**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | * | MM Docket No. 92-264         |
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| The Commission's Cable           | ) | CS Docket No. 98-82          |
| Horizontal and                   | * |                              |
|                                  | * | CS Docket No. 96-85          |
| Vertical Ownership Limits        |   |                              |
|                                  | * | MM Docket No. 94-150         |
| Implementation of Section 11 of  | * |                              |
| the                              | ) | MM Docket No. 92-51          |
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| Cable Television Consumer        | * | MM Docket No. 87-154         |
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+----------------------------------+---+------------------------------+

**FOURTH REPORT & ORDER AND**

**FURTHER NOTICE OF PROPOSED RULEMAKING**

**Adopted: December 18, 2007 Released: February 11, 2008**

**Comments due: (30 days after date of publication in the Federal
Register)**

**Reply Comments due: (45 days after date of publication in the Federal
Register)**

By the Commission: Chairman Martin, Commissioners Copps and Adelstein,
issuing separate statements; Commissioners Tate and McDowell, dissenting
and issuing separate statements.

Table of Contents

Heading Paragraph \#

I. INTRODUCTION 1

II\. Fourth report & order 4

A. Background 4

B. Analytical Framework 17

1\. Background 17

a\. The Open Field Approach 18

b\. Monopsony Framework 21

c\. Bargaining Theory 26

2\. Discussion 28

C. Establishing the Horizontal Limit 40

1\. Total Subscribers 41

2\. Minimum Viable Scale 49

3\. Subscriber Penetration Rate 58

4\. Accounting for Coordinated Action 63

5\. The Cable Horizontal Ownership Limit 67

D. Relevant Geographic Market 74

E. Regional Limits 77

F. Application of the Limit 84

1\. Exclusion of Overbuild, Non-Incumbent Cable Systems from the
Horizontal Limit Calculation 86

2\. Reliance on Industry Data 87

III\. Further Notice of proposed rulemaking 92

A. Attribution 92

1\. Background 92

2\. Single Majority Shareholder Exemption 108

3\. Cable Insulated Limited Partnership Criteria 113

4\. Cable Equity Debt Attribution Rule 121

B. Vertical Limit 125

1\. Background 125

2\. Discussion 135

IV\. PROCEDURAL MATTERS 146

A. Fourth Report and Order 146

B. Further Notice of Proposed Rulemaking 149

V. ordering clauses 154

APPENDIX A: List of Commenters

APPENDIX B: Rule Changes

APPENDIX C: Final Regulatory Flexibility Analysis

APPENDIX D: Supplemental Initial Regulatory Flexibility Analysis

APPENDIX E: Technical Appendix

# INTRODUCTION

1.  In this *Fourth Report and Order*, we set the Commission's cable
    horizontal ownership limit to prohibit cable operators from owning
    or having an attributable interest in cable systems serving more
    than 30 percent of multichannel video programming subscribers
    nationwide. Our decision implements the statutory directive that we
    impose a limit designed to ensure that no single cable operator or
    group of operators, because of its size, can unfairly impede the
    flow of programming to consumers.[^1] Our action also responds to
    the court's concerns in *Time Warner Entertainment Co. v. FCC*
    ("*Time Warner II*"), that the Commission had failed adequately to
    justify the 30 percent limit.[^2]

2.  In establishing the 30 percent cable horizontal ownership limit, we
    rely on a modified "open field" approach to ensure that no single
    cable operator becomes so large that a programming network can
    survive only if that operator carries it. To calculate a horizontal
    limit that meets this test, we first determine the minimum number of
    subscribers a network needs in order to survive in the marketplace
    and then estimate the percentage of subscribers a network is likely
    to serve once it secures a carriage contract. The resulting
    calculation indicates that an open field of 70 percent and an
    ownership limit of 30 percent are necessary to ensure that no single
    cable operator is able to impede unfairly the flow of programming to
    consumers.

