**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of:                | *  | CS Docket No. 97-80          |
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| Implementation of Section 304 of | ** | PP Docket No. 00-67          |
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| Telecommunications Act of 1996   | *) |                              |
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| Commercial Availability of       |    |                              |
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| Compatibility Between Cable      | ** |                              |
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**SECOND REPORT AND ORDER AND**

**SECOND FURTHER NOTICE OF PROPOSED RULEMAKING**

**Adopted: September 10, 2003 Released: October 9, 2003**

**Comment Date: January 14, 2004**

**Reply Comment Date: February 13, 2004**

By the Commission: Chairman Powell, Commissioners Abernathy, Copps,
Martin, and Adelstein issuing separate statements.

Table of Contents

[Paragraph]{.underline} [Number]{.underline}

I. IntroductioN 1

II\. Background aND SUMMARY 3

III\. DIGITAL CABLE SYSTEM TRANSMISSION STANDARDS AND

SUPPORT REQUIREMENTS 13

A. Transmission Standards 17

B. PODs 19

C. Tuning and Guide Information 21

D. High Definition Set-Top Boxes 24

E. Exemptions from Standards and Associated Obligations 26

F. Innovation and Changes in Standards 29

IV\. LABELING AND CONSUMER DISCLOSURES 30

A. Basic Requirements to be Labeled "Digital Cable Ready" 32

1\. Over-the-Air Tuner 34

2\. Closed Captioning 35

3\. 1394 Interface 36

B. Compliance Certification Process 38

C. Relation to Existing Labeling Requirements 40

V. ENCODING RULES 42

A. Commission Authority Under Section 629 45

B. Selectable Output Control 58

C. Down-resolution 62

D. Limits on Copy Protection Encoding 65

VI\. DFAST LICENSE 75

A. Compliance and Robustness Rules 76

B. Approval of New Outputs and Associated Content

Protection Technologies 77

VII\. Second Further Notice of Proposed Rulemaking 80

VIII\. Procedural MATTERS 87

IX\. Ordering clauses 95

Appendix A: List of Commenters and Reply Commenters

Appendix B: Final Rules

Appendix C: Final Regulatory Flexibility Analysis

Appendix D: Initial Regulatory Flexibility Analysis

# INTRODUCTION

1.  In this proceeding we consider regulations to facilitate the direct
    connection of digital "navigation devices"[^1] or customer premises
    equipment purchased from retail outlets -- including television
    receivers, set-top boxes and digital recorders -- to cable
    television and other multichannel video programming distributor
    ("MVPD") systems. Specifically, we consider those rules set forth in
    the *Further Notice of Proposed Rulemaking* (*"Further Notice"*)
    issued in the above-captioned proceedings and the comments filed in
    response thereto.[^2]

2.  The *Further Notice* sought comment on rules agreed upon and
    submitted to the Commission as part of a Memorandum of Understanding
    ("MOU") reached by representatives of the cable television and
    consumer electronics industries.[^3] The MOU detailed a
    comprehensive agreement on a cable compatibility standard for
    integrated, unidirectional digital cable television receivers, as
    well as other unidirectional digital cable products. The cable and
    consumer electronics industries have long disagreed over the
    specifics of a so-called "plug and play" standard for digital cable
    television, as evidenced by numerous filings in the above-captioned
    dockets.[^4] By establishing a standard to ensure the compatibility
    of cable television systems with digital television ("DTV")
    receivers and related consumer electronics equipment, the cable and
    consumer electronics industries hope to "build products and develop
    services to spur the digital transition."[^5] In response to the
    *Further Notice*, numerous parties filed comments and reply
    comments; this *Second Report and Order and Second Further Notice of
    Proposed Rulemaking* represents the Commission's findings based upon
    the record established in this proceeding.[^6]

# BACKGROUND AND SUMMARY

3.  Section 629 of the Communications Act, which is titled "Competitive
    Availability of Navigation Devices, requires the Commission to:

adopt regulations to assure the commercial availability, to consumers of
multichannel video programming and other services offered over
multichannel video programming systems, of converter boxes, interactive
communications equipment, and other equipment used by consumers to
access, multichannel video programming and other services offered over
multichannel video programming systems, from manufacturers, retailers,
and other vendors not affiliated with any multichannel video programming
distributor.[^7]

The purpose of Section 629 is to afford consumers the opportunity to
purchase navigation devices from sources other than their MVPD service
provider. In addition, the statute provides that the Commission \"shall
not prescribe regulations . . . which would jeopardize security of
multichannel video programming and other services offered over
multichannel video programming systems, or impede the legal rights of a
provider of such services to prevent theft of service.\"[^8]

4.  In order to permit a competitive market for the design, manufacture
    and retail sale of navigation devices to develop, a number of
    practical issues must be addressed. First, because one of the
    primary functions of these devices is to preclude the unauthorized
    reception or use of service, it is necessary to address service
    theft in situations where the device is no longer entirely within
    the service provider's control. This issue is comprised of two
    components, unauthorized access to service (theft of service) and
    unauthorized redistribution or copying of programming content
    legally acquired for a limited use (copy protection/digital rights
    management). Other practical concerns that must be addressed involve
    engineering and technical standards issues. Manufacturers require
    certain technical specifications in order to produce a device
    compatible with a particular MVPD's system. Therefore, if portable
    devices that can be marketed nationally are to be created, some
    technical standardization among MVPDs is needed.

5.  The initial decisions and rules adopted in the *Navigation Devices*
    proceeding[^9] implementing this statutory provision included,
    *inter alia*, the following:

\(1\) Section 629 covers not just equipment used to receive video
programming, but also equipment used to access other services offered
over MVPD systems, including televisions, VCRs, set-top boxes, personal
computers, program guide equipment, and cable modems;

\(2\) Subscribers have the right to attach any compatible navigation
device to an MVPD system;

\(3\) MVPDs must separate out conditional access or security functions
from other functions and make available modular security components,
also called point of deployment ("POD") modules;

\(4\) After January 1, 2005, MVPDs shall not deploy new navigation
devices for lease to subscribers that have security and non-security
functions combined;

\(5\) MVPDs must provide technical information concerning interface
parameters that are needed to permit navigation devices to operate with
their systems in a timely manner; and

\(6\) MVPDs can take actions necessary to protect their operations from
technical harm and theft of service.[^10]

On reconsideration, the Commission deferred application of the separate
security requirement for analog-only equipment and reiterated that it
would assess the state of the market once separate security modules were
available.[^11] The Commission also issued a *Further Notice of Proposed
Rulemaking and Declaratory Ruling* seeking comment on whether: (i)
OpenCable, the cable industry's initiative for navigation device
interconnection specifications, adequately represents the full range of
interested parties and delivered specifications that permit
manufacturers to build functional devices for sale at retail; (ii) the
Commission should revise the 2005 ban on cable operators deploying
navigation devices with integrated security functions; (iii) any
obstacles exist that might inhibit the commercial availability of host
devices; and (iv) there are any other factors "impeding or affecting
achievement of the goals of Section 629."[^12] Due to ongoing industry
negotiations that might impact the development of technical
specifications relating to host devices and POD modules, the Commission
recently extended the deadline concerning the prohibition on
MVPD-provided integrated devices until July 1, 2006, and committed to
completing a reassessment of the navigation devices market before
January 1, 2005.[^13]

6.  In addition to its efforts to ensure the commercial availability of
    navigation devices pursuant to Section 629, the Commission has
    focused on labeling and consumer education in the cable
    compatibility sphere. Section 624A of the Communications Act, as
    amended, requires the Commission to assure the compatibility between
    cable systems and consumer electronics equipment such as television
    receivers.[^14] To this end, the Commission adopted cable
    compatibility labeling standards for analog television receivers
    pursuant to Section 624A(c)(2)(A).[^15] Congress also requires the
    Commission to review and modify its compatibility regulations "to
    reflect improvements and changes in cable systems, television
    receivers, video cassette recorders, and similar technology."[^16]
    Because cable operators, consumer electronics manufacturers, and
    retailers were unable to reach agreement on voluntary DTV labeling
    standards, the Commission issued a *Report and Order* establishing
    its own "Digital Cable Ready 1-2-3" labeling regime encompassing
    different degrees of interactivity and connectivity among digital
    cable ready television receivers.[^17] Each of the Digital Cable
    Ready 1-2-3 labels reflects the ability of receivers to perform
    basic cable navigation for analog, digital basic and digital premium
    services, as well as receive encrypted services with a POD.[^18]
    Digital Cable Ready 2 and Digital Cable Ready 3 receivers
    additionally support interactive two-way services, although they
    differ in how they provide these functions.[^19]

7.  Within this regulatory framework, the cable and consumer electronics
    industries attempted to privately negotiate a cable compatibility
    standard for DTV receivers that would take into account the security
    separation requirement of Section 629 and effectively integrate the
    navigation functionality of set-top boxes into television receivers.
    The resulting MOU reflects a compromise agreement among the parties
    on a specification that will permit the manufacture of
    unidirectional digital cable television receivers that include this
    navigation functionality. Proponents of the MOU assert that
    unidirectional digital cable television receivers manufactured
    thereunder would be capable of receiving analog basic, digital basic
    and digital premium cable television programming by direct
    connection to a cable system providing digital programming.[^20] Due
    to the unidirectional nature of this receiver specification, an
    external navigation device would still be needed to receive advanced
    features such as cable operator-enhanced electronic programming
    guides ("EPGs"), impulse pay per view ("IPPV") or video on demand
    ("VOD").[^21] Negotiations are ongoing for a bidirectional receiver
    specification which would eliminate the need for an external
    navigation device to receive advanced services.[^22] Due to the
    level of technical detail involved in those discussions, however,
    they are not yet ripe for consideration at this time.

8.  The MOU as proposed to the Commission requires the cable and
    consumer electronics industries to commit to certain voluntary acts
    and seeks the creation or revision of Commission rules in the
    following general areas:

    \(1\) Requiring digital cable systems with an activated channel
    capacity of 750 MHz or greater to support operation of
    unidirectional digital cable products and to ensure that navigation
    devices utilized in connection with such systems have a 1394
    interface and comply with specified technical standards;

    \(2\) Establishing a labeling regime for unidirectional digital
    cable television receivers and related digital cable products that
    meet certain technical specifications. This regime, which would be
    voluntarily used by consumer electronics manufacturers, encompasses
    testing and self-certification standards, as well as consumer
    information disclosures to purchasers of such receivers and
    products; and

    \(3\) Adopting limits on encoding rules for audiovisual content
    applicable to all MVPDs, including prohibitions on the use of
    selectable output controls and the down-resolution of broadcast
    television programming.[^23]

    The cable and consumer electronics industries also submitted, along
    with the proposed rules, a draft license for the Dynamic Feedback
    Arrangement Scrambling Technique ("DFAST") technology for which they
    did not seek regulatory approval.[^24] On January 7, 2003, the
    Commission adopted the *Further Notice* seeking public comment on
    the MOU and the proposed Commission rules contained therein.[^25]

9.  At the outset, we recognize that certain commenters advocate
    resolution of the *Further Notice* in tandem with related issues
    raised in our *Digital Broadcast Copy Protection* proceeding.[^26]
    We anticipate addressing these issues in the near future. We also
    wish to clarify the intended scope and effect of this *Second*
    *Report and Order and Second Further Notice of Proposed Rulemaking*.
    Our decision herein is not intended in any way to change or affect
    existing copyright law. The encoding rules adopted herein are
    directed at MVPDs and their distribution mechanisms. As a result,
    the underlying rights and remedies available to copyright holders
    remain unchanged. In the same manner, this decision is not intended
    to alter the defenses and penalties applicable in cases of copyright
    infringement.

10. In this *Second* *Report and Order and Second Further Notice of
    Proposed Rulemaking*, we adopt the technical rules proposed as part
    of the MOU, with certain modifications described herein and set
    forth in Appendix B.[^27] Specifically, we adopt the proposed
    definition of a unidirectional digital cable product, with certain
    clarifications of its intended scope. In order to ensure that
    televisions manufactured pursuant to this definition meet its
    specified technical parameters and functionalities, we adopt
    certification procedures applicable to the first prototype of each
    model, and self-certification procedures for subsequent models. We
    also adopt a voluntary labeling regime and required consumer
    information disclosures in order to inform consumers of the features
    and functionalities of unidirectional digital cable products.

11. A key component of the MOU proposed to the Commission is a set of
    encoding rules that would set caps on the levels of copy protection
    applicable to content distributed by MVPDs. The proposed encoding
    rules also include a ban on the use of selectable output control
    technology and the down-resolution of unencrypted broadcast
    television by MVPDs. Bans on both the current use of selectable
    output control and the down-resolution of broadcast programming will
    further the DTV transition and ensure that consumer expectations
    regarding the functionality of their digital cable ready televisions
    and products are met. In addition, enacting limits on the amount of
    copy protection that may be applied to different categories of
    programming strikes a measured balance between the desire of content
    providers and MVPDs to prevent the unauthorized redistribution or
    copying of content distributed by MVPDs and the preservation of
    consumer expectations regarding the time shifting of programming for
    home viewing and other permitted uses of such material. We take such
    action pursuant to our Congressional mandate under Section 629 to
    ensure the commercial availability of navigation devices and
    safeguard the security of MVPD programming, as well as our ancillary
    jurisdiction under the Communications Act.

12. Finally, to ensure design innovation and promote device
    interconnectivity, we adopt interim procedures by which new outputs
    and associated content protection technologies can be authorized for
    implementation in unidirectional digital cable products. We also
    initiate a *Second Further Notice of Proposed Rulemaking* ("*Second
    FNPRM*") to study, *inter alia*, procedures and mechanisms by which
    outputs and associated content protection technologies can be
    approved on a permanent basis going forward.

# DIGITAL CABLE SYSTEM TRANSMISSION STANDARDS AND SUPPORT REQUIREMENTS

13. The first part of the proposed technical rules involves standards
    governing the manner in which video programming is distributed on
    digital cable systems.[^28] Subpart K of Part 76 of the Commission's
    rules already addresses various technical requirements for cable
    systems which ensure that cable systems operate in a reliable and
    secure manner.[^29] The proposed rules would prescribe additional
    technical standards to ensure that subscribers are able to fully
    enjoy the functionalities of unidirectional digital cable products
    as well as the digital services offered by their cable operator.

14. These proposed transmission and support requirements would apply to
    digital cable systems, a term left undefined by the draft rules.
    Some commenters, such as the American Cable Association ("ACA"),
    seek clarification as to whether the proposed rules would affect
    cable systems whose only digital programming comes from Comcast
    Corporation's ("Comcast") Headend-in-the-Sky ("HITS") service.[^30]
    In response to Commission inquiries, members of the cable and
    consumer electronics industries indicated their belief that the
    definition of a "digital cable system" includes those systems
    "contain\[ing\] one or more channels utilizing Quadrature Amplitude
    Modulation ("QAM") for transporting programs and services from a
    headend to a receiving device."[^31] We concur. In order to ensure
    that consumer expectations regarding the functionality of digital
    cable compatible equipment are met, we believe that cable systems
    carrying at least one digital QAM channel, including programming
    from the HITS service, must be considered to be digital cable
    systems subject to the proposed transmission and support
    requirements. We do not believe, however, that cable systems passing
    through only 8 VSB digital broadcast signals would qualify as
    digital cable systems since they are only passing through the
    digital signals on their analog systems.

15. The specific transmission and other technical obligations applicable
    to digital cable systems would relate to cable operator support of
    "unidirectional digital cable products."[^32] As discussed below,
    unidirectional digital cable products are defined in the draft
    labeling rules as "one-way devices which include, but are not
    limited to televisions, set-top-boxes and recording devices,
    connected to digital cable systems."[^33] While the draft rules do
    not specify the meaning of unidirectional digital cable products
    beyond "one-way devices," the model DFAST license accompanying the
    MOU excludes from its definition interactive products that "are
    capable of obtaining access to video-on-demand or impulse pay-per
    view services, of using the return path of the cable system, or of
    using electronic program guide services."[^34] Several commenters
    express concern that this definition is too narrow.[^35] In
    response, representatives of the cable and consumer electronics
    industries indicate that they are in the midst of negotiations for a
    similar agreement covering two-way or interactive devices.[^36]
    Manufacturers have pledged to "future-proof" one-way digital
    products so that they permit consumer access to two-way services
    through digital connectors and thereby allow subscribers to benefit
    from all digital services offered by their service provider.[^37]
    While we anticipate that the cable and consumer electronics
    industries will endeavor to complete their negotiations for a
    bidirectional agreement in due course, we believe that the adoption
    of standards for unidirectional digital cable products is a
    necessary first step towards ensuring the compatibility of digital
    devices with cable systems.[^38]

16. Although concerns have been raised regarding to certain aspects of
    the proposed transmission and support rules, the record largely
    supports the need for technical compatibility standards for digital
    cable television. Below we consider issues raised by commenters in
    six key areas: (1) transmissions standards; (2) PODs; (3) tuning and
    guide information; (4) high definition set-top boxes; (5) exemptions
    from the standards and associated obligations; and (6) innovation
    and changes in the standards.

    **A. Transmission Standards**

17. Under the proposed transmission standards, digital cable systems
    with an activated channel capacity of 750 MHz or greater would be
    required to adhere to certain technical standards involving the
    digital cable network interface and the digital video service
    multiplex and transport system.[^39] These requirements would
    standardize certain attributes of digital cable system
    transmissions, thereby facilitating the direct connection of
    unidirectional digital cable televisions and products to cable
    systems nationwide.[^40] A number of large cable systems comply with
    these standards already; other operators have begun implementation
    at their headends and through their networks.[^41] No comments were
    received objecting to these requirements; we hereby adopt them into
    our rules.

18. The Electronic Frontier Foundation ("EFF") seeks clarification from
    the Commission that all analog and digital basic tier services would
    remain unencrypted in order to encourage the development of basic
    tier ready devices.[^42] EFF envisions that basic tier ready
    television receivers would have QAM tuners but not POD-Host
    interfaces, and would only be able to access digital basic tier
    services. In reply, NCTA argues that the issue of basic tier
    encryption is already addressed in the Commission's rules and allows
    for waivers where needed.[^43] In addition, NCTA and Comcast assert
    that a "basic tier ready" designation would be confusing as to the
    level of service offered.[^44] While Section 76.630 generally
    prohibits encryption of the basic tier, the express issue of digital
    basic tier encryption is outside the scope of this proceeding and
    appropriate notice has not been given. As a result, we decline to
    act on EFF's request.

    **B. PODs**

19. Section 76.1204 of the Commission's rules requires cable operators
    to provide PODs to subscribers at their request for use with
    non-integrated navigation devices.[^45] As a practical matter,
    however, non-integrated navigation devices have yet to gain adoption
    in the marketplace, thereby directly affecting subscriber demand for
    PODs. The POD provisioning requirements in the draft rules reflect
    the fact that unidirectional digital cable televisions and products
    would represent the first widespread implementation of POD and
    POD-Host interface technology in the marketplace. Under these rules,
    all digital cable systems would be required to maintain an adequate
    supply of PODs and ensure convenient access to such PODs for their
    subscribers by July 1, 2004.[^46] In addition, all digital cable
    systems would be required to conform to technical standards
    governing POD-Host interfaces and the POD copy protection
    system.[^47] We believe that these new requirements will further the
    Commission's mandate to ensure the commercial availability of
    navigation devices and facilitate the adoption and implementation of
    both unidirectional digital cable products and the POD-Host
    interface platform. On this basis, we hereby adopt these POD
    provisioning and support requirements.

20. Separate from these requirements, TiVo suggests that dual tuner
    functionality competition should be encouraged by permitting two
    POD-Host interfaces in consumer electronics devices until a
    bidirectional specification is authorized for use.[^48] In response,
    the cable industry indicates that the draft rules do not prevent
    MSOs from providing multiple PODs for devices with dual tuning
    capability, and that the multi-stream POD now in development as part
    of the bidirectional negotiations may also satisfy TiVo's
    concern.[^49] While a multi-stream POD specification is being
    developed, we expect that cable operators will make multiple PODs
    available to consumers with unidirectional digital cable products
    that have dual tuner functionality. TiVo also asks that the
    Commission require that PODs emit a standardized MPEG output to
    prevent the use of proprietary output formats by cable
    operators.[^50] NCTA counters that this proposal is inappropriate in
    the one-way context and notes that these issues are being addressed
    in its bidirectional negotiations with the consumer electronics
    industry.[^51] We agree with NCTA that these issues are best
    addressed through the ongoing bidirectional negotiations and
    continuing development of the OpenCable Applications Platform
    ("OCAP") specification.

    **C. Tuning and Guide Information**

21. The proposed rules would also require digital cable systems with an
    activated channel capacity of 750 MHz or greater to comply with
    certain Program and System Information Protocol ("PSIP")
    obligations, including the February 2000 PSIP Agreement between NCTA
    and the Consumer Electronics Association ("CEA") ("PSIP
    Agreement").[^52] PSIP is the standard protocol that enables
    receivers to identify, locate and process the various types of
    content being transmitted, including video, audio, closed captions,
    content advisory information and ancillary data.

22. Parties have suggested modifications to the proposed requirements.
    The Association of Public Television Stations ("APTS"), National
    Association of Broadcasters ("NAB") and Paxson Communications
    Corporation ("Paxson") advocate that profile 4 or higher out-of-band
    PSIP information should be required under the ANSI/SCTE 65 2002
    standard in order to make that standard comport with the PSIP
    Agreement.[^53] They additionally seek a requirement that the
    out-of-band PSIP match the channel number in-band, and reject the
    bandwidth limitation for in-band PSIP contained in the PSIP
    Agreement.[^54] Comcast and CEA counter that no additional PSIP
    requirements are needed at this time, while CFA suggests that
    broadcasters are inappropriately attempting to mandate the passage
    of PSIP information in this proceeding.[^55] NCTA specifically
    challenges the broadcasters' views by arguing that mandated carriage
    of profile 4 PSIP information is not needed given that if operators
    agree to carry Event Information Table ("EIT") data out-of-band,
    they will do so using profile 4 or higher.[^56] NCTA further
    contends that bandwidth caps on in-band PSIP information are needed
    and that two-part channel numbering would not be backward compatible
    with the millions of legacy digital set-top boxes in the
    marketplace.[^57]

23. While we recognize that there are a number of outstanding PSIP
    issues relating to the DTV transition and cable carriage, we believe
    that resolution of some of those issues are properly addressed in
    the Commission's digital must carry and DTV periodic review
    dockets.[^58] In order to ensure the proper functioning of
    unidirectional digital cable products, however, we find it necessary
    here to incorporate those portions of the PSIP Agreement applicable
    to cable operators into the Commission's rules. Rather than
    incorporating by reference the entire document as proposed in the
    draft rules, we believe that a direct incorporation of specific
    provisions is more appropriate. As a result, we hereby adopt those
    PSIP obligations that will ensure that cable operators carry PSIP
    data when received from content providers in conformity with the
    ATSC A/65B standard.[^59] However, we decline to take action on the
    proposed revisions that are better addressed in our ongoing digital
    must carry and DTV periodic review proceedings.

    **D. High Definition Set-Top Boxes**

24. Cable subscribers owning unidirectional digital cable televisions or
    DTV monitors that wish to receive advanced, interactive services
    will need a separate set-top box in order to do so. As a means of
    ensuring the connectivity of these devices, the proposed rules would
    obligate all cable operators, effective December 31, 2003, to
    replace or upgrade subscriber-leased high definition set-top boxes
    upon subscriber request to ensure that such boxes have "functional"
    1394 interfaces.[^60] For these purposes, a "functional" 1394 means
    a 1394 interface with appropriate software support.[^61] Starting
    July 1, 2005, all high definition set-top boxes acquired by cable
    operators for distribution to subscribers would need to include a
    1394 interface and either a Digital Visual Interface ("DVI") or High
    Definition Multimedia Interface ("HDMI").[^62] High definition
    set-top boxes provided to subscribers pursuant to these deadlines
    would also need to comply with certain technical standards.[^63] No
    comments were received objecting to these proposals. We believe that
    these interface and technical requirements will set a baseline for
    connectivity ensuring that cable subscribers are able to fully enjoy
    the range of services offered by their cable provider in a secure,
    digital format. As such, we adopt these high definition set-top box
    obligations and defer the December 31, 2003 obligation to April 1,
    2004.

25. We recognize that in this context, as well as with respect to the
    labeling requirements for digital cable ready devices, commenters
    such as Genesis Microchip have expressed concern that the patents
    underlying DVI and HDMI interface specifications and the HDCP
    content protection technologies have not been fully vetted for
    outstanding claims.[^64] Genesis Microchip also questions whether
    the associated licenses are offered on non-discriminatory terms with
    stable and certain license fees.[^65] Although the DVI, HDMI and
    HDCP specifications did not result from a formal standard setting
    process,[^66] the technology underlying these specifications is
    widely available in the marketplace today. Further, the adopter
    agreements for these technologies are freely offered on
    non-discriminatory terms.[^67] Consistent with our previous patent
    policy, we will nonetheless consider any complaints that these
    technologies are not being licensed on reasonable and
    non-discriminatory terms, or are unavailable due to outstanding
    patent claims.[^68]

    **E. Exemptions from Standards and Associated Obligations**

26. Some commenters have questioned the scope of the digital cable
    system transmission standards and support obligations given that
    some of the requirements only apply to systems with an activated
    channel capacity of 750 MHz or greater while other requirements
    apply to all digital cable systems.[^69] To the extent that certain
    support obligations might disparately impact small cable systems,
    ACA asks that the Commission consider either a small system
    exemption or waivers for affected entities.[^70] In response to
    ACA's concerns, CEA, NCTA and Comcast agree that small cable systems
    burdened by the support requirements should be allowed to seek
    waivers. NCTA and Comcast also suggest that the burden may not be as
    significant as ACA anticipates. For example, the only technical
    support requirement affecting digital cable systems below 750 MHz
    involves the provisioning of PODs to subscribers, something cable
    operators are already required to do upon request.[^71] In addition,
    NCTA and Comcast clarify that the July 1, 2005, deadline for certain
    digital interfaces on high definition set-top boxes only applies to
    new boxes acquired after that date, with no resulting need to
    replace existing set-top box inventories.[^72]

27. Although the record does not reflect a detailed economic analysis of
    the potential cost impact on small cable systems, we believe that
    the proposed support obligations have been designed to minimize, to
    the extent possible, any negative cost impact upon small cable
    systems. All cable operators, including those with small systems,
    would be obligated to replace or provide high definition set-top
    boxes with digital connector interfaces. Given that the requirement
    commencing April 1, 2004, to ensure that leased high definition
    set-top boxes have functional 1394 interfaces would only apply upon
    subscriber request, and that the July 1, 2005, deadline for 1394 and
    DVI/HDMI interfaces on such boxes would apply only to equipment
    acquired after that date, we believe that small cable systems would
    not be required to replace wholesale their set-top box inventories
    in the short term. The only other technical support obligation
    applicable to digital cable systems with an activated channel
    capacity of less than 750 MHz relates to the provisioning of PODs, a
    requirement that must already be met upon subscriber request
    pursuant to Section 76.1204 of the Commission's rules.[^73] We
    recognize, however, that there may be a negative cost impact upon
    some small systems as a result of compliance with these obligations,
    particularly with those requirements incumbent on systems with an
    activated channel capacity of 750 MHz or greater. To the extent that
    small cable systems would experience economic hardship as a result
    of these obligations, we will consider waiver requests on a
    case-by-case basis.

28. Although waivers will benefit small system operators significantly
    burdened by adherence to these technical requirements, we are
    concerned that consumers who purchase unidirectional digital cable
    products and find them incompatible with cable systems that are
    either not digital or are subject to a small system waiver will be
    frustrated. Consumer education regarding the ability of their local
    cable operator to support unidirectional digital cable products will
    be critical to ensuring that consumer expectations are met. We
    recognize that the MOU contains voluntary commitments by cable
    operators to: (1) offer to educate local retailers regarding the
    capability of the local cable system to support unidirectional
    digital cable products, and (2) update the cable industry's
    Go2Broadband website with information identifying systems that
    support such products.[^74] We strongly encourage these and further
    cable industry efforts and exhort retailers to educate consumers
    about the compatibility of unidirectional digital cable products
    with local cable systems.

