Satellite Television: An Analysis of Legislation Creating Loan Guarantees for Providing Local Broadcast TV Signals

Order Code RL30481

CRS Report for Congress

Received through the CRS Web

Satellite Television: An Analysis of Legislation

Creating Loan Guarantees for Providing Local

Broadcast TV Signals

Updated January 22, 2001

Marcia S. Smith

Specialist in Aerospace and Telecommunications Policy

Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Satellite Television: An Analysis of Legislation Creating

Loan Guarantees for Providing Local Broadcast TV

Signals

Summary

The 106th Congress passed legislation to establish a loan guarantee program to

help ensure that consumers can obtain local broadcast television channels via satellite

or other technologies. Called the “Launching Our Communities Access to Local

Television Act,” or LOCAL, it is Title X of the FY2001 Commerce-Justice-State

(CJS) appropriations bill, enacted as part of the FY2001 District of Columbia (DC)

appropriations bill (P.L. 106-553).

The impetus for the legislation was passage of the Satellite Home Viewer

Improvement Act (SHVIA, see CRS Report RS20425) in 1999, which allowed

satellite companies, for the first time, to offer local network television to their

customers—called “local-into-local” service. A major factor in Congress’ decision to

allow satellites to offer local stations was to increase competition to cable because of

consumer complaints about cable rate increases. The two existing satellite TV

companies, EchoStar and DirecTV, plan to offer local-into-local only to the top

markets in the country, however. Some Members were concerned that consumers in

small and rural markets would not benefit from the new service, while others more

broadly wanted to ensure that consumers in all markets, regardless of size, have

competition to cable. Consequently, a provision was added to SHVIA during

conference in 1999 to offer loan guarantees to satellite and other companies to build

systems to provide local TV stations. The provision was removed before final

passage, however, and House and Senate leaders agreed that new legislation reflecting

the same concerns would be considered by each chamber in 2000.

By mid-April 2000, the House and Senate had passed H.R. 3615 and S. 2097,

respectively. No conferees were appointed. Instead, a modified version was included

in the conference version of the FY2001 DC/CJS appropriations bill as noted above.

Representative Markey expressed concern during floor debate on that version of the

bill on October 26 (Congressional Record, page H11283) over the extent to which

cable companies will be able to apply for the loan guarantees. While the bill contains

some limitations on cable companies, but certain Members wanted stricter

requirements. Generally, the bill is technology neutral.

As enacted, LOCAL establishes a four person Board (Secretaries of Treasury,

Agriculture, and Commerce, and the Chairman of the Federal Reserve) to select

recipients of loan guarantees for up to $1.25 billion in loans (generally, 80% of the

loan may be guaranteed). The loans are to be used to build systems that would ensure

that consumers throughout the country can receive local television signals. The

Board is to take into account whether a project would provide service to “nonserved”

or “underserved” areas and whether it also would provide high-speed Internet access.

The program will be administered by the Rural Utilities Service in the U.S.

Department of Agriculture.

Contents

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Rural Television Loan Guarantee Legislation:

The Launching Our

Communities Access to Local Television Act (LOCAL) . . . . . . . . . . . 4

Major Similarities in House- and Senate-Passed Bills . . . . . . . . . . . . . 5

Major Differences Between the House- and Senate-Passed Bills and How

They Were Resolved in H.R. 4942 . . . . . . . . . . . . . . . . . . . . . . . 7

Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Targeted Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Eligible Companies and Technologies . . . . . . . . . . . . . . . . . . . . . . . . 13

Providing Other Telecommunications Services . . . . . . . . . . . . . . . . . 14

Composition of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Modification to Must Carry Requirements . . . . . . . . . . . . . . . . . . . . 15

Northpoint Technology Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

List of Tables

Table 1. Major Differences Between House and Senate Versions and How They

Were Resolved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Satellite Television: An Analysis of

Legislation Creating Loan Guarantees for

Providing Local Broadcast TV Signals

Background

The Satellite Home Viewer Improvement Act (SHVIA, Title I of the Intellectual

Property and Communications Omnibus Reform Act of 1999, included by cross

reference in P.L. 106-113, the FY2000 Consolidated Appropriations Act) was

enacted in 1999.1 SHVIA allows satellite companies, for the first time, to offer local

network television signals to their subscribers—called “local-into-local.”2 Previously,

satellites could offer only distant network signals originating outside a customer’s

local market area to the very small percentage of households in the United States that

cannot receive network broadcast television any other way (called “unserved

households” or “white areas”).

That restriction had been enacted in 1988 to protect network broadcasters and

their affiliates from having out-of-market signals being brought into their market areas

by satellites, possibly reducing advertising revenue and threatening their economic

viability. Policy makers want to ensure the survival of local television stations so

consumers can watch local news and weather, particularly to receive weather alerts.

During the 1990s, however, Congress and the Administration became concerned

about rising cable rates and sought to increase competition to cable. Satellites were

viewed as one of the most potentially effective competitors, leading to the local-intolocal provisions in SHVIA which would still protect broadcasters through

1

For more information on the debate over SHVIA and its predecessor, the Satellite Home

Viewer Act (SHVA), see CRS Report 98-942, Satellite-Delivered Television: Issues

Concerning Consumer Access to Broadcast Network Television Via Satellite. For

information on what was included in SHVIA and a summary of continuing issues for

Congress, see CRS Report RS20425, Satellite Television: Provisions of the Satellite Home

Viewer Improvement Act (SHVIA) and Continuing Issues for Congress.

