  the  licensees  that  are  operational  have  annual  revenues  that  may  be  in 
 excess  of  the  threshold  for  a  small  business.  68  The  Commission,  however,  does  not  collect  annual 
 revenue  data  for  DBS  and,  therefore,  is  unable  to  ascertain  the  number  of  small  DBS  licensees  that  could 
 be  impacted  by  these  proposed  rules.  DBS  service  requires  a  great  investment  of  capital  for  operation, 
 and  we  acknowledge  that  there  are  entrants  in  this  field  that  may  not  yet  have  generated  $11  million  in 
 annual  receipts,  and  therefore  may  be  categorized  as  a  small  business,  if  independently  owned  and 
 operated. 


 62  Such  establishments  primarily  engaged  in  providing  live  theatrical  presentations,  such  as  road  companies  and 
 summer  theaters,  including  producers  of  live  television  programs.  Such  producers  of  live  theatrical  presentation  are 
 classified  in  NAICS  Codes  56131,  71111,  71141,  561599,  71151,  71112,  71132,  51229,  and  53249. 


 63  13  C.  F.  R.  §  121.  201,  NAICS  Codes  51321  and  51322. 


 64  U.  S.  Small  Business  Administration  1992  Economic  Census  Industry  and  Enterprise  Report,  Table  2D,  SIC  7812, 
 (U.  S.  Bureau  of  the  Census  data  adapted  by  the  Office  of  Advocacy  of  the  U.  S.  Small  Business  Administration) 
 ("  SBA  1992  Census  Report").  Because  the  Census  data  do  not  include  a  category  for  $21.5  million,  we  have 
 reported  the  closest  increment  below  and  above  the  $21.  5  million  threshold.  There  is  a  difference  of  15  firms 
 between  the  $16,  999  and  $24,999  million  annual  receipt  categories.  It  is  possible  that  these  15  firms  could  have 
 annual  receipts  of  $21.5  million  or  less  and  would  therefore  be  classified  as  small  businesses. 


 65  NAICS  Codes  56131,  71111,  71141,  561599,  71151,  71121,  51229,  and  53249. 


 66  13  C.  F.  R.  §  121.  201,  NAICS  Codes  51321  and  51322. 
 67  Id. 
 68  Id. 
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 12.  Home  Satellite  Dish  Service  (“  HSD”):  Because  HSD  provides  subscription  services, 
 HSD  falls  within  the  SBA-  recognized  definition  of  “Cable  and  Other  Pay  Television  Services.”  69  This 
 definition  provides  that  a  small  entity  is  one  with  $11  million  or  less  in  annual  receipts.  70  The  market  for 
 HSD  service  is  difficult  to  quantify.  Indeed,  the  service  itself  bears  little  resemblance  to  other  MVPDs. 
 HSD  owners  have  access  to  more  than  265  channels  of  programming  placed  on  C-  band  satellites  by 
 programmers  for  receipt  and  distribution  by  MVPDs,  of  which  115  channels  are  scrambled  and 
 approximately  150  are  unscrambled.  71  HSD  owners  can  watch  unscrambled  channels  without  paying  a 
 subscription  fee.  To  receive  scrambled  channels,  however,  an  HSD  owner  must  purchase  an  integrated 
 receiver-  decoder  from  an  equipment  dealer  and  pay  a  subscription  fee  to  an  HSD  programming  package. 
 Thus,  HSD  users  include:  (1)  viewers  who  subscribe  to  a  packaged  programming  service,  which  affords 
 them  access  to  most  of  the  same  programming  provided  to  subscribers  of  other  MVPDs;  (2)  viewers  who 
 receive  only  non-  subscription  programming;  and  (3)  viewers  who  receive  satellite  programming  services 
 illegally  without  subscribing.  Because  scrambled  packages  of  programming  are  most  specifically  intended 
 for  retail  consumers,  these  are  the  services  most  relevant  to  this  discussion.  72 


 13.  According  to  the  most  recently  available  information,  there  are  approximately  four 
 program  packagers  nationwide  offering  packages  of  scrambled  programming  to  retail  consumers.  73  These 
 program  packagers  provide  subscriptions  to  approximately  1,476,700  subscribers  nationwide.  74  This  is  an 
 average  of  about  370,000  subscribers  per  program  package.  This  is  smaller  than  the  400,000  subscribers 
 used  in  the  commission's  definition  of  a  small  MSO.  Furthermore,  because  this  is  an  average,  it  is  likely 
 that  some  program  packagers  may  be  substantially  smaller. 


