FCC Completes Final 3 Rulemakings under the Satellite Home Viewer Improvement Act

I. GRADE B SIGNAL STANDARD: FCC RECOMMENDS MINOR MODIFICATION TO STANDARD FOR DETERMINING SATLLITE SUBSCRIBER ELIGIBILITY FOR RECEIVING DISTANT NETWORK BROADCAST SIGNALS

II. MUST CARRY: FCC ADOPTS NEW MUST CARRY RULES FOR SATELLITE CARRIAGE OF LOCAL BROADCAST SIGNALS EFFECTIVE JANUARY 2002

III. SPECTRUM SHARING: DBS CARRIERS MUST SHARE SATELLITE SPECTRUM WITH OTHER CARRIERS

One year after Congress enacted the Satellite Home Viewer Improvement Act (“SHVIA”), the FCC fulfilled its final rulemaking obligations by issuing three reports and orders at the end of last month. On November 29, 2000, the Commission released its report recommending that Congress retain the Grade B standard for determining satellite subscribers’ eligibility to receive distant networks (the “Grade B Report”). The next day the Commission released its Report and Order implementing the new satellite broadcast signal carriage rules (the “Must Carry Order”). Then, on December 8, the Commission released its First Report and Order permitting non-geostationary satellite orbit (“NGSO”) fixed-satellite service (“FSS”) providers to share spectrum with incumbent service providers over the objection of the DBS carriers (the “Spectrum Sharing R&O”). The Commission simultaneously issued a further Notice of Memorandum Proposed Rulemaking (“Further NPRM”) to address technical spectrum sharing criteria as well as other service and licensing rules.

The FCC has already issued orders regarding: retransmission consent requirements for satellite carriage of local broadcast signals (requiring good faith negotiations and prohibiting exclusivity); establishment of an improved model for predicting the broadcast television field strength received at individual locations (formally adopting the Longley-Rice measurement parameters); and application of network nonduplication, syndicated exclusivity, and sports blackout rules governing the delivery of satellite retransmitted superstations and distant network stations to direct-to-home satellite subscribers (see our advisory dated November 9, 2000). ¹

I. GRADE B SIGNAL STANDARD – ELIGIBILITY FOR DISTANT NETWORKS

As required by SHVIA, the Commission issued a report to Congress on November 29, 2000 recommending that the Grade B signal intensity standard be retained for determining whether a satellite subscriber is eligible to receive distant network signals under the compulsory copyright license provided in Section 119 of the Copyright Act.² The Grade B standard and the predictive model used to determine Grade B signal strength have been the subject of much debate from the time the first injunction was issued against PrimeTime 24 in July, 1998 through the enactment of SHVIA (see our advisories of July 15, 1998 and December 7, 1999). While the Grade B controversy prompted new methodologies for both measuring and predicting signal strength at individual households to determine whether a household can receive network broadcasts off-air, the criteria used in determining Grade B signal intensity parameters were not altered at that time.

The current Grade B signal reception standard was established in the early 1950s.³ The Commission considered each of the nine basic planning factors individually and found that six of the factors needed no adjustment at all.⁴ The Commission found that the signal-to-noise ratio factor and receiver noise figure had “potential for improvement,” but that studies necessary to arrive at new values for these factors would be costly and time consuming. Moreover, any adjustment to those two factors would probably be offsetting and the Commission therefore recommended leaving those values intact. The only modification that the Commission ultimately recommended was determining the time fading values for the actual receive location by the Individual Location Longley-Rice prediction model instead of using existing fixed values. The Commission predicts that this change will have the effect of increasing the eligible households located along the “fringe” of the Grade B contour, with a slight decrease in eligible households located in difficult reception areas closer to the broadcast station’s transmission tower.

Although multipath distortion, or “ghosting,” is not currently used as a factor in determining Grade B signal strength, the satellite commenters suggested that it should be considered for purposes of determining subscriber eligibility. The Commission, however, rejected this proposal, finding that the proper use and orientation of antennas minimizes the ghosting phenomenon. The Commission also declined to adopt a distant network signal eligibility standard for digitally broadcast television signals “until such time as it becomes clear that such a standard is actually needed.”

