**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

In the Matter of )

)

Fees for Ancillary or Supplementary ) MM Docket No. 97-247

Use of Digital Television Spectrum )

Pursuant to Section 336(e)(1) of the )

Telecommunications Act of 1996 )

**MEMORANDUM OPINION AND ORDER**

**Adopted: November 19, 1999 Released: November 24, 1999**

By the Commission:

**I. INTRODUCTION**

1\. In our *Report and Order* in this proceeding,[^1] we implemented
Section 201 of the Telecommunications Act of 1996 (\"1996 Act\") which
adopted Section 336 of the Communications Act of 1934, requiring
broadcast television licensees to pay a fee if they provide certain
types of ancillary or supplementary services on their digital television
(\"DTV\") bitstream. Based on the criteria set forth in Section 201, we
adopted rules to require DTV licensees to pay a fee of five percent of
the gross revenues received from the provision of such \"feeable\"
ancillary or supplementary services. We also provided guidance on which
services are subject to this fee and specifically concluded that home
shopping, infomercial, and direct marketing services would not be
feeable.

2\. We have received two petitions asking us to reconsider aspects of
the *Report and Order*. The National Association of Broadcasters and the
Association for Maximum Service Television have filed a joint petition
(the \"NAB/MSTV Petition\") asking us to set the fee at two percent of
gross revenues rather than five percent. The Office of Communication
Inc. of the United Church of Christ, the Benton Foundation, the Center
for Media Education, the Civil Rights Forum and Media Access Project
have filed a joint petition (the \"UCC, *et al.* Petition\") asking us
to hold that home shopping, infomercials, and direct marketing services
are subject to fees. We deny both petitions for reconsideration.

**II. BACKGROUND**

3\. Pursuant to the 1996 Act, the Commission has assigned each existing
broadcast television station an additional channel to convert to digital
technology. We are requiring broadcasters to provide on their DTV
bitstream at least one over-the-air video program signal at no direct
charge to viewers.[^2] Aside from this requirement, we have given
broadcasters great flexibility in the services they provide over their
DTV bitstream. They may offer a wide range of ancillary or supplementary
services such as computer software distribution, data transmission,
teletext, interactive materials, aural messages, paging services, audio
signals, and subscription video.[^3]

4\. The 1996 Act requires broadcasters to pay a fee to the U.S. Treasury
to the extent they use their DTV bitstream to provide ancillary or
supplementary services \--

\(A\) for which the payment of a subscription fee is required in order
to receive such services, or

\(B\) for which the licensee directly or indirectly receives
compensation from a third party in return for transmitting material
furnished by such a third party (other than commercial advertisements
used to support broadcasting for which a subscription fee is not
required).[^4]

The 1996 Act directed the Commission to establish a program to assess
and collect this fee based on the following three objectives:

• \"to recover for the public a portion of the value of the public
spectrum resource made available for such commercial use\";

• \"to avoid unjust enrichment through the method employed to permit
such uses of that resource\";

• to \"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 had such services been licensed pursuant
to \[the competitive bidding process.\]\"[^5]

5\. In the *Report and Order*, we established a fee program that
requires broadcasters to pay a fee of five percent of the gross revenues
they receive from feeable ancillary or supplementary services offered on
their DTV bitstream. We reasoned that this fee is consistent with the
three objectives set forth in the Act. It also represented a reasonable
fee in light of the record in the proceeding, in which some parties
argued for a very low or nominal fee and others for a fee of more than
ten percent.

**III. THE NAB/MSTV PETITION**

6\. NAB/MSTV argue that we failed to consider two studies they submitted
that they believe call for a fee of two percent of gross revenues rather
than five percent. The first study, prepared by Jerry Hausman, purports
to establish \"the low and declining value of comparable spectrum,\" and
also that digital ancillary or supplementary services \"face significant
business and technological uncertainty.\"[^6] The second study, prepared
by Kent Anderson, describes several surveys of technology licensing fees
in the private sector.[^7] According to NAB/MSTV, the two studies
support a lower fee under the statutory criteria, one of which requires
that the fee be designed to recover an amount that approximates, to the
extent feasible, the revenues that would have been received had the
spectrum on which these services are provided been licensed through an
auction. The Association of Local Television Stations (\"ALTV\")
submitted comments supporting the NAB/MSTV Petition.[^8] The National
Cable Television Association (\"NCTA\") filed an opposition to the
petition.[^9]

7\. Contrary to NAB/MSTV\'s suggestion, we did consider the two studies
in reaching our decision in the *Report and Order*. Indeed, consistent
with a recommendation in the Hausman Study, we declined to impose an
upfront or hybrid fee on DTV licensees that provide feeable
services.[^10] Although we rejected arguments based on the two studies
to set the fee lower than five percent, we explained in paragraphs 28-29
of the *Report and Order* our reasons for doing so. We reaffirm this
decision and amplify our reasons below.

