[Federal Register Volume 63, Number 3 (Tuesday, January 6, 1998)]
[Proposed Rules]
[Pages 460-466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-144]
[[Page 460]]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 1
[MM Docket No. 97-247; FCC 97-414]
Fees for Ancillary or Supplementary Use of Digital Television
Spectrum Pursuant to Section 336(e)(1) of the Telecommunications Act of
1996
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: This Notice of Proposed Rule Making implements Section 336 of
the Telecommunications Act of 1996 (``1996 Act'') which requires the
Commission to establish a program to assess and collect fees for
digital television (DTV) licensees' use of DTV capacity for the
provision of ancillary or supplementary services. The statute requires
the imposition of a fee where DTV licensees use their capacity for
services for which the payment of a subscription fee is required or
where the licensee receives revenues from a third party other than
advertising revenues in return for transmitting material furnished by
the third party. With this Notice of Proposed Rule Making, the
Commission seeks comment on various methods by which such fees might be
assessed including a fee assessed as a percentage of gross revenues
received from the ancillary or supplementary use of DTV capacity, a fee
based on net revenues or incremental profits received from the
ancillary or supplementary services provided, or a fee based upon a
combination of a flat rate and a percentage of revenues.
DATES: Comments are due on or before March 3, 1998 and Reply Comments
are due on or before April 2, 1998.
ADDRESSES: Comments should be sent to the Office of Secretary, Federal
Communications Commission, 1919 M St., N.W., suite 222, Washington, DC
20554.
FOR FURTHER INFORMATION CONTACT: Jerry Duvall, Chief Economist, Mass
Media Bureau (202) 418-2600, Susanna Zwerling, Policy and Rules
Division, Mass Media Bureau (202) 418-2140, or Jonathan Levy, Office of
Plans and Policy (202) 418-2030.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice
of Proposed Rule Making, FCC 97-414 adopted December 18, 1997 and
released December 19, 1997. The full text of this Commission Notice is
available for inspection and copying during normal business hours in
the FCC Dockets Branch (Room 239), 1919 M Street N.W., Washington, D.C.
The complete text of this Notice may also be purchased from the
Commission's copy contractor, International Transcription Services
(202) 857-3800 2100 M Street, N.W., Suite 140, Washington, D.C. 20037.
Synopsis of Notice
I. Introduction
In April, 1997, the Federal Communications Commission
(``Commission'') adopted rules implementing a transition to digital
television (``DTV'') for all existing television broadcasters. In
accordance with 1996 Act, established standards for license
eligibility, a transition and construction schedule, and a requirement
that broadcasters continue to provide one free, over-the-air television
service. As required by the 1996 Act, the Commission adopted rules
permitting DTV licensees to use this spectrum to provide ancillary or
supplementary services, provided such services do not derogate the free
television service. The 1996 Act further requires the Commission to
assess and collect a fee for the ancillary or supplementary use of the
spectrum when the licensee receives for these services either
subscription fees or other compensation from third parties. With this
Notice of Proposed Rule Making, the Commission identifies various
programs by which such fees may be assessed.
II. Background
The 1996 Act set up the framework for licensing DTV spectrum to
existing broadcasters and, in an earlier proceeding, the Commission
established rules by which those licenses are assigned and adopted
regulations regarding DTV licensees' provision of ancillary or
supplementary services. Specifically, Congress directed the Commission
to require that the broadcast of any ancillary or supplementary
services on frequencies designated for advanced television services:
(1) Must be consistent with the advanced television technology
designated by the Commission; (2) must not derogate any advanced
television services (including high definition television (``HDTV''))
that the Commission may require; and (3) may be subject to Commission
regulations applicable to analogous services. Moreover, Congress
directed the Commission to establish a fee program for any ancillary or
supplementary services for which a licensee receives any compensation
other than commercial advertisements used to support non-subscription
broadcasting.
The Commission adopted a technical standard that supports the
transmission of HDTV as well as the transmission of multiple programs
of standard definition television (``SDTV'') and non-video services.
This standard permits the provision of other services including the
transmission of CD quality audio signals or large amounts of data. The
standard allows broadcasters to send video, voice and data
simultaneously and to provide a range of services, switching easily and
quickly from one type of service to another.
The Commission's rules permit broadcasters to use their DTV
capacity to provide ancillary and supplementary services which do not
interfere with the required free service. Broadcasters ability to
provide ancillary or supplementary services will allow the broadcasters
flexibility to respond to the demands of their audience for such
services.