 14.  Multipoint  Distribution  Service  (“  MDS”),  Multichannel  Multipoint  Distribution  Service 
 (“  MMDS”)  and  Local  Multipoint  Distribution  Service  (“  LMDS”):  MMDS  systems,  often  referred  to  as 
 “wireless  cable,”  transmit  video  programming  to  subscribers  using  the  microwave  frequencies  of  the 
 Multipoint  Distribution  Service  (“  MDS”)  and  Instructional  Television  Fixed  Service  (“  ITFS”).  75  LMDS 
 is  a  fixed  broadband  point-  to-  multipoint  microwave  service  that  provides  for  two-  way  video 
 telecommunications.  76 


 15.  In  connection  with  the  1996  MDS  auction,  the  Commission  defined  small  businesses  as 
 entities  that  had  annual  average  gross  revenues  of  less  than  $40  million  in  the  previous  three  calendar 
 years.  77  This  definition  of  a  small  entity  in  the  context  of  MDS  auctions  has  been  approved  by  the  SBA.  78 


 69  13  C.  F.  F.  §  121.  201,  NAICS  Codes  51321  and  51322. 
 70  Id. 
 71  Annual  Assessment  of  the  Status  of  Competition  in  Markets  for  the  Delivery  of  Video  Programming,  Third 
 Annual  Report,  CS  Docket  No.  96-  133,  12  FCC  Rcd  4358,  4385  (1996)  (”  Third  Annual  Report”). 
 72  Id.  at  4385. 


 73  Id. 
 74  See  Seventh  Annual  Report,  16  FCC  Rcd  at  6110  Table  C-  1  (2001). 
 75  Amendment  of  Parts  21  and  74  of  the  Commission’s  Rules  with  Regard  to  Filing  Procedures  in  the  Multipoint 
 Distribution  Service  and  in  the  Instructional  Television  Fixed  Service  and  Implementation  of  Section  309(  j)  of  the 
 Communications  Act  –  Competitive  Bidding,  MM  Docket  No.  94-  131  and  PP  Docket  No.  93-  253,  Report  and  Order, 
 10  FCC  Rcd  at  9589,  9593  ¶  7  (1995). 
 76  See  Local  Multipoint  Distribution  Service,  Second  Report  and  Order,  12  FCC  Rcd  12545  (1997). 


 77  47  C.  F.  R.  §  21.  961(  b)(  1). 
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 The  MDS  auctions  resulted  in  67  successful  bidders  obtaining  licensing  opportunities  for  493  Basic 
 Trading  Areas  (“  BTAs”).  Of  the  67  auction  winners,  61  met  the  definition  of  a  small  business.  MDS 
 also  includes  licensees  of  stations  authorized  prior  to  the  auction.  As  noted,  the  SBA  has  developed  a 
 definition  of  small  entities  for  pay  television  services,  which  includes  all  such  companies  generating  $11 
 million  or  less  in  annual  receipts.  79  This  definition  includes  multipoint  distribution  services,  and  thus 
 applies  to  MDS  licensees  and  wireless  cable  operators  that  did  not  participate  in  the  MDS  auction. 
 Information  available  to  us  indicates  that  there  are  approximately  850  of  these  licensees  and  operators  that 
 do  not  generate  revenue  in  excess  of  $11  million  annually.  Therefore,  for  purposes  of  the  IRFA,  we  find 
 there  are  approximately  850  small  MDS  providers  as  defined  by  the  SBA  and  the  Commission’s  auction 
 rules. 