2

The phrase “ local-into-local” refers to the fact that the local TV signal is transmitted up to

the satellite and back down into the same local market, instead of to some other market.

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implementation of “must carry” rules3 and hopefully increase competition to cable at

the same time.

As SHVIA was being debated in conference, however, concern arose that the

two U.S. companies that offer direct broadcast satellite (DBS) television today,

EchoStar4 and DirecTV,5 were not planning to offer local programs in all parts of the

country. Instead, they plan to offer local-into-local only to the top markets. There

are 210 “designated market areas” (DMAs) as defined by Nielsen Media Research.6

EchoStar originally said it would offer local-into-local service in the top 67 of these

market areas. Later it said it would serve 33 markets by the end of the year 2000, and

more recently stated that it will serve up to 60 markets with local-into-local after two

more satellites are launched late in 2001.7 DirecTV plans to offer local-into-local to

the top 20 markets. This means that viewers in most DMAs will not receive local

television via satellite. (DirecTV states that the top 20 markets represent

approximately half of U.S. television households, so although most DMAs will not

get local-into-local, a sizeable percentage of households will.)

The decision by the two satellite television companies to offer local-into-local

only in the top markets reflects a blend of economic, technical, and regulatory factors.

For example, there is a satellite capacity limitation involving the amount of spectrum

allocated to the companies by the Federal Communications Commission (FCC) and

the number of orbital locations (“slots”) allocated to the United States by the

International Telecommunication Union for direct broadcast satellite services.

Capacity is also affected by the number of satellites the companies have in orbit or

plan to build and the number of television channels that can be transmitted via each

“transponder” on the satellites. There are 1600 local channels across the country.

The satellite television companies argue that they could not develop a successful

business plan that included building enough satellites to carry all those channels plus

the other channels (HBO, CNN, ESPN, etc.) that customers want. They explain that

3

For more information on “must carry” rules for satellites, which go into effect on January

1, 2002, see CRS Report RS20425. Under SHVIA, the FCC had to issue regulations on

precisely how the must carry rules will apply to satellite companies by November 29, 2000.

According to industry sources, the FCC did adopt such regulations that day, but they are not

yet publicly available. Pursuant to the 1992 Cable Act (P.L. 102-385), cable companies

already are subject to must carry regulations where each cable system must carry any

commercial broadcast television station in a particular market that wants to be carried up to

a certain percentage of the cable system’s capacity. According to the FCC’s cable televison

fact sheet [http://www.fcc.gov/Bureaus/Cable/WWW/facts/csgen.html] , each cable system

with more than 12 channels must set aside one-third of its channel capacity for must carry

stations.

4

EchoStar is headquartered in Littleton, CO. Its Website is [http://www.echostar.com].

5

DirecTV, headquartered in El Segundo, CA, is a unit of Hughes Electronics Corp., which is

a subsidiary of General Motors. Its Website is [http://www.directv.com].

6

The DMAs are listed in Television and Cable Factbook, 1999 Edition, Stations Volume No.

67, Warren Publishing, Inc., Washington, D.C.

7

EchoStar Adds Satellites and Expands Dish Services, Communications Daily, February 24,

2000, p. 4.

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the limited number of viewers in the smaller markets would not garner sufficient

revenue to pay for the additional satellites needed to serve every household. Future

improvements in technology could increase the number of televison channels that can

be transmitted per transponder, but the pace of those technological developments and

the timing and cost of incorporating the technology into new satellites is uncertain.

DirecTV and EchoStar also argue that the must carry rules significantly reduce

the number of markets they can serve with local-into-local because after January 1,

2002, they will have to carry all local signals in any market where they offer any local

signals. Until that date, both satellite television companies are providing only four or

five local channels (typically ABC, CBS, NBC, Fox, and PBS) in each market they

serve with local-into-local. Once must carry goes into effect, they will have to carry

more than 20 channels in large markets such as New York or Los Angeles, using up

capacity on their satellites. They argue that if they could offer only a basic set of local

channels, they could offer those to many more markets. They do concede, however,

that even without must carry they could not serve all 210 markets with local-into-local

because of capacity limits. DirecTV, EchoStar, and the Satellite Broadcasting and

Communications Association filed suit in U.S. District Court, Alexandria, VA, in

September 2000 to have the must carry requirement overturned on First Amendment

and Fifth Amendment grounds. (The cable industry sought to have its must carry

requirements overturned as well, but the Supreme Court ruled in favor of those must

carry requirements in a 1997 decision.)

During deliberations over SHVIA in 1999, DirecTV’s and EchoStar’s plans to

offer local-into-local only to the top markets were widely known. Another company,

Local TV on Satellite (LTVS), had announced plans in 1997 to build two satellites

operating at different frequencies from those used by DirecTV and EchoStar that

would carry only local channels. LTVS had originally said it would provide all 1600

local channels to all DBS providers for distribution to their customers.8 As LTVS

further examined its concept, however, it determined that for economic reasons

similar to those espoused by DirecTV and EchoStar, it could only provide half as

many channels (800), so that only the top 70 markets or so would be served.