The 1996 Act required DTV licensees receiving fees or certain other
compensation for ancillary or supplementary services provided on the
DTV spectrum to return a portion of that revenue to the public. The
Commission was charged with establishing a means of assessing and
collecting fees for those ancillary or supplementary services specified
in the statute (``feeable ancillary or supplementary services''). These
services are described more fully below.
To implement this provision of the 1996 Act, the Commission seeks
comment on various methods of assessing a fee. The Commission sets
forth possible fee assessment programs, including a fee related to the
amount that would have been realized at auction, a fee based upon net
revenues or incremental profits received from the provision of feeable
ancillary or supplementary services, a fee assessed as a percentage of
gross revenues, and a fee based upon a hybrid of a flat rate and a
percentage of revenues. The Commission invites public comment on these
fee assessment programs.
III. Discussion
Goals and General Criteria for Assessing Fees
The 1996 Act first directs that any fee established should
``recover for the public a portion of the value of the public
spectrum'' made available for ancillary or supplementary use by DTV
licensees. This requirement echoes the competitive bidding provisions
of the Communications Act of 1934 (``Communications Act''). Second, the
[[Page 461]]
1996 Act requires that the fee be designed ``to avoid unjust
enrichment'' of broadcast licensees by their use of the spectrum for
ancillary or supplementary services for which they collect fees or
certain other compensation. DTV licensees could be placed at an unfair
advantage if they paid no fee when using their DTV capacity to provide
certain ancillary or supplementary services, given that nonbroadcast
licensees providing analogous services may have acquired their spectrum
through an auction process. Third, the 1996 Act requires that the fee
recover ``for the public an amount that, to the extent feasible, equals
but does not exceed (over the term of the license) the amount that
would have been recovered'' in an auction.
Section 336(e)(1) of the 1996 Act requires a fee to be assessed
upon any services ``for which the payment of a subscription fee is
required in order to receive such services'' or ``for which the
licensee directly or indirectly receives compensation from a third
party in return for transmitting materials furnished by such third
party.'' The Act specifically exempts from the fee any service which
relies upon ``commercial advertisements used to support broadcasting
for which a subscription fee is not required.'' Further, the Conference
Report states that the Commission must ``establish a fee program for
any ancillary or supplementary services if subscription fees or any
other compensation apart from commercial advertisements are required in
order to receive such services.'' Thus, a fee must be assessed on any
ancillary or supplementary services that are not supported entirely by
commercial advertisements. The Commission recognizes that feeable
ancillary or supplementary services may be offered simultaneously with
other services, including HDTV, SDTV, or other video programming
supported entirely by commercial advertisements, or other non-feeable
ancillary or supplementary services. The mere fact that a feeable
ancillary or supplementary service is being transmitted does not mean
that all simultaneously transmitted ancillary or supplementary services
are feeable.
In establishing a fee for the feeable ancillary or supplementary
use of DTV capacity, the Commission is cognizant of the administrative
burden which such a fee could entail. In order to minimize this burden
both for broadcasters and for the Commission, the fee should be simple
to understand and be calculable with readily available information. An
overly complex fee program could be difficult to calculate and enforce
and could create uncertainty that might undermine a DTV licensee's
business planning.
The Commission intends to establish a fee program consistent with
the criteria set forth in the 1996 Act. The 1996 Act evidences the
intent of Congress that broadcasters be allowed the flexibility to
provide such services. In implementing the statutorily mandated fee
program, it is not the Commission's intention to dissuade broadcasters
from using the DTV capacity to provide feeable ancillary or
supplementary services.
The Commission recognizes that there may be some tension among our
goals. The means of assessing the fee may affect whether ancillary or
supplementary services are offered at all and which services are
offered. A fee set too high would serve as a disincentive for
broadcasters to provide feeable ancillary or supplementary services. It
could reduce the benefits that consumers receive from services provided
on the DTV capacity. On the other hand, a fee that is set too low might
not prevent the unjust enrichment of DTV licensees as required by the
1996 Act and might not recover an amount approximating the amount that
would have been recovered at auction, although it could recover for the
public a ``portion of the value'' of the spectrum. Commenters are asked
to address how the proposals and options set forth below strike the
appropriate balance among the goals outlined.