3.  In the *Further Notice of Proposed Rulemaking*,[^3] we seek further
    comment on (1) whether to retain the single majority shareholder
    attribution exemption, which currently applies to the cable and
    broadcast ownership rules; (2) whether, under the cable attribution
    rules, a limited partner may sell programming to the partnership and
    retain insulation; and (3) whether the Commission should clarify
    certain aspects of the cable Equity Debt ("ED") attribution rule, as
    it did for the broadcast Equity/Debt Plus attribution rule.[^4] We
    also invite comment in the *Further Notice* on an appropriate
    channel occupancy limit, because the record evidence so far is
    inadequate to allow us to set such a limit.

# Fourth report & order

## Background

4.  The Cable Television Consumer Protection and Competition Act of 1992
    ("1992 Cable Act") amended the Communications Act of 1934 ("Act" or
    "Communications Act") to promote increased competition in the cable
    television and related markets.[^5] The 1992 Cable Act added
    structural rules intended to address the consequences of increased
    horizontal concentration and vertical integration in the cable
    industry.[^6] Section 613(f) of the Act, added by the 1992 Cable
    Act, directs the Commission to conduct proceedings to establish
    reasonable limits on the number of subscribers a cable operator may
    serve ("horizontal limit") and the number of channels a cable
    operator may devote to its affiliated programming networks
    ("vertical," or "channel occupancy" limit).[^7] A principal goal of
    this statutory framework was to foster a diverse, robust, and
    competitive market in the acquisition and delivery of multichannel
    video programming.[^8]

5.  Congress intended the structural ownership limits of Section 613(f)
    to ensure that cable operators did not use their dominant position
    in the multichannel video programming distribution ("MVPD")
    market,[^9] to impede unfairly the flow of video programming to
    consumers.[^10] At the same time, Congress recognized that multiple
    system ownership could provide benefits to consumers by allowing
    efficiencies in the administration, distribution, and procurement of
    programming, and by providing capital and a ready subscriber base to
    promote the introduction of new programming services.[^11]

6.  The Commission first established a horizontal ownership limit in
    1993, finding that a 30 percent limit would prevent the largest
    multiple system operators ("MSOs") from gaining enhanced leverage
    from increased horizontal concentration, while also ensuring that
    they could take advantage of economies of scale to encourage
    investment in new video programming services and deploy advanced
    services.[^12] The Commission stated that a 30 percent horizontal
    ownership limit should protect against any single cable operator
    exerting undue power that could prevent the success of new video
    programming services or "unfairly impede the flow of video
    programming to the consumer."[^13]

7.  To better reflect changed market conditions and allow for internal
    growth in subscribership, in the *1999 Cable Ownership Order*, the
    Commission revised the 30 percent horizontal limit to permit a cable
    operator to serve 30 percent of all MVPD subscribers rather than 30
    percent of all cable homes passed, as had been the case when the
    limit was first adopted.[^14] As the Commission observed, including
    all MVPD subscribers rather than merely cable subscribers was
    equivalent to establishing a 36.7 percent cable subscriber
    limit.[^15] It stated that the change was needed to reflect the
    growing impact of emerging non-cable MVPDs on the programming
    marketplace.[^16] The Commission characterized its action as a
    "significant relaxation of the rule," which retained the
    "theoretical underpinnings" of its original 30 percent limit while
    taking account of marketplace changes by revising the relevant
    market definition to include all MVPD subscribers.[^17]

8.  The Commission reasoned that cable operators at certain
    concentration levels, "either by unilateral, independent decisions
    or by tacit collusion," could effectively prevent programming
    networks from entering or surviving in the marketplace simply by
    deciding not to carry a particular network, thereby impeding the
    flow of programming to the consumer.[^18] Analyzing industry data,
    the Commission estimated that a new cable programming network would
    need access to 40 percent of the MVPD subscribers nationwide to be
    viable. A 30 percent limit, the Commission reasoned, would allow new
    programming networks access to a 40 percent "open field" by
    preventing the two largest cable operators from garnering more than
    60 percent of the market.[^19] In this regard, the Commission
    explained, "even if two operators, covering 60 percent of the
    market, individually or collusively deny carriage to a programming
    network, the network would still have access to 40 percent of the
    market, giving it a reasonable chance of financial viability."[^20]