Thus, in the fall of 1999, after SHVIA had passed both the House and Senate,

the National Rural Telecommunications Cooperative (NRTC)9 began lobbying for

inclusion of a loan guarantee program through which it could build its own satellite

system for providing local signals to small and rural markets. NRTC was initially

successful and the conference version of SHVIA (H.R. 1554, H.Rept. 106-464)

included a $1.25 billion loan guarantee program for providing local television to areas

that would not be served by existing satellite television companies. The program

would have been administered by the U.S. Department of Agriculture (USDA).

Senator Burns and Representative Boucher are credited with spearheading the effort

to get such language included.

8

Testimony of James Goodmon in: U.S. Congress. House. Committee on the Judiciary.

Copyright Licensing Regimes Covering Retransmission of Broadcast Signals. October 30,

1997. 105th Congress, 1st session. Washington, U.S. Govt. Print. Off., 1999, p. 39-41.

9

NRTC is a not-for-profit cooperative association consisting of approximately 1000 rural

utilities that provide electric or telephone service to rural markets.

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The House passed that conference report, but Senator Gramm objected to the

loan guarantee provision because it had not been included in either the House or

Senate versions of the bill. He also wanted the Senate Banking Committee (which he

chairs) to have an opportunity to consider it. Proponents of the loan guarantee

program agreed to withdraw it from the conference version of the bill on the condition

that legislation on this topic be considered by the House and Senate by the end of

March 2000. A new version of the bill, S. 1948, was thereby crafted, removing the

loan guarantee provision. That bill (for which there is no conference report) was

incorporated by cross reference into the Consolidated Appropriations Bill, which was

signed into law (P.L. 106-113) on November 29, 1999.

Rural Television Loan Guarantee Legislation: The Launching

Our Communities Access to Local Television Act (LOCAL)

Congress passed and the President signed into law on December 21, 2000 the

Launching Our Communities Access to Local Television Act (LOCAL). It creates

a $1.25 billion loan guarantee program, administered by the Rural Utilities Service in

the Department of Agriculture. The loans are for companies to build systems that will

allow consumers, particularly in small and rural markets, to receive local television

signals. The Act is technology neutral, so companies can obtain loans for providing

local TV to consumers via satellite, cable, or other means.

The House and Senate had each passed legislation addressing the loan guarantee

issue: H.R. 3615 and S. 2097. The bills were quite different as introduced, but

became closer as they moved through the respective chambers. Remaining differences

were not resolved by conference, however (no conferees were appointed). Instead,

a new version was included as Title X of the conference report on the FY2001

Commerce-Justice-State (CJS) appropriations act (H.R. 5548), which was enacted

as part of the FY2001 District of Columbia (DC) appropriations act (H.R. 4942),

signed into law December 21, 2000. The following text tracks the evolution of the

final language in H.R. 4942.

Originally, three bills were introduced. On November 19, 1999, Senator Baucus

introduced S. 1980. The bill was based largely on the language that had been

removed from the SHVIA conference report and was referred to the Senate

Agriculture Committee, which oversees USDA. The bill specified that the Rural

Utilities Service (RUS), part of USDA, would be responsible for the program, both

choosing loan guarantee recipients and administering the program. RUS (formerly

the Rural Electrification Administration) administers $42 billion in loans and loan

guarantees for rural electric, telecommunications, water, and wastewater projects.

The Senate Agriculture Committee held a hearing on S. 1980 on February 3, 2000 but

there was no further action on that bill.

H.R. 3615 was introduced by Representative Goodlatte on February 15. As

introduced, it was very similar to S. 1980. It was referred to the House Agriculture,

Commerce, and Judiciary Committees. The House Agriculture Committee held a

hearing on the bill on February 9, and reported it on March 1 (H.Rept. 106-508, Part

I) with few changes. The House Commerce Committee’s Subcommittee on

Telecommunications, Trade and Consumer Protection held a hearing on March 16

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and marked up the bill on March 23. The full Commerce Committee reported the bill

on April 6 (H.Rept. 106-508, Part II). The bill was discharged from the House

Judiciary Committee on March 31 without action. The Agriculture and Commerce

committee versions of the bill were substantially different. Instead of either of those

versions, the House Rules Committee made in order an amendment in the nature of

a substitute (printed in the April 13, 2000 Congressional Record) for debate by the

House. It was close to the House Commerce Committee version of the bill with some

changes making it more similar to S. 2097 (see below), although differences remained.

It passed the House on April 13, 2000.

S. 2097 was introduced by Senators Burns and Gramm on February 24 and it

was referred to the Senate Banking Committee, which had held hearings on the topic

on February 1 and 9. The bill was reported from the Senate Banking Committee

on March 15 (S.Rept. 106-243) and passed the Senate, amended, on March 30.

In the reports accompanying H.R. 3615 and S. 2097, the Congressional Budget

Office (CBO) estimated the cost of H.R. 3615 as reported from the House

Agriculture Committee as $365 million and of S. 2097 as $265 million for loan

subsidy and administrative costs over the 2000-2005 time period, assuming

appropriation of the necessary amounts. It estimated the cost of H.R. 3615 as

reported from the House Commerce Committee as $210 million over the 2001-2005

time period, assuming appropriation of necessary amounts.