    **F. Innovation and Changes in Standards**

29. Several commenters express concern that by incorporating specific
    technical standards into our rules, the current state of technology
    will be frozen and innovation harmed.[^75] Indeed, some of the
    standards referenced in the draft technical rules have already been
    revised while other amendments await adoption.[^76] We recognize the
    rapid pace of technological development today. Nonetheless, some
    degree of standardization is necessary to ensure widespread
    compatibility of digital television with cable systems and the
    commercial availability of unidirectional digital cable televisions
    and products. We agree with NCTA that the normative requirements in
    the proposed rules have been minimized to the extent possible.[^77]
    In adopting the proposed technical requirements, we are
    incorporating the most recent versions of the referenced standards
    and will seek to update them as warranted. As an added measure to
    ensure that innovation is not stifled, we will conduct periodic
    reviews of these technical requirements as suggested in the draft
    rules. As part of our review process, we will consider whether any
    of these system transmission or support requirements should be
    amended or sunset in light of technological changes or other
    factors. It is our belief that once a baseline compatibility
    standard has been set, marketplace forces are best suited to decide
    which products and services will meet consumers' needs and
    interests.

# LABELING AND CONSUMER DISCLOSURES

30. As indicated above, one of the mechanisms specified in the
    Communications Act for addressing compatibility is an equipment
    labeling regime. Section 624A(c)(2)(A) authorizes the Commission to
    adopt regulations specifying the technical requirements for
    television receivers and related equipment to be sold as "'cable
    compatible' or 'cable ready.'"[^78] The establishment of a label
    that delineates a certain level of technical functionality serves
    two purposes: (1) to aid consumers in making purchasing decisions;
    and (2) to identify for cable operators those devices that can be
    attached to their system pursuant to certain baseline compatibility
    requirements.

31. The labeling regime proposed to the Commission is voluntary in
    nature; consumer electronics manufacturers are not obliged to
    physically affix a label to their products. Rather, the proposed
    regime sets forth basic requirements that unidirectional digital
    cable televisions and products must meet in order to be marketed or
    labeled as digital cable ready. We herein adopt the proposed
    definition of unidirectional digital cable products, discussed
    above*,* as one-way devices and clarify that this definition
    excludes interactive two-way services.[^79] Below we address
    concerns raised by certain commenters seeking modification of the
    basic requirements for unidirectional digital cable televisions to
    be labeled digital cable ready. We also address the interrelation of
    this labeling regime to a certification compliance process and to
    the Commission's existing "Digital Cable Ready 1-2-3" labels for
    cable compatible DTV receivers.

    **A. Basic Requirements to be Labeled "Digital Cable Ready"**

32. The proposed labeling rules prohibit consumer electronics
    manufacturers from marketing or labeling unidirectional digital
    cable televisions or products as digital cable ready unless
    they: (1) meet certain technical requirements relating to the tuning
    and navigation of NTSC analog and digital channels, (2) include a
    POD-Host interface, (3) respond to emergency alerts, and (4) have
    been certified to comply with certain normative requirements.[^80]
    Under this regime, unidirectional digital cable televisions would
    also be required to employ specified interfaces according to a
    phased-in timetable.[^81] The cable and consumer electronics
    industries are developing a label graphic that could be used in
    advertisements or on device packaging to reflect the compliance of
    the product with these criteria.[^82] While the use of a label to
    physically mark digital cable ready products would be voluntary,
    consumer electronics manufacturers would be obligated to include in
    post-sale material, such as an owner's guide, language describing
    the features and functionality of unidirectional digital cable
    televisions.[^83]

33. Many of the comments received in response to these labeling criteria
    advocate the addition of supplemental requirements in order for
    television receivers to be identified as digital cable ready. For
    the reasons set forth below, we add an over-the-air tuner
    requirement to the labeling criteria proposed to the Commission but
    otherwise decline to adopt the suggested modifications.

    **1. Over-the-Air Tuner**

34. Broadcasters and content providers advocate that EIA/CEA-818D be
    added to the list of technical compliance standards applicable to
    digital cable ready televisions in order to ensure that these
    devices have over-the-air reception capability.[^84] Consumer
    electronics manufacturers have publicly committed to include off-air
    tuners in digital cable ready televisions.[^85] The fact that the
    proposed phase-in of digital cable ready televisions with digital
    interfaces would be synchronous with the implementation roll-out of
    our tuner mandate suggests that consumer electronics manufacturers
    intend to abide by this commitment.[^86] NCTA suggests, however,
    that an over-the-air tuner requirement in this context would be
    redundant, given the Commission's existing tuner mandate.[^87] As we
    held in our *Review of the Commission's Rules and Policies Affecting
    the Conversion to Digital Television* ("*DTV Tuner Order*"), all
    television receivers must include a digital broadcast tuner on a
    phased-in basis.[^88] We therefore believe that the addition of a
    DTV off-air tuner requirement to the labeling requirements for
    digital cable ready televisions is appropriate.[^89] In the analog
    environment, the public has come to understand that television
    receivers labeled or marketed as "cable ready" universally include
    the capability of receiving over-the-air broadcast service. We
    believe it would be inconsistent with consumer expectations and thus
    affirmatively misleading for digital cable ready receivers not to
    include digital over-the-air reception capability.

    **2. Closed Captioning**

35. Broadcasters and content providers seek assurance that closed
    captioning display functionality will be built into digital cable
    ready televisions.[^90] In reply, NCTA states that it would not
    object to a clarification by the Commission regarding the
    applicability of its digital closed captioning rules.[^91] We concur
    with NCTA that the Commission's rules independently mandate that
    digital television receivers be able to decode and display closed
    captioning.[^92] As a result, we need not incorporate a separate
    closed captioning mandate into the labeling criteria for digital
    cable ready televisions.

    **3.** **1394 Interface**

36. Broadcasters question why the proposed rules do not require
    televisions carrying the digital cable ready label to have a 1394
    interface.[^93] While the proposed rules call for the inclusion of a
    DVI or HDMI interface in digital cable ready televisions by specific
    rollout dates, 1394 interfaces would only be required on cable
    operator-supplied high definition set-top boxes.[^94] NAB expresses
    its concern that consumers purchasing digital cable ready
    televisions without 1394 interfaces will be frustrated in their
    attempts to connect to digital VCRs and other digital devices.[^95]
    In response, NCTA states that 1394 interfaces should not be required
    and instead market forces should determine the future acceptance of
    1394 as a connector.[^96] NCTA further clarifies that the inclusion
    of 1394 interfaces on high definition set-top boxes is intended to
    preserve the functionality of existing digital devices that use the
    interface.[^97]

37. It is our belief that the requirement for digital cable ready
    televisions to have either a DVI or HDMI interface sets a floor for
    digital cable compatibility without unnecessarily impeding
    innovation. It should be noted in this regard that the labeling
    regime is being used here as a convenient procedural mechanism for
    phasing in a set of connectors that are needed to accomplish the
    equipment compatibility purposes of Section 624A. We recognize that
    the DVI or HDMI outputs may only be available with a percentage of
    the digital cable ready devices manufactured and do not intend that,
    prior to the completion of the phase-in, the digital cable ready
    label be interpreted as signifying the presence of these outputs. We
    anticipate that the marketplace will determine which additional
    connectors are best for use with digital cable ready televisions and
    associated products and therefore decline to mandate a 1394 or other
    connector interface.[^98] As discussed below, we are establishing an
    interim mechanism and seeking further comment on a permanent
    mechanism by which additional connectors can be approved for use in
    digital cable products, subject to FCC oversight where disputes
    arise. We believe that this approach will foster competition among
    MVPDs and promote interoperability.[^99]

    **B. Compliance Certification Process**

38. A prerequisite for the use of the digital cable ready designation
    under the draft labeling rules is certification for compliance with
    certain normative requirements. The proposed rules anticipate that a
    manufacturer must submit a prototype of its first unidirectional
    digital cable product model to CableLabs or an independent qualified
    test facility to ensure conformity with specific technical
    standards.[^100] The test suite to be applied is intended to
    demonstrate that the subject device: (i) can tune and display
    scrambled digital services via the POD conditional access
    system; (ii) will not technically disrupt, impede, or impair
    delivery of services to cable subscribers; (iii) will not cause
    physical harm to the cable network or the POD module; (iv) will not
    facilitate theft of service or otherwise interfere with reasonable
    actions taken by cable operators to prevent theft of service; (v)
    will not jeopardize the security of any services offered over the
    cable system; (vi) will not interfere with or disable the ability of
    a cable operator to communicate with or disable a POD module or to
    disable services being transmitted through a POD module; or (vii)
    will not impede or impair control of content protection.[^101] The
    specific tests comprising the test suite were jointly agreed to by
    representatives of the cable and consumer electronics
    industries.[^102] The test suite would be executed by CableLabs or
    an independent qualified test facility for the first unidirectional
    digital cable product model developed by a manufacturer. Once this
    first model successfully completed the applicable test suite,
    self-certification procedures would apply for subsequent
    models.[^103]

39. We hereby adopt the proposed certification procedures with certain
    revisions as set forth in Appendix B. In so doing, we recognize that
    the scope of this process is limited in so far as it: (1) verifies
    compliance with specific normative standards to ensure the
    functionality and compatibility of unidirectional digital cable
    products with digital cable systems, and (2) allows for manufacturer
    self-certification procedures once an initial product model has been
    certified by a qualified test facility. Although we anticipate that
    CableLabs, or another organization similarly associated with the
    cable industry, will initially have a key role in this certification
    compliance process due to its familiarity and expertise with
    POD-Host interface technology, the public availability of the test
    protocol should allow third party testing facilities to certify
    compliance therewith. Our revisions to the proposed rules reflect
    this expectation. Any entity that executes the test protocol must do
    so in a reasonable and non-discriminatory manner. We will monitor
    the implementation of this certification compliance process to
    ensure it comports with these principles. Should any party have
    complaints regarding this implementation, or the certification test
    suite itself, we will consider them on a case-by-case basis. We will
    also review the standards in this section on a periodic basis to
    determine whether to sunset or amend the regulations adopted herein
    in light of changes in technology or other public interest factors.

    **C. Relation to Existing Labeling Requirements**

40. We are adopting the proposed labeling and consumer disclosure
    requirements to promote consumer awareness and education about the
    DTV transition and the functionality of unidirectional digital cable
    televisions and products and their compatibility with digital cable
    systems.[^104] We recognize that the Commission previously adopted a
    series of labels for digital cable compatible receivers. This
    "Digital Cable Ready 1-2-3" regime, however, has not yet been
    employed in the marketplace and may not encompass the full range of
    anticipated unidirectional digital cable devices.[^105] In an effort
    to eliminate any confusion, we hereby eliminate the existing Digital
    Cable Ready 1-2-3 labels and grant the petitions for reconsideration
    filed by NCTA and Time Warner Cable in response to our earlier
    *Report and Order* in our *Compatibility Between Cable Systems and
    Consumer Electronics Equipment* docket.[^106]

41. We anticipate that this labeling regime and consumer disclosure
    requirements will provide consumers with basic compatibility
    information about digital cable ready televisions and products. We
    remain concerned, however, that the voluntary nature of the labeling
    regime and the fact that a clear statement of a unidirectional
    digital cable television's functionalities is only provided in
    post-sale material may not aid consumers in making purchasing
    decisions. In particular, we believe that the digital cable ready
    designation, absent further clarification or explanation, may cause
    consumer confusion because it does not indicate that a set-top box
    will be needed to receive interactive services. As discussed above,
    we expect that the cable industry will fulfill and expand upon its
    voluntary commitments in the MOU to ensure that subscribers and
    local retailers are both aware of the availability of digital cable
    service in their area and of the compatibility of unidirectional
    digital cable products with operators' systems.[^107] The MOU,
    however, also reflects an understanding that consumer electronics
    manufacturers need not provide retail or pre-sale consumer
    notification information.[^108] We strongly believe that it is
    incumbent upon the consumer electronics industry to collaborate with
    both their retail partners and the cable industry to develop
    consumer awareness campaigns about unidirectional digital cable
    televisions and their functionalities, particularly with regard to
    the need for set-top boxes in order to receive interactive services.
    Information could be disseminated to consumers in many different
    ways, including but not limited to cable subscriber notices,
    Internet web sites, point of sale marketing materials to be provided
    to retailers, more informative labeling on device packaging, or some
    other appropriate format designed to reach consumers before they
    make purchasing decisions. We will also seek comment in the *Second
    Further Notice of Proposed Rulemaking* on whether some form of
    pre-sale consumer notification should be required.

# ENCODING RULES

42. In addition to the draft technical and labeling rules, the cable and
    consumer electronics industries submitted draft encoding rules to
    the Commission that propose: (1) a ban on selectable output
    control, (2) a prohibition on the down-resolution of broadcast
    programming, and (3) the adoption of caps on copy protection
    encoding for different categories of MVPD programming. Below we
    discuss our authority to adopt such encoding rules, and address each
    of the three proposals.

43. At the outset, we recognize that members of the DBS industry assert
    that because they did not participate in the MOU negotiations, they
    should not be made subject to encoding rules that do not adequately
    address their interests.[^109] We disagree. The negotiations between
    cable and consumer electronics industries sought to establish a
    specification for unidirectional digital cable televisions and
    products -- issues specific to their industries. The proposed
    encoding rules were developed as part of those negotiations. The
    entire MOU, including the proposed encoding rules and other draft
    regulations contained therein, were incorporated into our *Further
    Notice* and put out for public notice and comment.[^110] Indeed,
    both EchoStar and DIRECTV (the "DBS providers") filed comments in
    response to the *Further Notice* on this particular issue. As
    discussed in greater detail below, we conclude that the arguments
    advanced by the DBS providers are insufficient to outweigh the need
    for competitive parity among MVPDs.

44. We also acknowledge the concerns articulated by content providers
    that the proposed encoding rules would prevent or inhibit the use of
    other content protection mechanisms.[^111] We do not interpret the
    draft rules in this fashion. The proposed rules specifically
    prohibit the encoding of audiovisual content to trigger selectable
    output control, the down-resolution of broadcast programming, or to
    prevent or limit copying except as permitted for the applicable
    programming category.[^112] As such, we do not believe that these
    proposed requirements necessarily preclude the use of other content
    protection measures.

    **A. Commission Authority Under Section 629**

45. The Commission has authority to adopt the proposed encoding rules
    under the explicit authority granted in Section 629 of the
    Communications Act as well as our ancillary jurisdiction
    thereunder.[^113] We also conclude that our ancillary jurisdiction
    would extend the scope of Section 624A of the Communications Act to
    encompass non-cable MVPDs.[^114]

46. The mandate of Section 629 is broad. As discussed above, it requires
    the Commission to assure the commercial availability of navigation
    devices -- meaning that the Commission must persist in its efforts
    until commercial availability is achieved.[^115] Section 629
    subjects all MVPDs to its requirements, including cable operators,
    DBS providers, multichannel multipoint distribution service
    operators and satellite master antenna television providers.[^116]
    Although DBS providers were exempted from the separate security
    requirement imposed on cable in our *Navigation Devices Order*
    because DBS equipment is already available at retail and is portable
    nationwide, the Commission expressly found that it did not have the
    authority to exclude DBS from the reach of Section 629
    generally.[^117] Section 629 also applies to any type of equipment
    used to access MVPD programming and services, including televisions,
    VCRs, cable set-top boxes, personal computers, program guide
    equipment and cable modems.[^118] On this basis, we conclude that
    the scope of Section 629 encompasses all MVPDs and authorizes the
    Commission to adopt regulations that aim to ensure the commercial
    availability of a wide range of consumer electronics equipment used
    in conjunction with MVPD systems.

47. In our *FNRPM and Declaratory Ruling*, the Commission found that
    Section 629's mandate encompasses copy protection in so far as we
    determined that the inclusion of some measure of anti-copying
    encryption technology within a host device does not violate our
    separation of security requirement.[^119] The Commission, however,
    specifically declined "to resolve the question of the nature and
    scope of any copy protection systems or rights."[^120] While the
    Commission's copy protection findings in the *FNPRM and Declaratory
    Ruling* were limited in nature, we recognized that other copy
    protection issues would arise in the DTV transition.[^121] In
    particular, we noted that:

> \[W\]e do not intend this declaratory ruling to signal that any terms
> or technology associated with such licenses and designated as
> necessary for copy protection purposes are consistent with our rules.
> We believe, however, that such issues are best resolved if specific
> concerns involving finalized licenses that implicate our navigation
> devices rules are presented to the Commission.[^122]

By stating that some amount of copy protection might be acceptable but
not necessarily specifying the applicable terms or technology, the
Commission indicated its willingness to assess the reasonableness of
particular copy protection proposals. We believe that the draft encoding
rules proposed to the Commission are an essential component of the MOU
that will assure the commercial availability of navigation devices and
strike a measured balance between the rights of content owners and the
home viewing expectations of consumers. Absent adoption of these
encoding rules, the cable and consumer electronics industries have
indicated that the compromise agreement reached in the MOU will be upset
and their efforts to produce unidirectional digital cable products will
falter.[^123] The resulting harm would directly undermine the explicit
goal of Section 629, to assure the commercial availability of navigation
devices. We therefore conclude that adoption of the proposed encoding
rules is necessary to fulfill our mandate under Section 629.

48. We disagree with the objections raised to Commission jurisdiction
    under Section 629. MPAA, which opposes FCC jurisdiction over the
    proposed encoding rules, argued prior to the *FNPRM and Declaratory
    Ruling* that copy protection is integral to conditional access and
    that the Commission should therefore affirm that such measures can
    be required in host devices.[^124] MPAA now asserts that the
    Commission should not involve itself in the reasonableness of the
    copy protection measures.[^125] This may be a colorable policy
    argument, but it does not bear on the Commission's statutory
    authority.

49. MPAA also contends that Section 629(b) prohibits the Commission from
    adopting the proposed encoding rules.[^126] We disagree. Section
    629(b) provides that:

> The Commission shall not prescribe regulations under subsection (a)
> which would jeopardize security of multichannel video programming and
> other services offered over multichannel video programming systems, or
> impede the legal rights of a provider of such services to prevent
> theft of service.[^127]

50. We interpret the statute in the context of its purpose. We believe
    that in including Section 629(b)'s "Protection of System Security"
    provision, Congress was concerned about preventing system security
    in terms of theft of service, that is, preventing a non-subscriber
    from obtaining unauthorized access to multichannel video programming
    or other services. Section 629(b) is expressly directed at the
    protection of *system* security and the prevention of theft of
    service.[^128] The legislative history likewise indicates Congress'
    focus on the protection of *system* security and theft of
    service.[^129] There is nothing in either the statutory language or
    the legislative history to suggest that Congress intended Section
    629(b) to extend to content protection technologies for programming
    that a subscriber properly had access to.

51. Unlike the copy protection technology at issue in the *FNPRM and
    Declaratory Ruling,* which was directly related to cable operator
    system security as a part of the POD and POD-Host interface, the
    draft encoding rules here involve the encoding of content to
    activate copy protection technologies associated with device outputs
    and connectors. We believe that to the extent the encoding rules
    relate to device outputs and associated content protection
    technologies, they do not implicate theft of service or harm to
    network concerns. This distinction goes to the heart of our
    navigation device rules. MVPDs have a direct interest in ensuring
    that a consumer's right to attach navigation devices to their system
    does not result in theft of service or harm to the MVPD
    network.[^130] Copy protection, however, goes to the question of
    what end users may do with content legally acquired for a limited
    use. The fact that device outputs and associated content protection
    technologies do not implicate theft of service or harm to network
    concerns permits Commission adoption of the encoding rules and would
    not run afoul of Section 629(b).

52. Even if Section 629(b) applied to content protection, we conclude
    that the rules we are adopting will not jeopardize the security of
    copyrighted programming or impede the legal rights of MVPDs to
    prevent theft of programming. As discussed above, the encoding rules
    are not directed at content owners, allowing them to exercise their
    existing statutory rights and remedies under copyright law. MVPDs
    retain control over their conditional access systems, subject to the
    separation of security requirements contained in our navigation
    device rules. In interpreting these rules in the *General
    Instrument* case, the D.C. Circuit held that "jeopardize" does not
    mean that any increased security risk is barred by Section 629(b);
    rather, a petitioner must present evidence that system security will
    be subject to "serious or significant danger."[^131] The record
    lacks any substantive evidence that would meet the *General
    Instrument* standard. Indeed, because the encoding rules do not
    implicate access to programming or services, they do not constitute
    a "serious or significant danger" within the meaning of Section
    629(b) as interpreted by *General Instruments*.

53. We note that not a single MVPD -- including DBS providers whose
    system security would theoretically be threatened by the proposed
    rules -- argued that the Commission is prohibited from adopting
    encoding rules under Section 629(b). MVPDs will retain control and
    ownership of the security equipment for their systems. The draft
    encoding rules would in no way authorize or justify any use,
    manufacture, or importation of equipment that would violate Section
    633 of the Communications Act[^132] or any other provision of law
    precluding the unauthorized reception of MVPD service. Further, the
    labeling rules and associated compliance certification procedures
    that we are adopting require manufacturers to demonstrate that their
    equipment will not jeopardize the security of any services offered
    over cable systems or interfere with measures to prevent theft of
    service.

54. Although some commenters argue that our adoption of the encoding
    rules would impermissibly involve the Commission in copyright
    issues, we do not believe this to be the case.[^133] Communications
    law and copyright law can create independent rights -- even with
    respect to the distribution of the same content. The Commission's
    "syndicated exclusivity"[^134] and retransmission consent rules each
    create sets of rights and limitations that exist independent of the
    underlying copyrights.[^135] In the instant case, the encoding rules
    are not directed at the copyright owners, but rather establish
    certain limits on the technological tools used by MVPDs to
    distribute content.[^136] A content owner's rights under copyright
    law, as well as determinations of what constitutes infringement and
    affirmative defenses such as "fair use," are set by statute and
    interpreted on a fact-specific basis by the courts.[^137] We
    nonetheless recognize that the line separating communications law
    and copyright law is not always a clear one. As the *United Video*
    court found with respect to cable television, "the 1976 Congress did
    not imagine copyright law and communications law to be two islands,
    separated by an impassable sea."[^138] We will continue to be
    sensitive to this intricate and complex issue as we implement
    Section 629.

55. In addition to explicit authority under Section 629, we believe that
    the Commission has ancillary jurisdiction to adopt the proposed
    encoding rules.[^139] As discussed above, the Commission has been
    working to achieve Section 629's mandate of commercial availability
    of navigation devices since 1996. One of the stumbling blocks has
    been inability of industry to agree on a comprehensive set of
    technical copy protection measures and corresponding encoding rules.
    Adoption of the encoding rules will finally remove that block and
    ensure the availability of high value content to consumers in a
    protected digital environment. We believe that access to high value
    digital content will spur the transition and increase consumer
    demand for unidirectional digital cable products and other
    navigation devices at retail, thereby furthering Section 629's
    goals. The adoption of rules applicable to MVPD content distribution
    falls within the Communication Act's mandate over "all interstate
    and foreign communication by wire or radio,"[^140] and the
    Commission's broad authorization "to make available to all Americans
    a radio and wire communication service."[^141] In furtherance of
    these goals, the Commission can adopt regulations that are
    consistent with the public interest and not inconsistent with other
    provisions of the Communications Act or other law.[^142] Not only
    are the encoding rules "not inconsistent" with other provisions of
    the Act or law, we believe they will significantly advance Section
    629's stated goal.[^143]

56. In addition to explicit authority under Section 629 and our
    ancillary jurisdiction thereunder, we believe that adoption of the
    encoding rules will also advance the policies underlying Section
    624A of the Communications Act.[^144] Section 624A requires the
    Commission to issue regulations to assure the compatibility between
    televisions and video cassette recorders and cable systems in a
    manner consistent with the need to prevent theft of cable service.
    [^145] The end goal is to ensure that cable subscribers will be able
    to enjoy the full benefits of available cable programming and the
    functionality of their televisions and video cassette
    recorders.[^146] To accomplish this balancing act, Section 624A
    directs the Commission to "determine whether and, if so, under what
    circumstances to permit cable systems to scramble or encrypt signals
    or restrict cable systems in the manner in which they encrypt or
    scramble signals."[^147]

57. Section 624A by its terms does not directly apply to MVPDs other
    than cable operators. [^148] However, the MVPD market has
    diversified greatly since 1992. For example, DBS did not exist at
    the time when Section 624A was enacted, but has since grown to serve
    approximately twenty percent of the MVPD marketplace.[^149] In order
    to accomplish the purposes of Section 624A, we believe that the
    Commission may exercise ancillary jurisdiction over non-cable MVPDs
    in order to avoid the creation of a regulatory and marketplace
    imbalance between cable and DBS. Absent this approach, we believe
    that cable operators would be at a significant competitive
    disadvantage in obtaining access to content which could frustrate
    the ability to satisfy Section 624A's mandate.[^150] We therefore
    believe it will further the goals of Section 624A to apply the
    proposed encoding rules to all MVPDs.

    **B. Selectable Output Control**

58. As proposed to the Commission, the draft rules would prohibit MVPDs
    from encoding or otherwise modifying audiovisual content so as to
    activate selectable output control, which is the ability to remotely
    shut off a particular output or connector on a program-by-program
    basis, thereby funneling content through other authorized
    outputs.[^151] Advocates of this technology argue that it is a
    useful tool to address potential piracy concerns because it: (1)
    allows MVPDs to respond in cases where protected digital outputs
    have been compromised; and (2) permits content to be directed away
    from unprotected high-resolution analog ("component analog")
    outputs[^152]

59. Critics of selectable output control, including consumer electronics
    interests, contend that it is an *ad hoc* imposition on consumers
    that must be prohibited to ensure the functionality of
    unidirectional digital cable products.[^153] Consumer groups agree
    that selectable output control should be prohibited, particularly
    since it could harm the marketability of recordable digital
    interfaces in favor of non-recordable ones.[^154] The cable industry
    further advocates that the proposed ban apply to all MVPDs in order
    to ensure a level playing field in negotiations for premium content
    acquisition.[^155]

60. The issue of selectable output control -- like the issue of
    down-resolution discussed below -- involves a difficult balancing of
    interests. On one hand, we recognize content owners' legitimate
    interest in protecting their content from piracy. We also recognize
    consumers' expectations that their digital televisions and other
    equipment will work to their full capabilities, and the potential
    harm to the DTV transition if those expectations are frustrated. In
    particular, we are concerned that selectable output control would
    harm those "early adopters" whose DTV equipment only has component
    analog inputs for high definition display, placing these consumers
    at risk of being completely shut off from the high-definition
    content they expect to receive. Further, we believe that content
    providers have other means of revoking compromised digital outputs.
    As recognized by the consumer electronics industry, technological
    and licensing mechanisms exist which permit MVPDs to revoke
    compromised security modules and output technologies if
    needed.[^156] We are also proposing in our *Second FNPRM* to create
    a formal mechanism by which outputs may be revoked if
    compromised.[^157] We therefore believe that MVPDs will in no way be
    harmed in their ability to protect content where output technologies
    have been compromised. As to the issue of analog outputs, we
    anticipate that alternative mechanisms such as retirement and the
    potential use of down-resolution could more effectively address
    content providers' concerns without entirely foreclosing
    functionalities available to early adopters.

61. We conclude that at present the balance tips in favor of prohibiting
    the use of selectable output control by MVPDs and hereby adopt the
    prohibition as set forth in Appendix B. We also believe that the ban
    on selectable output control logically should apply uniformly to all
    MVPDs in order to ensure that consumer expectations are not
    unreasonably frustrated regardless of the MVPD platform to which
    they subscribe. A prohibition is also necessary to ensure the DTV
    transition is able to proceed in an expeditious manner without
    concerns over connectivity and functionality forestalling digital
    equipment acquisition. We nonetheless recognize that selectable
    output control functionality might have future applications that
    could potentially be advantageous to consumers, such as facilitating
    new business models,[^158] and will consider waivers, petitions or
    other proposals to use selectable output control in this regard. For
    this reason, we do not prohibit the inclusion in devices of the
    *capability* to exercise selectable output control, only the current
    *use* of such capability by MVPDs.[^159]

    **C. Down-resolution**

62. The ability of MVPDs to constrain content resolution when output
    from consumer electronics devices, also called "down-resolution,"
    refers to the ability to degrade the resolution of content from a
    higher to a lower level, such as from high definition to standard
    definition. The consumer electronics industry acknowledges that
    down-resolution has been required in private agreements, such as the
    Digital Transmission Content Protection ("DTCP" or "5C") license,
    where component analog outputs are used as secondary ports to feed
    high definition digital recorders.[^160] They nonetheless express
    concern that if an MVPD were to trigger down-resolution on the
    primary signal link between set-top boxes and high definition
    displays at the request of a content provider, consumers would be
    denied the very functionality that led them to invest in DTV devices
    -- the ability to enjoy high definition programming.[^161] Consumer
    groups concur with this assessment and advocate a ban on
    down-resolution.[^162] The cable industry expresses its willingness
    to accede to this prohibition if applied to all MVPDs in order to
    ensure the availability of high value content and competitive parity
    among programming providers.[^163] In contrast, however, DIRECTV and
    MPAA assert that MVPDs should have multiple content protection
    mechanisms available to them, including down-resolution, in order to
    best address the needs of content providers and consumers.[^164]
    MPAA is in essence advocating that down-resolution will serve to
    provide consumers with greater access to programming than would
    otherwise be available absent some mechanism for addressing analog
    outputs.