Proposals for Establishing Fees for Feeable Ancillary or Supplementary
Services
Among the fee options consistent with the guidelines of the 1996
Act are first, a fee akin to the amount that would have been received
in an auction of the spectrum; second, a fee based upon the net
revenues or incremental profits from the ancillary or supplementary use
of a licensee's DTV capacity; third, a fee assessed as a percentage of
the gross revenues received for the ancillary or supplementary use of
this capacity; and fourth, a fee based upon a hybrid of a flat rate and
a percentage of revenues.
Revenue-based fees can affect the mix of ancillary or supplementary
services provided, and also raise issues of accounting, auditing, and
cost allocation. The choice of a fee structure may affect the choices
made by consumers of feeable ancillary and supplementary services. A
fee based on gross revenues does not require any cost allocation, but
does require auditing of revenues to ensure that licensees do not
attribute revenues from feeable ancillary or supplementary services to
non-feeable services in order to reduce their fee liability. Because a
fee based upon gross revenues ignores variations in the cost of
providing different feeable ancillary or supplementary services, it
will affect consumer choices among feeable ancillary or supplementary
services. The magnitude of this effect depends on how much variation
there is in the unit cost of different feeable ancillary or
supplementary services. If the costs are quite similar, the effects
will be minor. Notwithstanding any differences in cost, a smaller fee
on gross revenues will reduce the impact on consumer choice. A variant
on the gross revenue fee is a hybrid fee, consisting of a flat fee
combined with a percentage of gross revenues. This structure would not
further affect consumers' choices among feeable ancillary or
supplementary services and would place a fixed floor under the amount
recovered in return for use of the public spectrum. A fee based on net
revenues or incremental profits presents additional accounting
challenges, because it requires assigning costs to each feeable
ancillary or supplementary service. Apportioning common costs among
services may be quite difficult, but determining service-specific
incremental costs could be less difficult. A fee based on net revenues
or incremental profits could make consumers' choices among feeable
ancillary or supplementary services more efficient. The paragraphs
below describe each of these options, and explain the Commission's
inclination to favor a formula that incorporates gross revenues as an
element.
Auction-Related Fee
The statute requires that the fee ``to the extent feasible'' equal
but not exceed, over the term of the license, the amount that would
have been realized at auction. There are significant obstacles,
however, to basing the fee directly on such a spectrum-auction model.
Were it possible to construct, an auction model would provide some
guidance in valuing the DTV spectrum. However, spectrum auctions that
have been held to date, such as those conducted for licenses to provide
personal communications services, took place in circumstances so
different from those in which a fee is to be assessed for the ancillary
or supplementary use of DTV capacity that they are not necessarily
applicable. Depending upon a variety of technological and regulatory
factors including what services are authorized, auctioned spectrum may
be usable either for more or fewer kinds of services than those
authorized on the
[[Page 462]]
DTV spectrum. Moreover, the process of assessing a fee for feeable
ancillary or supplementary use of DTV capacity involves setting a fee
for the use of the assigned spectrum for any number of services at
different times. The relative market demand among services may change
month-to-month, day-to-day, or hour-by-hour. In addition, different
types of services may require different amounts of capacity. For
example, at any given instant HDTV may require the entire 20 Mbps
payload capacity while standard definition television programming
requires far less capacity. Moreover, a licensee providing free,
advertiser-supported programming on its DTV channel, whether in the
form of HDTV or multiple SDTV streams, is exempt from the statute's fee
requirement. Thus, it is difficult to identify market transactions that
involve the transfer of spectrum usage rights equivalent to that
capacity which DTV licensees may use to provide feeable ancillary or
supplementary services. A fee directly tied to the auction-model
estimate of the value of the capacity used for particular feeable
ancillary or supplementary services would necessarily be a moving
target, would involve innumerable unknown variables, and would be
difficult if not impossible to assess. Given these problems, the
Commission is initially disinclined to base the fees on a model that
would seek to simulate the revenue that would be generated from an
auction. The language of the 1996 Act provides flexibility in this
regard, stating that the Commission should use the auction value ``to
the extent feasible.''
Relationship Between the Value of the DTV Spectrum and Revenues
The Commission believes that a fee program can be constructed that
satisfies the statutory directive through the imposition of a fee based
upon revenues received from the feeable ancillary or supplementary use
of the DTV capacity. The relationship between the value of the DTV
capacity used in the provision of feeable ancillary or supplementary
services and the revenue produced from the provision of those services
can be demonstrated using microeconomic theory. It may, therefore, be
possible to establish a fee program as required by the 1996 Act based
upon some measure of revenues received from these services.