II. NEW SATELLITE MUST CARRY RULES FOR LOCAL BROADCASTS

On November 30, 2000 the Commission issued its Report and Order adopting satellite broadcast signal carriage rules, otherwise known as the satellite “must carry” rules (the “Must Carry Order”). These rules were implemented pursuant to Section 338 of the Communications Act of 1934 (added by SHVIA), with the directive from Congress that the satellite must carry rules should be “comparable” to cable carriage requirements.⁵ Section 338 requires satellite carriers to “carry upon request” all local television broadcast stations’ signals in areas where the satellite carriers are providing any local signals to subscribers under the copyright license established in Section 122 of the Copyright Act (added by SHVIA – see our advisory dated December 7, 1999). Under SHVIA, satellite carriers must have obtained retransmission consent to carry local television stations on or before May 29, 2000, but will not have to comply with any must carry rules until January 1, 2002.⁶ The Must Carry Order also adopted election cycle rules and other related policies that could only be implemented after the adoption of satellite must carry rules.

A. Election Cycles and Initiating Carriage

The first election cycle for broadcasters commences January 1, 2002 and ends December 31, 2005. The four-year timeframe was established to align the satellite and cable election cycles by 2005, allowing local television stations to make their retransmission consent/mandatory carriage elections for cable and for satellite on the same cycle. For the first election cycle, a television broadcast station located in a market where local-into-local service is provided must notify a satellite carrier of its carriage intentions by July 1, 2001. A satellite carrier must respond to a television station’s carriage request by August 1, 2001 and state whether it will accept or deny the carriage request. Any time a satellite carrier denies a local station’s carriage request, it must do so in writing and state its reasons for the denial.

For the second election cycle and all cycles thereafter, the same timeframes that apply to cable will apply to satellite: a commercial television broadcast station must make its election by October 1st for the election cycle beginning the following January 1st. Satellite carriers will then have 90 days prior to the new election cycle to negotiate retransmission consent agreements. If a satellite carrier begins providing local-into-local service in a new market during an election cycle, the election cycle starts when the carrier begins the providing service and ends on the date the then current cycle would end under the Commission’s rules. Although local television broadcast stations must make consistent elections for cable operators in the same market, broadcasters are not required to make consistent elections among satellite carriers and cable operators, or even among separate satellite carriers.

After July 1, 2001, a satellite carrier must provide notice to the local television stations at least 60 days before the date it intends to provide local television service in a new market as well as the location of the local receive facility in that particular market. A local television station must then provide its election, in writing, within 30 days of receipt of the satellite carrier’s notice. The satellite carrier then has 90 days after receipt of the election letter to negotiate carriage and resolve any other issues necessary to commence carriage of the local television station, or it can deny carriage (for valid reasons) within 30 days of receipt of the station’s election.

New television stations must make their initial elections between 60 days before to 30 days after commencing broadcast. Satellite carriers shall commence carriage within 90 days of receiving a carriage request or whenever the new television station provides over-the-air service, or they can deny carriage (for valid reasons) within 30 days of receiving the new station’s election notice.

B. Market Definitions

Satellite carriers will be required to use Nielsen’s 1999-2000 DMA market assignments to initially determine their carriage obligations. Markets will then be updated triennially, for each election cycle. Additionally, satellite carriers may adjust markets based upon county additions found in annual editions of Nielsen DMA market assignment publications, “if that is what is desirable.” For instance, if a subsequent Nielsen publication expands a market, then the satellite carrier can add local-into-local service to the additional communities. However, if Nielsen removes a county from a DMA after local-into-local service has been established, the satellite carrier may nonetheless continue to provide grandfathered service to that county. The term “local market” for satellite carriage purposes includes all counties within a market, as well as the county in which the station’s community of license is located.