63. As a result of their negotiations over the MOU, the consumer
    electronics and cable industries reached an agreement that broadcast
    programming should not be subject to down-resolution, but made no
    recommendation to the Commission on the issue of how other MVPD
    programming should be treated.[^165] The cable industry expresses
    its concern that content providers will not make high value
    non-broadcast content available unless MVPDs can lower its
    resolution over component analog outputs and suggests that the
    Commission should evaluate the resulting impact upon consumers when
    making a determination on this issue.[^166] To the extent that the
    Commission determines that permitting the down-resolution of high
    value non-broadcast content delivered over analog outputs is the
    only means of assuring that such content will be made available to
    MVPDs and consumers, the cable industry would support adoption of
    rules to that effect.[^167] In contrast, HRRC and CEA join consumer
    groups in advocating a complete ban on down-resolution, including
    non-broadcast content, to ensure that consumers are able to fully
    enjoy the high definition capabilities of their consumer electronics
    equipment.[^168]

64. The issue of down-resolution involves a similar balancing of
    interests to selectable output control, although in this instance
    consumers with analog outputs on their equipment would potentially
    receive a lower quality, but still viewable, picture rather than a
    blank screen. As in the case of selectable output control, we are
    concerned that consumer expectations regarding the functionality of
    their digital cable ready televisions and related products would be
    frustrated by the use of down-resolution by MVPDs. We are equally
    mindful of the concerns of content providers regarding the potential
    vulnerability of content delivered over analog outputs. The
    difficulties of resolving this issue are reflected in private sector
    efforts such as the Analog Reconversion Discussion Group to the Copy
    Protection Technical Working Group.[^169] Because broadcast
    television is a free, over-the-air service and high definition
    content will otherwise be available through off-air reception, we
    believe that a ban on the down-resolution of broadcast programming
    by MVPDs is consistent with both consumer expectations and the
    nature of this service.[^170] The record in this proceeding,
    however, does not support a similar conclusion with respect to
    non-broadcast programming provided by MVPDs.[^171] As a result, we
    will seek additional comment on the issue of down-resolution of
    non-broadcast programming in the *Second Further Notice of Proposed
    Rulemaking* below. Should an MVPD wish to activate the
    down-resolution of non-broadcast programming in the interim,
    notification must be provided to the Commission at least 30 days in
    advance of such activation.