More specifically, where DTV capacity is viewed in economic terms
as an input of production used to produce a given ancillary or
supplementary service, and the capacity can be combined with other
inputs of production, such as equipment, programming, and labor in
variable proportions to produce the service, it is possible to
postulate a relationship between variable quantities of DTV capacity
and the quantity of the service actually produced, holding constant all
other inputs of production. Whatever the nature of the actual empirical
input-output relationship, it will reflect the economic principle of
diminishing returns to DTV capacity as a variable input of production,
if the other inputs of production are held constant. In other words,
all other things remaining the same, an increase in the quantity of
digital capacity used to produce a given feeable ancillary or
supplementary service will result in the production of increasing
quantities of the ancillary or supplementary service although the rate
of increase will diminish as the increasing quantity of capacity is
forced to work with fixed quantities of all other inputs of production.
The relationship between the quantity of DTV capacity used in
production and the diminishing rate of increase in total output is
called, in graphical terms, a marginal product curve.
Microeconomic theory demonstrates that the marginal product curve
represents a firm's demand curve for a single variable input of
production, or, here, a broadcaster's demand for digital capacity for
producing feeable ancillary or supplementary services. Theory also
shows that a profit-maximizing firm will use an amount of the variable
input of production (DTV capacity) that equates the marginal product
(or incremental change in total output produced resulting from an
incremental change in the amount of DTV capacity used in production) of
the variable input or DTV capacity, multiplied by the unit market price
of the specific ancillary or supplementary service, with the unit price
of the input (DTV capacity) itself. In the case of DTV capacity as a
variable input of production, there is no market-determined price
established by auction which can be equated with the value of marginal
product (``VMP''), i.e., marginal product multiplied by the unit market
price of a specific ancillary or supplementary service. Within the
range of efficient production described by the empirical input-output
relationship, the value of marginal product curve represents the
implicit value to the broadcaster of DTV capacity used to produce
feeable ancillary or supplementary services. Moreover, it can be shown
that VMP may be interpreted as a measure of incremental revenue
attributable to a one unit increase in the quantity of DTV capacity
used to produce a given ancillary or supplementary service. Multiplying
the implicit unit value of DTV capacity by the corresponding quantity
of capacity actually used in providing a given service provides an
estimate of the implicit market value of that particular quantity of
capacity for that particular broadcaster providing that specific
service. The ratio of this implicit value of DTV capacity to some
measure of revenues generated by the sale of the specific feeable
ancillary or supplementary service provides a conceptual basis for
relating the value of the capacity to service revenues.
This conceptual approach can only approximate the implicit value of
DTV spectrum over a range of possible quantities of the DTV capacity
actually used to produce specific ancillary or supplementary services,
since market-determined unit prices of DTV spectrum are unavailable.
The Commission believes that the VMP curve provides some evidence of
the implicit value of DTV capacity used to provide each specific
feeable ancillary or supplementary service and, therefore, provides a
conceptual basis for estimating the market value of such spectrum
within the range of efficient production of feeable ancillary or
supplementary services.
Fee Based Upon Net Revenues
The value of the DTV capacity used for feeable ancillary or
supplementary services may be estimated through the net revenues from
each such service provided. Net revenue is defined as revenue from a
service less incremental costs and a portion of joint and common costs.
The Commission believes that this revenue proxy for the auction value
is one means of satisfying the criteria of the 1996 Act. A fee could be
computed as a percentage of net revenues derived from each feeable
ancillary or supplementary service. Such fee has the additional effect
of allowing broadcasters to build their feeable ancillary or
supplementary services to the break-even point without the assessment
of a fee, fostering the development of these new services. Ascertaining
the costs involved in calculation of net revenues may, however, be
problematic. Such a determination would necessitate the apportionment
of common expenses between and among free television services offered
on a licensee's DTV capacity and each feeable ancillary or
supplementary use of its DTV capacity. The Commission has concerns as
to whether this information will be readily and reliably available. The
Commission seeks comment on the burden such a fee
[[Page 463]]
program would impose on broadcasters and on Commission staff in the
audit and review process.
