01-25479. The Commission's Cable Horizontal and Vertical Ownership Limits and Cable, Broadcast and MDS Attribution Rules

AGENCY:

Federal Communications Commission.

ACTION:

Further notice of proposed rulemaking.

SUMMARY:

This document examines and solicits comment on the Commission's cable horizontal and vertical limits and aspects of its attribution rules as affected by the recent D.C. Circuit decision in Time Warner Entertainment Co. v. FCC, 240 F.3d 1126 (D.C. Cir. 2001). The D.C. Circuit reversed and remanded the Commission's horizontal and vertical limits, and vacated two aspects of its attribution rules.

DATES:

Comments are due on or before December 26, 2001, and reply comments are due on or before January 25, 2002.

ADDRESSES:

Office of the Secretary, Federal Communications Commission, 445 12th Street, SW., Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT:

Daniel Hodes, Kiran Duwadi, Ava Holly Berland, Andrew Wise, Cable Services Bureau, [phone], TTY [phone] or via Internet at [e-mail], [e-mail], [e-mail], [e-mail].

SUPPLEMENTARY INFORMATION:

This is a synopsis of the Commission's Further Notice of Proposed Rulemaking (“FNPRM”) in CS Docket Nos. 98-82, 96-85, MM Docket Nos. 92-264, 94-150, 92-51, 87-154, FCC 01-263, adopted September 13, 2001, and released September 21, 2001. The complete text of this FNPRM is available for inspection and copying during normal business hours in the FCC Reference Center (Room CY-A257) at its headquarters, 445 12th Street, SW., Washington, DC 20554, and may be purchased from the Commission's copy contractor, Qualex International, Portals II, 445 12th Street SW., Room CY-B402, Washington, DC, 20554, telephone [phone], facsimilie [phone], or via Internet at [e-mail], or may be viewed via Internet at http://www.fcc.gov/​csb/​. This document is also available in alternative formats (computer diskette, large print, audio cassette, and Braille). Persons who need documents in such formats may contact Brian Millin at [phone], TTY [phone], or send an email to [e-mail].

Synopsis of Notice of Inquiry

1. As part of the 1992 Cable Act, Congress added section 613(f) to the Communications Act of 1934. The principal objective of section 613(f) was to enhance competition in the acquisition and distribution of video programming by cable and non-cable systems. Congress expressed a preference for competition over regulation in achieving this objective, believing that the presence of alternative cable and non-cable multi-channel video programming distributors (“MVPDs”) would constrain the cable operators” market power in the acquisition and distribution of multi-channel programming, as well as improve their service and programming quality and curb their subscription rate increases. However, at the time, given the absence of effective competition to, and the trend toward increased horizontal concentration and vertical integration in, the cable industry, Congress believed structural limits were necessary. Congress thus enacted section 613(f), which directs the Commission to establish limits: (1) on the number of subscribers a cable operator may serve through its owned or affiliated cable systems (horizontal limit); and (2) on the number of channels a cable operator may devote to its owned or affiliated programming (vertical limit).

2. In response to the congressional directive, the Commission adopted a horizontal ownership limit that barred a cable operator from owning or having an attributable interest in cable systems that reach more than 30 percent of subscribers served by all multichannel video programming distributors (“MVPDs”) nationwide. The Commission also adopted a vertical limit that prohibited a cable operator from carrying affiliated programming on more than 40 percent of its channels. The Commission's vertical limit only applied to channel capacity up to 75 channels. Thus, for a cable operator that had more that 75 channels, the vertical limit required the operator to reserve 45 channels for non-affiliated programming. Finally, the Commission adopted attribution rules, which defined the level of ownership interests implicated by the horizontal and vertical limits.

3. The DC Circuit in Time Warner reviewed the Commission's cable horizontal and vertical limits. The DC Circuit essentially found that in establishing these limits, the Commission did not adequately take into account the evolving and increasingly competitive MVPD marketplace, did not draw the necessary connections between the limits and the harms the limits were designed to address, and did not sufficiently support its limits with a full record of empirical or theoretical evidence. The DC Circuit thus reversed and remanded the horizontal and vertical limits to the Commission.

4. The DC Circuit in Time Warner further reviewed the Commission's cable attribution rules. Whereas the DC Circuit upheld the Commission's general cable attribution benchmarks, the court vacated two of the Commission's rules. Specifically, the DC Circuit vacated the Commission's elimination of the single majority shareholder exemption, which did not attribute minority interests in any cable company in which a single shareholder held more than 50 percent of the outstanding voting stock. The DC Circuit also vacated the Commission's application of the limited partnership insulation rule, that barred an insulated limited partner from selling video programming to the general partner cable company. The DC Circuit found that the Commission did not provide adequate justification for both actions.