    **D. Limits on Copy Protection Encoding**

65. The final component of the proposed encoding rules is comprised of
    caps on the level of copy protection that may apply to various
    categories of MVPD programming.[^172] These proposed caps do not
    obligate the encoding of programming with copy restrictions, nor do
    they prescribe a specific level of copy protection for particular
    programs. MVPDs would remain free to negotiate with content
    providers for any level of encoding that falls below or is equal to
    the applicable cap for the relevant programming category, which is
    referred to in the draft rules as a "Defined Business Model."[^173]
    The defined business models and corresponding copy protection caps
    proposed in the draft rules include:

```{=html}
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```
(1) Unencrypted broadcast television -- no copy restrictions may be
    imposed;

(2) Pay television, non-premium subscription television, and free
    conditional access delivery transmissions -- one generation of
    copies is the most stringent restriction that may be imposed; and

(3) VOD, PPV, or Subscription-on-Demand transmissions -- no copies is
    the most stringent restriction that may be imposed, however, even
    when no copies are allowed, such content may be paused up to 90
    minutes from its initial transmission.[^174]

    1.  These defined business models are intended to reflect the
        conventional methods for packaging programming content in the
        MVPD market as of December 31, 2002.[^175] To the extent that an
        MVPD wishes to implement a new service within a defined business
        model, other than unencrypted broadcast television, and seeks to
        modify the established encoding rule applicable to that business
        model for their specific service, it would be able to petition
        the Commission in order to do so.[^176] Such petitions would be
        subject to public notice and comment and the Commission would be
        required to consider the potential impact of the proposed change
        upon consumers and the public interest.[^177] Out of a
        recognition that this process could provide rival MVPDs with a
        competitive advantage by forecasting in advance new services and
        products, the draft rules allow for a temporary bona fide trial
        of a service.[^178] To ensure that this trial provision is not
        abused, complaints may be filed when an MVPD has a good faith
        belief that a new service within a defined business model has
        been launched without petitioning the Commission.[^179]

    2.  The proposed rules also contemplate a process by which MVPDs
        could seek encoding classification for new program offerings
        that do not fall under the defined business models.[^180]
        Concurrent with the launch of such an offering, which is
        referred to in the draft rules as an "Undefined Business Model,"
        an MVPD would provide public notice of the new offering and its
        proposed encoding terms to the PR Newswire.[^181] Within two
        years of the publication of this notice and following attempts
        at pre-complaint resolution, another MVPD or a consumer
        electronics manufacturer could file a complaint with the
        Commission objecting to the proposed encoding
        classification.[^182] This complaint process would be subject to
        public notice and comment and place the burden of proof on the
        undefined business model proponent to establish that the
        proposed encoding terms are in the public interest.[^183] In
        making its determination resolving the complaint, the Commission
        would be required to consider consumer interests among other
        factors.[^184]

    3.  Critics of the proposed encoding caps express concern over: (1)
        the effect on innovation resulting from the creation of FCC
        rules in this area;[^185] (2) their applicability to non-cable
        MVPDs;[^186] (3) the specific procedures outlined for
        modification of existing or creation of new encoding
        classifications;[^187] and (4) the classification of
        subscription video-on-demand ("SVOD") service in the broadest
        cap category which allows "copy never" encoding.[^188] In
        response, proponents of the caps assert that they reflect a
        reasoned balance between the expectations of consumers regarding
        their home viewing habits and the functionality of their digital
        devices and the interests of content owners in protecting high
        quality digital content from piracy.[^189] While we acknowledge
        the challenges and concerns raised by commenters, we are
        ultimately persuaded that FCC oversight in this area will ensure
        a fair balance between the competing interests at stake, and in
        turn will foster the development of a commercial market in
        navigation devices and further the DTV transition.

    4.  The proposed encoding caps themselves closely track those
        adopted by Congress in the analog context in Section 1201(k) of
        the Digital Millennium Copyright Act ("DMCA"), with certain
        subsequent industry-negotiated modifications taken from the 5C
        technology license.[^190] While MPAA challenges the use of
        Section 1201(k) and the private 5C license as models in this
        instance, the record reflects that some MPAA member studios have
        acceded to the license and that the rules contained therein
        reflect a marketplace-developed paradigm for approaching copy
        protection in the digital realm.[^191] In approving the proposed
        encoding caps, however, we do not rely merely on the DMCA or 5C
        for precedent, but also on the strength of the underlying record
        in this proceeding. As discussed below, the only substantive
        comments received with respect to the specific caps proposed in
        the draft rules relates to the treatment of SVOD service.[^192]
        The lack of objection in our record to the proposed defined
        business models classifications, when combined with their use in
        private licensing regimes and their earlier adoption in the
        analog context by Congress in the DMCA, militates in favor of
        their adoption here.

    5.  Some commenters suggest that Commission rules regarding encoding
        classifications will hinder innovation and limit the flexibility
        afforded new technologies and business models.[^193] We
        disagree. There is no indication in the record beyond
        unsupported assertions that caps on copy protection encoding
        will have a major effect on innovation. Further, the proposed
        encoding caps provide flexibility for content providers and
        MVPDs to negotiate for different encoding treatments. As to the
        treatment of new services and business models, the draft rules
        provide mechanisms for the reclassification of new services
        within existing defined business models and for the initial
        classification of undefined business models.[^194] In addition,
        new business services can be launched on a trial basis without
        any delay by virtue of the bona fide trial exception. We believe
        that these mechanisms provide sufficient flexibility to account
        for and encourage innovation.

    6.  The DBS and content industries contest the applicability of the
        proposed encoding caps to non-cable MVPD services and dispute
        the need for such caps to ensure competitive parity among MVPDs
        in access to high value digital content.[^195] We disagree.
        Although each MVPD remains free to negotiate with content
        providers for different levels of encoding that fall under or
        equal to the caps, we believe that it is necessary to draw a
        baseline providing MVPDs with the same floor from which to
        bargain with content providers. Application of the encoding
        rules to the cable industry alone would create a permanent
        competitive imbalance in the MVPD programming market that could
        negatively impact consumers. Uniform application of the proposed
        encoding caps serves the dual function of providing a
        competitive baseline for MVPDs while ensuring that consumers
        have equal access to content regardless of their service
        provider.

    7.  Several commenters also question the specific petition
        procedures proposed for reclassification of new services within
        defined business models and the initial classification of
        undefined business models, including the bona fide trial
        exception.[^196] Absent direction from Congress on the
        appropriate encoding classification of new services within
        defined business models and undefined business models, we
        believe that these procedures provide an appropriate framework
        to make such determinations. We conclude that the petition
        procedures outlined in the draft rules are preferable to
        rulemaking procedures as they will promote timely decisions
        while preserving the opportunity for public notice and comment
        on the proposed classifications.[^197] We will, however, modify
        these procedures to allow any party to file a complaint
        regarding the initial encoding classification by an MVPD of
        undefined business models. In addition, we believe that the bona
        fide trial exception as proposed provides an appropriate amount
        of flexibility for MVPDs in testing new services and preserves
        their ability to launch such services without advance disclosure
        to competitors. To the extent that a particular MVPD abuses the
        trial exception, the draft rules contemplate a complaint process
        by which competitors could object to the Commission.

    8.  Starz Encore contests the inclusion of SVOD service in the
        broadest cap category which allows "copy never" encoding.[^198]
        Starz Encore argues that SVOD is subscription-based and
        therefore more akin to regular premium channels than a
        transactional service such as PPV.[^199] Although Starz Encore
        acknowledges that it remains free to negotiate with content
        providers and MVPDs for copy once status, it asserts that as a
        practical matter the negotiating power of content providers will
        force the marketplace adoption of the most restrictive treatment
        possible under each cap.[^200] In this instance, this would
        result in copy never treatment for Starz Encore's SVOD service.
        Home Box Office ("HBO"), which offers its own SVOD service,
        challenges Starz Encore's interpretation and argues in favor of
        the broader encoding category and potential copy never
        treatment.[^201] HBO suggests that consumer choice over content
        and the ability to time shift programming distinguish SVOD and
        VOD from linear subscription services.[^202] HBO also indicates
        that, unlike Starz Encore whose programming consists largely of
        theatrically released motion pictures, HBO has a proprietary
        interest in a large percentage of the content that it
        airs.[^203] Since much of HBO's content is original programming
        that has not been made available to consumers through other
        outlets, HBO contends that its SVOD service merits more
        protective copy protection encoding.[^204] Without the ability
        to restrict copying of its SVOD service, HBO asserts that it
        could not offer this service to MVPD subscribers without
        jeopardizing the sale of its original content through other
        means, such as home video sales.[^205]

    9.  We concur with HBO that there appear to be differences between
        its service and that offered by Starz Encore, notwithstanding
        the fact that they both fall within the SVOD rubric. Indeed,
        SVOD is a nascent service that was not contemplated by Congress
        when it adopted Section 1201(k) of the DMCA.[^206] We anticipate
        that SVOD will grow and evolve to a significant degree and that
        other forms of this service, including those different than that
        offered by Starz Encore and HBO, will emerge in the near future.
        For this reason, we decline to classify SVOD as a defined
        business model and will allow MVPDs to treat both existing and
        future SVOD program offerings as undefined business models.
        Under the encoding classification procedures applicable to
        undefined business models, MVPDs will have discretion to
        determine whether specific SVOD offerings merit different
        encoding terms, subject to any complaints raised before the
        Commission. We conclude that this treatment allows SVOD to more
        fully develop as a program offering in the marketplace and will
        afford MVPDs more flexibility in the encoding of different forms
        of this service.

# DFAST LICENSE

10. In addition to the regulatory proposals accompanying the MOU, the
    cable and consumer electronics industries provided a model DFAST
    license to the Commission.[^207] The MOU proponents did not seek
    regulatory approval for the license, but rather supplied it to the
    Commission for informational purposes. This document governs the
    licensing terms for the DFAST scrambling technology needed to
    manufacture the POD-Host interface component of unidirectional
    digital cable products. This license differs from its predecessor,
    the POD Host Interface Licensing Agreement ("PHILA"), in that it
    does not contain certification procedures and encoding rules --
    elements otherwise encompassed in the regulatory proposals made to
    the Commission. For this reason, the MOU indicated that the DFAST
    license is contingent upon Commission approval of the draft
    technical and encoding rules in substantially the same form as
    proposed to the Commission.[^208] Our discussion of the model DFAST
    license herein is not intended to reflect a review or an approval of
    its terms. The model license does, however, reference FCC oversight
    in two key regards: (1) changes to the license's compliance and
    robustness rules, and (2) approvals of new connectors and associated
    content protection technologies.[^209] Below we discuss our role in
    these areas.

    **A. Compliance and Robustness Rules**

11. The model DFAST license sets forth procedures by which CableLabs may
    change its compliance and robustness rules, including notice to
    licensees and a process by which licensees can object to the
    proposed changes.[^210] These procedures anticipate that a licensee
    may seek review of the proposed change by the Commission within 60
    days following notice of the change.[^211] The DFAST license calls
    for the Commission to expeditiously determine "whether the proposed
    change serves the public interest, taking into account its effect on
    consumers, \[l\]icensees and \[c\]able \[o\]perators; competition,
    innovation, developments in technology; and the need to protect
    \[content\]."[^212] We hereby clarify that, to the extent a DFAST
    licensee seeks Commission review of proposed changes to the
    compliance and robustness rules, we will consider such petitions on
    a case-by-case basis pursuant to our normal procedures and timing
    under Section 76.7 of the Commission's rules.[^213]

    **B. Approval of New Outputs and Associated Content Protection
    Technologies**

12. As in the case of the compliance and robustness rules, the DFAST
    license reserves for the Commission an appellate role in overseeing
    initial determinations by CableLabs approving new outputs or
    associated content protection technologies for use with
    unidirectional digital cable products.[^214] When CableLabs
    disapproves a particular output or copy protection technology, or
    when CableLabs fails to make a determination within the allotted
    180-day time frame, the DFAST license would permit a manufacturer to
    petition the Commission concerning the denial or lack of
    approval.[^215] The Commission would be expected to determine in an
    expedited fashion whether the output or content protection
    technology "provides effective protection to \[content\] against
    unauthorized interception, retransmission or copying, taking into
    account, among other things, the factors utilized by
    CableLabs."[^216]

13. While we recognize the fundamental interest of the cable industry in
    ensuring that devices connecting to their distribution systems do
    not result in theft of service or harm to their networks, we are
    concerned that CableLabs's proposed role as the sole initial arbiter
    of outputs and associated content protection technologies to be used
    in unidirectional digital cable products could affect innovation and
    interoperability in a number of areas, including the development of
    personal digital networks in consumers' homes. These concerns stem
    from the convergence of digital technologies occurring in the
    marketplace and our belief that unidirectional digital cable
    televisions and products will play a key role in the digital
    information age. We conclude that additional public comment is
    needed in order to determine how and on what conditions new
    connectors or content protection technologies will be approved for
    use with unidirectional digital cable televisions and products.
    Below we initiate a *Second FNPRM* to consider these issues.

14. To ensure that innovation is not impeded while this *Second FNPRM*
    is pending before the Commission, we are adopting an interim policy
    by which CableLabs may make initial determinations regarding the use
    of new output or content protection technologies, subject to
    Commission review when disputes arise. Any interested party,
    including but not limited to consumer electronics manufacturers,
    content providers, information technology companies or consumers,
    may appeal an initial decision by CableLabs to the Commission.
    CableLabs shall bear the burden of proof that its initial
    determination, whether an approval or disapproval, was justified. In
    any responsive pleading to an appeal before the Commission,
    CableLabs will specify each of the objective criteria used to
    evaluate the proposed output and copy protection technology and
    articulate in detail how such proposed output and copy protection
    technology met or failed to meet each of the criteria. Should
    CableLabs disapprove a particular output or content protection
    technology, we expect that CableLabs will articulate in detail the
    reasons for its disapproval. The Commission will review *de novo*
    both the reasonableness and necessity of the objective criteria, as
    well as CableLab's application thereof to the proposal under
    consideration.[^217] We clarify that parties seeking Commission
    review may file a petition for special relief pursuant to our normal
    procedures under Section 76.7 of the Commission's rules.[^218] The
    Commission will address such petitions on an expedited basis. In the
    event that the security of a connector or content protection
    technology should be compromised while this interim policy is in
    effect, we will consider petitions for revocation pursuant to our
    normal Section 76.7 procedures.[^219] Parties seeking revocation
    should articulate in detail the extent to which the connector or
    content protection technology has been compromised and demonstrate
    why alternative revocation measures, such as those available under
    private licenses, are insufficient to address the breach in
    security.

    **VII. Second Further Notice of Proposed Rulemaking**

15. Although we believe that our adoption of the technical, labeling and
    encoding rules set forth herein will further the digital transition
    and facilitate the wider availability of digital cable services to
    consumers, further comment is needed on several issues. As an
    initial matter, we seek comment on whether the transmission
    standards applicable to digital cable systems with an activated
    channel capacity of 750 MHz or greater should be extended to digital
    cable systems with an activated channel capacity of 550 MHz or
    greater. In particular, we seek comment on the potential cost impact
    on such cable systems and whether waivers or other relief mechanisms
    are appropriate for cable systems that might experience economic
    hardship as a result of these obligations.

16. With respect to the issue of consumer information disclosures, we
    seek comment on whether the Commission should require consumer
    electronics manufacturers to provide consumers with pre-sale
    information regarding the functionalities of unidirectional digital
    cable televisions. For example, we seek comment on whether it is
    appropriate to require consumer electronics manufacturers to inform
    potential purchasers of unidirectional digital cable televisions
    of: (1) the need to use a set-top box in order to receive
    interactive services, (2) the necessity to obtain a POD from their
    cable operator, or (3) any other relevant information disclosing the
    functionalities or limitations of these devices. If so, we seek
    comment on the appropriate mechanism to communicate this information
    to consumers, including but not limited to point of sale marketing
    materials to be provided to retailers, more informative labeling on
    device packaging, the use of Internet web sites, or any other
    appropriate format designed to reach consumers before they make
    purchasing decisions.

17. Another area in which we seek additional comment relates to the
    down-resolution of non-broadcast MVPD programming. As discussed
    above, content providers assert that down-resolution is a necessary
    tool to incite the retirement of component analog outputs.[^220]
    Despite this assertion, the cable and consumer electronics
    industries have been unable to reach agreement on whether
    down-resolution was an appropriate content protection tool.[^221] We
    seek comment on whether the Commission should prohibit the
    activation by MVPDs of down-resolution for non-broadcast MVPD
    programming content. If so, we seek comment on the potential impact
    of such a ban on the availability of high value digital content to
    consumers. In the alternative, if the Commission were to permit the
    use of down-resolution in this manner, we seek comment on the
    potential impact on consumers with DTV equipment that only has
    component analog outputs. In particular, we seek comment on the
    number of consumers that might be affected and on the number of sets
    to be produced in the future with only analog outputs. Finally, we
    seek comment on the potential impact of down-resolution upon
    consumers who own DTV equipment with both digital and analog
    outputs.

18. As discussed above, we are concerned that because CableLabs is not a
    standards-setting body, its proposed role as the sole initial
    arbiter of outputs and associated content protection technologies to
    be used in unidirectional digital cable products could affect
    innovation and interoperability. This *Second FNPRM* seeks comment
    on whether standards and procedures should be adopted for the
    approval of new connectors or content protection technologies to be
    used with unidirectional digital cable televisions and products. If
    so, we seek comment on whether these standards and procedures should
    encompass other related consumer electronics equipment, including
    non-cable compatible DTV receivers.[^222] We also seek comment on
    the various types of content protection technologies that should be
    considered as a part of this process, including but not limited to
    digital rights management, wireless and encryption-based
    technologies.

19. With respect to the particular standards and procedures to be
    employed, we seek comment on whether objective criteria should be
    used to evaluate new connectors and content protection technologies
    and, if so, what specific criteria should be used. For example,
    Microsoft Corporation and Hewlett Packard Corporation have submitted
    a detailed proposal suggesting functional requirements that could be
    used to evaluate digital rights management technologies for use with
    digital cable ready products.[^223] We seek comment on this
    proposal, as well as other proposals relyinging on objective
    criteria,[^224] and any new proposals that commenters may submit to
    the Commission.

20. We also seek comment on whether CableLabs is the appropriate entity
    to make initial approval determinations, or whether another entity
    should have decision-making authority. In particular, we seek
    comment on whether the Commission, a qualified third party, or an
    independent entity representing various industry and consumer
    interests should make approval determinations.

21. As to the issue of how approved connectors or content protection
    technologies may be revoked should their security be compromised, we
    seek comment on the appropriate standard for revocation.
    Specifically, we seek comment on whether revocation is appropriate
    where a connector or content protection technology is perceived to
    be insecure, or whether the appropriate standard is where security
    has been compromised in a significant, widespread manner. Once a
    connector or content protection technology has been revoked, we seek
    comment on the appropriate mechanism by which revocation should be
    effectuated. For example, should revoked connectors or content
    protection technologies be eliminated on a going-forward basis,
    while preserving their functionality for existing devices? We also
    seek comment on whether there are technological or other means of
    revoking connectors or content protection technologies while
    preserving the functionality of consumer electronics devices.

# viiI. procedural MATTERS {#viii.-procedural-matters .unnumbered}

22. *Authority*. This *Second* *Further* *Notice of Proposed Rulemaking*
    is issued pursuant to authority contained in §§ Sections 1, 4(i) and
    (j), 303, 403, 601, 624A and 629 of the Communications Act of 1934,
    as amended.

23. *Ex Parte Rules -- Non-Restricted Proceeding*. This is a
    non-restricted notice and comment rulemaking proceeding. Ex parte
    presentations are permitted, except during the Sunshine Agenda
    period, provided that they are disclosed as provided in the
    Commission's Rules. *See generally* 47 C.F.R. §§ 1.1202, 1.1203, and
    1.1206(a).

24. *Accessibility Information*. Accessible formats of this *Second*
    *Order and Second Further* *Notice of Proposed Rulemaking* (computer
    diskettes, large print, audio recording and Braille) are available
    to persons with disabilities by contacting Brian Millin, of the
    Consumer & Governmental Affairs Bureau, at (202) 418-7426, TTY (202)
    418-7365, or at bmillin@fcc.gov.

25. *Comment Information*. Pursuant to Sections 1.415 and 1.419 of the
    Commission\'s rules, 47 C.F.R. §§ 1.415, 1.419, interested parties
    may file comments on or before **January 14, 2004**, and reply
    comments on or before **February 13, 2004**. Comments may be filed
    using the Commission\'s Electronic Comment Filing System (ECFS) or
    by filing paper copies. See Electronic Filing of Documents in
    Rulemaking Proceedings, 63 Fed. Reg. 24121 (1998).

26. Comments filed through the ECFS can be sent as an electronic file
    via the Internet to \<http://www.fcc.gov/e-file/ecfs.html\>.
    Generally, only one copy of an electronic submission must be filed.
    If multiple docket or rulemaking numbers appear in the caption of
    this proceeding, however, commenters must transmit one electronic
    copy of the comments to each docket or rulemaking number referenced
    in the caption. In completing the transmittal screen, commenters
    should include their full name, U.S. Postal Service mailing address,
    and the applicable docket or rulemaking number. Parties may also
    submit an electronic comment by Internet e-mail. To get filing
    instructions for e-mail comments, commenters should send an e-mail
    to ecfs@fcc.gov, and should include the following words in the body
    of the message, \"get form \<your e-mail address\>.\" A sample form
    and directions will be sent in reply. Parties who choose to file by
    paper must file an original and four copies of each filing. If more
    than one docket or rulemaking number appear in the caption of this
    proceeding, commenters must submit two additional copies for each
    additional docket or rulemaking number. Filings can be sent by hand
    or messenger delivery, by commercial overnight courier, or by
    first-class or overnight U.S. Postal Service mail (although we
    continue to experience delays in receiving U.S. Postal Service
    mail). The Commission\'s contractor, Natek, Inc., will receive
    hand-delivered or messenger-delivered paper filings for the
    Commission\'s Secretary at 236 Massachusetts Avenue, N.E., Suite
    110, Washington, D.C. 20002. The filing hours at this location are
    8:00 a.m. to 7:00 p.m. All hand deliveries must be held together
    with rubber bands or fasteners. Any envelopes must be disposed of
    before entering the building. Commercial overnight mail (other than
    U.S. Postal Service Express Mail and Priority Mail) must be sent to
    9300 East Hampton Drive, Capitol Heights, MD 20743. U.S. Postal
    Service first-class mail, Express Mail, and Priority Mail should be
    addressed to 445 12th Street, SW, Washington, D.C. 20554. All
    filings must be addressed to the Commission\'s Secretary, Office of
    the Secretary, Federal Communications Commission.

27. *Paperwork Reduction Act of 1995 Analysis*. The *Second Report and*
    *Order* portion of this *Second Report and* *Order and Second
    Further Notice of Proposed Rulemaking* contains new or modified
    information collection(s) subject to the Paperwork Reduction Act of
    1995 (PRA), Public Law 104-13. It will be submitted to the Office of
    Management and Budget (OMB) for review under Section 3507(d) of the
    PRA. OMB, the general public, and other Federal agencies are invited
    to comment on the new or modified information collection(s)
    contained in this proceeding.

28. Written comments by the public on the proposed information
    collection(s) are due 60 days from date of publication of this
    *Second Report and* *Order* in the Federal Register. Written
    comments must be submitted by the public, Office of Management and
    Budget and other interested parties on the proposed information
    collection(s) on or before 60 days from date of publication of this
    *Second Report and* *Order* in the Federal Register. In addition to
    filing comments with the Secretary, a copy of any comments on the
    information collection(s) contained herein should be submitted to
    Leslie Smith, Federal Communications Commission, Room 1-A804, 445
    12^th^ Street, SW, Washington, DC 20554, or via the Internet to
    Leslie.Smith@fcc.gov, and to Kim A. Johnson, OMB Desk Officer, Room
    10236 NEOB, 725 17^th^ Street, NW, Washington, DC 20503, or via the
    Internet to Kim_A.\_Johnson@omb.eop.gov.

29. *Regulatory Flexibility Act*. As required by the Regulatory
    Flexibility Act,[^225] the Commission has prepared a Final
    Regulatory Flexibility Analysis ("FRFA") relating to the *Second
    Report and Order* portion of this *Second* *Report and* *Order and
    Second Further Notice of Proposed Rulemaking*. The FRFA is set forth
    in Appendix C. The Commission has also prepared an Initial
    Regulatory Flexibility Analysis ("IRFA") of the possible significant
    economic impact on a substantial number of small entities of the
    proposals addressed in *Second* *Further Notice* portion of this
    *Second* *Report and* *Order and Second Further Notice of Proposed
    Rulemaking*.[^226] The IRFA is set forth in Appendix D. Written
    public comments are requested on the IRFA. These comments must be
    filed in accordance with the same filing deadlines for comments on
    the *Second* *Further Notice*, and they should have a separate and
    distinct heading designating them as responses to the IRFA.

# IX. ORDERING CLAUSES {#ix.-ordering-clauses .unnumbered}

30. **IT IS ORDERED** that pursuant to the authority contained in
    Sections 1, 4(i) and (j), 303, 403, 601, 624A and 629 of the
    Communications Act of 1934, 47 U.S.C §§ 151, 154(i) and (j), 303,
    403, 521, 544a and 549, that the Commission's rules **ARE HEREBY
    AMENDED** as set forth in Appendix B, and shall become effective 30
    days after publication in the Federal Register except that rule
    sections 15.123, 76.1905 and 76.1906 that contain information
    collection requirements under the PRA are not effective until
    approved by OMB. The FCC will publish a document in the Federal
    Register announcing the effective date for those sections**.**

31. **IT IS FURTHER ORDERED** that the Commission's Consumer and
    Governmental Affairs Bureau, Reference Information Center, **SHALL
    SEND** a copy of this *Second* *Report and* *Order and Second
    Further Notice of Proposed Rulemaking*, including the Final
    Regulatory Flexibility Analysis and Initial Regulatory Flexibility
    Analysis, to the Chief Counsel for Advocacy of the Small Business
    Administration.

    FEDERAL COMMUNICATIONS COMMISSION

> Marlene H. Dortch

#  Secretary {#secretary .unnumbered}

**APPENDIX A**

**[List of Commenters]{.underline}**

American Cable Association

ATI Technologies, Dell, Intel, HP, Microsoft & NEC

Comcast Corporation

Consumer Electronics Assoc./Consumer Electronics Retailers Coalition

DirecTV, Inc.

Electronic Frontier Foundation

Home Recording Rights Coalition

Intel Corporation

Motion Picture Association of America

National Assoc. of Broadcasters/Assoc. for Maximum Service Television

National Cable & Telecommunications Assoc.

National Music Publishers' Association, *et al*.

Public Knowledge and Consumers Union

Satellite Broadcasting & Communications Assoc.

Sinclair Broadcast Group Inc.

Starz Encore Group LLC

Telecommunications for the Deaf, Inc.

TiVo Inc.

Zenith Electronics Corporation

**[List of Reply Commenters]{.underline}**

APTS/PBS/CPB

Comcast Corporation

Consumer Electronics Assoc./Consumer Electronics Retailers Coalition

Consumer Federation of America

Echostar Satellite Corporation

Electronic Frontier Foundation

Genesis Microchip, Inc.

Gist Communications

Home Box Office, Inc.

Home Recording Rights Coalition

Motion Picture Association of America

National Assoc. of Broadcasters/Assoc. for Maximum Service Television

National Cable & Telecommunications Assoc.

National Music Publishers' Association, *et al*.

Paxson Communications Corporation

Philips Electronics North America Corporation

Public Knowledge and Consumers Union

Starz Encore Group LLC

# Veridian Corporation {#veridian-corporation .unnumbered}

**APPENDIX B**

Part 15 of the Code of Federal Regulations is amended as follows:

PART 15 -- RADIO FREQUENCY DEVICES

1.  The authority for Part 15 continues to read as follows:

    AUTHORITY: 47 U.S.C. 154, 302, 303, 304, 307, 336, and 544a.

2.  Amend §15.19(d) by removing paragraphs (d)(1), (d)(2), (d)(2)(i),
    (d)(2)(ii), (d)(2)(iii), (d)(3), and (d)(4) to read as follows:

    **§15.19 Labeling requirements.**

    **\*\*\*\*\***

    \(d\) Consumer electronics TV receiving devices, including TV
    receivers, videocassette recorders, and similar devices, that
    incorporate features intended to be used with cable television
    service, but do not fully comply with the technical standards for
    cable ready equipment set forth in § 15.118, shall not be marketed
    with terminology that describes the device as \"cable ready\" or
    \"cable compatible,\" or that otherwise conveys the impression that
    the device is fully compatible with cable service. Factual
    statements about the various features of a device that are intended
    for use with cable service or the quality of such features are
    acceptable so long as such statements do not imply that the device
    is fully compatible with cable service. Statements relating to
    product features are generally acceptable where they are limited to
    one or more specific features of a device, rather than the device as
    a whole. This requirement applies to consumer TV receivers,
    videocassette recorders and similar devices manufactured or imported
    for sale in this country on or after October 31, 1994.

    \*\*\*\*\*

3.  Add §15.38 to subpart A to read as follows:

    **§15.38 Incorporations by Reference.**

    \(a\) The materials listed in this section are incorporated by
    reference in this part. These incorporations by reference were
    approved by the Director of the Federal Register in accordance with
    5 U.S.C. 552(a) and 1 CFR part 51. These materials are incorporated
    as they exist on the date of the approval, and notice of any change
    in these materials will be published in the Federal Register. The
    materials are available for purchase at the corresponding addresses
    noted below, and all are available for inspection at the Office of
    the Federal Register, 800 North Capitol Street, NW, suite 700,
    Washington, DC, at the Reference Information Center, Federal
    Communications Commission, 445 12th. St., SW, Room CY- A257,
    Washington, DC 20554.

    \(b\) The following materials are available for purchase from at
    least one of the following addresses: Global Engineering Documents,
    15 Inverness Way East, Englewood, CO 80112 or at
    http://global.ihs.com; or American National Standards Institute, 25
    West 43rd Street, 4th Floor, New York, NY 10036 or at
    http://webstore.ansi.org/ansidocstore/default.asp; or Society of
    Cable Telecommunications Engineers at
    http://www.scte.org/standards/index.cfm.

> \(1\) SCTE 28 2003 (formerly DVS 295): "Host-POD Interface Standard,"
> 2003, IBR approved for § 15.123.
>
> \(2\) SCTE 41 2003 (formerly DVS 301): "POD Copy Protection System,"
> 2003, IBR approved for §15.123.
>
> \(3\) ANSI/SCTE 54 2003 (formerly DVS 241): "Digital Video Service
> Multiplex and Transport System Standard for Cable Television," 2003,
> IBR approved for §15.123.
>
> \(4\) ANSI/SCTE 65 2002 (formerly DVS 234): "Service Information
> Delivered Out-of-Band for Digital Cable Television," 2002, IBR
> approved for §15.123.
>
> \(5\) SCTE 40 2003 (formerly DVS 313): "Digital Cable Network
> Interface Standard," 2003, IBR approved for §15.123.
>
> \(6\) ANSI C63.4-1992: "Methods of Measurement of Radio-Noise
> Emissions from Low-Voltage Electrical and Electronic Equipment in the
> Range of 9 kHz to 40 GHz," 1992, IBR approved for §15.31, except for
> sections 5.7, 9 and 14.
>
> \(7\) EIA IS-132: "Cable Television Channel Identification Plan,"
> 1994, IBR approved for §15.118.