Fee Based Upon Incremental Profits From Specific Services
An alternative to such a cost accounting approach that would avoid
the problem of the allocation of costs shared by multiple broadcasting
and ancillary or supplementary services is assessing the fee on the
difference between the incremental gross revenues for a given feeable
ancillary or supplementary service and the incremental economic costs
associated with the production of the service. The service-specific
incremental cost would include the costs of all directly-attributable
inputs of production, such as labor and equipment, and the economic
depreciation and rate of return on any specific capital assets that are
used exclusively in the production of a given feeable ancillary or
supplementary service. Any costs, either variable or fixed, that are
shared in the production of the advertiser-supported television service
and an ancillary or supplementary service would be omitted in the
calculation of profit. This approach has an advantage over the net
revenue approach of reduced auditing requirements since joint and
common costs do not have to be allocated. Nevertheless, due to the
accounting and enforcement difficulties, especially the potential need
to conduct audits, the Commission remains concerned about the
feasibility of the incremental profits fee. The Commission seeks
comment on the costs to broadcasters and the Commission of the specific
proposal that DTV spectrum fees be based on the calculated profit for
each feeable ancillary or supplementary service. In particular, what
type of studies or recordkeeping will be required to estimate service-
specific incremental cost? Will the Commission need to prescribe
specific cost accounting rules to insure consistent and uniform
calculations of incremental cost for purposes of calculating service-
specific profit? Will the costs to broadcasters and the Commission of
calculating and auditing the computation of service-specific profit
exceed the benefit of avoiding whatever inefficiency in consumption may
be induced by a fee based on gross revenues?
Fee Based Upon Gross Revenues
A fee assessed as a percentage of a licensee's gross revenues from
the provision of feeable ancillary or supplementary services would be
consistent with the 1996 Act and would avoid some of the infirmities of
the fee based upon net revenues described above. Moreover, the
Commission believes a fee based upon a percentage of gross revenues
could foster our goal of creating a fee structure which does not
dissuade broadcasters from offering feeable ancillary and supplementary
services. Such a fee would be straightforward to assess and calculate;
the licensee would be required to report its gross revenues from
feeable ancillary or supplementary services and to calculate a fee
based upon a percentage of these revenues. In addition, a fee set at a
percentage of gross revenues provides broadcasters a more certain fee
amount to use in their long term planning and decisions.
Hybrid Fees
Another possible fee structure is a two-part, tariff-like fee, in
which the fee is comprised of a combination of a flat dollar amount and
a percentage of gross revenues. Compared to a fee based purely on a
percentage of gross revenues, a hybrid fee would include an element--
the flat fee--that would provide a uniform means of preventing unjust
enrichment and recover a portion of the value of the spectrum
consistent with the statute. Moreover, a flat fee component would
permit us to set the percentage rate of gross revenues at a lower
level, thus avoiding a fee program that dissuades broadcasters from
offering feeable ancillary and supplementary services. A flat amount,
however, would be an up-front cost, which could serve as a disincentive
to broadcasters to provide ancillary or supplementary services. Given
the statutory requirement that a fee be imposed on feeable ancillary
and supplementary uses, a flat fee may be appropriate even if it does
discourage some such uses. The addition of a percentage of gross
revenues to the flat rate could prevent the unjust enrichment that
might result from a flat fee, by recovering some percentage of gross
revenues in excess of the up-front payment. The Commission invites
comment on the two-part fee proposal. The Commission is especially
interested in comments that recommend what the initial flat rate should
be and explain the basis of the recommendation. Would the initial flat
rate discourage broadcasters' institution of feeable ancillary or
supplementary services or serve as an incentive to broadcasters to
further develop feeable ancillary or supplementary services once
established?
Percentage Rate of Fee
If the fee is assessed as a percentage of revenues or incremental
profits, the percentage rate of the fee, more than the process by which
it is derived will determine the degree to which the fee affects
broadcasters' decisions. The 1996 Act exempts free broadcasting
services from any such fees, thus to some extent creating an incentive
for DTV licensees to use this capacity for free broadcasting services
in addition to the one FCC-mandated free television service. This is
consistent with the Commission's previous statement that ``the
fundamental use of the 6 MHz DTV license will be for the provision of
free over-the-air television service.'' The greater the fee, the
greater the incentive created by the fee for a broadcaster to use its
assigned spectrum to provide free, over-the-air broadcast programming
instead of subscription programming or other feeable ancillary or
supplementary services. The lower the fee, the more flexible the
broadcaster may be in serving audience demand for services and in
choosing the mix of services it provides. The Commission seeks comment
as to the types of services broadcasters may provide using DTV
capacity. The Commission is particularly interested in DTV licensees'
plans for the provision of feeable ancillary or supplementary services.