Unlike cable, the Commission will not establish a market modification policy for satellite carriers because SHVIA does not permit the Commission to change the shape of a television market. The Senate version of SHVIA contained a market modification provision, but that was ultimately rejected by Congress. However, Section 338 does not require a satellite carrier to serve an entire market. Therefore, if a satellite carrier is using a “spot beam satellite” to provide local-into-local service to part of a DMA, then it must only comply with the must carry rules for the areas where it actually provides local-into-local service.

C. Satellite Carrier Receive Facilities

Section 338 established “local receive facilities” as the point where satellite carriers collect local signals (like a cable operator’s principal headend) before retransmitting them via satellite. Satellite carriers designate the placement of local receive facilities and television broadcast stations are required to bear the cost of delivering a good quality signal to those facilities. The satellite carrier has the sole responsibility to pay for the costs of building and maintaining its receive facilities.

In larger DMAs, where broadcast stations may be required to provide their signals over hundreds of miles, if the receive facility is located beyond a local commercial or non-commercial television station’s Grade B signal, a satellite carrier may establish another receive facility, or an “alternative receive facility,” if the location is acceptable to at least one-half the stations.⁷ The "50 %" calculation is based on the majority of stations entitled to carriage in each affected market, whether they elect mandatory carriage or retransmission consent, and all stations may participate in the consideration of whether an alternative receive site is acceptable, whether or not that station will ultimately be carried. If a satellite carrier has both a designated local receive facility and a non-local or alternative regional receive facility and can accommodate local stations for retransmission into their local markets at either facility, the television station may choose which facility it wishes to use.

Generally, a satellite carrier may relocate the designated local receive facility every three years coinciding with the election cycle, with 60 days advance notice to all local stations. However, if a satellite carrier decides to move its local receive facility during an election cycle, it must pay the television stations’ costs of delivering a good quality signal to the new location. If the satellite carrier moves an alternative facility, the new location must be acceptable to at least half of the local stations entitled to carriage in the local market, which may require more than 60 days notice.

D. Good Quality Signal

The Commission has applied the current “good quality signal” standards applicable in the cable context to satellite carriers. As in the cable context, television stations may use any delivery method (microwave transmissions, fiber optic cable, telephone lines) to improve the quality of their signals delivered to the satellite carrier, as long as they pay for the costs of such delivery mechanisms. Satellite carriers may refuse to carry the signal of a local television station that fails to provide a good quality signal to the local receive facility until the television station voluntarily pays for and provides a good quality signal. The signal testing practices used in the cable carriage context will be generally applied in the satellite carriage context, and the broadcast station will be required to pay for signal tests.

E. Duplicating Signals

Section 338 provides that a satellite carrier does not have to carry duplicative signals of television stations in the same markets unless the stations at issue are network affiliates licensed to different states but located in the same market. The Commission adopted the existing cable duplication standard for satellite carriers. Further, a satellite carrier is not required to carry more than one network affiliate in a television market when both affiliates are licensed to communities in the same state, even if their signals do not duplicate.

F. Noncommercial Educational Television Station Carriage Issues

SHVIA instructs the Commission to implement Noncommercial Educational station (“NCE station”) carriage requirements that provide the same degree of carriage by satellite carriers as required of cable systems under Section 615 of the Communications Act. Section 615 requires cable systems with more than 36 channels to carry all non-duplicative NCE stations. Because all of the satellite carriers offer more than 36 channels, they must carry all non-duplicative NCE stations in markets where they provide local-into-local service.

NCE station carriage is, however, limited by the duplication provision. The Commission adopted a two-step approach to determine whether a satellite carrier can deny carriage of an NCE station based on duplicative programming. First, an NCE station substantially duplicates the programming of another noncommercial station if it simultaneously broadcasts the same programming as another NCE station for more than 50% of prime time and more than 50% outside of prime time over a three-month period. After three noncommercial television stations are carried, the test moves to whether more than 50% of prime time programming and more than 50% outside of prime time programming is duplicative on a non-simultaneous basis.