8\. We turn to the Anderson Study first. The Anderson Study describes
several surveys of royalty rates used in licensing various technologies
in the private sector. Although we did not cite the Anderson Study
explicitly and our discussion of the issue was brief, the *Report and
Order*, at ¶ 29, did reject arguments that we should set a lower fee
based on analogies to copyright royalty rates. We declined to do so
because the policy concerns and economic considerations involved in
setting a fee for ancillary or supplementary services appear to be
different from the considerations involved in negotiations over private
licensing rights. We have more closely examined the Anderson Study and
are not persuaded that we should alter our decision. Indeed, the
Anderson Study itself acknowledges that \"\[e\]ach licensing negotiation
has unique characteristics, making it very difficult to demonstrate that
the royalty observed for any one licensing agreement reasonably applies
to another.\"[^11] This statement confirms our reluctance in the *Report
and Order* to directly base the fee required under Section 336(e) on
analogies to private licensing arrangements.

9\. Aside from this concern, the Anderson Study can actually be read to
*support* a fee of five percent of gross revenues. The NAB/MSTV
Petition, at 5, argues that the Anderson Study \"found that licensing
rates for unproven technologies without \'highly favorable economics\'
tended to be very low.\" But the full sentence in the Anderson Study
that is cited to support this statement states: \"For \'minor\'
innovations the range \[of running royalty rates\] is 1 to 5 percent,
and for \'major\' innovations it is 3 to 8 percent. Only in the case of
innovations characterized as \'revolutionary\' (i.e., suggesting highly
favorable economics) do the rates rise to the 5 to 10 percent
range.\"[^12] The five percent fee we have established thus falls
somewhere in the middle of these reported ranges and could even be
characterized as falling within the range of royalty rates for \"minor
innovations.\" More generally, Anderson summarizes the overall results
of his research as \"show\[ing\] that some technologies earn royalties
on the order of 2 to 3 percent or less, most earn royalties of 5 percent
or less, and only those technologies with unusually favorable economics
receive rates of more than 10 percent.\"[^13] Again, this places a five
percent fee squarely in the average range, which we believe is
reasonable. This is especially the case since we are not imposing an
upfront or hybrid fee on DTV licensees. By comparison, a fair number of
the royalty arrangements described in the Anderson Study appear to
involve upfront payments in addition to royalty fees.[^14] Taking these
upfront payments into account suggests that the five percent fee we have
established may actually fall toward the low end of the total licensing
payments (royalties plus upfront fees) surveyed in the Anderson Study.

10\. We now turn to the Hausman Study. Based on an econometric study of
the FCC\'s previous auctions, Hausman reports that prices for spectrum
auctioned by the Commission have been decreasing over time on a per
megahertz per population basis. He also posits that there will be
significant sunk cost investments required to provide DTV ancillary or
supplementary services, and also significant business and technological
uncertainty facing these services. Hausman concludes that \"the
combination of overall declining auction results over time and the
significant business and technological uncertainty with respect to sunk
costs would lead to an expected outcome of relatively low auction
results for spectrum used for ancillary services.\"[^15] Noting that the
*Notice* had sought comment on setting the fee in the range of one to
ten percent, Hausman recommends \"that the Commission initially begin
with a fee toward the low end of the range.\"[^16]

11\. As an initial matter, we question a number of the underlying
assertions made in the Hausman Study. Even assuming it is true that
there is a downward trend in per megahertz, per population prices for
the spectrum auctions the Commission has previously held, this does not
necessarily mean that an auction of the spectrum used for DTV ancillary
or supplementary services would follow this trend. As we stated in the
*Report and Order*, at ¶ 28, the auction values realized by the
Commission in conducting a particular spectrum auction reflect factors
that are specific to the particular spectrum being auctioned. These
factors include the anticipated demand for the telecommunications
services provided using the particular spectrum and the technological
uncertainty associated with the application.[^17] The *Report and Order*
pointed to evidence that suggests that the broadcast spectrum that will
be used to provide DTV ancillary or supplementary services could command
higher prices than predicted by the trend described in the Hausman
Study. In particular, we noted that the sales values of broadcast
properties have increased sharply over the past several years,
reflecting the increasing value of their spectrum licenses.[^18] The
NAB/MSTV Petition faults the *Report and Order* for focusing on this
evidence and for not placing greater weight on the value of
*non*-broadcast spectrum because most ancillary or supplementary
services will be non-broadcast in nature.[^19] But we think it is
reasonable to expect that the prices investors pay for television
stations reflect not only the anticipated profits from providing
broadcast video programming on the station but also the projected
profits from \"non-broadcast\" ancillary or supplementary services that
they can now provide on the station\'s DTV bitstream. The recent sales
prices for television stations thus shed some light on the value of the
spectrum used to provide the ancillary or supplementary services.
Indeed, Hausman himself has previously testified before Congress that
station sale prices provide a reasonable proxy for the value of the
spectrum they use.[^20]