9.  Cable operators filed a facial challenge to Section 613(f),
    contending that it violated the First Amendment, but the court in
    *Time Warner Entertainment Co. v. FCC* ("*Time Warner I*") rejected
    that argument. [^21] With respect to the horizontal ownership limit,
    the court observed that Congress had identified two important
    governmental interests at stake: (1) ensuring that dominant cable
    operators do not "preclude new programming services from attaining
    the critical mass audience necessary to survive";[^22] and (2)
    preserving "diversity of information available to the public."[^23]
    The court upheld the constitutionality of Section 613(f)(1)(A),
    finding that cable operators had "not demonstrated that the
    subscriber limits provision is on its face either unnecessary or
    unnecessarily burdensome."[^24]

10. Cable operators subsequently challenged the Commission's specific
    horizontal limit. In *Time Warner II*, the court did not vacate the
    30 percent horizontal limit, but found that the record did not
    adequately support that limit, and reversed and remanded to the
    Commission.[^25] Addressing the Commission's open field approach,
    the court found that the Commission lacked evidence that cable
    operators would collude and that the Commission could not simply
    assume that cable operators would coordinate their behavior in an
    anticompetitive manner.[^26] The court held that Section 613(f)(1)
    authorizes the Commission to set a limit to ensure "that no single
    company could be in a position singlehandedly to deal a programmer a
    death blow,"[^27] but does not authorize the agency to regulate the
    "legitimate, independent editorial choices of multiple MSOs."[^28]
    Without evidence that two operators might engage in joint
    anticompetitive conduct, the court concluded that the record would
    support a limit of 60 percent using the 40 percent open field
    premise.[^29] The court cautioned that, in fashioning another limit,
    the Commission must recognize that market power depends not only on
    market share but also on the "*availability* of competition."[^30]

11. The court suggested several ways that cable operators could unfairly
    impede the flow of programming, which might form the basis of a
    sustainable horizontal limit.[^31] The court explained that the
    Commission might justify a limit by establishing that a single large
    cable operator acting alone could act anticompetitively by
    "extort\[ing\] equity from programmers or forc\[ing\] exclusive
    contracts . . . while serving somewhat less than \[the market
    share\] . . . that would allow it unilaterally to lock out a new
    cable programmer."[^32] It found, however, that the Commission had
    failed to offer any evidence or theory of anticompetitive harm
    arising from the actions of a single cable operator.[^33] Finally,
    the court criticized the Commission's finding that "\[w\]ith more
    MSOs making purchasing decisions, this increases the likelihood that
    the MSOs will make different programming choices and a greater
    variety of media voices therefore will be available to the public,"
    holding that that the Commission may not, on the basis of the
    diversity goal alone, adopt a limit that does more than ensure the
    availability of at least two conduits through which programmers may
    serve an adequate number of consumers.[^34] The court found that a
    cable operator's size would constitute an unfair impediment to the
    flow of programming if that operator were the only viable conduit
    for programming "independent of concerns over anticompetitive
    conduct."[^35]

12. In response to *Time Warner II*, the Commission sought comment on
    the status of the MVPD industry and various proposals for a new
    horizontal limit.[^36] The Commission specifically sought
    information concerning the contractual relationships between
    programmers and cable operators in order to establish the extent of
    cable operators' market power and the effects of market power on the
    quantity and quality of programming, as well as the effects of
    market power on the programming costs of smaller MVPDs.[^37]
    Commenters presented numerous arguments in response to the *2001
    Further Notice*, but the record did not contain sufficient evidence
    to allow the Commission to set reasonable and sustainable horizontal
    and vertical ownership limits.[^38]

