In this client advisory, Thelen reviews several recent FCC actions affecting cable television systems, cable programmers, and broadcast stations:
- Cable systems are required to provide subscribership information under the 70/70 rule to determine whether the FCC has authority to impose additional programming regulations such as a la carte.
- The leased access rules are amended to expand programmers' rights, and comments are sought regarding further changes to the leased access rules.
- The FCC, in a split decision, requires Cablevision to carry WRNN in new communities reached by the expanded WRNN DTV signal, and sets a precedent for how the FCC will apply the must-carry rules to expanded DTV coverage areas.
- Carriage of television signals without material degradation and availability of television signals after the DTV transition are defined, and comments are sought on application of the rules to retransmission agreements, channel placement, and reformatting.
- Exclusive service contracts with MDUs and other real estate developments are prohibited, and comments are sought on prohibiting exclusive marketing and bulk billing contracts.
- Pole attachment regulations are proposed to be amended to establish a higher rate for attachments used to provide cable modem service, conform the cable and telephone attachment rates, set rates for wireless attachments, and revise the access and complaint rules.
1. Cable systems are required to provide subscribership information under the 70/70 rule to determine whether the FCC has authority to impose additional programming regulations such as a la carte.
As part of the FCC's 13th Annual Report to Congress on Video Competition, the FCC decided to require cable television systems to file subscribership information that will determine whether the 70/70 test has been met. Meeting the 70/70 test would allow the FCC to impose additional program regulations on cable television operators. Rule changes may encourage or require a la carte program offerings. A la carte programming, if required, would significantly affect the economics of program carriage for both cable television systems and cable programmers.
The 70/70 rule provides, "At such time as cable systems with 36 or more activated channels are available to 70 percent of households within the United States and are subscribed to by 70 percent of the households to which such systems are available," the FCC may impose additional rules, "necessary to provide diversity of information sources." The FCC considered whether the 13th Annual Report should include a finding that the 70/70 test has been met based upon information from one source. The FCC was prepared to find that cable systems cover 70 percent of households but not that 70 percent of the homes passed subscribe to cable.
In order to determine whether the second prong of the 70/70 test has been met, the 13th Annual Report will require each cable operator to submit the following information for 2006 under penalty of perjury: 1) the total number of homes the cable operator currently passes; 2) the total number of homes the cable operator currently passes with 36 or more activated channels; 3) the total number of subscribers; and 4) the total number of subscribers with 36 or more activated channels. Although the FCC issued a News Release on November 27 stating that the information must be filed within 60 days, cable operators will not be expected to file the information until the 13th Annual Report is released by the FCC and a form for filing the subscribership information is approved by OMB.
The FCC also voted to adopt a Notice of Inquiry (NOI) for its 14th Annual Report on Video Competition. The text of the NOI has not been released. The NOI may invite comment on proposals to increase program diversity in the event that the 70/70 test is met.
2. The leased access rules are amended to expand programmers' rights, and comments are sought regarding further changes to the leased access rules.
The FCC voted to adopt an Order (FCC 07-208) that will amend the rules on leased access to cable television system channels to make it easier for cable programmers to lease channels. The order will include a Further Notice of Proposed Rule Making (FNPRM) requesting comment on application of the revised rules to program length commercials and sales presentations.
The text of the Order and FNPRM has not been released. According to an FCC News Release, the leased access rule amendments were adopted by the FCC, "in response to comments from leased access programmers regarding slow response times to information requests and excessive rates and fees." The FCC states that the leased access rule amendents will include, "more appropriate leased access rates" as well as, "more specific leased access customer service standards" with "faster cable operator response times" and "increased enforcement." The FCC said its Order also "expedites the leased access complaint process and improves the discovery process related to leased access disputes." The FCC relies upon its existing authority to regulate leased access, and the order is not subject to the outcome of the 70/70 subscribership test.
3. The FCC, in a split decision, requires Cablevision to carry WRNN in new communities reached by the expanded WRNN DTV signal, and sets a precedent for how the FCC will apply the must-carry rules to expanded DTV coverage areas.
The FCC issued a Memorandum Opinion and Order (FCC 07-151) that directs Cablevision Systems Corporation (Cablevision) to commence carriage of WRNN television on cable television systems operated by Cablevision on Long Island, New York. The decision indicates that the FCC is likely to require must-carry of television stations in additional cable television communities where television stations gain increased coverage as a result of the conversion to digital television (DTV).
WRNN is licensed to Kingston, New York, a community located over 50 miles north of New York City. WRNN is a full power television station that runs news programming and identifies itself as "RNN." As part of the conversion to digital television, WRNN relocated its transmitter site south, towards New York City and Long Island. From its new transmitter site, WRNN began placing an improved signal over cable television communities served by Cablevision in Nassau and Suffolk Counties on Long Island. When WRNN requested must-carry on Cablevision systems on Long Island, Cablevision refused. WRNN filed a must-carry complaint with the FCC; the complaint was granted by the Media Bureau and affirmed on reconsideration by the full Commission. WRNN operates its DTV station on UHF channel 48. The Order requires WRNN to provide specialized equipment to Cablevision at WRNN's expense to enable Cablevision to receive a good quality signal at the headend.