12\. In addition, we question the Hausman Study\'s assertions regarding
the degree of uncertainty and sunk costs DTV licensees will face in
providing ancillary or supplementary services.[^21] Whether or not they
choose to provide ancillary or supplementary services, DTV licensees
will need to invest in DTV facilities in order to provide a free,
over-the-air digital broadcast service. Given this, it would appear that
the incremental or marginal cost of providing any feeable ancillary or
supplementary services may not be as significant as Hausman and NAB/MSTV
suggest. The most substantial costs incurred by broadcasters, such as
transmitters and towers, will be sunk or fixed costs that are already
incurred in connection with the provision of nonfeeable services, thus
minimizing the additional investment required to provide feeable
services. We consequently agree with NCTA that the risk associated with
offering ancillary or supplementary services will be diminished by the
fact that DTV licensees will be providing nonfeeable broadcast
services.[^22]

13\. We also think Hausman and NAB/MSTV overstate the level of
uncertainty broadcasters face in developing ancillary or supplementary
services. We fully recognize developing and implementing these services
will entail challenges and risks. But broadcasters are not venturing
into completely uncharted territory. They have been authorized to
provide ancillary services on parts of their analog signals for years,
although these services have been limited due to the lack of capacity on
analog channels.[^23] Broadcasters have also become increasingly
involved over the years in developing and selling programming carried on
cable networks, and they can translate this experience into providing
subscription programming over their DTV bitstream should that appear
profitable to them.[^24] More recently, a number of broadcasters have
invested in internet-related companies, suggesting that the internet\'s
interactive and datacasting applications, which potentially could also
be offered over the DTV bitstream, may prove profitable.[^25] There are
risks, to be sure, but knowledgeable people inside and outside
broadcasting confidently anticipate innovative *and* gainful pursuits
over the DTV bitstream.[^26]

14\. Aside from the questions we have about some of the Hausman Study\'s
underlying assertions, we have a more fundamental objection to the
conclusion NAB/MSTV seek to draw from it. In particular, neither
NAB/MSTV nor Hausman provides a persuasive basis to conclude that
Hausman\'s assertions, even taken at face value, require us to set the
fee at two percent rather than five percent of gross revenues. The
Hausman Study seems to acknowledge this in that it has no firm
recommendation on the level of the fee, only suggesting that the FCC
initially set the fee \"toward the low end of the range\" and that the
Commission \"might consider\" initially setting the fee at one percent
or less.[^27] For its part, the NAB/MSTV Petition argues that the
studies it has submitted \"provide\[\] strong support for the Commission
to set a low initial fee\" and concludes that the fee should be two
percent of gross revenues, yet it provides no rationale why a \"low
fee\" necessarily means a fee of two percent as opposed to five
percent.[^28]

15\. We continue to think that a fee of five percent of gross revenues
is reasonable in light of the criteria set forth in Section 336(e). A
central theme underlying NAB/MSTV\'s arguments and the studies they have
submitted is that we should set the fee so as not \"to discourage the
development of new ancillary and supplementary services\" and to
\"promote\[\] the efficient use of digital spectrum.\"[^29] We agree
that this is a worthy goal and, indeed, Section 1 of the Communications
Act states that one of the Act\'s purposes is to promote an
\"efficient\" radio communication service.[^30] But this general policy
cannot trump the specific statutory criteria set forth in Section
336(e)(2) for establishing the fee, none of which require that the fee
be designed to maximize efficiency.[^31] Indeed, taken to its logical
conclusion, the goal of maximizing efficiency and encouraging ancillary
or supplementary services would mean that the fee should be set at zero
or some nominal percentage rate as this would eliminate any influence
the fee would have on a DTV licensee\'s decision to provide ancillary or
supplementary services as opposed to nonfeeable broadcast video
programming. But clearly this is not what Congress intended. A fee
system that raised no or only nominal revenue from licensees that
provide \"feeable\" ancillary or supplementary services would (quite
literally) make Congress\'s enactment of Section 336(e) all for naught.

16\. In the end, implementing Section 336(e) is not, to paraphrase one
of the parties, an exact science.[^32] NAB/MSTV acknowledge that the
Commission has \"broad discretion under the Act in setting the fee
level.\"[^33] In exercising this discretion, we have sought to promote
the efficient use of the spectrum and the development of innovative
ancillary or supplementary services by DTV licensees. But this
discretion is bounded by Section 336(e), which requires us to design the
fee not only to approximate the revenue that would have been received
had these services been licensed through an auction, but also to recover
a portion of the value of the spectrum used for these services and avoid
\"unjust enrichment\" of DTV licensees who have been given the exclusive
right to apply for DTV channels without having to bid for them at an
auction. Weighing these factors and the comments submitted in the
proceeding \-- some of which argued for a fee of less than one percent
while others argued for a fee of over ten percent \-- we established a
fee of five percent of gross revenues generated from feeable ancillary
or supplementary services. The amount raised by this fee will vary with
the gross revenues from these services, *i.e.*, with the willingness of
consumers to pay for such services. As a consequence, if the consumer
value for these services is low, the fee payment will be small. Given
this, and the record in this proceeding and the criteria set forth in
Section 336(e), we continue to believe this is a reasonable fee and
consistent with the statute, and therefore deny the NAB/MSTV Petition.