>
> \(8\) EIA-608: "Recommended Practice for Line 21 Data Service," 1994,
> IBR approved for §15.120.
>
> \(9\) EIA-744: "Transport of Content Advisory Information Using
> Extended Data Service (XDS)," 1997, IBR approved for §15.120.
>
> \(10\) EIA-708-B: "Digital Television (DTV) Closed Captioning," 1999,
> IBR approved for §15.122.
>
> \(11\) Third Edition of the International Special Committee on Radio
> Interference (CISPR), Pub. 22, "Information Technology Equipment --
> Radio Disturbance Characteristics -- Limits and Methods of
> Measurement," 1997, IBR approved for §15.109.
>
> \(c\) The following materials are freely available from at least one
> of the following addresses: Consumer Electronics Association, 2500
> Wilson Blvd., Arlington, VA 22201 or at http://www.ce.org/public
> policy.
>
> \(1\) Uni-Dir-PICS-I01-030903: "Uni-Directional Receiving Device:
> Conformance Checklist: PICS Proforma," 2003, IBR approved for §15.123.

\* \* \* \* \*

4.  Add §15.123 to subpart B to read as follows:

    **§15.123 Labeling of Digital Cable Ready Products.**

    \(a\) The requirements of this section shall apply to unidirectional
    digital cable products. Unidirectional digital cable products are
    one-way devices that accept a Point of Deployment module (POD) and
    which include, but are not limited to televisions, set-top-boxes and
    recording devices connected to digital cable systems. Unidirectional
    digital cable products do not include interactive two-way digital
    television products.

    \(b\) A unidirectional digital cable product may not be labeled with
    or marketed using the term "digital cable ready," or other
    terminology that describes the device as "cable ready" or "cable
    compatible," or otherwise indicates that the device accepts a POD or
    conveys the impression that the device is compatible with digital
    cable service unless it implements at a minimum the following
    features:

    \(1\) Tunes NTSC analog channels transmitted in-the-clear.

    \(2\) Tunes digital channels that are transmitted in compliance with
    SCTE 40 2003 (formerly DVS 313): "Digital Cable Network Interface
    Standard" (incorporated by reference, see § 15.38), provided,
    however, that with respect to Table B.11 of that standard, the phase
    noise requirement shall be -86 dB/Hz including both in-the-clear
    channels and channels that are subject to conditional access.

    \(3\) Allows navigation of channels based on channel information
    (virtual channel map and source names) provided through the cable
    system in compliance with ANSI/SCTE 65 2002 (formerly DVS 234):
    "Service Information Delivered Out-of-Band for Digital Cable
    Television" (incorporated by reference, see § 15.38), and/or
    PSIP-­enabled navigation (ANSI/SCTE 54 2003 (formerly DVS 241):
    "Digital Video Service Multiplex and Transport System Standard for
    Cable Television" (incorporated by reference, see § 15.38)).

    \(4\) Includes the POD-Host Interface specified in SCTE 28 2003
    (formerly DVS 295): "Host-POD Interface Standard" (incorporated by
    reference, see § 15.38), and SCTE 41 2003 (formerly DVS 301): "POD
    Copy Protection System" (incorporated by reference, see § 15.38), or
    implementation of a more advanced POD-­Host Interface based on
    successor standards. Support for Internet protocol flows is not
    required.

    \(5\) Responds to emergency alerts that are transmitted in
    compliance with ANSI/SCTE 54 2003 (formerly DVS 241): "Digital Video
    Service Multiplex and Transport System Standard for Cable
    Television" (incorporated by reference, see § 15.38).

    \(6\) In addition to the above requirements, a unidirectional
    digital cable television may not be labeled or marketed as digital
    cable ready or with other terminology as described in paragraph (b)
    of this section, unless it includes a DTV broadcast tuner as set
    forth in §15.117(i) and employs at least one specified interface in
    accordance with the following schedule:

    \(i\) For 480p grade unidirectional digital cable televisions,
    either a DVI/HDCP, HDMI/HDCP, or 480p Y,Pb,Pr interface:

    \(A\) Models with screen sizes 36 inches and above: 50% of a
    manufacturer\'s or importer's models manufactured or imported after
    July 1, 2004; 100% of such models manufactured or imported after
    July 1, 2005.

    \(B\) Models with screen sizes 32 to 35 inches: 50% of a
    manufacturer\'s or importer's models manufactured or imported after
    July 1, 2005; 100% of such models manufactured or imported after
    July 1, 2006.

    \(ii\) For 720p/1080i grade unidirectional digital cable
    televisions, either a DVI/HDCP or HDMI/HDCP interface:

    \(A\) Models with screen sizes 36 inches and above: 50% of a
    manufacturer\'s or importer's models manufactured or imported after
    July 1, 2004; 100% of such models manufactured or imported after
    July 1, 2005.

    \(B\) Models with screen sizes 25 to 35 inches: 50% of a
    manufacturer\'s or importer's models manufactured or imported after
    July 1, 2005; 100% of such models manufactured or imported after
    July l, 2006.

    \(C\) Models with screen sizes 13 to 24 inches: 100% of a
    manufacturer\'s or importer's models manufactured or imported after
    July 1, 2007.

    \(c\) Before a manufacturer's or importer's first unidirectional
    digital cable product may be labeled or marketed as digital cable
    ready or with other terminology as described in paragraph (b) of
    this section, the manufacturer or importer shall verify the device
    as follows:

    \(1\) The manufacturer or importer shall have a sample of its first
    model of a unidirectional digital cable product tested to show
    compliance with the procedures set forth in Uni-Dir-PICS-I01-030903:
    "Uni-Directional Receiving Device: Conformance Checklist: PICS
    Proforma" (incorporated by reference, see § 15.38) at a qualified
    test facility. The manufacturer or importer shall have any
    modifications to the product to correct failures of the procedures
    in Uni-Dir-PICS-I01-030903: "Uni-Directional Receiving Device:
    Conformance Checklist: PICS Proforma" (incorporated by reference,
    see § 15.38) retested at a qualified test facility.

    \(2\) A qualified test facility is a facility representing cable
    television system operators serving a majority of the cable
    television subscribers in the United States or an independent
    laboratory with personnel knowledgeable with respect to the
    standards referenced in paragraph (b) of this section concerning the
    procedures set forth in Uni-Dir-PICS-I01-030903: "Uni-Directional
    Receiving Device: Conformance Checklist: PICS Proforma"
    (incorporated by reference, see § 15.38).

    \(3\) Subsequent to the testing of its initial unidirectional
    digital cable product model, a manufacturer or importer is not
    required to have other models of unidirectional digital cable
    products tested at a qualified test facility for compliance with the
    procedures of Uni-Dir-PICS-I01-030903: "Uni-Directional Receiving
    Device: Conformance Checklist: PICS Proforma" (incorporated by
    reference, see § 15.38). However, the manufacturer or importer shall
    ensure that all subsequent models of unidirectional digital cable
    products comply with the procedures in the Uni-Dir-PICS-I01-030903:
    "Uni-Directional Receiving Device: Conformance Checklist: PICS
    Proforma" (incorporated by reference, see § 15.38) and all other
    applicable rules and standards. The manufacturer or importer shall
    maintain records indicating such compliance in accordance with the
    verification procedure requirements in part 2, subpart J of this
    chapter. The manufacturer or importer shall further submit
    documentation verifying compliance with the procedures in the
    Uni-Dir-PICS-I01-030903: "Uni-Directional Receiving Device:
    Conformance Checklist: PICS Proforma" (incorporated by reference,
    see § 15.38) to a facility representing cable television system
    operators serving a majority of the cable television subscribers in
    the United States.

    \(d\) Manufacturers and importers shall provide in appropriate
    post-sale material that describes the features and functionality of
    the product, such as the owner\'s guide, the following language:
    "This digital television is capable of receiving analog basic,
    digital basic and digital premium cable television programming by
    direct connection to a cable system providing such programming. A
    security card provided by your cable operator is required to view
    encrypted digital programming. Certain advanced and interactive
    digital cable services such as video-on-demand, a cable operator\'s
    enhanced program guide and data-enhanced television services may
    require the use of a set-top box. For more information call your
    local cable operator."

    \* \* \* \* \*

    Part 76 of the Code of Federal Regulations is amended as follows:

    PART 76 -- MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

5.  The authority for Part 76 continues to read as follows:

    AUTHORITY: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a, 307,
    308, 309, 312, 317, 325, 338, 339, 503, 521, 522, 531, 532, 533,
    534, 535, 536, 537, 543, 544, 544a, 545, 548, 549, 552, 554, 556,
    558, 560, 531, 571, 572, and 573.

6.  Add §76.602 to subpart K to read as follows:

    **§76.602 Incorporations by Reference.**

    \(a\) The materials listed in this section are incorporated by
    reference in this part. These incorporations by reference were
    approved by the Director of the Federal Register in accordance with
    5 U.S.C. 552(a) and 1 CFR part 51. These materials are incorporated
    as they exist on the date of the approval, and notice of any change
    in these materials will be published in the Federal Register. The
    materials are available for purchase at the corresponding addresses
    noted below, and all are available for inspection at the Office of
    the Federal Register, 800 North Capitol Street, NW, suite 700,
    Washington, DC, at the Reference Information Center, Federal
    Communications Commission, 445 12th. St., SW, Room CY- A257,
    Washington, DC 20554.

    \(b\) The following materials are available for purchase from at
    least one of the following addresses: Global Engineering Documents,
    15 Inverness Way East, Englewood, CO 80112 or at
    http://global.ihs.com; or American National Standards Institute, 25
    West 43rd Street, 4th Floor, New York, NY 10036 or at
    http://webstore.ansi.org/ansidocstore/default.asp; or Society of
    Cable Telecommunications Engineers at
    [http://www.scte.org/standards/index.cfm]{.underline} ; or Advanced
    Television Systems Committee, 1750 K Street, NW, Suite 1200,
    Washington, DC 20006 or at
    [http://www.atsc.org/standards]{.underline}.

> \(1\) ANSI/SCTE 26 2001 (formerly DVS 194): "Home Digital Network
> Interface Specification with Copy Protection," 2001, IBR approved for
> §76.640.
>
> \(2\) SCTE 28 2003 (formerly DVS 295): "Host-POD Interface Standard,"
> 2003, IBR approved for § 76.640.
>
> \(3\) SCTE 41 2003 (formerly DVS 301): "POD Copy Protection System,"
> 2003, IBR approved for §76.640.

(4) ANSI/SCTE 54 2003 (formerly DVS 241): "Digital Video Service
    Multiplex and Transport System Standard for Cable Television," 2003,
    IBR approved for §76.640.

> \(5\) ANSI/SCTE 65 2002 (formerly DVS 234): "Service Information
> Delivered Out-of-Band for Digital Cable Television," 2002, IBR
> approved for §76.640.
>
> \(6\) CEA-931-A: "Remote Control Command Pass-through Standard for
> Home Networking," 2003, IBR approved for §76.640.
>
> \(7\) SCTE 40 2003 (formerly DVS 313): "Digital Cable Network
> Interface Standard," 2003, IBR approved for §76.640.
>
> \(8\) ATSC Document A/65B: "ATSC Standard: Program and System
> Information Protocol for Terrestrial Broadcast and Cable (Revision
> B)," 2003, IBR approved for §76.640.
>
> \(9\) EIA IS-132: "Cable Television Channel Identification Plan,"
> 1994, IBR approved for §76.605.

\* \* \* \* \*

7.  Add §76.640 to subpart B to read as follows:

    **§76.640 Support for Unidirectional Digital Cable Products on
    Digital Cable Systems.**

    \(a\) The requirements of this section shall apply to digital cable
    systems. For purposes of this section, digital cable systems shall
    be defined as a cable system with one or more channels utilizing QAM
    modulation for transporting programs and services from its headend
    to receiving devices. Cable systems that only pass through 8 VSB
    broadcast signals shall not be considered digital cable systems.

    \(b\) No later than July 1, 2004, cable operators shall support
    unidirectional digital cable products, as defined in §15.123 of this
    chapter, through the provisioning of Point-of-Deployment modules
    (PODs) and services, as follows:

    \(1\) Digital cable systems with an activated channel capacity of
    750 MHz or greater shall comply with the following technical
    standards and requirements:

    \(i\) SCTE 40 2003 (formerly DVS 313): "Digital Cable Network
    Interface Standard" (incorporated by reference, see § 76.602),
    provided however that with respect to Table B.11, the Phase Noise
    requirement shall be -86 dB/Hz, and also provided that the \"transit
    delay for most distant customer\" requirement in Table B.3 is not
    mandatory.

    \(ii\) ANSI/SCTE 65 2002 (formerly DVS 234): "Service Information
    Delivered Out-of-Band for Digital Cable Television" (incorporated by
    reference, see § 76.602), provided however that the referenced
    Source Name Subtable shall be provided for Profiles 1, 2, and 3.

    \(iii\) ANSI/SCTE 54 2003 (formerly DVS 241): "Digital Video Service
    Multiplex and Transport System Standard for Cable Television"
    (incorporated by reference, see § 76.602).

    \(iv\) For each digital transport stream that includes one or more
    services carried in-the-clear, such transport stream shall include
    virtual channel data in-band in the form of ATSC Document A/65B:
    "ATSC Standard: Program and System Information Protocol for
    Terrestrial Broadcast and Cable (Revision B)" (incorporated by
    reference, see § 76.602), when available from the content
    provider**.** With respect to in-band transport:

    \(A\) The data shall, at minimum, describe services carried within
    the transport stream carrying the PSIP data itself;

    \(B\) PSIP data describing a twelve-hour time period shall be
    carried for each service in the transport stream. This twelve-hour
    period corresponds to delivery of the following event information
    tables: EIT-0, -1, -2 and -3;

    \(C\) The format of event information data format shall conform to
    ATSC Document A/65B: "ATSC Standard: Program and System Information
    Protocol for Terrestrial Broadcast and Cable (Revision B)"
    (incorporated by reference, see § 76.602);

    \(D\) Each channel shall be identified by a one-or two-part channel
    number and a textual channel name; and

    \(E\) The total bandwidth for PSIP data may be limited by the cable
    system to 80 kbps for a 27 Mbits multiplex and 115 kbps for a 38.8
    Mbits multiplex.

    \(v\) When service information tables are transmitted out-of-band
    for scrambled services:

    \(A\) The data shall, at minimum, describe services carried within
    the transport stream carrying the PSIP data itself;

    \(B\) A virtual channel table shall be provided via the extended
    channel interface from the POD module. Tables to be included shall
    conform to ANSI/SCTE 65 2002 (formerly DVS 234): "Service
    Information Delivered Out-of-Band for Digital Cable Television"
    (incorporated by reference, see § 76.602).

    \(C\) Event information data when present shall conform to ANSI/SCTE
    65 2002 (formerly DVS 234): "Service Information Delivered
    Out-of-Band for Digital Cable Television" (incorporated by
    reference, see § 76.602) (profiles 4 or higher).

    \(D\) Each channel shall be identified by a one-or two-part channel
    number and a textual channel name; and

    \(E\) The channel number identified with out-of-band signaling
    information data should match the channel identified with in-band
    PSIP data for all unscrambled in-the-clear services.

    \(2\) All digital cable systems shall comply with:

    \(i\) SCTE 28 2003 (formerly DVS 295): "Host-POD Interface Standard"
    (incorporated by reference, see § 76.602).

    \(ii\) SCTE 41 2003 (formerly DVS 301): "POD Copy Protection System"
    (incorporated by reference, see § 76.602).

    \(3\) Cable operators shall ensure, as to all digital cable systems,
    an adequate supply of PODs that comply with the standards specified
    in paragraph (b)(2) of this section to ensure convenient access to
    such PODS by customers. Without limiting the foregoing, cable
    operators may provide more advanced PODs (i.e., PODs that are based
    on successor standards to those specified in paragraph (b)(2) of
    this section) to customers whose unidirectional digital cable
    products are compatible with the more advanced PODs.

    \(4\) Cable operators shall:

    \(i\) Effective April 1, 2004, upon request of a customer, replace
    any leased high definition set-top box, which does not include a
    functional IEEE 1394 interface, with one that includes a functional
    IEEE 1394 interface or upgrade the customer\'s set-top box by
    download or other means to ensure that the IEEE 1394 interface is
    functional.

    \(ii\) Effective July 1, 2005, include both a DVI or HDMI interface
    and an IEEE 1394 interface on all high definition set-top boxes
    acquired by a cable operator for distribution to customers.

    \(iii\) Ensure that these cable operator-provided high definition
    set-top boxes shall comply with ANSI/SCTE 26 2001 (formerly DVS
    194): "Home Digital Network Interface Specification with Copy
    Protection" (incorporated by reference, see § 76.602), with
    transmission of bit-mapped graphics optional, and shall support the
    CEA-931-A: "Remote Control Command Pass-through Standard for Home
    Networking" (incorporated by reference, see § 76.602), pass through
    control commands: tune function, mute function, and restore volume
    function. In addition these boxes shall support the power control
    commands (power on, power off, and status inquiry) defined in A/VC
    Digital Interface Command Set General Specification Version 4.0 (as
    referenced in ANSI/SCTE 26 2001 (formerly DVS 194): "Home Digital
    Network Interface Specification with Copy Protection" (incorporated
    by reference, see § 76.602)).

    \* \* \* \* \*

8.  Add subpart W to read as follows:

    **Subpart W -- Encoding Rules**

    Sec.

    76.1901 Applicability.

    76.1902 Definitions.

    76.1903 Interfaces.

    76.1904 Encoding Rules for Defined Business Models.

    76.1905 Petitions to Modify Encoding Rules for New Services Within
    Defined Business Models

    76.1906 Encoding Rules for Undefined Business Models.

    76.1907 Temporary Bona Fide Trials.

    76.1908 Certain Practices Not Prohibited.

    **§76.1901 Applicability**

    \(a\) Each multi-channel video programming distributor shall comply
    with the requirements of this subpart.

    \(b\) This subpart shall not apply to distribution of any content
    over the Internet, nor to a multi­channel video programming
    distributor\'s operations via cable modem or DSL.

    \(c\) With respect to cable system operators, this subpart shall
    apply only to cable services. This subpart shall not apply to cable
    modem services, whether or not provided by a cable system operator
    or affiliate.

    **§76.1902 Definitions**

    \(a\) [Commercial Advertising Messages]{.underline} shall mean, with
    respect to any service, Program, or schedule or group of Programs,
    commercial advertising messages other than: (1) advertising relating
    to such service itself or the programming contained therein, (2)
    interstitial programming relating to such service itself or the
    programming contained therein, or (3) any advertising which is
    displayed concurrently with the display of any part of such
    Program(s), including but not limited to "bugs," "frames" and
    "banners."

    \(b\) [Commercial Audiovisual Content]{.underline} shall mean works
    that consist of a series of related images which are intrinsically
    intended to be shown by the use of machines, or devices such as
    projectors, viewers, or electronic equipment, together with
    accompanying sounds, if any, regardless of the nature of the
    material objects, such as films or tapes, in which the works are
    embodied, transmitted by a Covered Entity and that are: (1) not
    created by the user of a Covered Product, and (2) offered for
    transmission, either generally or on demand, to subscribers or
    purchasers or the public at large or otherwise for commercial
    purposes, not uniquely to an individual or a small, private group.

    \(c\) [Commercially-Adopted Access Control Method]{.underline} shall
    mean any commercially-adopted access control method including
    digitally controlled analog scrambling systems, whether now or
    hereafter in commercial use.

    \(d\) [Copy Never]{.underline} shall mean, with respect to
    Commercial Audiovisual Content, the Encoding of such content so as
    to signal that such content may not to be copied by a Covered
    Product.

    \(e\) [Copy One Generation]{.underline} shall mean, with respect to
    Commercial Audiovisual Content, the Encoding of such content so as
    to permit a first generation of copies to be made by a Covered
    Product but not copies of such first generation of copies.

    \(f\) [Copy No More]{.underline} shall mean, with respect to
    Commercial Audiovisual Content, the Encoding of such content so as
    to reflect that such content is a first generation copy of content
    Encoded as Copy One Generation and no further copies are permitted.

    \(g\) [Covered Product]{.underline} shall mean a device used by
    consumers to access Commercial Audiovisual Content offered by a
    Covered Entity (excluding delivery via cable modem or the Internet);
    and any device to which Commercial Audiovisual Content so delivered
    from such Covered Product may be passed, directly or indirectly.

    \(h\) [Covered Entity]{.underline} shall mean any entity that is
    subject to this subpart.

    \(i\) [Defined Business Model]{.underline} shall mean
    Video-on-Demand, Pay-Per View, Pay Television Transmission,
    Non-Premium Subscription Television, Free Conditional Access
    Delivery and Unencrypted Broadcast Television.

    \(j\) [Encode]{.underline} shall mean, in the transmission of
    Commercial Audiovisual Content, to pass, attach, embed, or otherwise
    apply to, associate with, or allow to persist in or remain
    associated with such content, data or information which when read or
    responded to in a Covered Device has the effect of preventing,
    pausing, or limiting copying, or constraining the resolution of a
    Program when output from the Covered Device.

    \(k\) [Encoding Rules]{.underline} shall mean the requirements or
    prohibitions describing or limiting Encoding of audiovisual content
    as set forth in this Rule.

    \(l\) [Free Conditional Access Delivery]{.underline} shall mean a
    delivery of a service, Program, or schedule or group of Programs via
    a Commercially-Adopted Access Control Method, where viewers are not
    charged any fee (other than government-mandated fees) for the
    reception or viewing of the programming contained therein, other
    than Unencrypted Broadcast Television.

    \(m\) [Non-Premium Subscription Television]{.underline} shall mean a
    service, or schedule or group of Programs (which may be offered for
    sale together with other services, or schedule or group of
    Programs), for which subscribers are charged a subscription fee for
    the reception or viewing of the programming contained therein, other
    than Pay Television, Subscription-on-Demand and Unencrypted
    Broadcast Television. By way of example, "basic cable service" and
    "extended basic cable service" (other than Unencrypted Broadcast
    Television) are "Non-Premium Subscription Television."

    \(n\) [Pay-Per-View]{.underline} shall mean a delivery of a single
    Program or a specified group of Programs, as to which each such
    single Program is generally uninterrupted by Commercial Advertising
    Messages and for which recipients are charged a separate fee for
    each Program or specified group of Programs. The term Pay-Per-View
    shall also include delivery of a single Program as described above
    for which multiple start times are made available at time intervals
    which are less than the running time of such Program as a whole. If
    a given delivery qualifies both as Pay-Per-View and a Pay Television
    Transmission, then, for purposes of this Rule, such delivery shall
    be deemed Pay- Per-View rather than a Pay Television Transmission.

    \(o\) [Pay Television Transmission]{.underline} shall mean a
    transmission of a service or schedule of Programs, as to which each
    individual Program is generally uninterrupted by Commercial
    Advertising Messages and for which service or schedule of Programs
    subscribing viewers are charged a periodic subscription fee, such as
    on a monthly basis, for the reception of such programming delivered
    by such service whether separately or together with other services
    or programming, during the specified viewing period covered by such
    fee. If a given delivery qualifies both as a Pay Television
    Transmission and Pay-Per-View, Video-on-Demand, or
    Subscription-on-Demand then, for purposes of this Rule, such
    delivery shall be deemed Pay-Per­-View, Video-on-Demand or
    Subscription-on-Demand rather than a Pay Television Transmission.

    \(p\) [Program]{.underline} shall mean any work of Commercial
    Audiovisual Content.

    \(q\) [Subscription-on-Demand]{.underline} shall mean the delivery
    of a single Program or a specified group of Programs for which: (1)
    a subscriber is able, at his or her discretion, to select the time
    for commencement of exhibition thereof, (2) where each such single
    Program is generally uninterrupted by Commercial Advertising
    Messages; and (3) for which Program or specified group of Programs
    subscribing viewers are charged a periodic subscription fee for the
    reception of programming delivered by such service during the
    specified viewing period covered by the fee. In the event a given
    delivery of a Program qualifies both as a Pay Television
    Transmission and Subscription-on-Demand, then for purposes of this
    Rule, such delivery shall be deemed Subscription-on-Demand rather
    than a Pay Television Transmission.

    \(r\) [Undefined Business Model]{.underline} shall mean a business
    model that does not fall within the definition of a Defined Business
    Model.

    \(s\) [Unencrypted Broadcast Television]{.underline} means any
    service, Program, or schedule or group of Programs, that is a
    further transmission of a broadcast transmission
    ([i.e.]{.underline}, an over-the-air transmission for reception by
    the general public using radio frequencies allocated for that
    purpose) that substantially simultaneously is made by a terrestrial
    television broadcast station located within the country or territory
    in which the entity further transmitting such broadcast transmission
    also is located, where such broadcast transmission is not subject to
    a Commercially­- Adopted Access Control Method ([e.g.]{.underline},
    is broadcast in the clear to members of the public receiving such
    broadcasts), regardless of whether such entity subjects such further
    transmission to an access control method.

    \(t\) [Video-on-Demand]{.underline} shall mean a delivery of a
    single Program or a specified group of Programs for which: (1) each
    such individual Program is generally uninterrupted by Commercial
    Advertising Messages; (2) recipients are charged a separate fee for
    each such single Program or specified group of Programs; and (3) a
    recipient is able, at his or her discretion, to select the time for
    commencement of exhibition of such individual Program or specified
    group of Programs. In the event a delivery qualifies as both
    Video-on-Demand and a Pay Television Transmission, then for purposes
    of this Rule, such delivery shall be deemed Video-on-Demand.

    **§76.1903 Interfaces**

    A Covered Entity shall not attach or embed data or information with
    Commercial Audiovisual Content, or otherwise apply to, associate
    with, or allow such data to persist in or remain associated with
    such content, so as to prevent its output through any analog or
    digital output authorized or permitted under license, law or
    regulation governing such Covered Product.

    **§76.1904 Encoding Rules for Defined Business Models**

    \(a\) Commercial Audiovisual Content delivered as Unencrypted
    Broadcast Television shall not be Encoded so as to prevent or limit
    copying thereof by Covered Products or, to constrain the resolution
    of the image when output from a Covered Product.

    \(b\) Except for a specific determination made by the Commission
    pursuant to a petition with respect to a Defined Business Model
    other than Unencrypted Broadcast Television, or an Undefined
    Business Model subject to the procedures set forth in §76.1906:

    \(1\) Commercial Audiovisual Content shall not be Encoded so as to
    prevent or limit copying thereof except as follows:

    \(i\) to prevent or limit copying of Video-on-Demand or Pay-Per-View
    transmissions, subject to the requirements of paragraph (b)(2) of
    this section; and

    \(ii\) to prevent or limit copying, other than first generation of
    copies, of Pay Television Transmissions, Non-Premium Subscription
    Television, and Free Conditional Access Delivery transmissions; and

    \(2\) With respect to any Commercial Audiovisual Content delivered
    or transmitted in form of a Video-on-Demand or Pay-Per-View
    transmission, a Covered Entity shall not Encode such content so as
    to prevent a Covered Product, without further authorization, from
    pausing such content up to 90 minutes from initial transmission by
    the Covered Entity ([e.g.]{.underline}, frame-by-frame,
    minute-by-minute, megabyte by megabyte).

    **§76.1905 Petitions to Modify Encoding Rules for New Services
    Within Defined Business Models**

    \(a\) The Encoding Rules for Defined Business Models in §76.1904
    reflect the conventional methods for packaging programs in the MVPD
    market as of December 31, 2002, and are presumed to be the
    appropriate rules for Defined Business Models. A Covered Entity may
    petition the Commission for approval to allow within a Defined
    Business Model, other than Unencrypted Broadcast Television, the
    Encoding of a new service in a manner different from the Encoding
    Rules set forth in §76.1904(b)(1)-(2). No such petition will be
    approved under the public interest test set forth below unless the
    new service differs from existing services provided by any Covered
    Entity under the applicable Defined Business Model prior to December
    31, 2002.

    \(b\) [Petitions]{.underline}. A petition to Encode a new service
    within a Defined Business Model other than as permitted by the
    Encoding Rules set forth in §76.1904(b)(1)-(2) shall describe:

    \(1\) The Defined Business Model, the new service, and the proposed
    Encoding terms, including the use of Copy Never and Copy One
    Generation Encoding, and the Encoding of content with respect to
    \"pause\" set forth in §76.1904(b)(2).

    \(2\) Whether the claimed benefit to consumers of the new service,
    including, but not limited to, the availability of content in
    earlier release windows, more favorable terms, innovation or
    original programming, outweighs the limitation on the consumers'
    control over the new service;

    \(3\) The ways in which the new service differs from existing
    services offered by any Covered Entity within the applicable Defined
    Business Model prior to December 31, 2002;

    \(4\) All other pertinent facts and considerations relied on to
    support a determination that grant of the Petition would serve the
    public interest.

    \(5\) Factual allegations shall be supported by affidavit or
    declaration of a person or persons with actual knowledge of the
    facts, and exhibits shall be verified by the person who prepares
    them.

    \(c\) [Petition Process]{.underline}.

    \(1\) [Public Notice]{.underline}. The Commission shall give public
    notice of any such Petition.

    \(2\) [Comments]{.underline}. Interested persons may submit comments
    or oppositions to the petition within thirty (30) days after the
    date of public notice of the filing of such petition. Comments or
    oppositions shall be served on the petitioner and on all persons
    listed in petitioner\'s certificate of service, and shall contain a
    detailed full statement of any facts or considerations relied on.
    Factual allegations shall be supported by affidavit or declaration
    of a person or persons with actual knowledge of the facts, and
    exhibits shall be verified by the person who prepares them.

    \(3\) [Replies]{.underline}. The petitioner may file a reply to the
    comments or oppositions within ten (10) days after their submission,
    which shall be served on all persons who have filed pleadings and
    shall also contain a detailed full showing, supported by affidavit
    or declaration, of any additional facts or considerations relied on.
    There shall be no further pleadings filed after petitioner\'s reply,
    unless authorized by the Commission.

    \(4\) [Commission Determination as to Encoding Rules for a new
    service within a Defined Business Model]{.underline}.

    \(i\) Proceedings initiated by petitions pursuant to this section
    shall be permit-but-disclose proceedings, unless otherwise specified
    by the Commission. The Covered Entity shall have the burden of proof
    to establish that the proposed change in Encoding Rules for a new
    service is in the public interest. In making its determination, the
    Commission shall take into account the following factors:

    \(A\) Whether the benefit to consumers of the new service, including
    but not limited to earlier release windows, more favorable terms,
    innovation or original programming, outweighs the limitation on the
    consumers' control over the new service;

    \(B\) Ways in which the new service differs from existing services
    offered by any Covered Entity within the applicable Defined Business
    Model prior to December 31, 2002; and

    \(ii\) The Commission may specify other procedures, such as oral
    argument, evidentiary hearing, or further written submissions
    directed to particular aspects, as it deems appropriate.

    \(iii\) A petition may, upon request of the petitioner, be dismissed
    without prejudice as a matter of right prior to the adoption date of
    any final action taken by the Commission with respect to the
    petition. A petitioner\'s request for the return of a petition will
    be regarded as a request for dismissal.

    \(d\) [Complaint Regarding a New Service Not Subject to
    Petition]{.underline}. In an instance in which an interested party
    has a substantial basis to believe and does believe in good faith
    that a new service within a Defined Business Model has been launched
    without a petition as required by this Rule, such party may file a
    complaint pursuant to section 76.7 of the Commission\'s rules.

    **§76.1906 Encoding Rules for Undefined Business Models**

    \(a\) Upon public notice and subject to requirements as set forth
    herein, a Covered Entity may launch a program service pursuant to an
    Undefined Business Model. Subject to Commission review upon
    Complaint, the Covered Entity may initially Encode programs pursuant
    to such Undefined Business Model without regard to limitations set
    forth in §76.1904(b).

    \(1\) [Notice]{.underline}. Concurrent with the launch of an
    Undefined Business Model by a Covered Entity, the Covered Entity
    shall issue a press release to the PR Newswire so as to provide
    public notice of the Undefined Business Model, and the proposed
    Encoding terms. The notice shall provide a concise summary of the
    Commercial Audiovisual Content to be provided pursuant to the
    Undefined Business Model, and of the terms on which such content is
    to be available to consumers. Immediately upon request from a party
    entitled to be a Complainant, the Covered Entity shall make
    available information that indicates the proposed Encoding terms,
    including the use of Copy Never or Copy One Generation Encoding, and
    the Encoding of content with respect to "pause" as defined in
    §76.1904(b)(2).

    \(2\) [Complaint Process]{.underline}. Any interested party
    (\"Complainant\") may file a complaint with the Commission objecting
    to application of Encoding as set forth in the notice.

    \(i\) [Pre-complaint resolution]{.underline}. Prior to initiating a
    complaint with the Commission under this subsection, the Complainant
    shall notify the Covered Entity that it may file a complaint under
    this subsection. The notice must be sufficiently detailed so that
    the Covered Entity can determine the specific nature of the
    potential complaint. The potential Complainant must allow a minimum
    of thirty (30) days from such notice before filing such complaint
    with the Commission. During this period the parties shall endeavor
    in good faith to resolve the issue(s) in dispute. If the parties
    fail to reach agreement within this 30 day period, Complainant may
    initiate a complaint in accordance with the procedures set forth
    herein.

    \(ii\) [Complaint]{.underline}. Within two years of publication of a
    notice under paragraph (a)(1) of this section, a Complainant may
    file a complaint with the Commission objecting to application of the
    Encoding terms to the service at issue. Such complaint shall state
    with particularity the basis for objection to the Encoding terms.

    \(A\) The complaint shall contain the name and address of the
    complainant and the name and address of the Covered Entity.

    \(B\) The complaint shall be accompanied by a certification of
    service on the named Covered Entity.

    \(C\) The complaint shall set forth with specificity all information
    and arguments relied upon. Specific factual allegations shall be
    supported by a declaration of a person or persons with actual
    knowledge of the facts, and exhibits shall be verified by the person
    who prepares them.

    \(D\) The complaint shall set forth attempts made by the Complainant
    to resolve its complaint pursuant to paragraph (a)(2)(i) of this
    section.

    \(iii\) [Public Notice]{.underline}. The Commission shall give
