FCC Grants Small Systems Relief from Dual Must Carry

On Sept. 4, 2008, the Federal Communications Commission (FCC) voted to automatically exempt two classes of cable systems from carrying digital “must carry” broadcast signals in both analog and high definition digital format. The exempt systems are those with either: (1) capacity of 552 MHz or less; or (2) fewer than 2,500 basic subscribers and not affiliated with Comcast or Time Warner Cable.

Background

In September 2007, the FCC voted to adopt a de facto “dual carriage” regime for a three-year period beginning with the broadcast digital transition on Feb. 17, 2009. The dual carriage regime requires almost all cable systems to carry in high-definition digital format those digital “must carry” stations broadcasting in high definition (in order to meet so-called “no degradation” rules), and to also carry the same signals in analog (so as to ensure that they remain “viewable” on all analog TVs). Although the rules exempted “all digital” cable systems from the duplicating analog carriage requirement, very few cable systems qualify for that exemption today.

The bandwidth cost of dual carriage is particularly daunting for systems with limited capacity. The fixed cost of new antennas, receivers, demodulators, muxing, QAM and RF modulation and other equipment is equally daunting for systems with greater plant capacity, but relatively few customers. At the time of the September 2007 vote, a majority of Commissioners were ready to grant blanket relief for small systems, but the political machinations which have recently surrounded Commission open meetings relegated the small systems to seeking individual waivers (each with a substantial filing fee). Concern among small operators was especially acute because the FCC had already granted relief to their greatest rivals—DBS providers. DBS providers today are not required to carry any local broadcast signals to 3.2 million television households in 37 markets, and are excused from carrying digital broadcasters in high definition in 199 out of 210 Nielsen markets. Many small operators did the math involved in meeting the dual carriage requirements and advised that, without relief, they would probably shut down their systems.

FCC Chairman Kevin J. Martin gradually relented. In an April 2008 speech to the American Cable Association's Annual Summit, Martin announced that he supported an exemption from the new digital simulcasting rules for cable systems with capacity of 552 MHz or less.

But there was no order and much confusion followed about precisely what that exemption would cover and when. One may surmise from today's Order that there was also delay in finding a formulation that would not benefit larger cable companies operating smaller systems.

The Order

The FCC's vote today adopts the long-awaited relief to two classes of systems, without the need for individual waiver: Any channel line up with capacity of 552MHz or less; and any channel line up serving 2,500 basic customers or less. In the latter class, however, the system may not be affiliated with a cable owner serving more than 10 percent of the overall MVPD market, which today means Comcast and Time Warner Cable. The exemptions will sunset on Feb. 17, 2012, unless the Commission decides in the interim to extend that date.

The must carry requirement that remains applicable to these “small” systems is to downconvert the digital broadcast signal to analog and carry it in a manner that can reach all television receivers in subscribers homes without requiring a set-top box. After the over the air DTV transition in February 2009, the cable consumer will be able to tune the channel in analog just as it did before the broadcaster ceased analog broadcasting.

Significantly, the Order emphasizes that cable systems that are not eligible for automatic exemptions can still file for individual waivers, and it establishes an expedited waiver process for systems with fewer than 5,000 subscribers. Under the expedited waiver process, there will be a 10-day comment period and a 5-day reply period, and the Media Bureau is committed to resolving such requests within 30 days of receipt.

The Order does not address several difficult situations. For example, it makes no specific provision for a system that does not qualify for an automatic exemption, but does not offer any HDTV programming (whether broadcast or cablecast). It does clarify, however, that cable systems of any size may carry a digital broadcast station in 480i analog if the station is not broadcasting in high-definition. Although conversion from digital to analog has its own unique costs, this may prove advantageous in some markets.

The ruling does not directly apply to broadcast channels carried under retransmission consent, which typically includes at least ABC, CBS, NBC and FOX. As a practical matter, the FCC's must carry approach is likely to set the standard for such retransmission negotiations.