**IV. THE UCC, *et al.* PETITION**

17\. In the *Report and Order*, at ¶ 40, we decided not to impose fees
on revenues received from home shopping, infomercial or direct marketing
services. We reasoned that

\[t\]he purpose of this proceeding is not to exact fees from existing
broadcasters for existing services but, rather, to design a program for
the assessment of fees on ancillary or supplementary services which will
be provided on the DTV bitstream. We agree with the commenters who
argued that home shopping and infomercials are commercial
advertisements, excluded by statute from the scope of ancillary and
supplementary services as they are video services received by viewers
without a fee. \[Footnote omitted.\] We therefore find that home
shopping channels and infomercials are free, over-the-air television
services, supported by commercial advertisements, and not subject to a
fee.

18\. UCC, *et al.* ask the Commission to reconsider this decision. They
interpret the 1996 Act as requiring us to impose fees on home shopping,
infomercial, and direct marketing services. NAB, MSTV, ALTV, and Home
Shopping Network (\"HSN\") and ValueVision International
(\"ValueVision\") have opposed UCC, *et al.*\'s petition for
reconsideration and argue that the Commission was correct in concluding
that these services are not subject to fees.[^34]

19\. UCC, *et al*. interpret the *Report and Order* as basing this
conclusion on two rationales: (1) that home shopping, infomercials, and
direct marketing services are \"existing\" services, and therefore
grandfathered from the fee requirements in the Act; and (2) that these
services are \"commercial advertisements\" rather than programming
services, and consequently fall within Section 336(e)(1)(B), which
exempts from fees \"commercial advertisements used to support
broadcasting for which a subscription fee is not required.\" As to the
first rationale, UCC, *et al*. argue that the 1996 Act does not give the
Commission authority to grandfather existing services from the new
statutory fee requirements. As to the second rationale, UCC, *et al.*
maintain that it is arbitrary and capricious to categorize home shopping
and similar services as \"commercial advertisements\" exempt under
Section 336(e)(1)(B) because Congress, the Commission, and the broadcast
industry have consistently characterized these services as *programming*
not as commercial advertisements.

20\. We think UCC, *et al.* have misconstrued the *Report and Order* on
these points. Our decision was not intended to grandfather existing
services. Nor was it based on whether home shopping and similar services
should be categorized as \"commercial advertisements\" or
\"programming.\" We recognize that the *Report and Order*, at ¶ 40, may
have been unclear on this point in that it referred to these services as
\"commercial advertisements.\" But we did not intend this
characterization to be the basis for our decision not to impose fees on
these services. Rather, we based this decision on what we see as a
threshold criterion in the statute: only *ancillary or supplementary*
services are subject to fees under the Act. Because traditional home
shopping, infomercial and direct marketing services are free,
over-the-air, video services and therefore do not qualify as ancillary
or supplementary services as we have defined that term in our
rules,[^35] they are not subject to fees.[^36] Or, as we put it in the
*Report and Order*, at ¶ 40, these services are \"excluded by statute
from the scope of ancillary and supplementary services as they are video
services received by viewers without a fee.\" We take this opportunity
to elaborate on this reasoning.

21\. Section 336(e)(1), which defines the \"services to which fees
apply,\" speaks only in terms of \"ancillary or supplementary services\"
in delineating in subsections (A) and (B) the two types of such services
that are subject to fees.[^37] In doing so, it necessarily excludes from
the fees requirement services that are not \"ancillary or
supplementary\" to begin with. Although the Act does not define the
phrase \"ancillary or supplementary services,\" the Commission did so in
implementing Section 336 in its DTV rulemaking proceeding.[^38] In that
proceeding, we adopted Section 73.624(c) of our rules, which provides an
illustrative list of ancillary or supplementary services:Brad BB they
include, but are not limited to, \"computer software distribution, data
transmissions, teletext, interactive materials, aural messages, paging
services, audio signals, subscription video, and any other services that
do not derogate DTV broadcast stations\' obligations\" to \"transmit at
least one over-the-air video program signal at no direct charge to
viewers.\"[^39] Section 73.624(c) goes on to state \"that any video
broadcast signal provided at no direct charge to viewers shall not be
considered ancillary or supplementary.\"[^40]

