Horizontal Ownership Limits

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MM Docket No. 92-264; FCC 98-138]

Horizontal Ownership Limits

AGENCY: Federal Communications Commission

ACTION: Proposed rule.

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SUMMARY: In the Further Notice of Proposed Rulemaking (``Further

Notice''), the Commission seeks comment on possible revisions of the

cable television horizontal ownership rules and the method by which

horizontal ownership is calculated. The Commission seeks comment on

whether, in light of evolving market conditions, the horizontal

ownership limit should remain at 30% of homes passed nationwide by

cable, and also seeks comment on the 35% minority-control allowance.

The Further Notice also seeks comment on whether the Commission should

revise the rules to consider the presence in the market of all

multichannel video programming providers (``MVPDs'') rather than cable

operators alone, and whether to base the limit on actual subscribers

rather than on homes passed. The Further Notice is part of a companion

Memorandum Opinion and Order on Reconsideration which is summarized

elsewhere in this issue of the Federal Register.

DATES: Comments are due on or before August 14, 1998, and reply

comments are due on or before September 3, 1998.

FOR FURTHER INFORMATION CONTACT: John Norton, Cable Services Bureau,

(202) 418-7200.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's

Further Notice of Proposed Rulemaking, MM Docket No. 92-264, FCC 98-138

adopted June 23, 1998, and released June 26, 1998. The full text of

this decision is available for inspection and copying during normal

business hours in the FCC Reference Center (Room 239), 1919 M Street,

NW, Washington, D.C. 20554, and may be purchased from the Commission's

copy contractor, International Transcription Service, (202) 857-3800,

1231 20th Street, NW, Washington, D.C. 20036.

Synopsis of the Notice of Proposed Rulemaking

1. In the Second Report and Order in MM Docket No. 92-264, 58 FR

60135, November 15, 1993 (``Second Report and Order''), the Commission

adopted the horizontal ownership rules, which provide that no person

may hold attributable interests in cable systems reaching more than 30%

of all homes passed nationwide by cable. In the Second Report and

Order, the Commission stated that it planned to review subscriber

limits every five years to determine whether such limits are reasonable

under the prevailing market conditions and whether such limits continue

to serve the objectives for which they were adopted. The rules in

question were adopted in 1993, and the Commission believes that it is

appropriate to review these rules to address intervening changes in the

communications marketplace.

2. In the Further Notice, the Commission seeks comment on whether

30% remains the appropriate horizontal ownership limit in light of

evolving market conditions. The current rules further allow ownership

of additional cable systems reaching up to 35% of cable homes passed,

provided such additional cable systems are minority-controlled. The

purpose of the 35% minority-control allowance was to encourage

diversity of viewpoints by fostering increased minority participation

and ownership in the cable industry, through increased multiple systems

operator (``MSO'') investment in minority-owned cable systems. The

Commission seeks comment on the constitutionality of the minority-

control allowance in light of the Supreme Court's decision in Adarand

Constructors, Inc. v. Pena, 515 U.S. 200 (1995). Recognizing that the

minority-control allowance has never been utilized by any MSO, the

Commission also seeks comment on the effectiveness of this rule and on

the development of alternative rules to promote minority participation

consistent with the standards set forth in Adarand.

3. The Commission also seeks comment on two specific issues

concerning the method of ownership calculation: (1) whether the rules

should consider the presence in the market of all MVPDs rather than

cable operators alone, and (2) whether the rules should be based on

actual subscriber numbers rather than on homes passed. The rules

proposed in the Further Notice would

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provide that, in calculating a cable MSO's market share, the numerator

would consist of the MSO's cable subscribers plus its non-cable MVPD

subscribers, and the denominator would consist of the total number of

cable subscribers plus non-cable MVPD subscribers nationwide. In

addition to these proposed rule changes, the Commission seeks comment

as to whether the method of ownership calculation should be modified in

some way to support cable overbuild competition.