Satellite carriers will not be permitted to include NCE stations, carried under Section 338, in the calculation of the 4% set-aside requirements contained in the satellite public interest provisions of Section 338. Additionally, satellite carriers may not avoid their local NCE station carriage obligations by carrying the national PBS satellite feed. The statutory copyright license for the PBS feed expires on January 1, 2002—the same date satellite carriers must comply with the must carry rules.

G. Channel Positioning

Section 338(d) of the Act requires satellite carriers to carry local stations on contiguous channels. The Commission’s rules require satellite carriers to carry all local television stations, including both retransmission consent stations and mandatory carriage stations, in a “block” on the satellite carrier’s channel line-up. There may be vacant channels within the local channel line-up (consistent with DirecTV’s “neighborhood” approach), but non-local programming may not interrupt the local channel “block.” The Commission rejected NAB’s proposal that the television stations be listed in the same order as their over-the-air channel numbers.

Satellite carriers must offer all local television signals at comparable rates, whether they are offered pursuant to retransmission consent or mandatory carriage, but the local television signals may be sold as a package or á la carte. There is no requirement that all local television stations be sold as one package to subscribers. Further, satellite carriers are barred from requiring subscribers to purchase additional equipment if television stations from one market are segregated and carried on separate satellites. However, satellite carriers are not prohibited from requiring a subscriber to pay for an additional dish in order to receive all television stations from a single market. These provisions imply that a satellite carrier may offer the major networks in one package and additional networks in a separate package or on an á la carte basis, or even from a different satellite location that would require a separate dish.

H. Content To Be Carried

The current cable content-to-be-carried requirements have been extended to satellite carriers. Therefore, satellite carriers must carry the program-related vertical blanking interval information, including closed captions, Nielsen rating codes and V-chip information, as well as any secondary audio programming material. The criteria and analysis for determining “program-related material” that have been established and used in the cable context will also apply in the satellite context.

I. Material Degradation

The Commission declined to adopt specific picture quality standards, stating that it has not had a significant opportunity to evaluate satellite delivery of broadcast signals. Instead, the Commission adopted a comparability rule: (1) a satellite carrier must treat all local television stations, whether retransmission consent stations or mandatory carriage stations, in the same manner with regard to picture quality, and (2) the degradation resulting from processing these stations must not exceed the level for the lowest quality non-broadcast video service provided by the carrier. The Commission also declined to adopt one specific technique for measuring degradation, opting instead to develop a uniform measurement over time while gaining experience with satellite broadcast signal carriage.

J. Digital Television

The Commission declined to implement any digital must carry rules for satellite carriers until it issues digital television rules for cable. The satellite carriers have aligned themselves with the cable industry and have opposed the broadcast industry’s recommendation to impose mandatory digital broadcast signal carriage rules.

K. Compensation For Carriage

The current compensation rules applicable to cable operators likewise apply to satellite carriers.

L. Remedies

If a television station is not being carried and seeks damages or other specific forms of monetary or injunctive relief under either Section 338(a) of the Act or Section 501(f) of the Copyright Act, then a federal district court is the exclusive forum for adjudicating the complaint. If the television station seeks carriage pursuant to Section 76.66 of the Commission’s rules (the satellite broadcast signal carriage rules), then it may file a complaint with the Commission. The Commission shall have primary jurisdiction over issues concerning (1) good quality signal; (2) substantial duplication; (3) channel position; and (4) compensation matters. The Commission will also adjudicate complaints concerning the material degradation and content-to-be-carried provisions. A television station must file its complaint within 60 days after a satellite carrier denies the station’s carriage request.