22\. Traditional home shopping, infomercial, or direct marketing
services are video broadcast signals and are offered at no direct charge
to viewers. As such, they fall outside the scope of our definition of
\"ancillary or supplementary services,\" and therefore are not subject
to fees under Section 336(e)(1) of the Act. We think this is consistent
with Congress\'s intent in enacting Section 336(e)(1). To be sure, we
adopted our definition of \"ancillary or supplementary services\" after
enactment of the 1996 Act. But as HSN and ValueVision state, \"the
Act\'s specific instruction that fees were to be assessed only on
\'ancillary and supplementary\' digital services was arrived at in the
context of the Commission\'s contemporaneous consideration of \[its then
pending DTV rulemaking proceeding\], in which the Commission repeatedly
and consistently made clear that \'ancillary and supplementary\'
services are separate and distinct from existing, traditional
over-the-air broadcast services.\"[^41] We believe Congress drew the
same distinction in enacting Section 336, excluding free, over-the-air
broadcast video programming service from fees. Traditional home
shopping, infomercials, and direct marketing services have long been a
free, over-the-air broadcast service, or, in Section 73.624(c)\'s
rubric, a \"video broadcast signal provided at no direct charge to
viewers.\" It follows that in enacting Section 336 Congress did not
intend to include these existing services within the phrase \"ancillary
or supplementary services\" and subject them to fees.[^42]

23\. Further evidence of this can be found in Section 336(b)(3), which
states, among other things, that \"no ancillary or supplementary service
shall have any rights to carriage under section 614 or 615,\" *i.e.*,
the statutory \"must carry\" rights broadcast television stations have
to be carried on cable systems in their local area.[^43] If a free,
over-the-air home shopping broadcast service is considered an
\"ancillary or supplementary service,\" stations carrying such
programming would be rendered ineligible for must carry rights under
Section 336(b)(3). We do not think Congress could have intended such a
result given that, in Section 4(g) of the Cable Television Consumer
Protection and Competition Act of 1992 (the \"1992 Cable Act\"), it
directed the FCC to determine whether home shopping stations served the
public interest and were entitled to must carry rights.[^44] It would
make little sense for Congress to charge us with this duty, and then
four years later preclude home shopping stations from must carry rights
under Section 336(b)(3) without a mention, either in the 1996 Act or its
legislative history, of Section 4(g) of the 1992 Cable Act. A basic
principal of statutory construction is to seek to construe statutory
provisions so that they are consistent with each other.[^45] We think
the most reasonable way to square Section 336 and Section 4(g) of the
1992 Cable Act is not to treat traditional home shopping, infomercials,
and direct marketing services as ancillary or supplementary services.

24\. We do not agree with UCC, *et al.*\'s suggestion that our decision
not to apply fees to home shopping, infomercials and direct marketing
services means any service provided without charge to the viewer is
exempt from fees regardless of whether a third party compensates a
broadcaster for carriage. Nor do we agree with UCC, *et al*.\'s argument
that our decision effectively nullifies Section 336(e)(1)(B), which
requires us to impose fees on ancillary or supplementary services \"for
which the licensee directly or indirectly receives compensation from a
third party in return for transmitting material furnished by such third
party (other than commercial advertisements used to support broadcasting
for which a subscription fee is not required).\" Our decision today does
not exempt, for example, payments made to a DTV licensee by a stock
broker to transmit stock quote data to the broker\'s clients even though
the clients pay no direct fee for this service. This clearly would be an
\"ancillary or supplementary service\" that is feeable under Section
336(e)(1)(B).

25\. But where, as here, the service is a video broadcast signal
provided at no direct charge to viewers, it is not feeable, even though
the broadcaster may be receiving compensation from a third party to
carry the service. As HSN and ValueVision point out, to hold otherwise
would mean that \"all the affiliates of the ABC, CBS and NBC broadcast
television networks arguably would be subject to fees for their free,
over-the-air broadcast services because they receive compensation from
their networks for airing network programming.\"[^46] These are video
broadcast signals provided to viewers at no direct charge, and therefore
are not ancillary or supplementary services and are not subject to fees.
We consequently deny UCC, *et al*.\'s Petition.

26\. We make one final note. Our decision in the *Report and Order*,
like our decision today, applies only to traditional home shopping,
infomercials, direct marketing and similar services with no interactive
or \"clickable\" elements and which can entail viewers purchasing
products by calling a telephone number identified during the broadcast.
We recognize that it may be possible in the future for these purchases
to be made via an interactive system provided by the licensee on its DTV
bitstream. For example, a DTV viewer may be able to purchase a product
shown on a home shopping program by clicking a special icon displayed on
the screen and transmitting a purchase order via the licensee\'s DTV
bitstream.[^47] In reply comments submitted in the initial round of
comments of this proceeding, ValueVision and HSN stated that such an
interactive purchase order system was being explored and argued that
revenues generated from this sort of system should be exempt from
fees.[^48] Because such services are only at a nascent stage and the
particular circumstances are unclear at this point, we decline to decide
whether they would constitute an ancillary or supplementary service
subject to a fee under Section 336(e)(1)(B).