13. In 2002, the Commission sought to obtain empirical data and
    information by conducting a programming network survey[^39] and an
    experimental economics analysis,[^40] and it sought comment on
    theoretical analyses designed to determine the relationship between
    bargaining power and buyer size in a bilateral bargaining
    environment.[^41] The experimental economics analysis ("BKS Study")
    was designed to determine whether changes in MVPD concentration
    might impede the flow of programming to consumers by creating
    potentially problematic bargaining outcomes. The BKS Study created
    an experimental market that included many of the features of the
    actual market in which MVPDs and cable programming networks
    negotiate affiliate fees (*e.g.*, trades involving differentiated
    products, differences in the level of non-avoidable sunk costs
    incurred by buyers and sellers, and the use of a sequential
    bilateral bargaining process to negotiate fees). The study found
    that increasing concentration could impede the flow of programming,
    according to some measures of market performance. However, the BKS
    Study did not model some potentially important aspects of the
    industry (*i.e.*, vertical integration, retail competition from DBS,
    entry into and exit from the cable network programming industry.)
    Similarly, the theoretical work released by the Commission suggested
    that, under certain conditions, increased firm size can produce an
    improved bargaining position and adversely affect the flow of
    programming.[^42] While these analyses of bargaining power show that
    increasing horizontal size imparts increased bargaining power to the
    largest buyer of video programming, they did not indicate the point
    at which such increased bargaining power is likely to impede the
    flow of programming to consumers.

14. In 2005, the Commission again sought comment to update and
    supplement the record.[^43] The Commission observed that three
    significant events had changed the structure of the media industry
    since the close of the record on the *2001 Further Notice*: (1) the
    2002 Comcast-AT&T cable transaction had resulted in one entity
    having a share of MVPD subscribers very close to the remanded 30
    percent ownership limit;[^44] (2) the 2003 News Corp.-Hughes
    transaction had created the first vertically integrated DBS
    operator, involving a number of video programming assets;[^45]
    and (3) courts had remanded several media ownership rules, requiring
    that the Commission more firmly base its rules on empirical data and
    record evidence.[^46] The Commission sought comment on the proposals
    in the record, recent developments in the industry, and certain
    tentative conclusions. It asked commenters to supplement the record
    where possible by providing new evidence and information to support
    the formulation of horizontal and vertical limits, and invited
    parties to undertake their own studies in order to further inform
    the record.[^47] The Commission also sought comment on three
    analytical frameworks for determining whether, and at what level, a
    cable operator's size is likely to impede the flow of programming to
    consumers or diminish effective competition: (1) the open field
    approach, (2) an approach based on monopsony theory,[^48] and (3) an
    approach based on bargaining power as a source of unilateral
    anticompetitive action. Finally, the Commission invited comment on
    Media Bureau Staff Research Paper No. 2004-1,[^49] which examined
    the effect of subscribership on a network's ability to survive in
    the marketplace.[^50]

15. In response to the *2005 Second Further Notice*, commenters
    submitted new evidence and in some cases specific proposals. Parties
    advocating adoption of a limit at or below 30 percent submitted
    comments and economic analysis concerning the theories set forth in
    the *Notice* and proffered evidence related to programmer viability,
    the importance of distribution in top markets, the role of DBS in
    the programming and distribution markets, and the carriage decisions
    of the two largest multiple-system cable operators, Comcast and Time
    Warner.[^51] These commenters advocate use of either an open field
    approach (CFA, CWA) or a monopsony analysis (MAP), with some urging
    discounting the market shares held by DBS (CFA) and consideration of
    the harmful effects of regional concentration and clustering (CFA,
    CWA, DirecTV, NAB).[^52] In addition, the record includes three
    academic studies concerning the impact of ownership structure on the
    market for programming.[^53] These papers argue that the largest
    cable operators already exercise monopsony power and engage in
    vertical foreclosure of rival networks and tacit collusion through
    reciprocal carriage of vertically integrated networks. In contrast,
    cable industry commenters (Comcast, Time Warner, NCTA, and the
    American Cable Association) and the Progress and Freedom Foundation
    ("PFF") support elimination of the cap.[^54] They argue that the
    methodologies proposed for establishing a cap are flawed, that
    competition in the MVPD and video programming market prevents them
    from engaging in anticompetitive behavior, and that cable operators
    lack the incentive to collude.[^55] Cable operators also argue that
    consumers will benefit from their larger size, due to the
    efficiencies gained from increased size and from a reduction in
    cable operators' costs resulting from the lower prices for
    programming purchased.[^56] They claim that larger cable operators
    will tend to invest in cable systems with greater capacity, and
    therefore a national ownership cap could stymie the deployment of
    large-capacity systems and thereby increase the likelihood that
    video networks would fail to obtain widespread carriage.[^57]