To the extent that commenters can estimate revenues at this time, the
Commission seeks information as to the revenues anticipated from the
use of the DTV capacity for feeable ancillary or supplementary
services.
The percentage rate of the fee must reflect the statutory
requirements that the fee recover a portion of the value of the
spectrum used for these services, avoid unjust enrichment, and
approximate the revenue that would have been achieved had these
services been licensed through an auction. The Commission asks
commenters to take the statutory requirements and policy goals into
account in proposing particular percentage rates. The Commission seeks
comment on how to factor in permitting broadcasters flexibility to
provide feeable ancillary or supplementary services in establishing an
appropriate percentage rate for the fee. The Commission is reluctant to
set the percentage rate so high that it would dissuade broadcasters
from providing feeable ancillary or supplementary services. The
Commission asks commenters to explain how the percentages they propose
implicate this consideration. The Commission seeks comment on what
percentage would be appropriate for the fee, taking into account the
various proposals for assessing a fee. Clearly, a fee based upon gross
revenues will be set at a lower
[[Page 464]]
percentage rate than a fee based upon net revenues or incremental
profits. Similarly, the percentage rate of a fee incorporated into a
hybrid approach will be lower than the percentage rate of a fee that is
not additional to an up-front payment. Commenters are encouraged to
make specific recommendations as to the level of the fee and type of
fee assessment program to which the fee is to be tied and to provide
evidence to build a record supporting those recommendations. For
example, should the fee be set at one percent or less of gross revenues
generated from feeable ancillary and supplementary services, or up to a
more substantial ten percent of gross revenues?
An additional consideration is whether different feeable ancillary
or supplementary services should be subject to fees set at different
percentage rates. A varying percentage rate could have a number of
disparate effects. Different rates for different services might create
incentives for broadcasters to offer services with lower fees over
services with higher fees and could affect broadcasters' choice from
among alternative feeable ancillary or supplementary uses. On the other
hand, a varying percentage rate fee could be used to adjust the costs
to broadcasters of providing feeable ancillary or supplementary
services to reflect the different costs to competitors offering
analogous services on spectrum purchased at auction or on spectrum not
obtained at auction or through technologies that are not spectrum-
based. Another consideration is whether the percentage rate of the fee
should vary based upon the time of day during which the service is
being provided or other factors. The Commission seeks comment on the
imposition of a varying percentage rate fee.
The statute provides for the periodic adjustment of the fee,
requiring that the fee ``be adjusted by the Commission from time to
time in order to continue to comply'' with the 1996 Act. While this
provision generally gives us the authority to recalculate the fee once
DTV is established and feeable ancillary or supplementary services are
being offered, it also raises the possibility that the fee be set at a
lower percentage rate at the outset. The assessment of a lower initial
percentage rate would allow broadcasters a greater percentage of gross
revenues during the build-out of DTV service and would also provide the
Commission the opportunity to adjust the percentage rate after gaining
more information concerning the nature of the services offered by
licensees. The periodic adjustment of the fee allows the Commission to
ensure that the fee program continues to meet the requirements of the
statute, including the prevention of unjust enrichment and the recovery
of a portion of the value of the spectrum. For example, the fee program
could be adjusted where it is shown that it has given DTV licensees an
unfair advantage in the provision of their feeable ancillary or
supplementary services as compared with their nonbroadcast competitors
providing analogous services on spectrum licensed through a competitive
bidding process.
Noncommercial Television Licensees
In their Petition for Reconsideration of the Fifth Report and
Order, the Association of America's Public Television Stations and the
Public Broadcasting Service (``APTS/PBS'') requested that the
Commission exempt public television licensees from any obligation to
pay fees when they offer feeable ancillary or supplementary services on
their DTV capacity as a source of funding for their public television
operation. APTS/PBS argue that the revenues from the remunerative
provision of feeable ancillary or supplementary services on their DTV
capacity may provide a revenue stream to support their noncommercial
broadcasting activities.