**V. ADMINISTRATIVE MATTERS**

27\. The action contained herein has been analyzed with respect to the
Paperwork Reduction Act of 1995 and found to impose no new or modified
reporting and record‑keeping requirements or burdens on the public. In
addition, the Final Regulatory Flexibility Act Analysis set forth in the
*Report and Order* in this proceeding remains unchanged.

28\. ACCORDINGLY, IT IS ORDERED that, pursuant to the authority granted
by 47 U.S.C. §§ 4(i), 303, 336(e), and 47 C.F.R. § 1.429, the Petition
for Reconsideration filed jointly by the National Association of
Broadcasters and the Association for Maximum Service Television, and the
Petition for Reconsideration

filed jointly by the Office of Communication Inc. of the United Church
of Christ, the Benton Foundation, the Center for Media Education, the
Civil Rights Forum and Media Access Project, are both hereby DENIED.

29\. IT IS FURTHER ORDERED that this proceeding IS TERMINATED.

.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

#  Secretary

[^1]:     ^?^ *In the Matter of Fees for Ancillary or Supplementary Use
    of Digital Television Spectrum Pursuant to Section 336(e)(1) of the
    Telecommunications Act of 1996*, MM Docket No. 97-247 (adopted Nov.
    19, 1998).

[^2]:     ^?^ 47 C.F.R. § 73.624(b).

[^3]:     ^?^ *Id.* at § 73.624(c).

[^4]:     ^?^ Section 201 of the 1996 Act, Pub. L. No. 104-104, 110
    Stat. 56, 108-09 (1996), *codified at* 47 U.S.C. § 336(e)(1).

[^5]:     ^?^ *Id.* at § 336(e)(2).

[^6]:     ^?^ NAB/MSTV Petition at 2-3. *See* Statement of Jerry A.
    Hausman, MacDonald Professor of Economics, Massachusetts Institute
    of Technology (submitted as Attachment A to Comments of NAB/MSTV
    (filed May 4, 1998)) (\"Hausman Study\").

[^7]:     ^?^ *Id.* at 5. *See* Kent P. Anderson, Ph.D., National
    Economic Research Associates, \"Fee Alternatives for Ancillary or
    Supplementary Services by Digital Television Broadcasters\"
    (submitted as Attachment B to Comments of NAB/MSTV (filed May 4,
    1998)) (\"Anderson Study\").

[^8]:     ^?^ Opposition and Response of the Association of Local
    Television Stations (filed Feb. 19, 1999) (\"ALTV Opposition and
    Response\").

[^9]:     ^?^ NCTA Opposition to Petition for Reconsideration (filed
    Feb. 22, 1999) (\"NCTA Opposition\").

[^10]:     ^?^ *See Report and Order* at ¶ 17 (\"A fee based upon a
    percentage of gross revenues received would not involve up-front
    costs, such as those that would be incurred if we adopted a hybrid
    fee based on a flat fee coupled with a percentage of gross revenues,
    that could dissuade broadcasters from initiating new services.\");
    Hausman Study at 14 (stating that \"any significant upfront payment
    as part of a hybrid fee approach is likely to have a potentially
    large distortion on entry decision, which would significantly
    decrease consumer welfare\").

[^11]:     ^?^ Anderson Study at 2.

[^12]:     ^?^ *Id.*at 4-5.

[^13]:     ^?^ *Id.*at 1.

[^14]:     ^?^ For example, one of the surveys relied on by the Anderson
    Study states that \"\[s\]ome 60% of licensees report paying Up Front
    Fees when licensing-in technology. This is usually done in
    conjunction with a running royalty. Of the 60% who do pay Up Front
    Fees, the median was between 3 and 10% of total anticipated royalty
    payments.\" Stephen Degnan and Corwin Horton, \"A Survey of Licensed
    Royalties,\" 27 *Les Nouvelles: Journal of the Licensing Executives
    Society* 91, 93 (June 1992).

[^15]:     ^?^ Hausman Statement at 8.

[^16]:     ^?^ *Id.* at 16.

[^17]:     ^?^ We recognize, as ALTV points out, that auction bids are
    also influenced by the amount of the spectrum that is made
    available. ALTV Opposition and Response at 6. But we do not agree
    with ALTV that the record shows an \"ever increasing\" supply of
    auctionable spectrum. *Id.* The spectrum continues to be a scarce
    and valuable resource, particularly the broadcast spectrum DTV
    licensees will be using to provide ancillary or supplementary
    services.

[^18]:     ^?^ *Report and Order* at ¶ 28, n. 52 (citing report that
    television station values increased about 30 percent between 1996
    and 1997). *See also Broadcasting & Cable*, Feb. 3, 1998 at 32
    (reporting that in 1997 TV stations were selling at an average of 14
    times cash flow compared to previous trend of 10 to 11 times cash
    flow); *Broadcasting & Cable*, Feb. 15, 1999, at 33 (reporting high
    prices for TV station sales).