16. Below we review the record pertaining to each of the theories
    addressed in the *2005 Second Further Notice* and discuss the basis
    for our findings. We conclude that a modified open field approach
    will best identify the point at which a cable operator's size is
    likely to unfairly impede the flow of programming to consumers.

## Analytical Framework

### Background

17. As noted above, the Commission has sought comment on three possible
    approaches to use in fashioning a horizontal ownership limit: (1)
    the open field approach, which examines whether one or more cable
    operators are large enough to effectively limit the viability of a
    programming network if they denied it carriage; (2) monopsony
    theory, which considers whether a cable operator has sufficient
    market power to restrict the price it pays for programming by
    purchasing less of it and thereby restrict the flow of programming
    to subscribers; and (3) bargaining theory, which examines the
    negotiations between the programming network and the cable operator
    in order to determine the point at which programmers will curtail
    their activities and thereby limit the quality and diversity of
    programming.[^58] We discuss each of those approaches here and
    determine that the open field approach, suitably modified,
    represents the best method of determining an appropriate horizontal
    limit. We determine that monopsony theory does not apply to this
    market because of the lack of a single market price in the market
    for programming. Although we find that bargaining theory is useful
    in establishing the need for a limit, the record is insufficient to
    derive a specific limit using this theory.

#### The Open Field Approach

18. The open field approach determines whether a programming network
    would have access to alternative MVPDs of sufficient size to allow
    it to successfully enter the market, if it were denied carriage by
    one or more of the largest cable operators. The Commission adopted
    this approach in 1999 to set a 30 percent horizontal limit based on
    a theory that cable operators at certain concentration levels could
    effectively prevent programming networks from entering or surviving
    in the marketplace simply by deciding not to carry them.[^59] The
    Commission found that a new programming network needs access to 15
    to 20 million subscribers to be viable and that the typical
    programming network had only a 50 percent chance of actually serving
    all available MVPD subscribers.[^60] The Commission concluded that a
    programmer needed to have an "open field" of 40 percent of MVPD
    subscribers nationwide and that a 30 percent MVPD subscriber limit
    would assure that a 40 percent open field remained even if the two
    largest cable operators decided not to carry it.[^61] The Commission
    determined that calculations of the horizontal limit should include
    all MVPD subscribers, including non-cable MVPD subscribers, to take
    into account the increased market share of non-cable MVPDs.[^62]

19. Several commenters support using an open field approach, and argue
    that it would produce a horizontal ownership limit of 30 percent or
    lower. CWA calculates that the appropriate limit is 27 percent of
    MVPD subscribers, based on an open field approach.[^63] CFA states
    that the necessity of a horizontal limit of 20-30 percent is
    demonstrated by the open field approach.[^64] In support of the open
    field approach, The America Channel provides an extensive discussion
    of the number of subscribers a programming network requires in order
    to remain viable, as well as information on the impact of large
    cable operators' programming decisions on the programming
    market.[^65]

20. In contrast, other commenters claim that an open field approach
    cannot justify any horizontal limit.[^66] For example, some
    commenters criticize the Commission's determination that a new
    network needs 15 million subscribers to survive in the marketplace,
    contending that many successful programming networks serve fewer
    than 15 million subscribers.[^67] MAP urges the Commission to
    jettison the open field approach and use monopsony theory instead,
    claiming that Congress intended the ownership limit to address
    market power generally rather than create an open field for
    programmers.[^68] NCTA asserts that the open field approach is too
    difficult to apply empirically because, it argues, gathering the
    average number of subscribers needed by programming networks with
    any precision would be very difficult.[^69] Comcast contends that
    "no open field-based limit could be sustained because it is based on
    a series of arbitrary and unsupportable assumptions\[,\]"[^70] a
    static market analysis, collusion theory, and a 40-60 million
    subscriber threshold for viability.[^71]