5. The FNPRM seeks to implement section 613(f) and to respond to the DC Circuit's concerns, by taking a fresh look at the Commission's cable ownership rules affected by the Time Warner decision. The FNPRM examines the requirements of Section 613(f) and the underlying legislative history, reviews the relevant markets, as those markets existed in and have evolved since 1992, and considers general regulatory approaches. The FNPRM asks commenters to support or contradict these and/or alternative approaches with empirical or theoretical evidence, as well as address the benefits and harms posed by each approach. The FNPRM does not attempt to propose any specific numerical caps and/or mathematical formulations to compute limits. Rather, the objective of the FNPRM is to ask the relevant questions and develop a complete record that ultimately will support a regulatory approach, which fully addresses and takes into account cable operators' market power in today's dynamic communications marketplace.

6. With respect to the horizontal limit, the FNPRM seeks to implement Section 613(f) by examining the state of competition, and cable operators' market power, in the MVPD marketplace. The FNPRM considers two possible regulatory approaches, the open field approach and the threshold/safe harbor approach, as well as invites commenters to suggest alternative approaches. The open field approach, which is the basis for the Commission's horizontal limit reviewed by the D.C. Circuit, restricts market share by capping the size of the largest cable operators to ensure that programming networks have viable alternatives if denied access by large cable operators, individually or collectively. The FNPRM asks commenters to address various issues related to the open field approach, such as the level of subscriber reach programming networks needed for viability, the adequacy of a cap in terms of gauging market power, the actual or predictable presence of collusive anti-competitive behavior amongst large cable operators, and the impact of non-cable outlets such as Direct Broadcast Satellite (“DBS”). In contrast, the threshold/safe harbor approach considers the state of effective competition in the MVPD marketplace, and only enforces regulatory ownership limits if it is determined that such competition has not been achieved. The FNPRM asks commenters to address various issues related to the threshold/safe harbor approach, such as the appropriate measurement of effective competition and market power in the MVPD industry (both in terms of acquisition “upstream” and distribution “downstream” markets), and the regulatory response if effective competition falters or is not achieved.

7. With respect to the vertical limit, the FNPRM seeks to implement section 613(f) by examining significant market trends, such as the increase in channel capacity through the deployment of advanced technologies and system upgrades, the decrease in vertically integrated cable offerings, and the increase in competition from cable and more importantly non-cable sources, such as DBS. The FNPRM asks commenters to address whether these market trends mitigate the congressional concern underlying section 613(f) that cable operators will discriminate against unaffiliated programming networks by favoring affiliated over non-affiliated programming. Specifically, the FNPRM asks commenters to address whether current and anticipated market conditions warrant the modification, exemption or the possible elimination of the vertical limit.

8. Finally, the FNPRM also considers the Commission's conclusions regarding elimination of the single majority shareholder exception and the application of the no-sale aspect of the limited partner's insulation criteria and seeks comment regarding these two provisions of the attribution rules. The FNPRM seeks to examine the underlying rationale of the Commission's prior conclusions, and to determine if those conclusions are still valid. The FNPRM also considers the Commission's elimination of the single majority shareholder exemption in the broadcast and the multipoint distribution service attribution rules, which followed the Commission's elimination of the cable exemption.

Procedural Matters

Ex Parte

9. This proceeding will be treated as a “permit-but-disclose” proceeding, subject to the requirements of § 1.1206(b) of the Commission's rules.

Filing of Comments and Reply Comments

10. Pursuant to applicable procedures set forth in §§ 1.415 and 1.419 of the Commission's rules, interested parties may file comments on or before December 26, 2001, and reply comments on or before January 25, 2002. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies.

11. 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 more than multiple docket or rulemaking numbers appear in the caption of this proceeding, 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 [e-mail], 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.

12. Parties who choose to file by paper must file an original and four copies of each filing. 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, SW., Room TW-A325, Washington, DC 20554. The Cable Services Bureau contacts for this proceeding are Daniel Hodes, Kiran Duwadi, Ava Holly Berland, and Andrew Wise at [phone], TTY [phone], or at [e-mail], [e-mail], [e-mail] and [e-mail].

13. Parties who choose to file by paper must also file one copy of each filing with other offices, as follows: (1) Qualex International, Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554; and (2) Ava Holly Berland, Cable Services Bureau,445 12th Street, SW., 3-A832, Washington, DC, 20554. In addition, five copies of each filing must be filed with Linda Senecal, Cable Services Bureau,445 12th Street, 3-A729, Washington, DC 20554.

Ordering Clause

14. This FNPRM is issued pursuant to authority contained in sections 2(a), 4(i), 303, 307, 309, 310, and 613 of the Communications Act of 1934, as amended.

List of Subjects

47 CFR Parts 21 and 73

• Television

47 CFR Part 76

• Cable television

Federal Communications Commission.

Magalie Roman Salas,

Secretary.