[^19]:     ^?^ NAB/MSTV Petition at 3-4. *See also* ALTV Opposition and
    Response at 6.

[^20]:     ^?^ *See* Statement of Jerry Hausman, MacDonald Professor of
    Economics, Massachusetts Institute of Technology, in U.S. Senate,
    *Concurrent Resolution on the Budget for Fiscal Year 1997*, hearings
    before the Senate Committee on the Budget, Senate Hearing 104-487,
    March 14, 1996, at 225. *See also* Congressional Budget Office,
    *Where Do We Go From Here? The FCC Auctions and the Future of Radio
    Spectrum Management* 63 (April 1997).

[^21]:     ^?^ The Anderson Study, at 1, also mentions this argument,
    stating that the \"risk associated with future profits in the
    provision of ancillary services seems high given the newness of the
    technology and the total lack of broadcaster experience in the
    provision of these services\" and that the \"economics of ancillary
    services\" are not \"unusually favorable.\"

[^22]:     ^?^ NCTA Opposition at 4; NCTA Comments at 11 (filed May 4,
    1998).

[^23]:     ^?^ *See Report and Order* in MM Docket No. 84-168, 101 FCC
    2d 973, ¶ 10 (1985); *Report and Order* in MM Docket No. 95-42, 11
    FCC Rcd 7799 (1996); 47 C.F.R. § 73.646. We note that a recent NAB
    report regarding ancillary services provided on FM station
    subcarriers states that \"FM subcarriers provide an opportunity for
    growth, and this has never been more true than today, with the
    explosion of data transmission services and new, innovative
    subcarrier technologies now becoming available.\" David Layer and
    Mark Fratrik, \"FM Subcarrier Market Report/Technology Guide\" (NAB
    1997). Although this statement concerns FM broadcast stations, DTV
    should provide similar or even greater opportunities, especially
    given the fact that it offers much greater capacity to provide
    ancillary or supplementary services than FM subcarriers.

[^24]:     ^?^ For example, the Walt Disney Company, owner of the ABC
    broadcast network and licensee of a number of broadcast television
    stations, owns a number of cable network programming services,
    including ESPN, the Disney Channel, A&E, and Lifetime. A number of
    non-network television station owners have similarly developed cable
    channel offerings. For instance, Allbritton Communications Company
    programs News Channel 8, an all-news channel offered on cable
    systems in the Washington, DC, market.

[^25]:     ^?^ In 1997, for example, Disney formed the Buena Vista
    Internet Group to coordinate the company\'s wide-ranging internet
    initiatives, which include an investment in Infoseek, a web browser,
    and the creation of the Go Network, an internet portal. According to
    Disney\'s 1998 annual report, the Buena Vista Internet Group\'s
    \"ambitious goal is to make The Walt Disney Company a prominent
    force in the new media of the 21st century.\" *See*
    http://disney.go.com/investors/annual98/new.htm. NBC recently
    announced the creation of a new company called NBC Internet (NBCi)
    that will merge its internet assets with its interests in Xoom.com
    and Snap.com. *Communications Daily*, May 11, 1999. *See also*
    Felicity Barringer, \"Market Place,\" *The New York Times*, May 31,
    1999, at C2 (stating that the Tribune Company, owner of 17
    television stations and several newspapers, has created Tribune
    Interactive, a business unit which combines the web sites of all of
    Tribune\'s media properties).

[^26]:     ^?^ We offer three examples of optimistic projections: (1) In
    a speech at the recent NAB convention, Larry Ellison, the chairman
    and CEO of Oracle Corporation, described how interactive TV
    technology developed by Oracle enables broadcasters and other mass
    media providers to target their advertising more effectively and to
    offer video-on-demand, e-commerce, distance learning, Web access,
    and email. His speech stressed that these services provided
    broadcasters opportunities for generating additional revenue. *See*
    http://www.nab.org/conventions/nab99/daily/ tue_bn_ellison.asp. (2)
    Gary Arlen, the president of Arlen Communications, a research firm
    specializing in new media applications, has stated that DTV creates
    an \"immense\" opportunity for broadcasters and that a \"fully
    implemented DTV initiative could generate 30% to 50% in additional
    revenue for broadcasters from multicast video and data
    transmission.\" Comments of UCC, *et al.*, Attachment at 2 (filed
    May 4, 1998). (3) In its 1998 annual report, Gannett Co., Inc.
    states that the \"use of DTV technology opens television to the
    world of the Internet. Digital television can support interactive TV
    and digital services simultaneously with TV programming. By using
    the data transmission capability, broadcast stations will be able to
    send electronic newspapers, program schedules or virtually any other
    type of information.\" *See*
    http://www.gannett.com/annual/ar98/broad.htm.

[^27]:     ^?^ Hausman Study at 16.

