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Regulatory Undertow

Tue, 07/31/2001 - 8:00pm
Jeffrey Krauss, President, Telecommunications and Technology Policy

The FCC's "digital must-carry" decision was adopted on January 18, 2001. Bill Clinton was president and William Kennard was FCC chairman. Two days later, George W. Bush became president and Michael Powell was the new FCC chairman. So any future rule interpretations and other loose ends will bear the stamp of the deregulatory Republicans. But considering the January decision was written by the Democrats, the cable industry did very well indeed.

Dual carriage

The major issue was dual carriage. It's not the only issue, but it is the issue that eats up the most channel capacity, a particular problem for small cable systems.

Should a cable system be required to carry both a TV station's analog broadcast and its digital broadcast? Remember that during the transition from analog broadcasting to digital, TV stations will be broadcasting two different signals, on two different channels, one analog and the other digital. The transition ends when 85 percent of households can receive digital broadcast signals, but the FCC has not yet defined exactly what that means. Nobody expects the 85 percent threshold to be reached by 2006, which was the FCC's earlier prediction. So dual carriage, if it had been required, could have lasted for years and years.

Anyway, the FCC's answer in January was that the law did not make dual carriage mandatory, and therefore it was up to the FCC to decide whether dual carriage should be required or not. The FCC rejected both the broadcast industry position that dual carriage was mandatory under the law, and the cable industry position that it was prohibited under the law.

The FCC recognized that there are economic implications. Every broadcast station that a cable system carries takes a channel away from a cable programming service. For analog television, the law requires that cable systems devote up to one-third of their capacity to carrying commercial broadcast stations, with lesser requirements for very small cable systems. The Supreme Court eventually decided that the analog must-carry regulations were acceptable. The one-third requirement was not so stringent that it deprived cable subscribers of access to the cable programming they want, nor deprived operators of their First Amendment editorial rights over which programming services they could carry.

But dual carriage goes too far. In January, the FCC tentatively decided that requiring dual carriage would deprive cable subscribers of access to programming they wanted, and this might cause them to drop their cable subscriptions. And it would deprive operators of their First Amendment editorial rights.

The January decision was only a tentative decision, in the sense that it depended on the FCC's incomplete knowledge of cable system channel capacity. And so the FCC issued a further notice, asking for additional information on cable system channel capacity. Rather than considering special rules for small cable systems in January, the FCC said that it would await updated information on channel capacity, and it issued a channel capacity survey to the 16 largest cable operators, which serve 80 percent of cable households.

The other 3,000 or so cable operators, which serve the remaining 20 percent of households, are probably smaller in channel capacity, and therefore more harmed by a dual carriage requirement, than the cable systems that were surveyed. These small cable operators should be smart enough to report their channel capacity and argue the harms of dual carriage to the FCC without needing a survey form.

So there probably won't be a final decision from the FCC on dual carriage until early 2002, after the staff has had a chance to review the channel capacity data. And this Republican-controlled FCC will be even less likely than the January FCC to impose new regulations that give a victory to the broadcasters. But whatever the final decision, it will be at this point that the FCC might adopt different rules for smaller cable systems than for larger systems.

Even though mandatory dual carriage isn't likely to be the final result, that doesn't mean you won't see any dual carriage. Commercial TV stations are legally entitled to negotiate "retransmission consent" deals with cable systems, and some of those deals will undoubtedly include dual carriage. But that would result from private contract negotiations, not government rules.

Of course, these negotiations are not always between parties with equal bargaining power. In fact, broadcast station owners that also own cable programming services, like Fox, NBC and Disney, have been accused of using their leverage unfairly in retransmission negotiations, particularly involving smaller cable systems. But that's a subject for a different article.

Primary video and program-related material

There are two other cable victories in the January decision. The first deals with the "primary video" and the second deals with "program-related material." These will be important after the transition, when all the broadcast signals are digital.

A digital TV broadcast channel covers 6 MHz of bandwidth and carries a digital data rate of 19 megabits per second. That's enough for one high definition TV (HDTV) program, or multiple standard definition (SDTV) programs. And a broadcaster is now allowed to transmit multiple SDTV programs, even though the FCC's original goal was to promote HDTV.

So one question that the FCC answered in its January decision was whether a cable system was required to carry all of the SDTV programs in the broadcaster's signal. The answer was "no." Only the "primary video" has to be carried. So if the broadcaster adopts a business model with one free SDTV program and several scrambled SDTV movies, undoubtedly, the one free program would be the "primary video." The FCC did not make up this concept of primary video; it was part of the 1992 Cable Act. But the FCC did interpret it to mean only one program of the multiplex of SDTV programs had to be carried.

Broadcasters are very unhappy about this, because it allows cable operators to delete material from a broadcaster's signal. So broadcasters have asked for reconsideration, and will probably go to court if they lose.

The FCC did not say exactly how this part of the decision is to be implemented. How does the broadcaster tell the cable operator which program is the "primary video?" That still has to be worked out.

There are some practical concerns. In principle, the cable operator can select the "primary video" from each of four or five TV stations and remultiplex them into a single digital channel on cable. But suppose a broadcaster transmits one HDTV program during part of the day and multiple SDTV programs during other times. How is the cable operator to know in advance whether to allocate 4 Mbps or 19 Mbps to a broadcaster's primary video? In a sense, the bandwidth or data capacity assigned to carry each TV station must be like a rubber band, expanding and contracting from time to time during the day. These issues can be worked out in retransmission consent negotiations, but for mandatory must-carry, the FCC might have to create rules.

The cable industry also won in the dispute over carriage of "program-related" material. Some of the data that a broadcaster puts into a 6-MHz data stream relates to the program being broadcast, such as closed captioning data. But program guide data that is carried now but describes tomorrow's programming is not related to the program now being broadcast. The FCC said that only information related to the current program is subject to a must-carry requirement. Cable operators are free to strip out ancillary or supplementary information that is not related to the program being carried. This particular victory was expected, because it is a reaffirmation of a longstanding policy that applied to the vertical blanking interval of an analog TV signal, which was then incorporated into the law. However, as a practical matter, it might not be worthwhile for a cable operator to tunnel into a digital broadcast signal and remove the ancillary information. It will depend on equipment costs, but the equipment to do this hasn't reached the market yet.

The Democrats gave the cable industry a big victory in the January must-carry decision. The Republicans that now control the FCC are even more deregulatory in their philosophy, and even less likely to impose heavy burdens on the cable industry. But there are still some issues in play, some issues that won't be finally decided until early next year, and the broadcasters have not capitulated, not even a little.

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