The following bullets show the major similarities between the House- and

Senate-passed bills and significant changes, if any, made in the final version as

enacted. The subsequent table describes the major differences.

Major Similarities in House- and Senate-Passed Bills.

! Aggregate amount of loans cannot exceed $1.25 billion.

! Up to 80% of the loan can be guaranteed. In H.R. 3615 and S. 2097, the loan

could have been split into two amounts so that one part (up to 80%) was

100% guaranteed and the remainder was unguaranteed as long as the same

lender provided all the financing. In final version, that provision was changed

so that if only a portion of a loan meets requirements under the Act, the Board

may issue a loan guarantee not exceeding 80% of that amount.

! Term of each loan guarantee is 25 years or the economic usefulness of the

primary assets to be used in the delivery of the signals, whichever is less.

! Recipients of loan guarantees would have been determined by majority vote of

a special three-person Board created for this purpose in H.R. 3615 and S. 2097

(the members were different in the two versions). Final version increases the

number of Board members to four and specified that affirmative votes of three

members was needed to approve an application.

! Loan guarantees are administered by the Rural Utilities Service (RUS), part of

USDA, which also prescribes regulations to implement the Act under the

direction of and for approval by the Board.

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! The Board shall consult such departments and agencies as the Board considers

appropriate.

! The Board must consult with NTIA to determine that a proposed project is not

likely to have a substantial adverse impact on competition that outweighs the

benefits of improving access to signals in an unserved area, and is commercially

viable. Final version uses the term “non-served” instead of “unserved.”

! The Board must consult with OMB on underwriting criteria and on credit risk

premium amounts.

! The Board must also consult with an independent public accounting on

underwriting criteria.

! Loan must be made by an entity engaged in business of commercial lending

(with certain requirements) or a nonprofit corporation, including the National

Rural Utilities Cooperative Finance Corporation, if the Board determines it has

one or more issues of outstanding long-term debt that is rated within the

highest three rating categories of a nationally recognized statistical rating

organization, and, if the Board determines that the making of the loan by such

nonprofit corporation will cause a decline in the debt rating mentioned above,

the Board at its discretion may disapprove the loan guarantee on this basis. No

loan may be made by a governmental entity or affiliate thereof, or by the

Federal Agricultural Mortgage Corporation, or any institution supervised by

the Office of Federal Housing Enterprise Oversight, the Federal Housing

Finance Board, or any affiliate of such entities.

! The Board shall consider certain priority factors (see following table for further

explanation) in determining who shall get loan guarantees, and other factors

including projects that offer a separate tier of local broadcast signals, provide

lower projected costs to consumers of such separate tier, and enable the

delivery of local signals consistent with purposes of the Act by a means

reasonably compatible with existing systems or devices predominantly in use.

! The Board must determine that an applicant has received all necessary and

required regulatory and other approvals, spectrum licenses, and delivery

permissions; that the loan would not be available on reasonable terms and

conditions without a loan guarantee; and repayment of loan can be reasonably

expected.

! GAO shall perform an annual audit of the program.

! Funding is subject to advance appropriations. Authorizes such sums as may be

necessary for FY2001-2006 for the cost of the loans, and for administrative

costs, and appropriations made pursuant to those authorizations remain

available until expended. Final version adds that the Board may accept credit

risk premiums from a non-federal source to cover the cost of a loan guarantee

to the extent that appropriations are insufficient.

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! Sunset date of the Act is Dec. 31, 2006.

Major Differences Between the House- and Senate-Passed Bills and

How They Were Resolved in H.R. 4942. The following table compares the

major differences between H.R. 3615 and S. 2097 as they passed the House and

Senate, respectively. As already discussed, there was no conference on those bills,

but a new version was included in the conference version of the FY2001 CommerceJustice-State (CJS) Appropriations act, enacted as part of the FY2001 District of

Columbia (DC) Appropriations Act, H.R. 4942 (P.L. 106-553).

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Table 1. Major Differences Between House and Senate Versions and How They Were Resolved

(List of acronyms appears at end of table)

Provision

H.R. 3615 (Goodlatte)

As passed by the House

S. 2097 (Burns-Gramm)

As passed by the Senate

H.R. 4942 (DC/CJS Appropriations)

As signed into law (P.L. 106-553)

Purpose

To facilitate access, on a

technologically neutral basis and by

December 31, 2006, to signals of local

television stations for households

located in unserved and underserved

areas.

To facilitate access, on a technologically

neutral basis and by December 31, 2006, to

signals of local television stations and

related signals (including high-speed

Internet access and National Weather

Service warnings), for households located

in unserved areas and underserved areas.

To facilitate access, on a technologically

neutral basis and by December 31, 2006, to

signals of local television stations for

households located in nonserved areas and

underserved areas.

Eligible Technologies and

Companies

No limitation on technologies, but loan

guarantees may not be for extension of

any cable system to any area or areas

for which the operator of such cable

system has a franchise if the franchise

obligates the operator to extend such

system to such area or areas; or the

upgrading or enhancement of the

services provided over any cable

system, unless it is principally

undertaken to extend services to areas

outside the previously existing

franchise area.