4. In the Further Notice, the Commission recognizes that the MVPD

market has continued to evolve since our adoption of the horizontal

ownership rules. The Commission seeks comment on a proposal to revise

the rules to include alternative MVPDs in the measure of horizontal

concentration in order to reflect the emergence of competitors to cable

in the video marketplace, as well as potential MSO increases in market

power through acquisition of interests in other MVPDs. The Further

Notice seeks comment on whether such a rule revision--recognizing the

impact of all purchasers of video programming, not just cable

operators--would provide a more accurate measure of MSOs' market power.

5. The Commission also seeks comment on whether the proposed

revision of the horizontal ownership rules is consistent with the

Commission's authority under Section 613 of the Communications Act to

``prescribe rules and regulations establishing reasonable limits on the

number of cable subscribers a person is authorized to reach through

cable systems * * *.'' The proposal would result in a sliding or

adjustable cable horizontal ownership limit, under which the number of

subscribers a cable operator is authorized to reach through cable

systems would decrease in proportion with any increase in the number of

subscribers that entity reaches through other MVPD systems. Conversely,

the cable horizontal ownership limit would rise for a cable operator

that reaches fewer subscribers through other MVPD systems. The proposed

rules would impose no limit on the number of subscribers a cable

operator may reach through alternative MVPD systems. These rules also

would not apply to persons who have no attributable ownership interests

in cable systems. The Commission seeks comment on this proposal and on

whether it is consistent with the terms of the underlying statute,

given Section 613's focus on the cable industry and the establishment

of a cable subscribership limit rather than an MVPD subscribership

limit.

6. In the Further Notice, the Commission also seeks comment on the

possibility of changing the method of calculating the basis of the

horizontal ownership limits from potential reach, i.e., number of homes

passed, to actual reach, i.e., number of MVPD subscribers served, in

order to reflect an MVPD's actual purchasing power. In revisiting the

horizontal ownership rules, the Commission seeks comment on whether the

homes passed standard continues to be an accurate measure of horizontal

concentration and market power in today's marketplace, and whether the

easier to measure subscriber standard can be adapted for use in a

fashion that will not require an abrupt halt to the addition of new

subscribers to established cable systems. The Commission asks for

comment on the best method for counting subscribers, including those

residing in multi-dwelling units and commercial subscribers such as

hotels, bars, etc.

7. The Commission seeks comment on whether the greater accuracy

provided by a subscriber based standard outweighs the greater stability

provided by a homes passed standard. With regard to the argument that a

subscriber based standard may have the effect of discouraging

subscriber growth, the Commission seeks comment on whether system

operators would have a sufficient opportunity to anticipate the

approaching limit and to dispose of systems sufficient to stay under

the limit rather than to simply cease the addition of new subscribers.

8. The Commission asks commenters to address whether the proposed

revisions are consistent with the public interest objectives and the

Commission's legal authority under section 613 and 47 U.S.C. Secs. 151,

154, and 303. The Commission seeks comment on whether the proposed

horizontal ownership rules would provide a more accurate measure of

horizontal concentration and market power than the current rules. The

Commission also seeks comment on the practical impact of the proposed

rule changes on MSO ownership and operation. In particular, the

Commission asks that commenters address whether the proposed changes

would place any cable MSO in violation of the 30% horizontal ownership

limit and to provide specific factual information in support of any

such conclusions. The Commission seeks comment on whether it should

develop special rules to address situations where a cable MSO may

exceed the 30% limit as a result of subscriber growth within an

existing area of homes passed. The Commission further invites comment

on any other matters relevant to its proposals and tentative

conclusions.

Initial Regulatory Flexibility Analysis for the Further Notice of

Proposed Rulemaking

9. As required by Section 603 of the Regulatory Flexibility Act, 5

U.S.C. Sec. 603 (``RFA''), the Commission is incorporating an Initial

Regulatory Flexibility Analysis (``IRFA'') of the expected impact on

small entities of any policies or proposals contained in this Further

Notice. Written public comments concerning the effect of the proposals

in the Further Notice, including the IRFA, on small businesses are

requested. Comments must be identified as responses to the IRFA and

must be filed by the deadlines for the submission of comments in this

proceeding. The Commission shall send a copy of this Further Notice,

including the IRFA, to the Chief Counsel for Advocacy of the Small

Business Administration in accordance with paragraph 603(a) of the

Regulatory Flexibility Act.

