Fees for Ancillary or Supplementary Use of Digital Television Spectrum Pursuant to Section 336(e)(1) of the Telecommunications Act of 1996

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.

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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

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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

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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

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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

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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 [email protected] and

to Timothy Fain, OMB Desk Officer, 10236

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NEOB, 725--17th Street, N.W., Washington, DC 20503 or via the Internet

to [email protected].

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]

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