No limitation on technologies or companies

No limitation on technologies, but loan

guarantees may not be granted or used for a

project that extends, upgrades, or enhances

the services provided over any cable system

to an area that, as of the date of the

enactment of the Act, is covered by a cable

franchise agreement that expressly obligates

a cable system operator to serve such area.

Composition of Board

Deciding Which Loan

Guarantees to Grant

Three person Board composed of

Secretary of Treasury, Secretary of

Agriculture, and Secretary of

Commerce, or their designees.

Three person Board composed of Secretary

of Treasury, Chairman of the Federal

Reserve, and Secretary of Agriculture, or

their designees.

Four person Board composed of Secretary

of Treasury, Chairman of the Federal

Reserve, Secretary of Agriculture, and

Secretary of Commerce, or their designees.

Approval of loan guarantees requires at

least three affirmative votes.

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Provision

H.R. 3615 (Goodlatte)

As passed by the House

S. 2097 (Burns-Gramm)

As passed by the Senate

H.R. 4942 (DC/CJS Appropriations)

As signed into law (P.L. 106-553)

Additional Authority to

RUS Administrator

No comparable language

Board may delegate to RUS Administrator

authority to grant loan guarantees not

exceeding $20 million.

No comparable language.

Areas Targeted for

Service and Priorities to

Be Used in Determining

Recipients

Cannot be for systems designed

primarily to serve 1 or more of the top

40 DMAs. Priority given first to

systems serving greatest number of

households in unserved areas and the

number of states (including

noncontiguous states), and second to

projects that will serve the greatest

number of households in underserved

areas. Board shall consider the

project’s estimated cost per household

to be served.

Cannot be for systems primarily designed

to serve one or more of the top 40 DMAs.

Priority given first to systems serving

greatest number of households in unserved

areas and the number of states (including

noncontiguous states), and second to

projects that will serve the greatest number

of households in underserved areas. Board

shall consider efficiency in providing

service given the area to be served. To the

maximum extent practicable, the Board

should give additional consideration to

projects which also provide related signals

(including high-speed Internet access and

National Weather Service warnings).

Cannot be for systems designed to serve one

or more of the top 40 DMAs or that would

alter or remove National Weather Service

warnings from local broadcast signals.

Priority given first to systems serving

nonserved areas, and second to systems

serving underserved areas, in each case

balancing projects that will serve the largest

number of households with projects that will

serve remote, isolated communities

(including noncontiguous states) in areas

unlikely to be served through market

mechanisms. Board shall give priority to

those projects providing highest quality

service at lowest cost per household. Board

should give additional consideration to

projects that also provide high-speed

Internet access.

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Provision

H.R. 3615 (Goodlatte)

As passed by the House

S. 2097 (Burns-Gramm)

As passed by the Senate

H.R. 4942 (DC/CJS Appropriations)

As signed into law (P.L. 106-553)

Definitions of Unserved,

Nonserved, or

Underserved Areas

Unserved areas are outside Grade B

contours1 of local TV signals serving a

particular DMA and do not have

access to local TV broadcast signals

from any commercial, for-profit

MVPD.

Underserved areas are outside Grade

A contours1 of local TV signals and

have access to local TV broadcast

signals from not more than one

commercial, for-profit MVPD.

Unserved areas are outside Grade B

contours1 of local TV signals serving a

particular DMA and do not have access to

such signals by other widely marketed

means.

Underserved areas are outside Grade A

contours1 of local TV signals and have

access to local TV broadcast signals from

not more than one commercial, for-profit

MVPD.

Nonserved areas are outside Grade B

contours1 of local TV signals serving a

particular DMA and do not have access to

local TV broadcast signals from any

commercial, for-profit MVPD.

Underserved areas are outside Grade A

contours1 of local TV signals and have

access to local TV broadcast signals from

not more than one commercial, for-profit

MVPD.

Modification to Must

Carry Requirements

Satellite, cable, or other MVPD

provider financed under this Act shall

not be required to carry in a market a

greater number of local broadcast

signals than the number of such signals

carried by the cable system serving the

largest number of subscribers in such

market.

No comparable language.

No comparable language.

Other

FCC shall open a filing period for

accepting applications for TV

translator stations and low-power TV

stations in rural areas.

No comparable language

No comparable language.

[Also has language concerning cellular

telephone service in rural areas, and

prohibiting use of funds provided by

this Act for spectrum auctions.]

[Retains language concerning cellular

telephone service in rural areas. Language in

House version prohibiting use of funds

provided by this Act for spectrum auctions

is not included, but proceeds from loans may

not be used for acquiring licenses for the use

of spectrum in any competitive bidding.]

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Acronyms:

DMA: designated market area

MMDS: multichannel multipoint distribution system

MVPD: multichannel video programming distributor

NTIA: National Telecommunications and Information Administration, part of the Department of Commerce

OMB: Office of Management and Budget

RUS: Rural Utilities Service of the U.S. Department of Agriculture

1

Grade A and Grade B contours can be visualized as circles around a TV station’s transmitter indicating the strength of a signal received within that area. The Grade

A contour is close to the transmitter and reception there is better than in the Grade B contour, but reception within the Grade B contour is deemed acceptable. The FCC

describes these contours as follows: “a quality acceptable to the median observer is expected to be available for at least 90 percent of the time at the best 70 percent of

receiver locations at the outer limits of [Grade A] service. In the case of Grade B service the figures are 90 percent of the time and 50 percent of the locations.” (FCC

Cable Services Bureau, report FCC 99-14, CS Docket 98-201, paragraph 33.)