III. SPECTRUM SHARING ORDER

On December 8, 2000 the FCC issued its Spectrum Sharing Order after conducting a rulemaking pursuant to the “Rural Local Broadcast Signal Act” passed in conjunction with the SHVIA legislation.⁸ The Rural Local Broadcast Signal Act required the FCC, among other things, “to make a determination regarding licenses or other authorizations for facilities that will utilize, for delivering local broadcast television signals to satellite television subscribers in unserved and underserved local television markets, spectrum otherwise allocated to commercial use.” As a result, the Commission authorized a new service, Multichannel Video Distribution and Data Service (“MVDDS”) that will be capable of delivering local broadcast television station signals to satellite subscribers in unserved and underserved local television markets. (The DBS carriers have announced local broadcast service in 42 of the top 60 television markets and will likely limit further expansion.) This service will share spectrum in the 12.2 – 12.7 GHz band with existing DBS providers. The Spectrum Sharing Order also gives SkyBridge the go-ahead to use Ku-Band spectrum for a non-geostationary satellite service under the rules adopted in the Spectrum Sharing Order.

The MVDDS portion of the Commission’s ruling was controversial among the satellite industry, as DBS providers have claimed that MVDDS will interfere with their signals. While the Commission found that both MVDDS and DBS could operate in the same spectrum without causing “harmful interference,” it admitted that there might in fact be interference, degradation or occasional outages as a result of the spectrum sharing. To minimize this effect, the FCC intends to develop operating requirements and service rules for MVDDS operators. These rules and requirements are the subject of a Further Notice of Proposed Rulemaking designed to ensure that DBS services are not seriously degraded or subject to repeated interruptions due to MVDDS operations.

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If you would like copies of any of the orders or reports discussed in this memorandum, or have any questions concerning the issues, please contact us.

FOOTNOTES

1 EchoStar filed a petition for reconsideration of the program exclusivity rules on December 14, 2000 asking the FCC to relax the rules for superstations. Echostar requested the Commission to reconsider the 120 day phase-in period and the “impracticably short notice periods” for compliance with superstation sports blackout rules and the imposition of sports blackout rules on all network stations. In a separate two-page filing, DirecTV urged the Commission to exempt satellite retransmitted network stations from sports blackout requirements or, alternatively, to lengthen the notification period.

2 Section 119 was established by the Satellite Home Viewer Act of 1988 (“SHVA”) for all Direct-To-Home (“DTH”) satellite services (high power direct broadcast satellite (“DBS”) and low power C-band services). SHVA allows satellite carriers to deliver distant broadcast network and superstation signals to DTH subscribers upon payment of specified royalty fees. However, in order to protect local broadcast network affiliates, satellite carriers could only provide major broadcast network signals (ABC, CBS, NBC, and Fox) to households in “unserved” areas. A household was deemed “unserved” with respect to a particular network if, by use of a conventional rooftop antenna, it could not predictably receive an off-air signal from a local network affiliate of at least “Grade B” intensity (subject to actual testing).

3 While Grade B measurements are applied by the FCC for many rules, such as syndex, must carry, cross-ownership, and (in slightly different format) Digital TV allocations, the Commission was addressing the use of the Grade B standard in this Report only with respect to subscriber eligibility to receive distant network signals.

4 These factors include thermal noise, transmission line loss, receiving antenna gain, dipole factor, terrain factor, and urban noise.

5 The Satellite industry filed a civil action in federal court in Alexandria, Virginia claiming that Section 338 is unconstitutional for violating the First and Fifth amendments, as well as the Copyright clause of the U.S. Constitution. Earlier decisions, however, have upheld the cable must carry rules in the face of similar constitutional challenges. See Turner Broadcasting System, Inc. v. FCC, 114 S.Ct. 2445 (1994); Turner Broadcasting System, Inc. v. FCC, 117 S.Ct. 1174 (1997).

6 A satellite carrier can only avoid the must carry obligations in Section 338 if (in the unlikely event) it is providing local television signals pursuant to private copyright arrangements outside of Section 122. If a satellite carrier is relying on this exemption, the retransmission agreement must clearly provide for all necessary copyright clearances.

7 This does not mean that half of the television broadcast stations can unilaterally select a site and then demand that a satellite carrier construct an alternative receive facility. The satellite carrier is to be an active participant in the negotiation of any alternative receive site, and the Commission expects that in most cases the satellite carrier will propose establishing an alternative receive facility.

8 The rulemaking was also in response to earlier petitions filed by Northpoint and SkyBridge.