10. Need for, and Objectives of, the Proposed Rules. The 1992 Cable

Act and subsequent actions to implement it, and Section 11(c) of the

1992 Cable Act in particular, are intended to encourage competition in

the cable industry and prevent the exercise of undue market power by

large cable multiple systems owners. The Commission issues the Further

Notice to obtain comment on whether certain aspects of the Commission's

horizontal ownership rules should be revised to make them more

effective in serving the public interest objectives Congress charged

the Commission with protecting in Section 11(c).

11. Legal Basis. Authority for the actions proposed in this Further

Notice may be found in Sections 1, 4, 303, and 613 of the

Communications Act of 1934, as amended, 47 U.S.C. Secs. 151, 154, 303,

533.

12. Description and Estimate of the Number of Small Entities to

Which the Proposed Rules Will Apply. The RFA generally defines ``small

entity'' as having the same meaning as the terms ``small business,''

``small organization,'' and ``small governmental jurisdiction'' and

``the same meaning as the term `small business concern' under the Small

Business Act unless the Commission has developed one or more

definitions that are appropriate for its activities. 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

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additional criteria established by the Small Business Administration

(``SBA''). Pursuant to 5 U.S.C. Sec. 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.''

13. The SBA has developed a definition of small entities for cable

and other pay television services under Standard Industrial

Classification 4841 (SIC 4841), which covers subscription television

services, which includes all such companies with annual gross revenues

of $11 million or less. This definition includes cable systems

operators, closed circuit television services, direct broadcast

satellite services, multipoint distribution systems, satellite master

antenna systems and subscription television services. According to the

Census Bureau, there were 1,323 such cable and other pay television

services generating less than $11 million in revenue that were in

operation for at least one year at the end of 1992.

14. The Commission has developed its own definition of a ``small

cable company'' and ``small system'' for the purposes of rate

regulation. Under the Commission's rules, a ``small cable company,'' is

one serving fewer than 400,000 subscribers nationwide. Based on our

most recent information, the Commission estimates that there were 1,439

cable companies that qualified as small cable companies at the end of

1995. Since then, some of those companies may have grown to serve over

400,000 subscribers, and others may have been involved in transactions

that caused them to be combined with other cable companies.

Consequently, the Commission estimates that there are fewer than 1,439

small entity cable companies that may be affected by the proposal

adopted in the Notice. The Commission's rules also define a ``small

system,'' for the purposes of cable rate regulation, as a cable system

with 15,000 or fewer subscribers. The Commission does not request nor

does it collect information concerning cable systems serving 15,000 or

fewer subscribers and thus the Commission is unable to estimate at this

time the number of small cable systems nationwide.

15. The Communications Act also contains a definition of a ``small

cable operator,'' which is ``a cable operator that, directly or through

an affiliate, serves in the aggregate fewer than 1 percent of all

subscribers in the United States and is not affiliated with any entity

or entities whose gross annual revenues in the aggregate exceed

$250,000,000.'' The Commission has determined that there are 61,700,000

subscribers in the United States. Therefore, the Commission found that

an operator serving fewer than 617,000 subscribers is deemed a small

operator, if its annual revenues, when combined with the total annual

revenues of all of its affiliates, do not exceed $250 million in the

aggregate. Based on available data, the Commission finds that the

number of cable operators serving 617,000 subscribers or less totals

1,450. Although it seems certain that some of these cable system

operators are affiliated with entities whose gross annual revenues

exceed $250,000,000, the Commission is unable at this time to estimate

with greater precision the number of cable system operators that would

qualify as small cable operators under the definition in the

Communications Act. The Commission is likewise unable to estimate the

number of these small cable operators that serve 50,000 or fewer

subscribers in a franchise area.