Prepared by CRS

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Issues

Following is a discussion of the issues that were most contentious between the

House and Senate while the bill was being debated and how they were resolved in the

final version. One of these issues—the extent to which cable companies are eligible

for loan guarantees—remains controversial.

Targeted Consumers.

One of the most significant issues concerned what

consumers are being targeted by the legislation: those who cannot receive any local

broadcast signals; those who can receive local stations only via an over-the-air

(rooftop or “rabbit ear”) antenna; or those who may have access to both over-the-air

broadcasts and cable, but do not have competition to cable for multichannel video

services.

Most households can receive local television today via over-the-air antennas

although the quality of the signal varies. Those that cannot receive any over-the-air

TV signals are termed “white areas” or “unserved households” and represent

approximately 5% of U.S. households according to FCC estimates. In its January

2000 annual report10 on competition in the multichannel video market,11 the FCC

reported that 97% of U.S. television households are passed by cable. Approximately

12.5% receive direct broadcast satellite (DBS) service. 12 Thus only 3-5% cannot

receive television either by cable or over-the-air broadcasts, but a much larger

percentage do not have competition to cable for multichannel video services or do not

receive good quality over-the-air reception.

Determining which consumers are being targeted can have a significant impact

on the desired solution. The loan guarantee proposal emanated from the passage of

SHVIA, one goal of which was to increase competition to cable. Therefore, to some

involved in the debate, the goal of the loan guarantee program was to ensure that all

communities in America had competition to cable. To others, however, it was an

issue of ensuring that consumers can access local news and weather advisories, so

what is needed is systems that will reach those consumers who cannot receive any

local stations or get poor reception via over-the-air antennas. During the early days

of the debate, it was not clear which approach was favored.

If the goal of the legislation had been ensuring competition to cable, then cable

companies probably would not have been eligible for the loan guarantees. The

House-passed version of H.R. 3615 included language added by the House

10

Federal Communications Commission. Annual Assessment of the Status of Competition

in Markets for the Delivery of Video Programming. (FCC 99-418). CS Docket No. 99230. Adopted December 30, 1999; released January 14, 2000. Available at

[http://www.fcc.gov/Bureaus/Cable/News_Releases/2000/nrcb0003.html]. Critics assert that

the FCC report overestimates the number of households passed by cable.

11

Often called “multichannel video programming distribution” (MVPD) services. MVPD

services offer a package of video programming, often including television broadcast

programming, to subscribers for a fee.

12

Another 2.2% receive satellite television over larger “C-band” antennas.

CRS-13

Commerce Committee that placed some limitations on cable company eligibility for

the loan guarantees (see next issue). S. 2097 placed no limits on cable companies.

If the goal was ensuring that consumers could receive local broadcast television

stations regardless of the technology employed, broadcasters could (with FCC

permission) invest in facilities to boost the power of their transmitters to reach more

distant areas. Or “translators” could be used, which pick up a station’s signal, amplify

it, and rebroadcast the signal on another frequency, thus enabling the signal to reach

further. R. Kent Parsons of the National Translators Association testified at the

March 16 House Commerce hearing that the deployment of translators has been

hindered by the lack of opportunities to file at the FCC for licenses13 and the Housepassed version of H.R.3615 included a provision added by the House Commerce

Committee requiring the FCC to open a filing opportunity for translators. The Senate

bill had no comparable provision and it was not included in the final version of the

Act.

Although all the loan guarantee bills as introduced referred to providing local TV

services to “unserved” and/or “underserved” areas, only S. 2097 originally included

definitions of those terms. As passed by the House, H.R. 3615 also defined those

terms. The definition of underserved area was identical in both bills. Underserved

areas are outside Grade A contours14 of local TV signals and can receive local TV

broadcast signals from not more than one commercial, for-profit multichannel video

provider (i.e., cable, satellite, or MMDS). There was a slight difference in the

definition of “unserved area,” however. H.R. 3615 defined an unserved area as one

that is outside the Grade B contour of local TV broadcast stations and does not have

access to local TV broadcast signals from any commercial, for-profit multichannel

video provider. S. 2097 defined it as one that is outside the Grade B contour and that

does not have access to local TV broadcast signals by other widely marketed means.

In the final version, the term “unserved” was replaced with “nonserved” and defined

essentially the way “unserved” was defined in the House bill.

Eligible Companies and Technologies. A number of technologies are

available for providing television to consumers. As discussed earlier, the FCC

publishes an annual survey of competition in the multichannel video marketplace. It

identifies the main multichannel competitors today as cable, direct-to-home satellite

(including Direct Broadcast Satellites and Home Satellite Dishes), Satellite Master

Antenna TV (SMATV, sometimes called “private cable”), and multichannel

multipoint distribution systems (MMDS, sometimes called “wireless cable”). The

report also notes that Local Exchange Carriers and electric utilities may become

competitors in the future, as well as open video systems (OVS) and Internet video.

The report cites broadcast television and home video sales and rental as competitors

to multichannel providers.