[^28]:     ^?^ NAB/MSTV Petition at 5, 7-8.

[^29]:     ^?^ NAB/MSTV Petition at 7. *See* Hausman Study at 3 (\"If a
    fee based on gross revenues is used, the initial fee percentage
    should be very low so that entry is not discouraged too much.\").

[^30]:     ^?^ 47 U.S.C. § 151.

[^31]:     ^?^ NCTA Opposition at 5.

[^32]:     ^?^ NCTA Opposition at 3.

[^33]:     ^?^ NAB/MSTV Petition at 1.

[^34]:     ^?^ Opposition to Petition for Reconsideration of NAB and
    MSTV (filed Feb. 22, 1999); Opposition and Response of ALTV (filed
    Feb. 19, 1999); Opposition of Home Shopping Network and ValueVision
    International (filed Feb. 22, 1999). UCC, *et al*. filed a reply to
    these oppositions.

[^35]:     ^?^ 47 C.F.R. § 73.624(c).

[^36]:     ^?^ *See* Opposition and Response of ALTV at 5; Opposition of
    HSN and Valuevision at 2-5.

[^37]:     ^?^ Section 336(e)(1) states:

    SERVICES TO WHICH FEES APPLY.\--If the regulations prescribed
    pursuant to subsection (1) permit a licensee to offer ancillary or
    supplementary services on a designated frequency\--

    \(A\) for which the payment of a subscription fee is required in
    order to receive such services, or (B) for which the licensee
    directly or indirectly receives compensation from a third party in
    return for transmitting material furnished by such third party
    (other than commercial advertisements used to support broadcasting
    for which a subscription fee is not required),

    the Commission shall establish a program to assess and collect from
    the licensee for such designated frequency an annual fee or other
    schedule or method of payment \....

    47 U.S.C. § 336(e)(1).

[^38]:     ^?^ *Fifth Report and Order* in MM Docket No. 87-268, 12 FCC
    Rcd 12809 (1997) (\"*DTV Fifth Report and Order*\").

[^39]:     ^?^ 47 C.F.R. § 73.624(b) & (c). *See DTV Fifth Report and
    Order*, 12 FCC Rcd at 12820-23.

[^40]:     ^?^ *Id.* at § 73.624(c). *See DTV Fifth Report and Order*,
    12 FCC Rcd at 12821.

[^41]:     ^?^ Opposition of HSN and ValueVision at 2-3, *citing Fourth
    Further Notice of Proposed Rule Making and Third Notice of Inquiry*
    in MM Docket No. 87-268, 10 FCC Rcd 10540, 10544 (1995) (seeking
    comment on extent to which FCC should permit DTV licensees to
    provide \"ancillary and supplementary uses\" and drawing a
    distinction between such services and \"free, over-the-air
    broadcasting\").

[^42]:     ^?^ We take this opportunity to clarify the statement in the
    *Report and Order*, at ¶ 40, that the \"purpose of this proceeding
    is not to exact fees from existing broadcasters for existing
    services but, rather, to design a program for the assessment of fees
    on ancillary or supplementary services which will be provided on the
    DTV bitstream.\" UCC, *et al.* interpret this statement to mean that
    we are grandfathering \"existing\" services. That was not our
    intent. Rather, we used the term \"existing services\" to mean
    traditional, free, over-the-air, broadcast video programming. It is
    this service, not ancillary or supplementary services, that
    broadcasters have predominantly provided over their existing analog
    channels given the technical constraints of analog technology. The
    advent of DTV, however, gives broadcasters much greater technical
    capability to provide ancillary or supplementary services. It was in
    this sense that we used the term \"existing\" services to
    distinguish between traditional, free, broadcast video programming,
    which is not feeable, and ancillary or supplementary services that
    may be subject to fees.

[^43]:     ^?^ 47 U.S.C. § 336(b)(3).

[^44]:     ^?^ Pub. L. No. 102-385, 106 Stat. 1460 (1992), *codified at*
    47 U.S.C. § 614(g). In 1993, the Commission issued a *Report and
    Order* in MM Docket No. 93-8, 8 FCC Rcd 5321, finding that home
    shopping stations served the public interest and were entitled to
    must carry status. There is a pending petition for reconsideration
    of this decision filed by the Center for the Study of Commercialism.

[^45]:     ^?^ *See United Steelworkers of America v. North Star Steel
    Co.*, 5 F.3d 39, 43 (3rd Cir. 1993); *Citizens to Save Spencer
    County v. EPA*, 600 F.2d 844, 870 (D.C. Cir. 1979).

[^46]:     ^?^ Opposition of HSN and ValueVision at 5.

[^47]:     ^?^ *See* Comments of UCC, *et al.* at 13-14 (filed May 4,
    1998).

[^48]:     ^?^ Reply Comments of ValueVision and HSN at 2, 8-9 (filed
    Aug. 3, 1998).