#### Monopsony Framework

21. Monopsony theory examines whether a buyer has sufficient market
    power to force down the price it pays for a homogenous input by
    reducing its purchases, and whether this is inefficient, in a market
    with a single price for all units of the input purchased.[^72] A
    firm acting as a buyer of an input is said to have monopsony power
    when it has the ability to establish the price at which input is
    purchased.[^73] In the *Further Notices*, the Commission sought
    comment on the harms to the supply of programming that might result
    from the exercise of market power in a highly concentrated MVPD
    market.[^74] The Commission asked at what level of concentration a
    large cable operator gains sufficient market power to be able to
    refuse carriage of programming for reasons other than consumer
    demand.[^75] In 2005, the Commission generally sought comment on the
    appropriateness of applying standard monopsony arguments in this
    context,[^76] and asked how monopsony power can be measured and
    whether certain observed industry practices and actions\-- such as
    launch fees[^77] and requests for equity in the programming network
    by the cable operator\-- are indications that monopsony power is
    being exercised.[^78] The Commission observed that the most
    significant challenge to the use of a monopsony model is the
    apparent requirement that there be a public market price that would
    be affected by a monopsonist's purchasing decisions.[^79] Because
    the market for programming appears to be characterized by private
    bilateral negotiations yielding complex prices that are not made
    public, the Commission asked whether this means there is no market
    price that could be used in an application of the monopsony
    model.[^80]

22. CFA and MAP claim that cable operators' large size enables them to
    exercise monopsony power in the purchase of programming. Citing to
    numerous economic and legal texts, CFA and MAP maintain that the
    theory of monopsony power is well-developed as the "flip-side" of
    the theory of monopoly power.[^81] They assert that the theory of
    monopsony applies to the market for programming,[^82] contending
    that a large cable operator will have the ability and incentive to
    hold down the price for programming, which will reduce the quantity
    of programming supplied.[^83]

23. A published paper submitted by David Waterman provides an
    alternative model to the usual monopsony model to show how the
    exercise of monopsony power in the market for programming can reduce
    the flow of programming.[^84] In Waterman's model, upstream
    suppliers have economies of scale in producing and distributing a
    differentiated input to downstream retail firms. Waterman states
    that this model is similar to the supply of cable network
    programming to cable companies. The downstream firms have an
    incentive to force the price down to the marginal cost of
    distribution and rely on other buyers to cover the fixed costs of
    producing the programming. According to Waterman, the ability of a
    buyer to "free ride" in such a manner depends on its bargaining
    power, which, in turn, depends on its size in the national
    marketplace. Based on his model, Waterman finds that, as the buyer
    grows in size in the national marketplace, its *incentive* to offer
    a lower price for programming declines somewhat (because there are
    fewer other buyers on which to free ride), but its *ability* to
    force the price down increases substantially.[^85] The result of
    this effect, however, may be to reduce the revenues available to
    upstream suppliers, to the point that not all of the networks will
    be able to cover their fixed costs. The number of networks would
    then decline, reducing the product variety supplied to the
    downstream firms. Waterman notes that the negative externality on
    industry profits created by opportunistic input price setting can be
    internalized, either by vertical integration, or by industry-wide
    cooperative behavior (creating a large monopsony that controls the
    entire market).[^86] In these two cases the buyer has an incentive
    to provide a price high enough to cover the fixed costs of networks,
    and will not attempt to free ride on other buyers' covering
    programming networks' fixed costs.