13

Testimony of R. Kent Parsons to the House Commerce Committee, Subcommittee on

Telecommunications, Trade, and Consumer Protection, March 16, 2000, unpublished but

available at the Committee’s Web site [http://www.house.gov/commerce].

14

See footnote to preceding table for explanation of Grade A and Grade B contours.

CRS-14

S. 2097 as passed by the Senate was technology neutral, with no limitations on

what technologies or companies can qualify for loan guarantees. The House-passed

version of H.R. 3615 was technology neutral except that it placed certain restrictions

on the eligibility of certain cable companies. Essentially, if a cable company that was

already providing service in a particular area (an “incumbent”) was required by its

franchise agreement with local authorities to provide cable service to certain

households, it could not receive a loan guarantee to meet those requirements. It also

could not obtain loan guarantees to upgrade or enhance its services unless the

upgrade or enhancement was principally undertaken to extend services to consumers

beyond the current franchise area.

Section 1004 (i) of LOCAL, as enacted, states the following:

Limitations on Guarantees for Certain Cable Operators.— Notwithstanding

any other provision of this Act, no loan guarantee under this Act may be

granted or used to provide funds for a project that extends, upgrades, or

enhances the services provided over any cable system to an area that, as of

the date of the enactment of this Act, is covered by a cable franchise

agreement that expressly obligates a cable system operator to serve such

area.

That language was controversial because of its use of the word “expressly” and

the fact that it is limited to franchise agreements in effect at the time of enactment.

Representative Markey stated during floor debate on H.R. 4942 on October 26, 2000,

that this version of the bill —

... guts key provisions that were adopted in the Commerce Committee that

instilled a preference for competition. This bill will not only run the risk of

subsidizing large media companies who do not need taxpayer subsidies, it

has now been changed so that incumbent cable companies who already

provide local TV stations can get a taxpayer subsidy as well. This makes

no sense as a public policy.15

Representative Markey went on to explain that by introducing the phrase

“expressly” to the provision limiting what cable companies are eligible for loan

guarantees, it opened a loophole that allowing many cable companies to obtain

taxpayer backed loans because few cable companies have explicit provisions in their

franchise agreements regarding building out their systems. Also, the final version of

the bill applies only to franchise agreements in effect when the bill was enacted. Thus

as franchise agreements expire and are renewed or negotiated, they will not be

covered by this provision, further permitting incumbent cable companies to compete

for loan guarantees. Representative Markey argued that the language is “bad for

competition, bad for consumers, and unfair to taxpayers.”16

Providing Other Telecommunications Services. Another issue that was

debated was whether the legislation should cover only the provision of local television

15

Congressional Record, October 26, 2000, page H11283.

16

Ibid, page H11284.

CRS-15

signals, or also of other telecommunications services such as high-speed Internet

access. Congress has expressed concern about the formation of a “digital divide”

between citizens who have access to advanced telecommunications services and those

who do not.17 During its February 3, 2000 hearing on S. 1980, the Senate Agriculture

Committee highlighted the interrelationship between the digital divide issue and the

loan guarantee legislation since some of the technologies for providing TV signals

could also be used to provide Internet access.

During floor debate on S. 2097 on March 30, 2000, the Senate adopted a

Baucus amendment that expanded the reach of S. 2097 into the high-speed Internet

access arena. The amendment revised the purpose of the legislation and the priorities

to be considered by the Board in determining recipients of loan guarantees by adding

“related signals (including high-speed Internet access and National Weather Service

Warnings)” to local TV signals. The House-passed version of H.R. 3615 did not

include language about these additional services.

In the final version of LOCAL, as enacted, the Board is directed to take into

account whether a project would also provide high-speed Internet access as a factor

in determining which projects receive loan guarantees.

Composition of the Board. The concept of using a specially created Board

to approve loan guarantees originated in S. 2097. In that bill, the Board was

composed of the Secretary of the Treasury, the Chairman of the Federal Reserve, and

the Secretary of Agriculture, or their designees. Although H.R. 3615 originally would

have assigned the responsibility for selecting loan guarantee recipients to the Rural

Utilities Service, the House Commerce Committee version created a Board similar to

that in S. 2097 and it was included in the House-passed version of the bill. The

language creating the Board originated in a Largent amendment in the nature of a

substitute that was adopted (amended) during markup by the telecommunications

subcommittee. In the original Largent amendment, the Board would have had the

same composition as in S. 2097 except that the Secretary of Commerce was added.

However, during markup the argument was made that having four members opened

the possibility of tie votes. At first, Representative Boucher offered an amendment

to change the manner in which the Board would make decisions from majority vote

to unanimous vote. That amendment failed, following which Representative Boucher

proposed an amendment dropping the Chairman of the Federal Reserve from the

Board to reduce the size of the Board to three while retaining the requirement for a

majority vote. That amendment was adopted.

In the final version of LOCAL, the Board is composed of four members

(Secretaries of Treasury, Agriculture, and Commerce, and the Chairman of the

Federal Reserve, or their designees) and the bill requires that approval of loan

applications be made by affirmative vote of at least three Board members.

Modification to Must Carry Requirements. As discussed earlier, the

satellite TV companies object to the requirement in SHVIA that they follow must

17

For a discussion of that issue, see CRS Issue Brief IB10045, Broadband Internet Access:

Background and Issues, by Lennard G. Kruger and Angele A. Gilroy.