    public notice of the filing of the complaint. Once the Commission
    has issued such public notice, any person otherwise entitled to be a
    Complainant shall instead have the status of a person submitting
    comments under paragraph (a)(2)(iv) of this section rather than a
    Complainant.

    \(iv\) [Comments and Reply]{.underline}.

    \(A\) Any person may submit comments regarding the complaint within
    thirty (30) days after the date of public notice by the Commission.
    Comments shall be served on the Complainant and the Covered Entity
    and on any persons listed in relevant certificates of service, and
    shall contain a detailed full statement of any facts or
    considerations relied on. Specific factual allegations shall be
    supported by a declaration of a person or persons with actual
    knowledge of the facts, and exhibits shall be verified by the person
    who prepares them.

    \(B\) The Covered Entity may file a Response to the Complaint and
    comments within twenty (20) days after the date that comments are
    due. Such Response shall be served on all persons who have filed
    complaints or comments and shall also contain a detailed full
    showing, supported by affidavit or declaration, of any additional
    facts or considerations relied on. Replies shall be due ten (10)
    days from the date for filing a Response.

    \(v\) [Basis for Commission determination as to encoding terms for
    an Undefined Business Model]{.underline}. In a permit-but-disclose
    proceeding, unless otherwise specified by the Commission, to
    determine whether Encoding terms as noticed may be applied to an
    Undefined Business Model, the Covered Entity shall have the burden
    of proof to establish that application of the Encoding terms in the
    Undefined Business Model is in the public interest. In making any
    such determination, the Commission shall take into account the
    following factors:

    \(A\) Whether the benefit to consumers of the new service, including
    but not limited to earlier release windows, more favorable terms,
    innovation or original programming, outweighs the limitation on the
    consumers' control over the new service;

    \(B\) Ways in which the new service differs from services offered by
    any Covered Entity prior to December 31, 2002;

    \(vi\) [Determination Procedures]{.underline}. The Commission may
    specify other procedures, such as oral argument, evidentiary
    hearing, or further written submissions directed to particular
    aspects, as it deems appropriate.

    \(b\) [Complaint Regarding a Service Not Subject to
    Notice]{.underline}. In an instance in which an interested party has
    a substantial basis to believe and believes in good faith that a
    service pursuant to an Undefined Business Model has been launched
    without requisite notice, such party may file a complaint pursuant
    to section 76.7 of the Commission\'s rules.

    **§76.1907 Temporary Bona Fide Trials**

    The obligations and procedures as to Encoding Rules set forth in
    §§76.1904(b)-(c) and §§76.1905(a)-(b) do not apply in the case of a
    temporary bona fide trial of a service.

    **§76.1908 Certain Practices Not Prohibited**

    Nothing in this subpart shall be construed as prohibiting a Covered
    Entity from:

    \(a\) encoding, storing or managing Commercial Audiovisual Content
    within its distribution system or within a Covered Product under the
    control of a Covered Entity\'s Commercially­ Adopted Access Control
    Method, provided that the outcome for the consumer from the
    application of the Encoding Rules set out in §§76.1904(a)-(b) is
    unchanged thereby when such Commercial Audiovisual Content is
    released to consumer control, or

    \(b\) causing, with respect to a specific Covered Product, the
    output of content from such product in a format as necessary to
    match the display format of another device connected to such
    product, including but not limited to providing for content
    conversion between widely-used formats for the transport, processing
    and display of audiovisual signals or data, such as between analog
    and digital formats and between PAL and NTSC or RGB and Y,Pb,Pr.

# \* \* \* \* \* {#section .unnumbered}

**APPENDIX C**

**FINAL REGULATORY FLEXIBILITY ANALYSIS**

As required by the Regulatory Flexibility Act of 1980, as amended
(\"RFA\")[^227] an Initial Regulatory Flexibility Analysis (\"IRFA\")
was incorporated in the *Further Notice of Proposed Rulemaking*
("*FNPRM*").[^228] The Commission sought written public comment on the
proposals in the *FNPRM*, including comment on the IRFA. Comments were
received on the IRFA. This present Final Regulatory Flexibility Analysis
("FRFA") conforms to the RFA.[^229]

A.  **Need for, and Objectives of, the Second Report and Order and
    Second Further Notice of Proposed Rulemaking.** The need for FCC
    regulation in this area derives from the lack of a so-called cable
    compatibility "plug and play" standard for a digital cable
    television receiver and related digital cable television consumer
    electronics equipment. The absence of such a standard has been
    identified as a key impediment to the anticipated rate and scope of
    the transition to digital television ("DTV"). Such a standard would
    allow consumers to directly attach their DTV receivers to cable
    systems and receive certain cable television services without the
    need for an external navigation device. Since more than sixty
    percent of television households subscribe to cable programming
    services, the availability of digital cable television receivers and
    products would encourage more consumers to convert to DTV, thereby
    furthering the transition. Private industry negotiations between
    cable operators and consumer electronics manufacturers resulted in a
    Memorandum of Understanding ("MOU") on a cable compatibility
    standard for an integrated, unidirectional digital cable television
    receiver, as well as for other unidirectional digital cable
    products. The MOU requires the consumer electronics and cable
    television industries to each commit to certain voluntary acts and
    sought the creation or revision of certain relevant Commission
    rules. The objective of the final rules, as set forth in the
    *Second* *Report and Order* portion of the *Second Report and Order
    and Further Notice of Proposed Rulemaking* ("*Second Report and
    Order*"), is to facilitate the DTV transition.

B.  **Summary of Significant Issues Raised by Public Comments in
    Response to the IRFA.** The Commission received comments from the
    American Cable Association ("ACA") in response to the IRFA
    accompanying the *FNPRM*. In these comments, ACA expresses its
    support for the Commission's efforts to advance the DTV transition,
    but asks that the Commission take into account the special
    circumstances of smaller cable companies in this proceeding.
    Specifically, ACA asks that the Commission consider: (1) the costs
    of compliance for smaller cable systems, (2) how plug-and-play
    requirements might affect smaller cable systems that use Comcast's
    Headend-in-the-Sky ("HITS") programming, and (3) why some of the
    plug-and-play requirements are limited to systems having 750 MHz
    activated channel capacity or higher, while other requirements apply
    to all digital cable systems.[^230] To the extent that the
    Commission determines that there would be a disparate cost impact
    upon small cable systems, ACA asks that the Commission consider
    waivers and an extended phase-in for small system compliance.[^231]
    We have discussed compliance impacts in this FRFA in Sections D and
    E, *infra*.

C.  **Description and Estimate of the Number of Small Entities to Which
    the Proposed Rules Will Apply^.^** The RFA directs the Commission to
    provide a description of and, where feasible, an estimate of the
    number of small entities that will be affected by the proposed
    rules.[^232] The RFA generally defines the term \"small entity\" as
    encompassing the terms \"small business,\" \"small organization,\"
    and \"small governmental entity.^\"^[^233] In addition, the term
    "small Business" has the same meaning as the term "small business
    concern" under the Small Business Act.[^234] 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
    additional criteria established by the Small Business Administration
    (\"SBA\").[^235]

    **Television Broadcasting.** The Small Business Administration
    defines a television broadcasting station that has no more than \$12
    million in annual receipts as a small business.[^236] Business
    concerns included in this industry are those "primarily engaged in
    broadcasting images together with sound."[^237] According to
    Commission staff review of the BIA Publications, Inc. Master Access
    Television Analyzer Database as of May 16, 2003, about 814 of the
    1,220 commercial television stations in the United States have
    revenues of \$12 million or less. We note, however, that, in
    assessing whether a business concern qualifies as small under the
    above definition, business (control) affiliations[^238] must be
    included. Our estimate, therefore, likely overstates the number of
    small entities that might be affected by our action, because the
    revenue figure on which it is based does not include or aggregate
    revenues from affiliated companies. There are also 2,127 low power
    television stations (LPTV).[^239] Given the nature of this service,
    we will presume that all LPTV licensees qualify as small entities
    under the SBA definition.

    In addition, an element of the definition of "small business" is
    that the entity not be dominant in its field of operation. We are
    unable at this time to define or quantify the criteria that would
    establish whether a specific television station is dominant in its
    field of operation. Accordingly, the estimate of small businesses to
    which rules may apply do not exclude any television station from the
    definition of a small business on this basis and are therefore
    over-inclusive to that extent. Also as noted, an additional element
    of the definition of "small business" is that the entity must be
    independently owned and operated. We note that it is difficult at
    times to assess these criteria in the context of media entities and
    our estimates of small businesses to which they apply may be
    over-inclusive to this extent.

    **Cable and Other Program Distribution.** The SBA has developed a
    small business size standard for cable and other program
    distribution services, which includes all such companies generating
    \$12.5 million or less in revenue annually.[^240] This category
    includes, among others, cable operators, direct broadcast satellite
    ("DBS") services, home satellite dish ("HSD") services, multipoint
    distribution services ("MDS"), multichannel multipoint distribution
    service ("MMDS"), Instructional Television Fixed Service ("ITFS"),
    local multipoint distribution service ("LMDS"), satellite master
    antenna television ("SMATV") systems, and open video systems
    ("OVS"). According to the Census Bureau data, there are 1,311 total
    cable and other pay television service firms that operate throughout
    the year of which 1,180 have less than \$10 million in
    revenue.[^241] We address below each service individually to provide
    a more precise estimate of small entities.

**Cable Operators.** The Commission has developed, with SBA\'s approval,
our own definition of a small cable system operator for the purposes of
rate regulation. Under the Commission\'s rules, a \"small cable
company\" is one serving fewer than 400,000 subscribers
nationwide.[^242] We last estimated that there were 1,439 cable
operators that qualified as small cable companies.[^243] 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 operators. Consequently, we
estimate that there are fewer than 1,439 small entity cable system
operators that may be affected by the decisions and rules proposed in
this Further Notice.

The Communications Act, as amended, also contains a size standard for a
small cable system operator, which is \"a cable operator that, directly
or through an affiliate, serves in the aggregate fewer than 1% 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.\"[^244] The Commission has determined that there are
68,500,000 subscribers in the United States. Therefore, an operator
serving fewer than 685,000 subscribers shall be 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.[^245] Based on available data, we find that the number of
cable operators serving 685,000 subscribers or less totals approximately
1,450.[^246] Although it seems certain that some of these cable system
operators are affiliated with entities whose gross annual revenues
exceed \$250,000,000, we are 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.

**Direct Broadcast Satellite ("DBS") Service.** Because DBS provides
subscription services, DBS falls within the SBA-recognized definition of
cable and other program distribution services.[^247] This definition
provides that a small entity is one with \$12.5 million or less in
annual receipts.[^248] There are four licensees of DBS services under
Part 100 of the Commission\'s Rules. Three of those licensees are
currently operational. Two of the licensees that are operational have
annual revenues that may be in excess of the threshold for a small
business.[^249] The Commission, however, does not collect annual revenue
data for DBS and, therefore, is unable to ascertain the number of small
DBS licensees that could be impacted by these proposed rules. DBS
service requires a great investment of capital for operation, and we
acknowledge, despite the absence of specific data on this point, that
there are entrants in this field that may not yet have generated \$12.5
million in annual receipts, and therefore may be categorized as a small
business, if independently owned and operated.

**Home Satellite Dish ("HSD") Service.** Because HSD provides
subscription services, HSD falls within the SBA-recognized definition of
cable and other program distribution services.[^250] This definition
provides that a small entity is one with \$12.5 million or less in
annual receipts.[^251] The market for HSD service is difficult to
quantify. Indeed, the service itself bears little resemblance to other
MVPDs. HSD owners have access to more than 265 channels of programming
placed on C‑band satellites by programmers for receipt and distribution
by MVPDs, of which 115 channels are scrambled and approximately 150 are
unscrambled.[^252] HSD owners can watch unscrambled channels without
paying a subscription fee. To receive scrambled channels, however, an
HSD owner must purchase an integrated receiver‑decoder from an equipment
dealer and pay a subscription fee to an HSD programming package. Thus,
HSD users include: (1) viewers who subscribe to a packaged programming
service, which affords them access to most of the same programming
provided to subscribers of other MVPDs; (2) viewers who receive only
non‑subscription programming; and (3) viewers who receive satellite
programming services illegally without subscribing. Because scrambled
packages of programming are most specifically intended for retail
consumers, these are the services most relevant to this
discussion.[^253]

**Multipoint Distribution Service ("MDS"), Multichannel Multipoint
Distribution Service ("MMDS") Instructional Television Fixed Service
("ITFS") and Local Multipoint Distribution Service ("LMDS").** MMDS
systems, often referred to as "wireless cable," transmit video
programming to subscribers using the microwave frequencies of the MDS
and ITFS.[^254] LMDS is a fixed broadband point-to-multipoint microwave
service that provides for two-way video telecommunications.[^255]

In connection with the 1996 MDS auction, the Commission defined small
businesses as entities that had annual average gross revenues of less
than \$40 million in the previous three calendar years.[^256] This
definition of a small entity in the context of MDS auctions has been
approved by the SBA.[^257] The MDS auctions resulted in 67 successful
bidders obtaining licensing opportunities for 493 Basic Trading Areas
("BTAs"). Of the 67 auction winners, 61 met the definition of a small
business. MDS also includes licensees of stations authorized prior to
the auction. As noted, the SBA has developed a definition of small
entities for pay television services, which includes all such companies
generating \$12.5 million or less in annual receipts.[^258] This
definition includes multipoint distribution services, and thus applies
to MDS licensees and wireless cable operators that did not participate
in the MDS auction. Information available to us indicates that there are
approximately 850 of these licensees and operators that do not generate
revenue in excess of \$12.5 million annually. Therefore, for purposes of
the IRFA, we find there are approximately 850 small MDS providers as
defined by the SBA and the Commission's auction rules.

The SBA definition of small entities for cable and other program
distribution services, which includes such companies generating \$12.5
million in annual receipts, seems reasonably applicable to ITFS.[^259]
There are presently 2,032 ITFS licensees. All but 100 of these licenses
are held by educational institutions. Educational institutions are
included in the definition of a small business.[^260] However, we do not
collect annual revenue data for ITFS licensees, and are not able to
ascertain how many of the 100 non-educational licensees would be
categorized as small under the SBA definition. Thus, we tentatively
conclude that at least 1,932 licensees are small businesses.

Additionally, the auction of the 1,030 LMDS licenses began on February
18, 1998, and closed on March 25, 1998. The Commission defined "small
entity" for LMDS licenses as an entity that has average gross revenues
of less than \$40 million in the three previous calendar years.[^261] An
additional classification for "very small business" was added and is
defined as an entity that, together with its affiliates, has average
gross revenues of not more than \$15 million for the preceding calendar
years.[^262] These regulations defining "small entity" in the context of
LMDS auctions have been approved by the SBA.[^263] There were 93 winning
bidders that qualified as small entities in the LMDS auctions. A total
of 93 small and very small business bidders won approximately 277 A
Block licenses and 387 B Block licenses. On March 27, 1999, the
Commission re-auctioned 161 licenses; there were 40 winning bidders.
Based on this information, we conclude that the number of small LMDS
licenses will include the 93 winning bidders in the first auction and
the 40 winning bidders in the re-auction, for a total of 133 small
entity LMDS providers as defined by the SBA and the Commission's auction
rules.

In sum, there are approximately a total of 2,000 MDS/MMDS/LMDS stations
currently licensed. Of the approximate total of 2,000 stations, we
estimate that there are 1,595 MDS/MMDS/LMDS providers that are small
businesses as deemed by the SBA and the Commission's auction rules.

**Satellite Master Antenna Television (\"SMATV\") Systems.** The SBA
definition of small entities for cable and other program distribution
services includes SMATV services and, thus, small entities are defined
as all such companies generating \$12.5 million or less in annual
receipts.[^264] Industry sources estimate that approximately 5,200 SMATV
operators were providing service as of December 1995.[^265] Other
estimates indicate that SMATV operators serve approximately 1.5 million
residential subscribers as of July 2001.[^266] The best available
estimates indicate that the largest SMATV operators serve between 15,000
and 55,000 subscribers each. Most SMATV operators serve approximately
3,000-4,000 customers. Because these operators are not rate regulated,
they are not required to file financial data with the Commission.
Furthermore, we are not aware of any privately published financial
information regarding these operators. Based on the estimated number of
operators and the estimated number of units served by the largest ten
SMATVs, we believe that a substantial number of SMATV operators qualify
as small entities

**Open Video Systems ("OVS").** Because OVS operators provide
subscription services,[^267] OVS falls within the SBA-recognized
definition of cable and other program distribution services.[^268] This
definition provides that a small entity is one with \$ 12.5 million or
less in annual receipts.[^269] The Commission has certified 25 OVS
operators with some now providing service. Affiliates of Residential
Communications Network, Inc. (\"RCN\") received approval to operate OVS
systems in New York City, Boston, Washington, D.C. and other areas. RCN
has sufficient revenues to assure us that they do not qualify as small
business entities. Little financial information is available for the
other entities authorized to provide OVS that are not yet operational.
Given that other entities have been authorized to provide OVS service
but have not yet begun to generate revenues, we conclude that at least
some of the OVS operators qualify as small entities.

**Electronics Equipment Manufacturers.** Rules adopted in this
proceeding could apply to manufacturers of DTV receiving equipment and
other types of consumer electronics equipment. The SBA has developed
definitions of small entity for manufacturers of audio and video
equipment[^270] as well as radio and television broadcasting and
wireless communications equipment.[^271] These categories both include
all such companies employing 750 or fewer employees. The Commission has
not developed a definition of small entities applicable to manufacturers
of electronic equipment used by consumers, as compared to industrial use
by television licensees and related businesses. Therefore, we will
utilize the SBA definitions applicable to manufacturers of audio and
visual equipment and radio and television broadcasting and wireless
communications equipment, since these are the two closest NAICS Codes
applicable to the consumer electronics equipment manufacturing industry.
However, these NAICS categories are broad and specific figures are not
available as to how many of these establishments manufacture consumer
equipment. According to the SBA's regulations, an audio and visual
equipment manufacturer must have 750 or fewer employees in order to
qualify as a small business concern.[^272] Census Bureau data indicates
that there are 554 U.S. establishments that manufacture audio and visual
equipment, and that 542 of these establishments have fewer than 500
employees and would be classified as small entities.[^273] The remaining
12 establishments have 500 or more employees; however, we are unable to
determine how many of those have fewer than 750 employees and therefore,
also qualify as small entities under the SBA definition. Under the SBA's
regulations, a radio and television broadcasting and wireless
communications equipment manufacturer must also have 750 or fewer
employees in order to qualify as a small business concern.[^274] Census
Bureau data indicates that there 1,215 U.S. establishments that
manufacture radio and television broadcasting and wireless
communications equipment, and that 1,150 of these establishments have
fewer than 500 employees and would be classified as small
entities.[^275] The remaining 65 establishments have 500 or more
employees; however, we are unable to determine how many of those have
fewer than 750 employees and therefore, also qualify as small entities
under the SBA definition. We therefore conclude that there are no more
than 542 small manufacturers of audio and visual electronics equipment
and no more than 1,150 small manufacturers of radio and television
broadcasting and wireless communications equipment for
consumer/household use.

**Computer Manufacturers**. The Commission has not developed a
definition of small entities applicable to computer manufacturers.
Therefore, we will utilize the SBA definition of electronic computers
manufacturing. According to SBA regulations, a computer manufacturer
must have 1,000 or fewer employees in order to qualify as a small
entity.[^276] Census Bureau data indicates that there are 563 firms that
manufacture electronic computers and of those, 544 have fewer than 1,000
employees and qualify as small entities.[^277] The remaining 19 firms
have 1,000 or more employees. We conclude that there are approximately
544 small computer manufacturers.

D.  **Description of Projected Reporting, Recordkeeping and other
    Compliance Requirements.** The final rules set technical and other
    criteria that manufacturers would have to meet in order to label or
    market unidirectional digital cable televisions and other
    unidirectional digital cable products as "digital cable ready." This
    regime includes testing and self-certification standards. The final
    rules also require consumer information disclosures to purchasers of
    unidirectional digital cable televisions receivers in appropriate
    post-sale materials that describe the functionality of these devices
    and the need to obtain a security module from their cable operator.
    Cable operators with digital systems of 750 MHz or greater activated
    channel capacity will be required to support operation of
    unidirectional digital cable products on digital cable systems.
    Certain other technical support requirements apply to all digital
    cable systems, regardless of channel capacity, including those
    systems whose only digital programming comes from HITS. In addition,
    all cable operators will be required to supply digital subscribers
    with point-of-deployment modules ("PODs") and high definition
    set-top boxes that comply with certain technical standards by April
    1, 2004 and July 1, 2005 deadlines.[^278] Finally, all MVPDs would
    be prohibited from encoding content to activate selectable output
    controls on consumer premises equipment, or the down-resolution of
    unencrypted broadcast television programming. MVPDs would also be
    limited in the levels of copy protection that could be applied to
    various categories of programming.

E.  **Steps Taken to Minimize Significant Impact on Small Entities, and
    Significant Alternatives Considered.** The RFA requires an agency to
    describe any significant alternatives that it has considered in
    reaching its proposed approach, which may include the following four
    alternatives (among others): (1) the establishment of differing
    compliance or reporting requirements or timetables that take into
    account the resources available to small entities; (2) the
    clarification, consolidation, or simplification of compliance or
    reporting requirements under the rule for small entities; (3) the
    use of performance, rather than design, standards; and (4) an
    exemption from coverage of the rule, or any part thereof, for small
    entities.[^279]

    Because the "digital cable ready" labeling regime does not require
    manufacturers to affix a label to devices, we do not anticipate that
    small manufacturers will be significantly affected. Although the
    consumer information disclosure in post-sale is mandatory, we do not
    believe that it will adversely affect small manufacturers since they
    already include owner's manuals and other documentation inside
    equipment packaging.

    The record in this proceeding did not provide the Commission with
    detailed cost information on the digital cable system support
    requirements. In an effort to take into account the concerns of
    small cable systems, the Commission has indicated that it will
    consider waiver requests for these requirements on a case-by-case
    basis. As to the POD-provisioning mandate, cable operators are
    already required to provide PODs to subscribers by request. We
    therefore do not believe that the new provisioning requirements will
    have a significant impact on small cable systems. Likewise, we
    anticipate that the upcoming high definition set-top box deadlines
    will not negatively impact small operators since the 2004 deadline
    only applies to output upgrades upon subscriber request, and the
    2005 deadline will only apply to inventory acquired after that date.

    Finally, we anticipate that the encoding prohibitions on selectable
    output controls and the down-resolution of unencrypted broadcast
    programming will largely impact upon the DBS industry, which is
    primarily composed of large entities. While the caps on copy
    protection will affect all MVPDs, we do not believe they will
    negatively impact small entities.

F.  **Federal Rules Which Duplicate, Overlap, or Conflict with the
    Commission\'s Proposals.** None.

    **Report to Congress**: The Commission will send a copy of the
    *Second* *Report and* *Order*, including this FRFA, in a report to
    be sent to Congress pursuant to the Congressional Review Act.[^280]
    In addition, the Commission will send a copy of the *Second* *Report
    and* *Order*, including this FRFA, to the Chief Counsel for Advocacy
    of the SBA. A copy of the *Second* *Report and* *Order* and FRFA (or
    summaries thereof) will also be published in the Federal
    Register.[^281]

    **APPENDIX D**

    **INITIAL REGULATORY FLEXIBILITY ANALYSIS**

    As required by the Regulatory Flexibility Act of 1980, as amended
    (\"RFA\")[^282] the Commission has prepared this present Initial
    Regulatory Flexibility Analysis (\"IRFA\") of the possible
    significant economic impact on a substantial number of small
    entities by the policies and rules proposed in the *Second* *Further
    Notice of Proposed Rulemaking* portion of this item. Written public
    comments are requested on this IRFA. Comments must be identified as
    responses to the IRFA and must be filed by the deadlines for
    comments on the *Second* *Further Notice of Proposed Rulemaking*
    portion of this item provided in paragraph 91. The Commission will
    send a copy of this entire *Second* *Order and Second Further Notice
    of Proposed Rulemaking* ("*Second* *Report and* *Order and Second
    Further Notice*"), including this IRFA, to the Chief Counsel for
    Advocacy of the Small Business Administration ("SBA").[^283] In
    addition, the *Second* *Further Notice of Proposed Rulemaking*
    portion of this item and the IRFA (or summaries thereof) will be
    published in the Federal Register.[^284]

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A.  **Need for, and Objectives of, the Proposed Rules.** In connection
    with the Commission's efforts to ensure the commercial availability
    of navigation devices pursuant to Section 629 of the Communication's
    Act,[^285] the *Second* *Report and* *Order* part of the *Second*
    *Report and* *Order and Second Further Notice* adopts technical,
    labeling and encoding rules which will set a one-way specification
    for digital cable "plug and play" compatibility for DTV equipment.
    The negotiations between the consumer electronics and cable
    television industries which led to the agreement underlying these
    rules call for the cable television industry to make initial
    determinations about which new device connectors and associated
    content protection technologies may be used in connection with
    unidirectional digital cable products produced under this
    specification. Commenters have indicated that the cable industry
    should not be the sole arbiter of such decisions, however, the
    record currently before the Commission is insufficient on this
    matter. In order to ensure the connectivity and interoperability of
    unidirectional digital cable products, and to fulfill the
    Commission's commercial availability mandate under Section 629, we
    are initiating the *Second Further Notice* to seek comment on the
    mechanisms and standards by which new connectors and associated
    content protection technologies can be approved for use in this
    context. The *Second Further Notice* also seeks comment on: (1) the
    potential extension of the transmission requirements applicable to
    digital cable systems with an activated channel capacity of 750 MHz
    or higher to digital cable systems with an activated channel
    capacity of 550 MHz or higher; (2) whether it is necessary to
    require consumer electronics manufacturers to provide pre-sale
    information to consumers regarding the functionalities of
    unidirectional digital cable televisions; and (3) whether the
    Commission should ban or permit the down-resolution of non-broadcast
    MVPD programming.

B.  **Legal Basis.** The authority for this proposed rulemaking is
    contained in Sections 1, 4(i) and (j), 303, 403, 601, 624A and 629
    of the Communications Act of 1934, 47 U.S.C §§ 151, 154(i) and (j),
    303, 403, 521, 544a and 549.

C.  **Description and Estimate of the Number of Small Entities to Which
    the Proposed Rules Will Apply^.^** The RFA directs the Commission to
    provide a description of and, where feasible, an estimate of the
    number of small entities that will be affected by the proposed
    rules.[^286] The RFA generally defines the term \"small entity\" as
    encompassing the terms \"small business,\" \"small organization,\"
    and \"small governmental entity.^\"^[^287] In addition, the term
    "small Business" has the same meaning as the term "small business
    concern" under the Small Business Act.[^288] 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
    additional criteria established by the Small Business Administration
    (\"SBA\").[^289]

    **Television Broadcasting.** The Small Business Administration
    defines a television broadcasting station that has no more than \$12
    million in annual receipts as a small business.[^290] Business
    concerns included in this industry are those "primarily engaged in
    broadcasting images together with sound."[^291] According to
    Commission staff review of the BIA Publications, Inc. Master Access
    Television Analyzer Database as of May 16, 2003, about 814 of the
    1,220 commercial television stations in the United States have
    revenues of \$12 million or less. We note, however, that, in
    assessing whether a business concern qualifies as small under the
    above definition, business (control) affiliations[^292] must be
    included. Our estimate, therefore, likely overstates the number of
    small entities that might be affected by our action, because the
    revenue figure on which it is based does not include or aggregate
    revenues from affiliated companies. There are also 2,127 low power
    television stations (LPTV).[^293] Given the nature of this service,
    we will presume that all LPTV licensees qualify as small entities
    under the SBA definition.

    In addition, an element of the definition of "small business" is
    that the entity not be dominant in its field of operation. We are
    unable at this time to define or quantify the criteria that would
    establish whether a specific television station is dominant in its
    field of operation. Accordingly, the estimate of small businesses to
    which rules may apply do not exclude any television station from the
    definition of a small business on this basis and are therefore
    over-inclusive to that extent. Also as noted, an additional element
    of the definition of "small business" is that the entity must be
    independently owned and operated. We note that it is difficult at
    times to assess these criteria in the context of media entities and
    our estimates of small businesses to which they apply may be
    over-inclusive to this extent.

    **Cable and Other Program Distribution.** The SBA has developed a
    small business size standard for cable and other program
    distribution services, which includes all such companies generating
    \$12.5 million or less in revenue annually.[^294] This category
    includes, among others, cable operators, direct broadcast satellite
    ("DBS") services, home satellite dish ("HSD") services, multipoint
    distribution services ("MDS"), multichannel multipoint distribution
    service ("MMDS"), Instructional Television Fixed Service ("ITFS"),
    local multipoint distribution service ("LMDS"), satellite master
    antenna television ("SMATV") systems, and open video systems
    ("OVS"). According to the Census Bureau data, there are 1,311 total
    cable and other pay television service firms that operate throughout
    the year of which 1,180 have less than \$10 million in
    revenue.[^295] We address below each service individually to provide
    a more precise estimate of small entities.

**Cable Operators.** The Commission has developed, with SBA\'s approval,
our own definition of a small cable system operator for the purposes of
rate regulation. Under the Commission\'s rules, a \"small cable
company\" is one serving fewer than 400,000 subscribers
nationwide.[^296] We last estimated that there were 1,439 cable
operators that qualified as small cable companies.[^297] 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 operators. Consequently, we
estimate that there are fewer than 1,439 small entity cable system
operators that may be affected by the decisions and rules proposed in
this Further Notice.

The Communications Act, as amended, also contains a size standard for a
small cable system operator, which is \"a cable operator that, directly
or through an affiliate, serves in the aggregate fewer than 1% 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.\"[^298] The Commission has determined that there are
68,500,000 subscribers in the United States. Therefore, an operator
serving fewer than 685,000 subscribers shall be 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.[^299] Based on available data, we find that the number of
cable operators serving 685,000 subscribers or less totals approximately
1,450.[^300] Although it seems certain that some of these cable system
operators are affiliated with entities whose gross annual revenues
exceed \$250,000,000, we are 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.

**Direct Broadcast Satellite ("DBS") Service.** Because DBS provides
subscription services, DBS falls within the SBA-recognized definition of
cable and other program distribution services.[^301] This definition
provides that a small entity is one with \$12.5 million or less in
annual receipts.[^302] There are four licensees of DBS services under
Part 100 of the Commission\'s Rules. Three of those licensees are
currently operational. Two of the licensees that are operational have
annual revenues that may be in excess of the threshold for a small
business.[^303] The Commission, however, does not collect annual revenue
data for DBS and, therefore, is unable to ascertain the number of small
DBS licensees that could be impacted by these proposed rules. DBS
service requires a great investment of capital for operation, and we
acknowledge, despite the absence of specific data on this point, that
there are entrants in this field that may not yet have generated \$12.5