The FCC split 3/2 in reaching its decision with the majority voting to require carriage and with the minority writing a joint dissent. At issue was the application of the statutory test in the Communications Act for determining a broadcasting station's market for purposes of the must-carry requirement. The majority based its decision on the new coverage contour of WRNN-DT and that Verizon had commenced carriage of WRNN on its FIOS systems in the area. The minority stressed that WRNN historically has not been carried on the Cablevision systems. The majority also rejected the constitutional arguments of Cablevision based on the First Amendment and the Takings Clause, finding that the must-carry rules previously have been upheld by the U.S. Supreme Court.
4. Carriage of television signals without material degradation and availability of television signals after the DTV transition are defined, and comments are sought on application of the rules to retransmission agreements, channel placement, and reformatting.
The FCC released its Third Report and Order and Third Further Notice of Proposed Rule Making on cable television system carriage of digital television broadcast signals (FCC 07-170). The Order adopts rule amendments to define the requirement that broadcast television signals be carried without material degradation. The Order also imposes signal carriage obligations to enable cable subscribers with analog television sets to continue to be able to use those sets for three years after the DTV transition on January 17, 2009.
With regard to the material degradation standard, the FCC determined to continue imposing a comparative standard with two requirements; first, that the broadcast signals not be carried in a lesser format or lower resolution than any other signal on the system; and, second, that the cable signal when compared to the broadcast signal not be perceptibly different to the viewer. The FCC also continued the requirement that HD signals be carried in HD. The FCC decided not to adopt its proposals to require carriage of all bits contained in the primary video stream and program related content, and decided not to impose a mandatory negotiation process for cable television systems that do not wish to carry all such bits. The Further Notice of Proposed Rule Making seeks comment on whether the material degradation standard should apply only to must-carry stations or also to stations, carried under retransmission consent agreements.
With regard to carriage of broadcast signals after the DTV transition, the FCC requires cable television systems with analog channel service to convert broadcast digital television signals to analog for delivery to analog subscribers. For all-digital cable systems, the FCC requires cable television operators to provide subscribes who have analog television sets with a converter box that enables the subscriber to view digital broadcast signals on their analog television sets. These requirements will be in effect for three years, until January 17, 2012. While the requirements are in effect, both the analog and digital versions of television broadcast signals can be counted toward the 1/3 cap on must-carry obligations. The Further Notice of Proposed Rule Making seeks comment on how the channel placement rules should apply to the analog versions of digital television signals, and how digital signals with a 16:9 aspect ratio should be re-formatted for viewing on analog sets with a 4:3 aspect ratio.
5. Exclusive service contracts with MDUs and other real estate developments are prohibited, and comments are sought on prohibiting exclusive marketing and bulk billing contracts.
The FCC released an Order (FCC 07-189) that prohibits exclusive service contracts between cable television system operators and owners of multiple dwelling units (MDUs). The Order includes a Further Notice of Proposed Rulemaking (FNPRM) that requests comment on additional rule changes to prohibit exclusive marketing and bulk billing contracts. The Order will become effective and comments in response to the FNPRM will be due 30 days after Federal Register publication.
The Order prohibits the enforcement of existing exclusivity clauses and prohibits signing new exclusivity clauses. In adopting the Order, the FCC relied upon its statutory authority to adopt regulations to prohibit "unfair or deceptive acts or practices" by cable operators that "hinder significantly or prevent" other multichannel video program distributors from providing cable programming to subscribers. The FCC found that exclusivity clauses are used primarily by cable television system operators, and that these clauses have inhibited the roll-out of competitive services by "fiber-deploying LECs."
For purposes of the FCC rules, MDUs include not only apartment, cooperative, and condominium buildings, but also gated communities, mobile home parks, garden apartments, and other "centrally managed residential real estate developments." The FCC estimates that, "30 percent of Americans live in MDUs, and their numbers are growing." Thus, the order has the potential to impact a significant portion of cable television subscribers.
The FNPRM seeks comment on whether the FCC also should prohibit cable operators from enforcing existing or entering into new exclusive marketing clauses and bulk billing arrangements, particularly bulk billing arrangements where residents must continue to pay the bulk fee when they select an alternative provider. The FCC also requests comment on whether the FCC has authority to prohibit DBS providers from using exclusivity clauses.
6. Pole attachment regulations are proposed to be amended to establish a higher rate for attachments used to provide cable modem service, conform the cable and telephone attachment rates, set rates for wireless attachments, and revise the access and complaint rules.
The FCC adopted a wide-ranging Notice of Proposed Rulemaking (NPRM) (FCC 07-187) with regard to its pole attachment regulations. The FCC pole attachment regulations also apply to conduits and rights-of-way. While the FCC rules do not apply in states that have chosen to regulate pole attachments at the state level, the FCC rules often influence state pole attachment rules and proceedings. The FCC adopted the NPRM in response to petitions filed in 2005 by the United States Telephone Association (USTA) and Fibertech Networks, LLC.
The FCC "tentatively concludes" that the rate for attachments used to provide cable modem service should be increased from the cable television attachment rate to a rate not more than the telephone attachment rate. The FCC expresses the view that all providers of broadband Internet access should pay the same rate for attachments in order to level the competitive playing fields and requests comment on its tentative conclusions. The FCC also expresses concern about the disparity between the cable television and telephone attachment rates, and requests comment on FCC authority to revise the existing cable and telephone rates to conform the two rates due to the convergence of cable television and telephone services.
The NPRM also contains a wide-ranging request for comments on other aspects of the pole attachment regulations, such as how to determine when poles are at capacity, make ready, and complaint procedures. Comments will be due 30 days after publication of the NPRM in the Federal Register.