 16  The  SBA  definition  of  small  entities  for  pay  television  services,  which  includes  such 
 companies  generating  $11  million  in  annual  receipts,  appears  applicable  to  ITFS.  80  There  are  presently 
 2,032  ITFS  licensees.  All  but  100  of  these  licenses  are  held  by  educational  institutions.  Educational 
 institutions  are  included  in  the  definition  of  a  small  business.  81  However,  we  do  not  collect  annual 
 revenue  data  for  ITFS  licensees,  and  are  not  able  to  ascertain  how  many  of  the  100  non-  educational 
 licensees  would  be  categorized  as  small  under  the  SBA  definition.  Thus,  we  tentatively  conclude  that  at 
 least  1,932  licensees  are  small  businesses. 


 17.  Additionally,  the  auction  of  the  1,030  LMDS  licenses  began  on  February  18,  1998  and 
 closed  on  March  25,  1998.  The  Commission  defined  “small  entity”  for  LMDS  licenses  as  an  entity  that 
 has  average  gross  revenues  of  less  than  $40  million  in  the  three  previous  calendar  years.  82  An  additional 
 classification  for  “very  small  business”  was  added  and  is  defined  as  an  entity  that,  together  with  its 
 affiliates,  has  average  gross  revenues  of  not  more  than  $15  million  for  the  preceding  calendar  years.  83 
 These  regulations  defining  “small  entity”  in  the  context  of  LMDS  auctions  have  been  approved  by  the 
 SBA.  84  There  were  93  winning  bidders  that  qualified  as  small  entities  in  the  LMDS  auctions.  A  total  of 
 93  small  and  very  small  business  bidders  won  approximately  277  A  Block  licenses  and  387  B  Block 
 licenses.  On  March  27,  1999,  the  Commission  re-  auctioned  161  licenses;  there  were  40  winning  bidders. 
 Based  on  this  information,  we  conclude  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. 


 (…  continued  from  previous  page)  78 
 See  Amendment  of  Parts  21  and  74  of  the  Commission’s  Rules  With  Regard  to  Filing  Procedures  in  the  Multipoint 
 Distribution  Service  and  in  the  Instructional  Television  fixed  Service  and  Implementation  of  Section  309(  j)  of  the 
 Communications  Act  –  Competitive  Bidding,  MM  Docket  No.  94-  131  and  PP  Docket  No.  93-  253,  Report  and  Order, 
 10  FCC  Rcd  9589  (1995). 


 79  13  C.  F.  R.  §  121.  201,  NAICS  Codes  52321  and  52322. 


 80  13  C.  F.  R.  §  121.  201. 
 81  SBREFA  also  applies  to  nonprofit  organizations  and  governmental  organizations  such  as  cities,  counties,  towns, 
 townships,  villages,  school  districts,  or  special  districts,  with  populations  of  less  than  50,000.  5  U.  S.  C.  §  601(  5). 
 82  See  Local  Multipoint  Distribution  Service,  Second  Report  and  Order,  12  FCC  Rcd  12545  (1997). 


 83  Id. 
 84  See  Letter  to  Daniel  Phythyon,  Chief,  Wireless  Telecommunications  Bureau  (FCC)  from  A.  Alvarez, 
 Administrator,  SBA  (January  6,  1998). 
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 18.  In  sum,  there  are  approximately  a  total  of  2,  000  MDS/  MMDS/  LMDS  stations  currently 
 licensed.  Of  the  approximate  total  of  2,000  stations,  we  estimate  that  there  are  1,595 
 MDS/  MMDS/  LMDS  providers  that  are  small  businesses  as  deemed  by  the  SBA  and  the  Commission’s 
 auction  rules. 