million in annual receipts, and therefore may be categorized as a small
business, if independently owned and operated.

**Home Satellite Dish ("HSD") Service.** Because HSD provides
subscription services, HSD falls within the SBA-recognized definition of
cable and other program distribution services.[^304] This definition
provides that a small entity is one with \$12.5 million or less in
annual receipts.[^305] The market for HSD service is difficult to
quantify. Indeed, the service itself bears little resemblance to other
MVPDs. HSD owners have access to more than 265 channels of programming
placed on C‑band satellites by programmers for receipt and distribution
by MVPDs, of which 115 channels are scrambled and approximately 150 are
unscrambled.[^306] HSD owners can watch unscrambled channels without
paying a subscription fee. To receive scrambled channels, however, an
HSD owner must purchase an integrated receiver‑decoder from an equipment
dealer and pay a subscription fee to an HSD programming package. Thus,
HSD users include: (1) viewers who subscribe to a packaged programming
service, which affords them access to most of the same programming
provided to subscribers of other MVPDs; (2) viewers who receive only
non‑subscription programming; and (3) viewers who receive satellite
programming services illegally without subscribing. Because scrambled
packages of programming are most specifically intended for retail
consumers, these are the services most relevant to this
discussion.[^307]

**Multipoint Distribution Service ("MDS"), Multichannel Multipoint
Distribution Service ("MMDS") Instructional Television Fixed Service
("ITFS") and Local Multipoint Distribution Service ("LMDS").** MMDS
systems, often referred to as "wireless cable," transmit video
programming to subscribers using the microwave frequencies of the MDS
and ITFS.[^308] LMDS is a fixed broadband point-to-multipoint microwave
service that provides for two-way video telecommunications.[^309]

In connection with the 1996 MDS auction, the Commission defined small
businesses as entities that had annual average gross revenues of less
than \$40 million in the previous three calendar years.[^310] This
definition of a small entity in the context of MDS auctions has been
approved by the SBA.[^311] The MDS auctions resulted in 67 successful
bidders obtaining licensing opportunities for 493 Basic Trading Areas
("BTAs"). Of the 67 auction winners, 61 met the definition of a small
business. MDS also includes licensees of stations authorized prior to
the auction. As noted, the SBA has developed a definition of small
entities for pay television services, which includes all such companies
generating \$12.5 million or less in annual receipts.[^312] This
definition includes multipoint distribution services, and thus applies
to MDS licensees and wireless cable operators that did not participate
in the MDS auction. Information available to us indicates that there are
approximately 850 of these licensees and operators that do not generate
revenue in excess of \$12.5 million annually. Therefore, for purposes of
the IRFA, we find there are approximately 850 small MDS providers as
defined by the SBA and the Commission's auction rules.

The SBA definition of small entities for cable and other program
distribution services, which includes such companies generating \$12.5
million in annual receipts, seems reasonably applicable to ITFS.[^313]
There are presently 2,032 ITFS licensees. All but 100 of these licenses
are held by educational institutions. Educational institutions are
included in the definition of a small business.[^314] However, we do not
collect annual revenue data for ITFS licensees, and are not able to
ascertain how many of the 100 non-educational licensees would be
categorized as small under the SBA definition. Thus, we tentatively
conclude that at least 1,932 licensees are small businesses.

Additionally, the auction of the 1,030 LMDS licenses began on February
18, 1998, and closed on March 25, 1998. The Commission defined "small
entity" for LMDS licenses as an entity that has average gross revenues
of less than \$40 million in the three previous calendar years.[^315] An
additional classification for "very small business" was added and is
defined as an entity that, together with its affiliates, has average
gross revenues of not more than \$15 million for the preceding calendar
years.[^316] These regulations defining "small entity" in the context of
LMDS auctions have been approved by the SBA.[^317] There were 93 winning
bidders that qualified as small entities in the LMDS auctions. A total
of 93 small and very small business bidders won approximately 277 A
Block licenses and 387 B Block licenses. On March 27, 1999, the
Commission re-auctioned 161 licenses; there were 40 winning bidders.
Based on this information, we conclude that the number of small LMDS
licenses will include the 93 winning bidders in the first auction and
the 40 winning bidders in the re-auction, for a total of 133 small
entity LMDS providers as defined by the SBA and the Commission's auction
rules.

In sum, there are approximately a total of 2,000 MDS/MMDS/LMDS stations
currently licensed. Of the approximate total of 2,000 stations, we
estimate that there are 1,595 MDS/MMDS/LMDS providers that are small
businesses as deemed by the SBA and the Commission's auction rules.

**Satellite Master Antenna Television (\"SMATV\") Systems.** The SBA
definition of small entities for cable and other program distribution
services includes SMATV services and, thus, small entities are defined
as all such companies generating \$12.5 million or less in annual
receipts.[^318] Industry sources estimate that approximately 5,200 SMATV
operators were providing service as of December 1995.[^319] Other
estimates indicate that SMATV operators serve approximately 1.5 million
residential subscribers as of July 2001.[^320] The best available
estimates indicate that the largest SMATV operators serve between 15,000
and 55,000 subscribers each. Most SMATV operators serve approximately
3,000-4,000 customers. Because these operators are not rate regulated,
they are not required to file financial data with the Commission.
Furthermore, we are not aware of any privately published financial
information regarding these operators. Based on the estimated number of
operators and the estimated number of units served by the largest ten
SMATVs, we believe that a substantial number of SMATV operators qualify
as small entities

**Open Video Systems ("OVS").** Because OVS operators provide
subscription services,[^321] OVS falls within the SBA-recognized
definition of cable and other program distribution services.[^322] This
definition provides that a small entity is one with \$ 12.5 million or
less in annual receipts.[^323] The Commission has certified 25 OVS
operators with some now providing service. Affiliates of Residential
Communications Network, Inc. (\"RCN\") received approval to operate OVS
systems in New York City, Boston, Washington, D.C. and other areas. RCN
has sufficient revenues to assure us that they do not qualify as small
business entities. Little financial information is available for the
other entities authorized to provide OVS that are not yet operational.
Given that other entities have been authorized to provide OVS service
but have not yet begun to generate revenues, we conclude that at least
some of the OVS operators qualify as small entities.

**Electronics Equipment Manufacturers.** Rules adopted in this
proceeding could apply to manufacturers of DTV receiving equipment and
other types of consumer electronics equipment. The SBA has developed
definitions of small entity for manufacturers of audio and video
equipment[^324] as well as radio and television broadcasting and
wireless communications equipment.[^325] These categories both include
all such companies employing 750 or fewer employees. The Commission has
not developed a definition of small entities applicable to manufacturers
of electronic equipment used by consumers, as compared to industrial use
by television licensees and related businesses. Therefore, we will
utilize the SBA definitions applicable to manufacturers of audio and
visual equipment and radio and television broadcasting and wireless
communications equipment, since these are the two closest NAICS Codes
applicable to the consumer electronics equipment manufacturing industry.
However, these NAICS categories are broad and specific figures are not
available as to how many of these establishments manufacture consumer
equipment. According to the SBA's regulations, an audio and visual
equipment manufacturer must have 750 or fewer employees in order to
qualify as a small business concern.[^326] Census Bureau data indicates
that there are 554 U.S. establishments that manufacture audio and visual
equipment, and that 542 of these establishments have fewer than 500
employees and would be classified as small entities.[^327] The remaining
12 establishments have 500 or more employees; however, we are unable to
determine how many of those have fewer than 750 employees and therefore,
also qualify as small entities under the SBA definition. Under the SBA's
regulations, a radio and television broadcasting and wireless
communications equipment manufacturer must also have 750 or fewer
employees in order to qualify as a small business concern.[^328] Census
Bureau data indicates that there 1,215 U.S. establishments that
manufacture radio and television broadcasting and wireless
communications equipment, and that 1,150 of these establishments have
fewer than 500 employees and would be classified as small
entities.[^329] The remaining 65 establishments have 500 or more
employees; however, we are unable to determine how many of those have
fewer than 750 employees and therefore, also qualify as small entities
under the SBA definition. We therefore conclude that there are no more
than 542 small manufacturers of audio and visual electronics equipment
and no more than 1,150 small manufacturers of radio and television
broadcasting and wireless communications equipment for
consumer/household use.

**Computer Manufacturers**. The Commission has not developed a
definition of small entities applicable to computer manufacturers.
Therefore, we will utilize the SBA definition of electronic computers
manufacturing. According to SBA regulations, a computer manufacturer
must have 1,000 or fewer employees in order to qualify as a small
entity.[^330] Census Bureau data indicates that there are 563 firms that
manufacture electronic computers and of those, 544 have fewer than 1,000
employees and qualify as small entities.[^331] The remaining 19 firms
have 1,000 or more employees. We conclude that there are approximately
544 small computer manufacturers.

D.  **Description of Projected Reporting, Recordkeeping and other
    Compliance Requirements.** At this time, we do not expect that the
    proposed rules would impose any additional reporting or
    recordkeeping requirements. However, compliance with the rules, if
    they are adopted, may require consumer electronics manufacturers to
    seek approval for new device connectors and associated content
    protection technologies to be used in conjunction with
    unidirectional digital cable products.[^332] These requirements
    could have an impact on consumer electronics manufacturers,
    including small entities. We seek comment on the possible burden
    these requirements would place on small entities. Also, we seek
    comment on whether a special approach toward any possible compliance
    burdens on small entities might be appropriate.

E.  **Steps Taken to Minimize Significant Impact on Small Entities, and
    Significant Alternatives Considered.** The RFA requires an agency to
    describe any significant alternatives that it has considered in
    reaching its proposed approach, which may include the following four
    alternatives (among others): (1) the establishment of differing
    compliance or reporting requirements or timetables that take into
    account the resources available to small entities; (2) the
    clarification, consolidation, or simplification of compliance or
    reporting requirements under the rule for small entities; (3) the
    use of performance, rather than design, standards; and (4) an
    exemption from coverage of the rule, or any part thereof, for small
    entities.[^333]

    As indicated above, the *Second Further Notice* seeks comment on
    whether the Commission should adopt rules establishing an approval
    mechanism for new connectors and associated content protection
    technologies to be used with unidirectional digital cable products.
    Consumer electronics manufacturers may be required to seek such
    approval prior to implementing new connectors and associated content
    protection technologies in unidirectional digital cable products. We
    welcome comment on modifications of this proposal to lessen any
    potential impact on small entities, while still remaining consistent
    with our policy goals.

    The *Second Further Notice* also seeks comment on the potential
    applicablity of certain transmission standards for digital cable
    systems to systems with an activated channel capacity of 550 MHz or
    greater. Since such cable systems are often owned by small cable
    operators, we seek comment on the potential impact of this proposed
    rule upon small cable operators and whether some relief mechanism,
    such as waivers, would help alleviate any potential impact on small
    entities.[^334]

    With respect to the proposed requirement for consumer electronics
    manufacturers to provide consumers with pre-sale information
    regarding the functionalities of unidirectional digital cable
    televisions, we seek comment on how this might affect small
    manufacturers. We also seek comment on whether the potential
    economic burden on small entities might be lessened, while still
    generally retaining the requirement or the intended effect of the
    requirements.

    Finally, the *Second Further Notice* seeks comment on whether to
    permit or ban the down-resolution by MVPDs of non-broadcast MVPD
    programming. We believe this requirement would largely impact the
    DBS industry, which is primarily composed of large entities. To the
    extent that small entities might be adversely affected by this
    potential requirement, we welcome comments on possible small
    entity-related alternatives.

    **Federal Rules Which Duplicate, Overlap, or Conflict with the
    Commission\'s Proposals.** None.

**Statement of**

**Chairman Michael K. Powell**

*Re: Implementation of Section 304 of the Telecommunications Act of
1996, Commercial Availability of Navigation Devices; and Compatibility
Between Cable Systems and Consumer Electronics Equipment.*

Today's decision by a unanimous Commission is a victory for consumers
and a major step in the digital television transition. Consumers who
want digital television sets will have an easier time connecting them to
their cable service and having them work with high definition and other
digital programming. I am more convinced than ever that high definition
programming is becoming a competitive differentiator among television
programmers.

But programmers who want to roll out new high definition programming
need people to be able to see the programming. Until now, many consumers
have been reluctant to invest in the newest televisions because of
uncertainties about compatibility with cable systems and set top boxes.
The FCC's actions today are a major step toward alleviating those
problems.

I would take this opportunity to acknowledge the leadership of key
Congressional leaders, including Chairman Billy Tauzin and Chairman Fred
Upton, on the issue of digital television. Their personal commitment in
this area bears fruit today, and consumers are the beneficiaries.

Of course, at core of the digital television transition is programming.
It is important to me that we preserve incentives for program producers
to invest in high value content. Today's decision facilitates protection
of high value content on cable systems by providing incentives for cable
and consumer electronics manufacturers to work together to include
various content protection technologies in consumer devices.

Now that we have taken this step in the cable world, we must immediately
turn our attention to broadcasting. Over 35 million Americans continue
to receive television programming exclusively from over-the-air
broadcasters. And over 30% of all television sets in this country are
not connected to cable or satellite service. The viability of our free
broadcasting system is a high priority for me, and the government needs
to ensure that broadcast television is not disadvantaged as a delivery
platform for high value content.

In that regard, I plan to deliver to my colleagues a draft decision on
the Broadcast Flag proceeding in the very near future. All affected
parties should be aware that this proceeding is in the on-deck circle. I
look forward to working with my colleagues and the public on this
important proceeding.

Finally, I wish to be clear that our encoding rules included in today's
Plug & Play decision are not intended to modify existing copyright law.
Consumers and content owners retain all of their existing rights and
remedies under copyright law. In this proceeding, the FCC simply looks
to copyright law for guidance on policies that will promote the DTV
transition.

**STATEMENT OF**

**COMMISSIONER KATHLEEN Q. ABERNATHY\
**

*Re: Implementation of Section 304 of the Telecommunications Act of
1996; Commercial Availability of Navigation Devices; and Compatibility
Between Cable Systems and Consumer Electronics Equipment, Second Report
and Order and Second Further Notice of Proposed Rulemaking, CS Docket
No. 97-80, PP Docket No. 00-67*

The plug-and-play agreement between the cable television and consumer
electronics industries and today's Order adopting final rules are
critical milestones in the digital television transition. As a result of
this Order, millions of consumers will be able to receive
high-definition and other digital programming by connecting a cable wire
directly to a digital television or other device ― without using a
set-top box. Such cable-ready digital television sets should be
commercially available by the end of next year or shortly thereafter. I
commend the industry groups for their commitment to the collaborative
process that made this rulemaking possible, and I appreciate the
excellent work of the Media Bureau and my colleagues in drafting the
Order and Further Notice.

The Order adopts technical standards regarding the distribution of video
programming on digital cable systems and labeling requirements for
devices marketed as "digital cable ready." More controversially, the
Order establishes encoding rules ― a ban on selectable output control, a
ban on the down-resolution of broadcast programming, and copy-protection
limits for various categories of programming. Ordinarily, I would
strongly prefer to leave such matters to the marketplace. I am quite
reluctant to employ regulation to dictate how programming should be
protected. Nevertheless, the record demonstrates that the cable and
consumer electronics industries would not have resolved these thorny
issues without an assurance that *all* MVPDs would be subject to the
same rules. In other words, absent regulatory intervention to ensure a
level playing field, the digital transition may well have been derailed.

Given this context, I support the encoding rules in the Order, and I
take comfort from the fact that our rules are both balanced and narrowly
tailored to the governmental interests at stake. For example, we
concluded that, at this time, a flat ban on selectable output control is
necessary in light of the extreme consequences of an MVPD's use of that
tool. By contrast, we have proscribed down-resolution only for broadcast
content ― rather than banning this tool across the board ― because the
record demonstrates that this partial ban strikes the optimal balance
among the interests of content owners, MVPDs, manufacturers, and, most
importantly, consumers. Likewise, we have attempted to maximize
flexibility for subscription video-on-demand services and other new
business models by declining to mandate uniform copy-protection caps for
such services, since they do not fall neatly into the established
categories. Wherever possible, I have strived to minimize the degree of
governmental intervention.

Finally, I am also pleased that the Order and Further Notice, on
balance, will promote innovation to a far greater degree than the
existing PHILA licensing process. I recognize that computer
manufacturers, software companies, and others are concerned that the
compliance and robustness rules associated with the new DFAST license
are skewed in favor of digital televisions and against PCs. Yet, unlike
the status quo, which is characterized by a closed certification process
and a PHILA license that assigned no express role to the FCC, the
Commission's new rules establish a more open certification process and
the DFAST license gives the FCC an oversight role in the approval of new
outputs and content protection technologies. Through this oversight, the
Commission can assure that PCs and other devices with open architectures
and alternative copy-protection schemes are included in the DTV
transition. It is also important for the Commission to establish this
initial framework for one-way digital television receivers, after which
a broader array of interests can participate in the development of a
two-way standard. I look forward to that second phase and stand ready to
take other steps to promote competition in the market for navigation
devices and to continue furthering the DTV transition.

STATEMENT OF

COMMISSIONER MICHAEL J. COPPS

*Re:* *Implementation of Section 304 of the Telecommunications Act of
1996; Commercial Availability of Navigation Devices; Compatibility
Between Cable Systems and Consumer Electronics Equipment*

This item demonstrates once again the commitment of this Commission and
our Chairman to move forward to resolve important issues in order to
expedite the digital transition. With some 70 percent of U.S. households
subscribing to cable television services, issues like cable
compatibility and other technical matters that have been holding up the
digital transition need to be decided.

Today's decision is not an ideal solution, but it is a step forward and
far preferable to a status quo in which consumers are unable to access
digital cable services without a set-top box and in which innovators
face continued uncertainty. By establishing a standard to ensure the
compatibility of cable systems with DTV devices and providing a process
for approval of new products and technologies with the Commission as
neutral arbiter, this decision should speed the commercial availability
of digital cable ready products with greater functionality, thereby
providing consumers with more choices and ultimately reducing the costs
of DTV technology.

We will, however, only succeed in accelerating the digital transition
when we confront head-on the significant consumer confusion that exists
in this area. Consumer education and outreach are indispensable in
gaining consumer acceptance. Today's Order requires manufacturers to
include post-sales material describing the features and limitations of
unidirectional cable televisions. I would prefer to see information
provided to consumers up-front. I believe we need a greater commitment
from the industry and from the Commission for consumer outreach and
education if we are to succeed in this transition. What we can require,
we should require. Where we can't require, we should exhort, bring
parties together, and encourage the development of such practices that
will bring needed consumer information to buyers before they become
owners.

I vote for today's Order with the understanding that it will not affect
any of the rights or remedies available under our nation's copyright
laws and cognizant that it is Congress that ultimately sets national
policy in this critical and sensitive area. As we implement this
decision, I for one, and I trust my colleagues, will remain sensitive to
this and not venture into content matters beyond our authority.

I commend the cable and consumer electronics industries for their
efforts to reach agreement. It is, however, not the end of the process.
There are still many miles to walk here. I expect this decision will
provide added impetus to work out the remaining details on
bi-directional cable compatibility. As this process moves forward, I
hope that the cable and consumer electronics industries will reach out
and work more closely with other interested parties to reach consensus.
Many individuals and groups have an interest in the outcomes here, and
in the next round I will be looking to see if they are more fully
consulted as we struggle toward resolution of these often-thorny issues.
So when I say that I look forward to working with my colleagues, the
industry, and all interested stakeholders to resolve those issues
together, I say it with more than passing interest. The bi-directional
agreement will need to be more than a bi-polar discussion. We live in a
multi-polar world.

The issues attending this item were many, complicated and often highly
technical. Our Bureau and personal staffs did yeoman work in developing
and plowing through an item that, while it may not answer everyone's
fondest hopes and dreams, keeps the digital television transition on
track and provides processes to monitor and resolve issues as they
develop. I want to salute my colleagues, too, for their immersion in all
this and for the constructive cooperation that brought the item to us
this morning.

**STATEMENT OF**

**COMMISSIONER KEVIN J. MARTIN**

*Re: Implementation of Section 304 of the Telecommunications Act of
1996; Commercial Availability of Navigation Devices; Compatibility
Between Cable Systems and Consumer Electronics Equipment, Second Report
and Order and Second Further Notice of Proposed Rulemaking, CS Docket
No. 97-80; PP Docket No. 00-67*

I support today's decision on compatibility between cable systems and
consumer electronics equipment. I believe it is extremely important for
the Commission to resolve outstanding DTV-related issues quickly so that
affected industries and consumers know the rules of the road. As I wrote
a year ago, resolving issues surrounding digital cable compatibility
would benefit consumers significantly by allowing the majority of
consumers -- about 70 percent of consumers who access their programming
via cable -- to more easily view digital programming. I am glad that we
are taking action on this and hope that manufacturers can now
incorporate digital broadcast and cable reception capabilities for
approximately the same cost as the digital broadcast tuner alone. By
ensuring equipment functionality and interoperability for digital cable
systems, our action allows manufacturers to build fully integrated
"digital cable ready" sets that also incorporate broadcast tuners.

I am disappointed that we were not able to resolve the Broadcast Flag
proceeding at the same time. Acting on the content protection rules in
both the Plug & Play proceeding and the Broadcast Flag proceeding at the
same time would have clarified the rules of the road for all
participants in the DTV transition. Still, I am pleased that the
Commission has committed in this item to resolving the Broadcast Flag
proceeding in the near future, and I look forward to working with my
colleagues on this difficult and important issue.

I also note some concerns that I have about the process used to reach
this agreement. A number of parties complained to the Commission that
they were not afforded an opportunity to express their concerns during
the negotiations that culminated in the Plug & Play agreement. These
parties argue that the agreement between the cable and consumer
electronics industries -- which is limited to one-way products --
impacts them. I understand that a similar round of industry discussions
focused on interactive, two-way products is about to start. I strongly
encourage that *all* interested parties be allowed to participate in
setting the groundwork for any necessary rules.

Finally, I note the difficulty of these issues and the importance of
ensuring that our rules do not impede the legal rights of copyright
holders to protect their content.

In all, I believe that today's decision is a good step forward for the
transition to digital television.

#   {#section-1 .unnumbered}

STATEMENT OF

COMMISSIONER JONATHAN S. ADELSTEIN

*Re: Second Report and Order and Second Further Notice of Proposed
Rulemaking (CS Docket No. 97-80; PP Docket No. 00-67)*

Today, the Commission responds to the public readiness for "Digital
Cable Ready" devices. The agreement between the cable television and
consumer electronics industries giving consumers the ability to get
beyond the set-top box and plug their televisions and other devices
directly into the digital cable system was a positive step in the
resolution of long-pending and complex issues. Today we take the first
step toward this reality. Although not perfect, today's action gives us
reason for optimism that we can embark on a world of innovation and
growth in one-way digital devices and digital content delivery systems.
This decision, along with anticipated resolution of these issues and
more for two-way interactive devices, should result in more choice of
new products and services using the cable infrastructure which will
entice consumers to embrace the digital transition.

Our goals are simple -- to promote innovation, interoperability, and the
inevitable transition to high-definition digital television. It is the
methods that have proven complicated over the past several years. I
believe we have struck the right balance today between the delicate and
competing interests at stake. We adopt rules that will enable new
business models to launch. We adopt processes that will allow the
Commission to serve as arbiter of disputes. And we seek further comment
on those aspects surrounding the agreement where we are least able to
predict the results for consumers, cable operators, consumer electronics
companies, content providers, and other interested parties.

Today's decision is fundamentally about innovation in the delivery of
high value content into people's homes, and in the products that will
receive such content. We are taking steps to ensure that all
technologies will be evaluated objectively and that testing and
certification of devices can be administered by neutral parties. These
new devices and technologies will be central to the consumer's
experience with digital content as it is integrated into the home
network.

We are mindful today of the needs of copyright owners to protect high
value content. Our action does not affect any rights or limitations of
copyright holders under the copyright law. We preserve flexibility for
the later use of certain methods of protecting premium content if it is
shown that such uses are necessary and consumer-friendly.

I look forward to the outcome of the ongoing discussions to devise
standards and rules for interactive, two-way devices, and encourage the
industries to consult with other interested parties as those discussions
progress. I also encourage manufacturers and cable operators to work
with retailers in a broad outreach campaign to the public. As the public
begins to enjoy the new choices available to them, I suspect they will
quickly become "Interactive Digital Cable Ready" and demand even more
innovative interactive devices which can be brought to market right
away.

[^1]: Navigation devices are defined for purposes of this proceeding as
    "converter boxes, interactive equipment, and other equipment used by
    consumers within their premises to receive multichannel video
    programming and other services offered over multichannel video
    programming systems." 47 C.F.R. § 76.1201(c).

[^2]: *Implementation of Section 304 of the Telecommunications Act of
    1996:* *Commercial Availability of Navigation Devices and
    Compatibility Between Cable Systems* *and Consumer Electronics
    Equipment*, 18 FCC Rcd 518 (2003) ("*Further Notice*").

[^3]: *See* Letter from Carl E. Vogel, President and CEO, Charter
    Communications, *et al.*, to Michael K. Powell, Chairman, FCC (Dec.
    19, 2002) ("Cable/CE Letter"); *Memorandum of Understanding Among
    Cable MSOs and Consumer Electronics Manufacturers* (signed by
    Charter Communications, Inc., Comcast Cable Communications, Inc.,
    Cox Communications, Inc., Time Warner Cable, CSC Holdings, Inc.,
    Insight Communications Company, L.P., Cable One, Inc.,
    Advance/Newhouse Communications, Hitachi America, Ltd., JVC Americas
    Corp., Mitsubishi Digital Electronics America, Inc., Matsushita
    Electric Corp. of America (Panasonic), Philips Consumer Electronics
    North America, Pioneer North America, Inc., Runco International,
    Inc., Samsung Electronics Corporation, Sharp Electronics
    Corporation, Sony Electronics, Inc., Thomson, Toshiba America
    Consumer Electronics, Inc., Yamaha Electronics Corporation, USA, and
    Zenith Electronics Corporation) ("MOU").

[^4]: *See* Comments filed in response to *Implementation of Section 304
    of the Telecommunications Act of 1996: Commercial Availability of
    Navigation Devices,* 15 FCC Rcd 18199 (2000) ("*FNPRM and
    Declaratory Ruling*")*; Compatibility Between Cable Systems And
    Consumer Electronics Equipment*, 15 FCC Rcd 17568 (2000) ("*Digital*
    *Compatibility* *Report and Order*").

[^5]: Cable/CE Letter at 1.

[^6]: A list of parties filing comments and reply comments is set forth
    in Appendix A.

[^7]: 47 U.S.C. § 549(a).

[^8]: 47 U.S.C. § 549(b).

[^9]: *Implementation of Section 304 of the Telecommunications Act of
    1996: Commercial Availability of Navigation Devices,* 13 FCC Rcd
    14775 (1998) *(\"Navigation Devices Order\"*).

[^10]: *Id.* at 14778-79.

[^11]: *Implementation of Section 304 of the Telecommunications Act of
    1996, Commercial Availability of Navigation Devices:* 14 FCC Rcd
    7596, 7599-7606, 7613 (1999) ("*Reconsideration Order*"); *see also
    Navigation Devices Order*, 13 FCC Rcd at 14803. The Commission's
    navigation devices rules were upheld by the United States Court of
    Appeals for the District of Columbia Circuit. *See General
    Instrument Corporation v. FCC*, 213 F.3d 724 (D.C. Cir. 2000)
    ("*General Instrument*").

[^12]: *FNPRM and Declaratory Ruling,* 15 FCC Rcd at 18202.

[^13]: *Implementation of Section 304 of the Telecommunications Act of
    1996, Commercial Availability of Navigation Devices*, 18 FCC Rcd
    7924 (2003) ("*2005 Order and FNPRM*").

[^14]: 47 U.S.C. § 544A.

[^15]: *Id*. § 544A(c)(2)(A); *see* *Compatibility Between Cable Systems
    and Consumer Electronics Equipment*, 9 FCC Rcd 1981 (1994)
    ("*Compatibility Report and Order*").

[^16]: 47 U.S.C. § 544A(d).

[^17]: *Digital* *Compatibility* *Report and Order*, 15 FCC Rcd at
    17568. Petitions for reconsideration of the *Digital*
    *Compatibility* *Report and Order* filed by Time Warner Cable and
    the National Cable and Telecommunications Association ("NCTA") are
    currently pending before the Commission. *See infra* n.111 and
    accompanying text (resolving the petitions for reconsideration).

[^18]: *Digital* *Compatibility* *Report and Order*, 15 FCC Rcd at
    17577.

[^19]: Receivers under the Digital Cable Ready 2 category use a set-top
    box that connects to the television via a 1394 connector while
    Digital Cable Ready 3 devices support interactive services without a
    set-top box. *Digital* *Compatibility* *Report and Order*, 15 FCC
    Rcd at 17577.

[^20]: MOU at 4.

[^21]: *Id*.

[^22]: *Id* at 10. *See* Letter from Neal Goldberg, General Counsel,
    NCTA, and Michael Petricone, Vice President, Technology Policy, CEA,
    to Marlene Dortch, Secretary, FCC (July 24, 2003) ("*Joint Status
    Report*"). As these bidirectional negotiations progress, we
    encourage the cable and consumer electronics industries to consult
    with interested parties and affected industries.

[^23]: *Recommended Regulations to Ensure Compatibility Between Digital
    Cable Systems and Unidirectional Digital Cable Products and to
    Provide for Appropriate Labeling of Such Products* at 1-6 ("Draft
    Technical Rules"); *Encoding Rules As Proposed to the FCC* at 1-10
    ("Draft Encoding Rules").

[^24]: *DFAST* *Technology License Agreement for Unidirectional Digital
    Cable Products* at 1-37 ("Draft DFAST License").

[^25]: *Further Notice*, 18 FCC Rcd at 518.

[^26]: *See e.g.,* Letter from Fritz Attaway, MPAA to Marlene Dortch,
    Secretary, FCC (Sept. 3, 2003); *see also* *Digital Broadcast Copy
    Protection*, 17 FCC Rcd 16027 (2002) ("*Digital Broadcast NPRM*").

[^27]: As a result of the incorporation by reference of certain
    technical standards into the Commission's rules, other rule
    amendments were required relating to earlier incorporations by
    reference. These amendments, as reflected in Sections 15.38 and
    76.602 of the Commissions rules, are administrative in nature and
    relate to agency procedure and practice. Consequently, the notice
    and comment procedures of the Administrative Procedure Act,
    contained in 5 U.S.C. § 553(b), are inapplicable.

[^28]: Draft Technical Rules at 1-2.

[^29]: 47 C.F.R. §§ 76.601-76.630.

[^30]: ACA Comments at 6.

[^31]: *See* Letter from Neal M. Goldberg, General Counsel, NCTA, to
    John Wong, Chief, Engineering Division, Media Bureau, FCC at 3-4
    (July 10, 2003) ("Cable/CE Response to Questions").

[^32]: Draft Technical Rules at 1.

[^33]: *Id*. at 2. *See* Section IV, *infra*.

[^34]: Draft DFAST License at 3.

[^35]: Public interest groups and information technology ("IT")
    companies question the DFAST license definition in so far as it
    appears to exclude from its scope personal computers ("PCs") and
    other devices with Internet connectivity which might be used as a
    "return path." *See* ATI Technolgies, Dell, Intel, HP, Microsoft &
    NEC Comments at 3-4 ("IT Coalition Comments"); Intel Corporation
    Comments at 3-6, 11-12; Public Knowledge & Consumers Union Comments
    at 12-15 ("PK & CU Comments"); TiVo Inc. Comments at 5 ("TiVo
    Comments"); and Consumer Federation of America Reply Comments at 6
    ("CFA Reply Comments"). NCTA and CEA/CERC clarify in their Reply
    Comments that neither digital cable compatible products with cable
    modem functionality, nor PCs with a POD slot and Internet
    connectivity, are intended to be excluded from the terms of the
    DFAST license, so long as such devices otherwise meet the license's
    compliance and robustness rules. NCTA Reply Comments at 30-31;
    CEA/CERC Reply Comments at 7. We concur with NCTA and CEA/CERC's
    interpretation of the DFAST license definition and believe that it
    is consistent with the definition of unidirectional digital cable
    products that we are adopting in Section IV infra. In addition, we
    expect that the DFAST license and its associated compliance and
    robustness rules will be designed and implemented in a manner that
    does not *per se* exclude PCs and other devices with open
    architesctures from qualifying as unidirectional digital cable