CRS-16

carry rules. They argue that it limits the number of markets in which they can offer

local-into-local by using up capacity on their satellites that could be used for offering

a basic set of local TV channels to more markets. As noted earlier, EchoStar,

DirecTV, and the Satellite Broadcasting and Communications Association have filed

suit to overturn the must carry provision. Others argue, however, that satellites

should have to conform to the same rules as cable or the two would not be competing

on a level playing field. The must carry battle was hard fought during debate over

SHVIA, with a decision that satellites would have to follow those rules, but with a 3year delay. Hence they do not go into effect for satellite TV until January 1, 2002.

During markup of H.R. 3615 by the House Commerce telecommunications

subcommittee, Representative Cox successfully argued that not all local TV stations

needed to be carried by the companies receiving loan guarantees under the bill. He

argued that only those clearly providing local programming should qualify since some

“local” stations (such as home shopping stations) might carry only national content.

His amendment, which was adopted, required that any TV station requesting must

carry status broadcast an annual average of 21 hours per week of local news, sports,

and weather programming.

When the bill reached full committee, however, Representative Tauzin offered

an amendment to the Cox language that was adopted by the committee and included

in the bill as passed by the House. Under the Tauzin version, any company receiving

a loan guarantee would be required to carry no more than the number of local TV

signals as carried by the cable system serving the largest number of subscribers in a

market. As described earlier, cable companies that offer more than 12 channels must

set aside one-third of their channel capacity for must carry stations. Thus, depending

on their size, different cable companies around the country may carry a different

number of local signals. The Tauzin language therefore would have made the

requirements for companies receiving the loan guarantees the same as for cable

companies.

The Senate bill had no comparable provision and it was not included in the final

version of the Act.

Northpoint Technology Ltd. A new provision included in the final version

of LOCAL requires the FCC to choose an independent engineering firm or other

qualified entity to perform tests to determine whether any terrestrial service proposed

by any entity that has filed an application to provide terrestrial service in the DBS

frequency band (12.2-12.7 gigahertz) will cause harmful interference to direct

broadcast satellites. The demonstration must be concluded with 60 days of

enactment, and is subject to public notice and comment for not more than 30 days

thereafter. The law was enacted on December 21, 2000.

This is often referred to as the “Northpoint” provision because a company named

Northpoint Technology is seeking FCC approval to use the DBS frequency band for

terrestrial transmission of television programming and data. Prior to the passage of

SHVIA in 1999, when satellite television companies were not permitted to retransmit

local television signals, Northpoint proposed providing local television signals to

consumers by transmitting them into a special device mounted to the back of a

consumer’s satellite dish. The company asserted that by transmitting into the back of

CRS-17

the dish, its signals would not interfere with the signals being transmitted to the same

dish by a satellite, allowing consumers to get both local television and satellite signals.

To accomplish its plan, Northpoint needed FCC permission to use the same frequency

band used by the satellite television companies. The satellite television companies

objected to Northpoint’s proposal almost from the beginning on the basis that the

signals would indeed interfere with their transmissions.

Although satellites now are permitted to offer local signals, Northpoint has

continued with its proposal and now plans to offer not only local television signals,

but other television signals and possibly data services. Essentially it would provide

services similar to those offered already by MMDS companies (discussed earlier).

MMDS does not operate in the 12.2-12.7 Gigahertz band, so does not pose

interference issues for satellite television companies. Some argue that Northpoint

should have filed for an application in the MMDS band rather than the satellite

television band.

Northpoint’s pending application is for a license to operate in the satellite

television band, however. The FCC opened a Notice of Proposed Rulemaking

regarding Northpoint’s application in early 1999.18 Apparently concerned that the

FCC was moving too slowly, Congress included a provision in SHVIA requiring the

FCC to make a decision within one year of enactment (i.e. by November 29, 2000)

on license applications for facilities that would deliver local television signals to

satellite television subscribers in unserved and underserved local television markets

using spectrum otherwise allocated to commercial use. Northpoint’s proposal fits

within that description. In accordance with SHVIA, the FCC adopted a Report and

Order19 on November 29, 2000, that concluded it is possible for Northpoint-type

systems to share the same frequency band with DBS on a non-harmful basis. The

Commission is seeking comment through a Further Notice of Proposed Rulemaking,

however, on technical sharing criteria and other issues.20 Hence, the Commission

stopped short of issuing a license for Northpoint, but formally opened the door for

discussions on spectrum sharing. Some argue that the spectrum should be

auctioned.21

18

ET Docket No. 98-206, FCC 98-310, published in the Federal Register January 12, 1999,

p. 1786-1789.

19

FCC 00-418, ET Docket No. 98-206.

A press release is available at

[http://www.fcc.gov/Bureaus/Engineering_Technology/News_Releases/2000/nret0014.html]

20

The Report and Order also addressed Northpoint’s ability to coexist with other satellite

systems called NGSOs (Non-Geostationary Satellite Orbits). The NGSO compatibility issue

is outside the scope of this report. The FCC created a new type of service, Multichannel

Video Distribution and Data Service, MVDDS, for Northpoint-type systems.

21

Northpoint and DBS Rivals Begin Legal Wrangling at FCC. Communications Daily, Dec.

4, 2000, p. 6.