To the extent public television licensees ultimately offer feeable
ancillary and supplementary services, the Commission must determine
whether and in what circumstances they are subject to fees for these
services. The Commission seeks comment on the argument that
noncommercial television licensees should be exempt from fees or
subject to lower fees. Is such relief consistent with the 1996 Act's
requirement that a fee be collected where the DTV spectrum is used for
feeable ancillary or supplementary services for which a subscription
fee is charged or compensation is received other than advertising
revenues? If so, what form should such an exemption take? Should
noncommercial DTV licensees be exempt from the fee where they offer
revenue producing feeable ancillary or supplementary services as a
source of funding for public television? If noncommercial licensees are
subject to a fee for the feeable ancillary or supplementary use of the
DTV capacity, should the fee be assessed at the same percentage as the
fee for commercial licensees or at a lower rate? If noncommercial
broadcasters are exempt from the fee, or assessed a reduced fee what
effect would this have on competing providers of these services?
Implementation
The Commission proposes to employ similar procedures to those it
currently uses for the administration of its filing fees, regulatory
fees, and auction revenue programs. Further, it proposes to generally
follow the same reporting and filing requirements as currently exist
for other programs. The Commission seeks comment on the proposed means
of implementing and collecting the fee and on any special circumstances
that merit an exception to current processes.
IV. Conclusion
The 1996 Act required the Commission to assess fees on the
provision of feeable ancillary or supplementary services over the DTV
spectrum. The Commission issues this Notice of Proposed Rule Making to
seek comment on the fee assessment programs proposed herein.
V. Administrative Matters
Initial Paperwork Reduction Act of 1995
This Notice proposes a new fee assessment program which may contain
an information collection requirement. As part of our continuing effort
to reduce paperwork burdens, the Commission invites the general public
and the Office of Management and Budget (``OMB'') to take this
opportunity to comment on the information collection contained in this
Notice, as required by the Paperwork Reduction Act of 1995, Public Law
No. 104-13. Public and agency comments are due at the same time as
other comments on this Notice; OMB comments are due 60 days from the
date of publication of this Notice 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. In
addition to filing comments with the Secretary, a copy of any comments
on the information collections contained herein should be submitted to
Judy Boley, Federal Communications Commission, Room 234, 1919 M Street,
N.W., Washington, DC 20554, or via the Internet to jboley@fcc.gov and
to Timothy Fain, OMB Desk Officer, 10236
[[Page 465]]
NEOB, 725--17th Street, N.W., Washington, DC 20503 or via the Internet
to fain__t@al.eop.gov.
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 rules. 47 CFR 1.1206(b), as revised. 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 of
the presentation 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. See 47 CFR 1.1206(b)(2), as revised.
Additional rules pertaining to oral and written presentations are set
forth in section 1.1206(b).
Initial Regulatory Flexibility Analysis
With respect to this Notice, an Initial Regulatory Flexibility
Analysis (``IRFA'') is contained in Appendix A and summarized below. As
required by the Regulatory Flexibility Act, the Commission has prepared
an IRFA of the expected significant economic impact on small entities
by the policies and rules proposed in this Notice. Written public
comments are requested on the IRFA. In order to fulfill the mandate of
the Contract with America Advancement Act of 1996 regarding the Final
Regulatory Flexibility Analysis, the Commission asks a number of
questions in our IRFA regarding the prevalence of small businesses in
the industries covered by this Notice. Comments on the IRFA must be
filed in accordance with the same filing deadlines as comments on the
Notice, but they must have a distinct heading designating them as
responses to the IRFA.
VI. Initial Regulatory Flexibility Analysis
As required by the Regulatory Flexibility Act (RFA), the Commission
has prepared this present Initial Regulatory Flexibility Analysis
(IRFA) of the expected significant economic impact on small entities by
the policies and rules proposed in this Notice. Written public comments
are requested on this IRFA. Comments must be identified as responses to
the IRFA and must be filed by the deadlines for comments on the Notice
provided above. The Commission will send a copy of the Notice,
including this IRFA, to the Chief Counsel for Advocacy of the Small
Business Administration.
Reasons Why Agency Action Is Being Considered
The 1996 Act directed the Commission to adopt regulations allowing
licensees to use a portion of the DTV spectrum to provide feeable
ancillary or supplementary services and to establish a program to
assess and collect a fee for these services. In the Fifth Report and
Order the Commission established rules permitting broadcasters to offer
feeable ancillary or supplementary services on the DTV spectrum. As
directed by Congress, in this proceeding the Commission proposes a
means of assessing and collecting a fee for the feeable ancillary or
supplementary use of the DTV spectrum.