 19.  Satellite  Master  Antenna  Television  ("  SMATV")  Systems.  The  SBA  definition  of  small 
 entities  for  “Cable  and  Other  Pay  Television  Services”  specifically  includes  SMATV  services  and,  thus, 
 small  entities  are  defined  as  all  such  companies  generating  $11  million  or  less  in  annual  receipts.  85 
 Industry  sources  estimate  that  approximately  5,200  SMATV  operators  were  providing  service  as  of 
 December  1995.  86  Other  estimates  indicate  that  SMATV  operators  serve  approximately  1.5  million 
 residential  subscribers  as  of  June  2000.  87  The  best  available  estimates  indicate  that  the  largest  SMATV 
 operators  serve  between  15,000  and  55,000  subscribers  each.  Most  SMATV  operators  serve 
 approximately  3,000-  4,000  customers.  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  SMATVs,  we  believe  that  a  substantial 
 number  of  SMATV  operators  qualify  as  small  entities. 


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


 20.  The  Notice  seeks  comment  on  the  sunset  of  Section  628(  c)(  2)(  D)  of  the  Communications 
 Act.  The  Notice  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 


 21.  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:  (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  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  comments  on  a  number  of  issues  that  may  significantly  impact  small  entities.  Specifically, 
 the  NPRM  seeks  comment  in  para.  8  on  the  effect,  if  any,  Section  628(  c)(  2)  D)  has  had  on  competition  in 
 local  and  national  markets.  The  NPRM  also  seeks  comment  in  para.  9  on  the  degree  to  which,  if  at  all, 
 clustering  and  the  continuing  consolidation  within  the  communications  industry  should  inform  the 
 Commission’s  decision  on  the  possible  sunset  of  the  exclusivity  prohibition.  In  para.  10,  the  NPRM  seeks 
 comment  on  the  effects  of  exclusivity  in  the  multichannel  video  programming  marketplace.  In  para.  11, 
 the  NPRM  seeks  comment  on  the  impact  the  prohibition  on  exclusivity  has  had  on  diversity  of 
 programming.  In  para.  12,  the  NPRM  seeks  comment  on  how  the  program  access  provisions  would 


 85  13  C.  F.  R.  §  121.  201. 
 86  See  Third  Annual  Report,  12  FCC  Rcd  at  4403-  4. 
 87  See  Seventh  Annual  Report,  16  FCC  Rcd  at  6048. 
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 function  should  the  exclusivity  prohibition  sunset.  In  para.  13,  the  NPRM  seeks  comment  relationship  of 
 Section  628(  c)(  2)(  D)  and  Section  628(  c)(  2)(  C)  of  the  Act,  which  affects  areas  not  served  by  a  cable 
 operator.  In  para.  14,  the  NPRM  seeks  comment  on  how  the  proliferation  of  new  programming  services 
 impacts  assumptions  with  regard  to  exclusivity.  If  Section  628(  c)(  2)(  D)  is  retained,  the  NPRM  seeks 
 comment  in  para.  15  on  future  procedures  necessarily  related  to  the  retention  of  Section  628(  c)(  2)(  D). 


 F.  Federal  Rules  Which  Duplicate,  Overlap,  or  Conflict  with  the  Commission’s  Proposals 


 22.  There  are  no  federal  rules  that  specifically  duplicate,  overlap  or  conflict  with  the 
 Commission’s  inquiry  with  regard  to  Section  628(  c)(  2)(  D). 


 G.  Report  to  Congress 
 23.  The  Commission  will  send  a  copy  of  the  Notice,  including  this  IRFA,  in  a  report  to  be  sent 
 to  Congress  pursuant  to  the  Small  Business  Regulatory  Enforcement  Fairness  Act  of  1996.  88  In  addition, 
 the  Commission  will  send  a  copy  of  the  Notice,  including  IRFA,  to  the  Chief  Counsel  for  Advocacy  of 
 the  Small  Business  Administration.  A  copy  of  the  Notice  and  IRFA  (or  summaries  thereof)  will  also  be 
 published  in  the  Federal  Register.  89 


 88  See  5  U.  S.  C.  §801(  a)(  1)(  A). 
 89  See  5  U.  S.  C.  §604(  b). 
17