16. Description of Projected Recording, Record keeping, and Other

Compliance Requirements. If the horizontal ownership rules are changed,

the Commission may have to change certain cable reporting requirements.

Cable entities also may have to adjust the organization of their

business interests in order to comply with any new rules that the

Commission may adopt.

17. Steps Taken to Minimize Significant Economic Impact on Small

Entities, and Significant Alternatives Considered. The actions proposed

in the Further Notice are intended to ensure that the Commission's

horizontal ownership rules are effective in preventing the exercise of

undue market power by large cable multiple systems owners and promote a

competitive, diverse and fair marketplace. Accordingly, as discussed in

the above descriptions of the proposed rule changes, the approaches

proposed in this Further Notice should promote fairness and diversity

for all cable systems, including the small entities listed above. The

Commission invites comments on these approaches, including comment on

whether alternative approaches will mitigate any unwarranted expenses

incurred by smaller entities by virtue of their size alone.

18. Federal Rules that Overlap, Duplicate or Conflict with the

Proposed Rules. None.

Paperwork Reduction Act

19. The proposals contained herein in the Further Notice have been

analyzed with respect to the Paperwork Reduction Act of 1995 (the

``1995 Act'') and found to impose modified information collection

requirements. Implementation of any new or modified requirements will

be subject to approval by the Office of Management and Budget

(``OMB''). The Commission, as part of its continuing effort to reduce

paperwork burdens, invites the general public to take this opportunity

to comment on the information collection requirements contained in this

Further Notice, as required by the 1995 Act. Comments should address:

(1) 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; (2) the accuracy

of the Commission's burden estimates; (3) ways to enhance the quality,

utility, and clarity of the information collected; and (4) 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.

20. Written comments by the public on the modified information

collection requirements are due August 14, 1998. OMB comments are due

August 31, 1998. Comments on the information collection requirements

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 NEOB, 725--17th Street, N.W., Washington, DC

20503 or via the Internet to [email protected]. For additional

information on the information collection requirements, contact Judy

Boley at 202-418-0214 or via the Internet at the above address.

Procedural Provisions

21. Ex parte Rules--``Permit-but-Disclose'' Proceeding. This

proceeding will be treated as a ``permit-but-disclose'' proceeding

subject to the ``permit-but-disclose'' requirements under

Sec. 1.1206(b) of the rules. 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

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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. Additional rules

pertaining to oral and written presentations are set forth in Section

1.1206(b).

22. Filing of Comments and Reply Comments. Pursuant to applicable

procedures set forth in Secs. 1.415 and 1.419 of the Commission's

Rules, comments are due August 14, 1998, and reply comments are due

September 3, 1998. To file formally in this proceeding, you must file

an original plus four copies of all comments, reply comments, and

supporting comments. If you want each Commissioner to receive a

personal copy of your comments and reply comments, you must file an

original plus nine copies. You should send comments and reply comments

to Office of the Secretary, Federal Communications Commission, 1919 M

Street, NW, Washington, DC 20554. Comments and reply comments will be

available for public inspection during regular business hours in the

FCC Reference Center, Room 239, Federal Communications Commission, 1919

M Street NW, Washington DC 20554.

Ordering Clauses

23. Accordingly, it is ordered that, pursuant to sections 1, 4, 303

and 613 of the Communications Act of 1934, as amended, 47 U.S.C. 151,

154, 303 and 533, notice is hereby given of proposed amendments to the

Commission's rules, in accordance with the proposals, discussions and

statements of issues in the Further Notice and comment is sought

regarding such proposals, discussions and statements of issues.

24. It is further ordered that the Office of Public Affairs

Reference Operation Division shall send a copy of this Further Notice,

including the Initial Regulatory Flexibility Analysis, to the Chief

Counsel for Advocacy of the Small Business Administration.

List of Subject in 47 CFR Part 76

Cable television.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 98-18038 Filed 7-13-98; 8:45 am]

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