Need For and Objectives of the Proposed Rule Changes
The 1996 Act specified that the Commission shall establish a
program to assess and collect fees for the feeable ancillary or
supplementary use of the DTV capacity. Congress set forth the following
objectives to be achieved by the assessment of the fee: First, that the
fee recover a portion of the value of the DTV capacity; second, that
the fee prevent the unjust enrichment of broadcast licensees using the
DTV capacity to provide services for which they receive revenues other
than advertising revenues; third, that the fee recover ``for the public
an amount that, to the extent feasible, equals but does not exceed
(over the term of the license) the amount that would have been
recovered'' in an auction of the spectrum; and finally, that any free
broadcasting service which relies upon commercial advertisements rather
than subscription fees or other compensation for its revenues be exempt
from the fee requirement. In the Fifth Report and Order the Commission
expressed its objective that broadcasters develop innovative uses of
the DTV spectrum and be free to respond to market demand for feeable
ancillary or supplementary services provided over this spectrum. This
proceeding should achieve the objectives set forth in the 1996 Act and
in the Fifth Report and Order.
Legal Basis
Authority for the actions proposed in this Notice may be found in
sections 4(i), 303(r), 336 and 403 of the Communications Act of 1934,
as amended, 47 U.S.C. 154(i), 303(r), 336 and 403.
Recording, Recordkeeping, and Other Compliance Requirements
The Notice proposes a new fee assessment program which may contain
an information collection requirement. In general, the proposed fee
assessment programs which would assess a fee for feeable ancillary or
supplementary services based upon revenues derived from these services
would require broadcasters to report their revenues derived from these
services. Certain alternative fee assessment proposals may require more
information from broadcasters than would other proposals. In the
Notice, the Commission has proposed a fee assessment program that seeks
to minimize the administrative and reporting burdens on broadcast
licensees.
Description and Estimate of the Number of Small Entities to Which the
Proposed Rules Will Apply
Under the RFA, small entities may include small organizations,
small businesses, and small governmental jurisdictions. The RFA
generally defines the term ``small organization'' to mean ``any not-
for-profit enterprise which is independently owned and operated and is
not dominant in its field.'' In addition, the RFA, generally defines
the term ``small business'' as having the same meaning as the term
``small business concern'' under the Small Business Act, 15 U.S.C. 632.
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''). 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 SBA 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.''
The proposed rules and policies will apply to television
broadcasting licensees. The Small Business Administration defines a
television broadcasting station that has no more than $10.5 million in
annual receipts as a small business. Television broadcasting stations
consist of establishments primarily engaged in broadcasting visual
programs by television to the public, except cable and other pay
television services.
[[Page 466]]
Included in this industry are commercial, religious, educational, and
other television stations. Also included are establishments primarily
engaged in television broadcasting and which produce taped television
program materials. There were 1,509 television stations operating in
the nation in 1992. That number has remained fairly constant as
indicated by the approximately 1,563 operating television broadcasting
stations in the nation as of October 31, 1997. For 1992 the number of
television stations that produced less than $10.0 million in revenue
was 1,155 establishments.
Thus, the proposed rules will affect many of the approximately
1,563 television stations; approximately 1,200 of those stations are
considered small businesses. These estimates may overstate the number
of small entities since the revenue figures on which they are based do
not include or aggregate revenues from non-television or non-radio
affiliated companies.
In addition to owners of operating television stations, any entity
who seeks or desires to obtain a television broadcast license may be
affected by the proposals contained in this item. The number of
entities that may seek to obtain a television broadcast license is
unknown.
Federal Rules That Overlap, Duplicate, or Conflict With the Proposed
Rules
The initiatives and proposed rules raised in this proceeding do not
overlap, duplicate or conflict with any other rules.
Any Significant Alternatives Minimizing the Impact on Small Entities
and Consistent with the Stated Objectives
This Notice solicits comment on a variety of alternatives discussed
herein. Any significant alternatives presented in the comments will be
considered. The proposed rules and policies are required to implement
provisions of the 1996 Act. These proposed rules and policies may
affect broadcast television licensees, some of which are small
businesses. The Commission believes that the proposed rules and
policies may be necessary to the recovery of a portion of the value of
the public spectrum and to promote the development of innovative uses
of the DTV capacity. The Commission seeks comment on the alternatives
proposed in the Notice and on whether there is a significant economic
impact on any class of small licensee or permittee as a result of any
of the proposed approaches.
List of Subjects in 47 CFR Part 1
Television, Television broadcasting.
Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 98-144 Filed 1-5-98; 8:45 am]
BILLING CODE 6712-01-P