    products. Commenters have noted that digital rights management
    technologies developed for the PC environment, using robust
    encryption algorithms, are already commonly used in other instances
    where content must be protected. *See* Letter from Paula Boyd,
    Microsoft Corporation, *et al*., to Marlene Dortch, Secretary, FCC
    (Sept. 3, 2003). We encourage CableLabs to work with interested
    parties in this regard.

[^36]: Cable/CE Letter at 1.

[^37]: NCTA Comments at 11.

[^38]: Pursuant to the *2005 Order and FNPRM* issued in our Navigation
    Devices proceeding, we are monitoring the progress of the cable and
    consumer electronics industries' bidirectional digital cable product
    negotiations.

[^39]: Draft Technical Rules at 1.

[^40]: *See* SCTE 40 2003, Digital Cable Network Interface Standard
    (SCTE 2003) ("SCTE 40 2003"); ANSI/SCTE 65 2003, Service Information
    Delivered Out-of-Band for Digital Cable Television ("ANSI 65 2003");
    ANSI/SCTE 54 2003, Digital Video Service Multiplex and Transport
    System Standards for Cable Television (ANSI 2003) ("ANSI/SCTE 54
    2003").

[^41]: *See* *Joint Status Report* at 2. To ensure that consumer
    expectations regarding the functionality of unidirectional digital
    cable televisions and products are met, we encourage digital cable
    systems with an activated channel capacity of 550 MHz or greater to
    meet these technical standards where it is financially and
    technically feasible.

[^42]: EFF Reply Comments at 6-7.

[^43]: NCTA Reply Comments at 45-46; *see* 47 C.F.R. § 76.630(a).

[^44]: NCTA Reply Comments at 42-43; Comcast Reply Comments at 17-18.

[^45]: According to NCTA, PODs will now be referred to for marketing
    purposes as CableCARDs. *Joint Status Report* at 2. Because the MOU
    and draft technical rules refer to these security modules as PODs,
    we continue to use this term.

[^46]: Draft Technical Rules at 1-2.

[^47]: *See* ANSI/SCTE 28 2003, Host-POD Interface Standard (ANSI 2003)
    ("ANSI/SCTE 28 2003"); SCTE 41 2003, POD Copy Protection System
    (SCTE 2003) ("SCTE 41 2003").

[^48]: TiVo Comments at 6-7.

[^49]: NCTA Reply Comments at 41-42; *see also* Comcast Reply Comments
    at 16.

[^50]: TiVo Comments at 7.

[^51]: NCTA Reply Comments at 42.

[^52]: Draft Technical Rules at 1.

[^53]: APTS Reply Comments at 3; NAB Comments at 9-10; Paxson Reply
    Comments at 2-5 n.8.

[^54]: APTS Reply Comments at 3; NAB Comments at 9-10; Paxson Reply
    Comments at 2-5 n.8.

[^55]: Comcast Reply Comments at 3, 13-15; CEA Reply Comments at 4-5;
    CFA Reply Comments at 7.

[^56]: NCTA Reply Comments at 43-45.

[^57]: *Id*.

[^58]: *Carriage* *of the Transmission of Digital Television Broadcast
    Stations*, CS Docket Nos. 98-120, 00-96 and 00-2; *Second Periodic
    Review of the Commission's Rules and Policies Affecting the
    Transition to Digital Television*, MB Docket No. 03-15, RM 9832, MM
    Docket Nos. 99-360, 00-167 and 00-168.

[^59]: ATSC A/65B, Program and System Information Protocol for
    Terrestrial Broadcast and Cable (ATSC 2003); *see* Appendix B at §
    76.640(b)(1)(iv)-(v).

[^60]: Draft Technical Rules at 2.

[^61]: MOU at 6. The MOU signatories clarified that the use of the term
    "functional" in connection with the \[December 31, 2003\] deadline
    reflected "an acknowledgement ... that prior to the MOU, several
    MSOs had purchased and, in some cases, deployed high-definition
    digital set-top boxes which contained an IEEE 1394 interface which
    do not have software embedded in the \[set-top box\] to allow the
    1394 interface to function." Cable/CE Response to Questions at 4.

[^62]: Draft Technical Rules at 2. The use of the term "functional" does
    not appear in connection with the July 2005 deadline for DVI or HDMI
    interfaces since the MOU signatories anticipate that "interfaces...
    associated with future set-top product purchases ... would be made
    functional by the manufacturer before delivery to the operator."
    Cable/CE Response to Questions at 5.

[^63]: Draft Technical Rules at 2. *See* ANCI/SCTE 26 2001, Home Digital
    Network Interface Specification with Copy Protection (ANSI 2001);
    CEA-931-A, Remote Control Command Pass-through Standard for Home
    Networking (CEA 2003).

[^64]: Genesis Microchip Reply Comments at 3-5.

[^65]: *Id*.

[^66]: We note, however, that DVI, HDMI and HDCP have been included as
    normative references in standards that have undergone the ANSI
    process. *See e.g.*, CEA-861-B, A DTV Profile for Uncompressed High
    Speed Digital Interfaces (2002).

[^67]: *See e.g.,* HDMI Specification Adopter Agreement, *available at*
    [http://www.hdmi.com]{.underline}.

[^68]: *Advanced Television Systems and Their Impact Upon the Existing
    Television Broadcast Service*, 6 FCC Rcd 7024, 7034 (1991).

[^69]: ACA Comments at 7-8.

[^70]: *Id*. at 4-6.

[^71]: NCTA Reply Comments at 46; Comcast Reply Comments at n.32; *see
    also* 47 C.F.R. § 76.1204.

[^72]: NCTA Reply Comments at 46; Comcast Reply Comments at n.31.

[^73]: *See* 47 C.F.R. § 76.1204.

[^74]: MOU at 9.

[^75]: EchoStar Communications Corp. Reply Comments at 2-4; NAB Reply
    Comments at 6-7; PK & CU Comments at 4-5; PK & CU Reply Comments at
    2-3, 8-9; TiVo Comments at 2.

[^76]: Cable/CE Response to Questions at 1-2.

[^77]: NCTA Reply Comments at 10.

[^78]: *See* 47 U.S.C. § 544a(c)(2)(A).

[^79]: *See* Draft Technical Rules at 2; Draft DFAST License at 3; *see
    also* Section III, *supra*. We believe that the term unidirectional
    digital cable products can encompass a broad range of devices. It is
    for this reason that the list of unidirectional digital cable
    products identified in the draft rules "include\[s\], but is not
    limited to televisions, set-top boxes and recording devices." Draft
    Technical Rules at 2. We clarify that although the definition of
    unidirectional digital cable products we are adopting excludes
    interactive two-way devices, this exclusion would not apply to
    devices with cable modem functionality or Internet connectivity,
    such as personal computers. As such, devices with cable modem
    functionality or Internet connectivity would not be foreclosed from
    being labeled or marketed as digital cable ready devices, so long as
    they otherwise complied with the criteria set forth herein.

[^80]: *See generally*, Draft Technical Rules at 2-6. EFF suggests that
    the Commission also create a "basic tier ready" label for devices
    meeting the digital cable ready television definition, except for
    the requirement to have a POD-Host interface. EFF Comments at 5. The
    record in this proceeding, however, does not reflect sufficient need
    for a label distinguishing these devices from digital cable ready
    products. Indeed, a basic tier ready label could confuse consumers
    who identify cable readiness with extended basic service, which
    includes both the basic and cable programming services tiers.

[^81]: Draft Technical Rules at 3-4.

[^82]: Cable/CE Response to Questions at 6.

[^83]: Draft Technical Rules at 6. The relevant language states: "This
    digital television is capable of receiving analog basic, digital
    basic and digital premium cable television programming by direct
    connection to a cable system providing such programming. A security
    card provided by your cable operator is required to view encrypted
    digital programming. Certain advanced and interactive digital cable
    services such as video-on-demand, a cable operator's enhanced
    program guide and data-enhanced television services may require the
    use of a set-top box. For more information call your local cable
    operator." *Id*.

[^84]: APTS Reply Comments at 2; Motion Picture Association of America
    Reply Comments at 15-16 ("MPAA Reply Comments"); NAB Comments at
    2-3, 5-8; NAB Reply Comments at 2-6; Paxson Comments at 3-7;
    Sinclair Broadcast Group Inc. Comments at 1, 3-7; *see*
    EIA/CEA-818D, Cable Compatibility Requirements (EIA 2002)
    ("EIA/CEA-818D").

[^85]: CEA/CERC Reply Comments at 5.

[^86]: Draft Technical Rules at 3-4.

[^87]: NCTA Reply Comments at 43-44; *see* 47 C.F.R. § 15.117(i).

[^88]: 17 FCC Rcd 15978 (2002).

[^89]: This requirement will follow the same phase-in schedule
    established in *DTV Tuner Order*.

[^90]: MPAA Reply Comments at 2-6; NAB Reply Comments at 6-7.

[^91]: NCTA Reply Comments at 47.

[^92]: *See* 47 C.F.R. § 15.122.

[^93]: NAB Comments at 5 n.6; APTS Reply Comments at 3 n.6.

[^94]: Draft Technical Rules at 2-4. The connector interface
    requirements for televisions to be labeled digital cable ready
    include either: (1) a DVI or HDMI interface, or (2) a Y,Pb,Pr
    component interface. The phase-in schedule would range from July 1,
    2004, for 50% of 480p grade television models with screen sizes 36
    inches and above, to July 1, 2007, for 100% of 720p/1080i grade
    television models with screen sizes 13 to 24 inches. *Id*. at 3-4.

[^95]: NAB Comments at 5 n.6.

[^96]: NCTA Reply Comments at 35.

[^97]: *Id*.

[^98]: *See e.g.*, PK & CU Comments at 3; Intel Comments at 8-12;
    EchoStar Reply Comments at 7.

[^99]: *See* EchoStar Reply Comments at 4, 7; NCTA Reply Comments at
    39-40.

[^100]: Draft Technical Rules at 4-6; *see* SCTE 40 2003; ANSI/SCTE 28
    2003; SCTE 41 2003.

[^101]: Draft Technical Rules at 4.

[^102]: *See* Uni-Dir-PICS-I01-030903: Uni-Directional Receiving Device:
    Conformance Checklist: PICS Proforma (2003)

[^103]: Draft Technical Rules at 5-6.

[^104]: Our approval of the proposed labeling and consumer disclosure
    regime is not intended to limit or foreclose any action that may be
    taken pursuant to the Notice of Proposed Rulemaking recently issued
    in our DTV Second Periodic Review Proceeding. *See* *Second Periodic
    Review of the Commission's Rules and Policies Affecting the
    Transition to Digital Television*, 18 FCC Rcd 1279, 1314-15 (2003)
    ("*DTV Second Periodic Review NPRM*").

[^105]: *See* 47 C.F.R. § 15.19(d)(2).

[^106]: *Digital* *Compatibility* *Report and Order*, 15 FCC Rcd at
    17568.

[^107]: *See* Section III.E, *supra*; *see also* MOU at 9.

[^108]: MOU at 7.

[^109]: DIRECTV Comments at 4-6; EchoStar Reply Comments at 9.

[^110]: *Further Notice*, 18 FCC Rcd at 531-609.

[^111]: MPAA Reply Comments at 10; National Music Publishers'
    Association, *et al*. Comments at 4-6, 8-9 ("NMPA Comments"); NMPA
    Reply Comments at 2.

[^112]: Draft Encoding Rules at 5.

[^113]: 47 U.S.C. § 549(a).

[^114]: *Id*. § 544A.

[^115]: Section 629 directs the Commission to "adopt regulations to
    assure the commercial availability, to consumers of multichannel
    video programming and other services offered over multichannel video
    programming systems, of converter boxes, interactive communications
    equipment, and other equipment used by consumers to access
    multichannel video programming and other services offered over
    multichannel video programming systems." *Id*. § 549(a).

[^116]: *Navigation Devices Order*, 13 FCC Rcd at 14782-84. The only
    MVPDs not subject to the requirements of Section 629 are open video
    system operators, as a consequence of a specific exclusion in the
    Communications Act. *Id.* at 14783-84.

[^117]: *See* i*d.* at 14800-02, 14819 (finding that Congress did not
    exclude DBS from the reach of Section 629, and that the "sunset
    criteria" of Section 629(e) had not been met because the market for
    MVPD services is not fully competitive); *Order on Reconsideration,*
    14 FCC Rcd at 7613-14.

[^118]: *Navigation Devices Order*, 13 FCC Rcd at 14784-86 ("\[W\]e
    believe that Section 629 is intended to result in the widest
    possible variety of navigation devices being commercially available
    to the consumer.").

[^119]: *FNPRM and Declaratory Ruling,* 15 FCC Rcd at 18209.

[^120]: *Id.* at 18211.

[^121]: *Id.* at 18212.

[^122]: *Id.* at 18211 (footnote omitted).

[^123]: Cable/CE Letter at 3; MOU at 1.

[^124]: *See* Letter from Fritz Attaway, Senior Vice-President,
    Government Relations, MPAA, to Magalie R. Salas, Secretary, FCC at
    Attachment (Sep. 6, 2000).

[^125]: MPAA Comments at 12-13.

[^126]: MPAA Reply Comments at 9.

[^127]: 47 U.S.C. § 549(b).

[^128]: *Id*. § 549(b).

[^129]: *See, e.g.*, H.R. Conf. Rep. No. 458, 104^th^ Cong., 2^nd^
    Sess., at 181 (1996) (recognizing that "cable ... system operators
    have a valid interest, which the Commission should continue to
    protect, in system or signal security and in preventing theft of
    service and therefore, the Commission may not prescribe regulations
    which would jeopardize signal security or impede the legal rights of
    a provision to preempt theft of service").

[^130]: 47 C.F.R. § 76.1201.

[^131]: *General Instrument*, 213 F.3d at 731 (citing definition of
    "jeopardize" as "to expose to danger (as of imminent loss, defeat,
    or serious harm): IMPERIL").

[^132]: *See* 47 U.S.C. § 553.

[^133]: *See* MPAA Comments at 12-13; MPAA Reply Comments at 8-10; NMPA
    Reply Comments at 6 n.9, 11-17.

[^134]: *See United Video, Inc. v. FCC*, 890 F.2d 1173 (D.C. Cir. 1989)
    (upholding FCC authority to promulgate syndicated exclusivity rules
    while noting "interplay between copyright and communications law")
    ("*United Video*").

[^135]: NCTA Reply Comments at 48.

[^136]: *Id*.

[^137]: *See, e.g.,* 17 U.S.C. § 107 ("fair use"); *Piracy Prevention
    and the Broadcast Flag: Before the House Subcomm. on Courts, the
    Internet and Intellectual Property, Comm. on the Judiciary*, 4-10
    (Mar. 6, 2003) (statement of Mary Beth Peters, Register of
    Copyrights).

[^138]: *United Video*, 890 F.2d at 1184.

[^139]: 47 U.S.C. §§ 151, 152(a), 154(i), 303(r). Contrary to the
    assertions of some commenters, the recent *MPAA v. FCC* decision
    does not restrict our ancillary authority here. *MPAA v. FCC*, 309
    F.3d 796, 807 (D.C. Cir. 2002). In that case, the court found that
    the Commission lacked authority to adopt video description rules
    because: (1) the regulations significantly affected program content;
    and (2) Congress specifically authorized and ordered the FCC to
    produce a report on video description -- "nothing more, nothing
    less." Neither of these conditions applies in this case. Our mandate
    under Section 629 specifically requires us to adopt regulations
    assuring the commercial availability of navigation devices. Further,
    the encoding rules apply to the distribution of content rather than
    its substance. For example, the caps on copy protection mechanisms
    are not set on a program-by-program basis, rather, they are set for
    existing and future "business models" which represent different
    distribution channels by which programming is marketed. This
    structure is agnostic as to the content of programming -- the same
    programming could be distributed by various business models and in
    each instance would be subject to a different copy protection cap
    depending on the applicable distribution model. For example, a movie
    available on a video-on-demand service could be encoded "copy
    never," but the same movie could only be encoded up "copy one
    generation" if it were offered on a non-premium subscription
    service.

[^140]: *Id*. § 152(a).

[^141]: *Id*. § 151.

[^142]: *See, e.g., United States v. Southwestern Cable Co.*, 392 U.S.
    157, 172 (1968) ("\[I\]t was precisely because Congress wished to
    maintain, through appropriate administrative control, a grip on the
    dynamic aspects of radio transmission . . . that it conferred upon
    the Commission a unified jurisdiction and broad authority.")
    (citations, footnote and internal quotations omitted); *United
    States v. Midwest Video Corp.*, 406 U.S. 649, (1972) ("*Midwest
    Video*").

[^143]: *See, e.g.,* *Midwest Video*, 406 U.S. at 667-68 ("The critical
    question . . . is whether the Commission has reasonably determined
    that its origination rule will 'further the achievement of
    long-established regulatory goals in the field of television
    broadcasting' . . .") (citation omitted).

[^144]: 47 U.S.C. § 544A.

[^145]: *See* *id*. §544A(b)(1).

[^146]: *See* *id*. §544A(b)(1).

[^147]: *Id*. § 544A(b)(2).

[^148]: *See e.g.*, EchoStar Reply Comments at 5-6.

[^149]: DBS service was launched commercially in 1994, two years after
    Section 624A was adopted. *See* *In the Matter of Policies and Rules
    for the Direct Broadcast Satellite Service*, 17 FCC Rcd 11331, 11335
    (2002). *See also In the Matter of Annual Assessment of the Status
    of Competition in the Market for the Delivery of Video Programming*,
    17 FCC Rcd 26901, 26975 (2002) (DBS serves approximately 20% of MVPD
    marketplace).

[^150]: *MCCA v. FCC*, 77 F.3d 1399, 1404-07 (1996) (upholding
    Commission authority under Section 4(i) to require pioneer's
    preference holder to pay discounted price, rather than no payment,
    in order to preserve market fairness, given competitiors would be
    required to buy license at auction).

[^151]: Draft Encoding Rules at 5; *see* CEA/CERC Comments at 18.

[^152]: MPAA Reply Comments at 13-15. MPAA has disclaimed an interest in
    using selectable output control to choose among protected digital
    connectors like 1394/5C and DVI/HDCP:

    > Although the concept of selectable output controls was discussed a
    > few years back in the 5C license discussions, *MPAA and its member
    > companies are not seeking in the 5C license or in the OpenCable
    > PHILA context the ability to turn off the 1394/5C digital
    > interconnect in favor of a DVI/HDCP interconnect through a
    > selectable output control mechanism*.

    Letter from Fritz E. Attaway, Senior Vice President Government
    Relations, MPAA, to Chairman W.J. Tauzin, House Committee on Energy
    and Commerce and Chairman Fred Upton, House Subcommittee on
    Telecommunications and the Internet (Mar. 20, 2002) (emphasis in
    original).

[^153]: *See* CEA/CERC Reply Comments at 10.

[^154]: EFF Reply Comments at 10-11; HRRC Comments at 6-10.

[^155]: Comcast Comments at 13-14; Comcast Reply Comments at 9; NCTA
    Reply Comments at 15.

[^156]: CEA/CERC Reply Comments at 18.

[^157]: *See* Section VII.

[^158]: *See* Letter from Fritz Attaway, MPAA to Marlene Dortch,
    Secretary, FCC (Aug. 29, 2003) (arguing that the Commission should
    permit the use of selectable output control with respect to analog
    outputs to protect high value content).

[^159]: Parties have noted that this may involve changes in the model
    DFAST license.

[^160]: CEA/CERC Comments at 20.

[^161]: *Id*.

[^162]: CFA Reply Comments at 5-6; EFF Reply Comments at 10-11; HRRC
    Comments at 6-10; HRRC Reply Comments at 9-10, 17; PK & CU Comments
    at 4-5, 10, 16-17.

[^163]: NCTA Reply Comments at 3.

[^164]: DIRECTV Comments at 7; MPAA Reply Comments at 13-15.

[^165]: Draft Encoding Rules at 5.

[^166]: NCTA Comments at 26; Comcast Comments at 6-7, n.7.

[^167]: NCTA Comments at 26-27; Comcast Comments at 6-7, n.7.

[^168]: CEA/CERC Comments at 19-20; CEA/CERC Reply Comments at 22; HRRC
    Comments at 6-10; HRRC Reply Comments at 9-10, 17; CFA Reply
    Comments at 5-6; EFF Reply Comments at 10-11; PK & CU Comments at
    4-5, 10, 16-17; *see* Letter from Robert Schwartz, Counsel to HRRC,
    McDermott, Will & Emery, to Marlene Dortch, Secretary, FCC (July 29,
    2003).

[^169]: MPAA Comments at 11-12; NCTA Comments at 26.

[^170]: MVPD down-conversion of digital programming in connection with
    mandatory carriage rules is outside the scope of this proceeding.
    The relationship between the encoding and the must carry rules will
    be addressed as needed in our *Carriage of the Transmission of
    Digital Television Broadcast Stations* proceeding in Docket Nos. CS
    98-120, 00-96 and 00-2.

[^171]: Our prohibition on the down-resolution of broadcast programming
    is not intended to prohibit the inclusion of this functionality in
    devices. Parties have noted that this may involve changes in the
    model DFAST license.

[^172]: Draft Encoding Rules at 1-10.

[^173]: *Id*. at 2, 5.

[^174]: Draft Encoding Rules at 5.

[^175]: *Id*. at 6.

[^176]: *Id*. at 5-7.

[^177]: *Id*.

[^178]: *Id*. at 10.

[^179]: *Id*. at 7.

[^180]: *Id*. at 8-10.

[^181]: *Id*. at 8. The PR Newswire is an independent organization that
    provides news targeting, distribution and measurement services in
    135 countries. *See* \<www.prnewswire.com\>.

[^182]: Draft Encoding Rules at 8.

[^183]: *Id*. at 9.

[^184]: *Id*. at 9-10.

[^185]: CFA Reply Comments at 4-5; MPAA Comments at 3-9; MPAA Reply
    Comments at 2-5, 10; NMPA Comments at 3-9; PK & CU Comments at 3-8;
    Veridian Reply Comments at 2-3.

[^186]: DIRECTV Comments at 4-6; EchoStar Reply Comments at 5; MPAA
    Reply Comments at 11-13.

[^187]: Intel Comments at 12; ATI Technologies, *et al.* Comments at 7-9
    ("IT Comments").

[^188]: Starz Encore Comments at 3-20; Starz Encore Reply Comments at
    2-6; HBO Reply Comments at 2-8.

[^189]: CEA/CERC Reply Comments at 8-9; NCTA Reply Comments at 12-14;
    EFF Reply Comments at 3-4; PK & CU Reply Comments at 8.

[^190]: *See* 17 U.S.C. § 1201(k); CEA/CERC Comments at 14-18. The
    primary difference between the DMCA and proposed encoding caps is
    the treatment of non-premium subscription programming (also referred
    to in the cable industry as the extended basic tier) which may carry
    a restriction of up to one generation of copies rather than no copy
    protection encoding as required by the DMCA. Starz Encore Reply
    Comments at 4.

[^191]: *See* MPAA Comments at 9; NCTA Reply Comments at 15-16.

[^192]: While TiVo does not object to a particular encoding cap, it does
    challenge the limitation on pausing or caching content for 90
    minutes under the "copy never" classification. TiVo Comments at 7-9.
    In a similar vein, EchoStar and DIRECTV question whether the
    encoding rules would limit personal video recorder ("PVR") and VOD
    functionality absent an exception allowing the download and
    temporary caching of content for these services. Letter from Eddy
    Hartenstein, DIRECTV, and Charles Ergen, EchoStar, to Michael
    Powell, Chairman, FCC (Sept. 3, 2003). We concur, however, with HRRC
    and NCTA, which argue that a 90 minute pause functionality is a
    reasonable accommodation that preserves both PVR functionality and
    copy protection effectiveness. HRRC Reply Comments at 5-6; NCTA
    Reply Comments at 21. We also note that the draft encoding rules
    specifically permit the encoding, storing or management of content
    within devices under an MVPDs control so long as the intent of the
    encoding rules is not undermined. *See* Draft Encoding Rules at 10.
    We believe that this exemption provides sufficient flexibility for
    MVPDs to offer services such as PVR and VOD where the downloading or
    temporary caching of content within MVPD-controlled devices is
    needed.

[^193]: CFA Reply Comments at 4-5; MPAA Comments at 3-9

[^194]: Draft Encoding Rules at 6-10.

[^195]: DIRECTV Comments at 4-9; EchoStar Reply Comments at 5; MPAA
    Reply Comments at 11-13.

[^196]: IT Comments at 7-9; DIRECTV Comments at 8-9; Intel Comments at
    12.

[^197]: *See* *SEC v. Chenery Corp.*, 332 U.S. 194, 203 (1947) (making
    clear that choice made between proceeding by rulemaking or by
    adjudication lies primarily in the informed discretion of the
    administrative agency).

[^198]: Starz Encore Comments at 3-20; Starz Encore Reply Comments at
    2-6.

[^199]: Starz Encore Comments at 10.

[^200]: Starz Encore Reply Comments at 2-4.

[^201]: HBO Reply Comments at 2-8.

[^202]: *Id*. at 5-6.

[^203]: *Id*. at 7.

[^204]: *Id*.

[^205]: *Id*. at 8.

[^206]: *See* 17 U.S.C. § 1201(k).

[^207]: Draft DFAST License at 1-37.

[^208]: MOU at 1.

[^209]: Draft DFAST License at 8-9, 21, 24.

[^210]: *Id*. at 8.

[^211]: *Id*.

[^212]: *Id*.

[^213]: *See* 47 C.F.R. § 76.7.

[^214]: Draft DFAST License at 21, 24.

[^215]: *Id*. at 21.

[^216]: *Id*.

[^217]: Should the Commission discover evidence of anticompetitive
    behavior relating to the approval process for new outputs or content
    protection technologies, whether it involves a denial or a failure
    to make a determination by the decision-making entity, we will refer
    the matter to the appropriate antitrust authority for investigation
    and take any other appropriate action.

[^218]: *See* 47 C.F.R. § 76.7.

[^219]: *Id*.

[^220]: *See* MPAA Reply Comments at 13-15.

[^221]: *See* Section V.C *supra*.

[^222]: We recognize that similar issues have been raised with respect
    to the so-called "Table A" proposal in the Commission's pending
    Digital Broadcast Copy Protection proceeding. *See Digital Broadcast
    NPRM*, 17 FCC Rcd at 16029. We seek comment on whether a regime
    similar to Table A should be employed in this instance.

[^223]: Letter from Paula H. Boyd, Microsoft Corporation, and David
    Isaacs, Hewlett-Packard Corp., to Marlene Dortch, Secretary, FCC
    (Aug. 8, 2003).

[^224]: *See e.g.*, Comments of Philips Electronics North America
    Corporation and Comments of the IT Coalition, *filed in* MB Docket
    No. 02-230.

[^225]: *See* 5 U.S.C. § 604.

[^226]: *Id*. § 603.

[^227]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. §§ 601-612, has
    been amended by the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857
    (1996).

[^228]: *Implementation of Section 304 of the Telecommunications Act of
    1996: Commercial Availability of Navigation Devices*, 18 FCC Rcd 518
    (2003) ("*FNPRM*").

[^229]: *See* 5 U.S.C. § 604.

[^230]: ACA IRFA Comments at 2.

[^231]: ACA IRFA Comments at 3.

[^232]: 5 U.S.C. § 603(b)(3).

[^233]: 5 U.S.C. § 601(6).

[^234]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small business concern" in the Small Business Act, 15 U.S.C. §
    632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a
    small business applies "unless an agency, after consultation with
    the Office of Advocacy of the Small Business Administration 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."

[^235]: 15 U.S.C. § 632.

[^236]: *See* OMB, North American Industry Classification System: United
    States, 1997 at 509 (1997) (NAICS code 513120, which was changed to
    code 515120 in October 2002)

[^237]: OMB, North American Industry Classification System: United
    States, 1997, at 509 (1997) (NAICS code 513120, which was changed to
    code 51520 in October 2002). This category description continues,
    "These establishments operate television broadcasting studios and
    facilities for the programming and transmission of programs to the
    public. These establishments also produce or transmit visual
    programming to affiliated broadcast television stations, which in
    turn broadcast the programs to the public on a predetermined
    schedule. Programming may originate in their own studios, from an
    affiliated network, or from external sources." Separate census
    categories pertain to businesses primarily engaged in producing
    programming. *See id.* at 502-05, NAICS code 51210. Motion Picture
    and Video Production: code 512120, Motion Picture and Video
    Distribution, code 512191, Teleproduction and Other Post-Production
    Services, and code 512199, Other Motion Picture and Video
    Industries.

[^238]: "Concerns are affiliates of each other when one concern controls
    or has the power to control the other or a third party or parties
    controls or has to power to control both." 13 C.F.R. §
    121.103(a)(1).

[^239]: FCC News Release, "Broadcast Station Totals as of September 30,
    2002."

[^240]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220). This
    NAICS code applies to all services listed in this paragraph.

[^241]: Economics and Statistics Administration, Bureau of Census, U.S.
    Department of Commerce, 1997 Economic Census, Subject Series --
    Establishment and Firm Size, Information Sector 51, Table 4 at 50
    (2000). The amount of \$10 million was used to estimate the number
    of small business firms because the relevant Census categories
    stopped at \$9,999,999 and began at \$10,000,000. No category for
    \$12.5 million existed. Thus, the number is as accurate as it is
    possible to calculate with the available information.

[^242]: 47 C.F.R. § 76.901(e). The Commission developed this definition
    based on its determinations that a small cable system operator is
    one with annual revenues of \$100 million or less. *Sixth Report and
    Order and Eleventh Order on Reconsideration*, 10 FCC Rcd. 7393
    (1995).

[^243]: Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^244]: 47 U.S.C. § 543(m)(2).

[^245]: 47 C.F.R. § 76.1403(b).

[^246]: Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^247]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220).

[^248]: *Id.*

[^249]: *Id*.

[^250]: 13 C.F.F. § 121.201, NAICS code 517510 (formerly 513220).

[^251]: *Id.*

[^252]: *Annual Assessment of the Status of Competition in Markets for
    the Delivery of Video Programming,* 12 FCC Rcd 4358, 4385 (1996)
    ("*Third Annual Report").*

[^253]: *Id.* at 4385.

[^254]: *Amendment of Parts 21 and 74 of the Commission's Rules with
    Regard to Filing Procedures in the Multipoint Distribution Service
    and in the Instructional Television Fixed Service and Implementation
    of Section 309(j) of the Communications Act -- Competitive Bidding*,
    10 FCC Rcd at 9589, 9593 (1995) ("*ITFS Order*").

[^255]: *See Local Multipoint Distribution Service,* 12 FCC Rcd 12545
    (1997) ("*LMDS Order*").

[^256]: 47 C.F.R. § 21.961(b)(1).

[^257]: *See ITFS* *Order*, 10 FCC Rcd at 9589.

[^258]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220).

[^259]: *Id*.

[^260]: SBREFA also applies to nonprofit organizations and governmental
    organizations such as cities, counties, towns, townships, villages,
    school districts, or special districts, with populations of less
    than 50,000. 5 U.S.C. § 601(5).

[^261]: *See LMDS* *Order,* 12 FCC Rcd at 12545.

[^262]: *Id.*

[^263]: *See* Letter to Daniel Phythyon, Chief, Wireless
    Telecommunications Bureau (FCC) from A. Alvarez, Administrator, SBA
    (January 6, 1998).

[^264]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220).

[^265]: *See Third Annual Report*, 12 FCC Rcd at 4403-4.

[^266]: *See Annual Assessment of the Status of Competition in Markets
    for the Delivery of Video Programming*, 17 FCC Rcd 1244, 1281 (2001)
    ("*Eighth Annual Report*").

[^267]: *See* 47 U.S.C. § 573.

[^268]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220).

[^269]: *Id.*

[^270]: 13 CFR § 121.201, NAICS code 334310.

[^271]: 13 CFR § 121.201, NAICS code 334220.

[^272]: 13 CFR § 121.201, NAICS code 334310.

[^273]: Economics and Statistics Administration, Bureau of Census, U.S.
    Department of Commerce, 1997 Economic Census, Industry Series --
    Manufacturing, Audio and Video Equipment Manufacturing, Table 4 at 9
    (1999). The amount of 500 employees was used to estimate the number
    of small business firms because the relevant Census categories
    stopped at 499 employees and began at 500 employees. No category for
    750 employees existed. Thus, the number is as accurate as it is
    possible to calculate with the available information.

[^274]: 13 C.F.R. § 121.201, NAICS code 334220.

[^275]: Economics and Statistics Administration, Bureau of Census, U.S.
    Department of Commerce, 1997 Economic Census, Industry Series --
    Manufacturing, Radio and Television Broadcasting and Wireless
    Communications Equipment Manufacturing, Table 4 at 9 (1999). The
    amount of 500 employees was used to estimate the number of small
    business firms because the relevant Census categories stopped at 499
    employees and began at 500 employees. No category for 750 employees
    existed. Thus, the number is as accurate as it is possible to
    calculate with the available information.

[^276]: 13 C.F.R. § 121.201, NAICS code 334111.

[^277]: Economics and Statistics Administration, Bureau of Census, U.S.
    Department of Commerce, 1997 Economic Census, Industry Series --
    Manufacturing, Electronic Computer Manufacturing, Table 4 at 9
    (1999).

[^278]: *Proposed Technical Rules* at 1-6*.*

[^279]: 5 U.S.C. § 603(b).

[^280]: *See* 5 U.S.C. § 801(a)(1)(A).

[^281]: *See* 5 U.S.C. § 604(b).

[^282]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. §§ 601-612, has
    been amended by the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857
    (1996).

[^283]: *See* 5 U.S.C. § 603(a).

[^284]: *See* 5 U.S.C. § 603(a).

[^285]: *See* 47 U.S.C. § 629.

[^286]: 5 U.S.C. § 603(b)(3).

[^287]: 5 U.S.C. § 601(6).

[^288]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small business concern" in the Small Business Act, 15 U.S.C. §
    632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a
    small business applies "unless an agency, after consultation with
    the Office of Advocacy of the Small Business Administration 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."

[^289]: 15 U.S.C. § 632.

[^290]: *See* OMB, North American Industry Classification System: United
    States, 1997 at 509 (1997) (NAICS code 513120, which was changed to
    code 515120 in October 2002)

[^291]: OMB, North American Industry Classification System: United
    States, 1997, at 509 (1997) (NAICS code 513120, which was changed to
    code 51520 in October 2002). This category description continues,
    "These establishments operate television broadcasting studios and
    facilities for the programming and transmission of programs to the
    public. These establishments also produce or transmit visual
    programming to affiliated broadcast television stations, which in
    turn broadcast the programs to the public on a predetermined
    schedule. Programming may originate in their own studios, from an
    affiliated network, or from external sources." Separate census
    categories pertain to businesses primarily engaged in producing
    programming. *See id.* at 502-05, NAICS code 51210. Motion Picture
    and Video Production: code 512120, Motion Picture and Video
    Distribution, code 512191, Teleproduction and Other Post-Production
    Services, and code 512199, Other Motion Picture and Video
    Industries.

[^292]: "Concerns are affiliates of each other when one concern controls
    or has the power to control the other or a third party or parties
    controls or has to power to control both." 13 C.F.R. §
    121.103(a)(1).

[^293]: FCC News Release, "Broadcast Station Totals as of September 30,
    2002."

[^294]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220). This
    NAICS code applies to all services listed in this paragraph.

[^295]: Economics and Statistics Administration, Bureau of Census, U.S.
    Department of Commerce, 1997 Economic Census, Subject Series --
    Establishment and Firm Size, Information Sector 51, Table 4 at 50
    (2000). The amount of \$10 million was used to estimate the number
    of small business firms because the relevant Census categories
    stopped at \$9,999,999 and began at \$10,000,000. No category for
    \$12.5 million existed. Thus, the number is as accurate as it is
    possible to calculate with the available information.

[^296]: 47 C.F.R. § 76.901(e). The Commission developed this definition
    based on its determinations that a small cable system operator is
    one with annual revenues of \$100 million or less. *Sixth Report and
    Order and Eleventh Order on Reconsideration*, 10 FCC Rcd. 7393
    (1995).

[^297]: Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^298]: 47 U.S.C. § 543(m)(2).

[^299]: 47 C.F.R. § 76.1403(b).

[^300]: Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^301]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220).

[^302]: *Id.*

[^303]: *Id*.

[^304]: 13 C.F.F. § 121.201, NAICS code 517510 (formerly 513220).

[^305]: *Id.*

[^306]: *Annual Assessment of the Status of Competition in Markets for
    the Delivery of Video Programming,* 12 FCC Rcd 4358, 4385 (1996)
    ("*Third Annual Report").*

[^307]: *Id.* at 4385.

[^308]: *Amendment of Parts 21 and 74 of the Commission's Rules with
    Regard to Filing Procedures in the Multipoint Distribution Service
    and in the Instructional Television Fixed Service and Implementation
    of Section 309(j) of the Communications Act -- Competitive Bidding*,
    10 FCC Rcd at 9589, 9593 (1995) ("*ITFS Order*").

[^309]: *See Local Multipoint Distribution Service,* 12 FCC Rcd 12545
    (1997) ("*LMDS Order*").

[^310]: 47 C.F.R. § 21.961(b)(1).

[^311]: *See ITFS* *Order*, 10 FCC Rcd at 9589.

[^312]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220).

[^313]: *Id*.

[^314]: SBREFA also applies to nonprofit organizations and governmental
    organizations such as cities, counties, towns, townships, villages,
    school districts, or special districts, with populations of less
    than 50,000. 5 U.S.C. § 601(5).

[^315]: *See LMDS* *Order,* 12 FCC Rcd at 12545.

[^316]: *Id.*

[^317]: *See* Letter to Daniel Phythyon, Chief, Wireless
    Telecommunications Bureau (FCC) from A. Alvarez, Administrator, SBA
    (January 6, 1998).

[^318]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220).

[^319]: *See Third Annual Report*, 12 FCC Rcd at 4403-4.

[^320]: *See Annual Assessment of the Status of Competition in Markets
    for the Delivery of Video Programming*, 17 FCC Rcd 1244, 1281 (2001)
    ("*Eighth Annual Report*").

[^321]: *See* 47 U.S.C. § 573.

[^322]: 13 C.F.R. § 121.201, NAICS code 517510 (formerly 513220).

[^323]: *Id.*

[^324]: 13 CFR § 121.201, NAICS code 334310.

[^325]: 13 CFR § 121.201, NAICS code 334220.

[^326]: 13 CFR § 121.201, NAICS code 334310.

[^327]: Economics and Statistics Administration, Bureau of Census, U.S.
    Department of Commerce, 1997 Economic Census, Industry Series --
    Manufacturing, Audio and Video Equipment Manufacturing, Table 4 at 9
    (1999). The amount of 500 employees was used to estimate the number
    of small business firms because the relevant Census categories
    stopped at 499 employees and began at 500 employees. No category for
    750 employees existed. Thus, the number is as accurate as it is
    possible to calculate with the available information.

[^328]: 13 C.F.R. § 121.201, NAICS code 334220.

[^329]: Economics and Statistics Administration, Bureau of Census, U.S.
    Department of Commerce, 1997 Economic Census, Industry Series --
    Manufacturing, Radio and Television Broadcasting and Wireless
    Communications Equipment Manufacturing, Table 4 at 9 (1999). The
    amount of 500 employees was used to estimate the number of small
    business firms because the relevant Census categories stopped at 499
    employees and began at 500 employees. No category for 750 employees
    existed. Thus, the number is as accurate as it is possible to
    calculate with the available information.

[^330]: 13 C.F.R. § 121.201, NAICS code 334111.

[^331]: Economics and Statistics Administration, Bureau of Census, U.S.
    Department of Commerce, 1997 Economic Census, Industry Series --
    Manufacturing, Electronic Computer Manufacturing, Table 4 at 9
    (1999).

[^332]: *See Second Further Notice* at ¶¶ 83-86.

[^333]: 5 U.S.C. § 603(b).

[^334]: *See Second Further Notice* at ¶ 80.