24. NCTA contends that there is no monopsony in the cable industry
    because every household has a choice of at least three MVPDs.[^87]
    Comcast asserts that the monopsony model does not apply, because the
    supply of video programming must be characterized as a flat line
    rather than an upward\--sloping supply curve. According to Comcast,
    the seller's marginal cost of supply is effectively zero, once first
    copy costs have been incurred.[^88] Comcast notes that programming
    is purchased through individualized negotiation, and rather than
    walking away from a high price, it would continue negotiating until
    the parties agree on price.[^89] Comcast also contends that it is
    impossible to compare the prices paid for programming, because
    prices are complex and differ for each transaction for a variety of
    reasons.[^90] Finally, Comcast contends that if larger size allowed
    the cable operator to negotiate lower prices for programming, it
    would lower the cable operator's costs and consumers would reap the
    benefit.[^91]

25. AT&T maintains that a cable monopsonist can only exist in a
    hypothetical world because real world video programming suppliers
    have many non-cable distribution alternatives.[^92] AT&T adds that
    even if a cable monopsonist had the ability to insist on a price so
    low that a programmer would be forced either to exit the market or
    reduce its quality, the monopsonist would have no incentive to do
    so. AT&T states that an MSO's need for program quantity and quality
    is determined by consumer demand and retail competition, factors
    that it says are independent of the acquisition of monopsony power
    over programmers.[^93] AT&T concludes that, regardless of its market
    power, MSOs seek programming that will draw the greatest number of
    viewers relative to the cost of the programming, and acquisition of
    monopsony power does not reduce the retail competitive pressures
    MSOs face.[^94] AT&T submits that what remains is simply a private
    negotiation over how the two contracting parties will split the
    joint surplus that is created when the programmer agrees to sell
    programming to the MSO.[^95]

#### Bargaining Theory

26. A branch of game theory, bargaining theory examines the determinants
    of a bargaining outcome, where outcome is defined in terms of
    whether a bargain is struck and, if struck, the share of the gains
    that accrue to each side of the bargain.[^96] In 2001, the
    Commission suggested that excessive bargaining power could enable
    cable operators to force down the prices they pay to programmers,
    causing the programmers to curtail their activities and thereby
    limit the quality and diversity of programming.[^97] In 2005, the
    Commission sought comment on the use of bargaining theory to
    establish a horizontal ownership limit.[^98] Noting that bargaining
    theory is often used to model bilateral negotiations, the Commission
    suggested that, as compared to monopsony theory, bargaining theory
    may better describe and model the private negotiations and
    non-public terms of agreements typically employed in the purchase of
    programming by cable operators.[^99] The Commission considered
    several possible sources of inefficiency that can occur when one
    side has significant bargaining power.[^100] One potential source of
    inefficiency is the lower prices paid for programming where the
    supply of programming is competitive.[^101] The low prices resulting
    from an excessive amount of bargaining power can prevent suppliers
    from recovering their fixed costs, causing them to exit the market
    or avoid entering with new programming. Another source of
    inefficiency is the "hold-up problem," in which suppliers
    underinvest in programming out of fear that if they commit
    themselves to making a substantial upfront investment in programming
    they will have a weaker bargaining position and will later be forced
    to accept lower prices.[^102] The third source of inefficiency
    occurs when mutually beneficial trades fail to occur because the
    parties are uncertain about the size of the surplus available from a
    completed deal, and accordingly ask for too much.[^103] The
    Commission asked whether an increasing level of concentration among
    cable operators is likely to reduce the bargaining power of
    programmers to such an extent that (1) programmers cannot recover
    their costs, (2) the hold-up problem is amplified, or (3) the
    likelihood of bargaining breakdown increases.[^104] The Commission
    sought comment on which of these economic inefficiencies may rise to
    the level of reducing the flow of programming to consumers.

27. Comcast argues, based on a study it provides, that there is no
    evidence that increased concentration is likely to result in any of
    the proposed scenarios.[^105] Instead, Comcast claims that if
    concentration has any effect at all, it is more likely to increase
    the ability of programmers to cover their costs, thereby encouraging
    the production of programming.[^106] Cable industry commenters rely
    on the work of Alexander Raskovich[^107] to support their position
    that large firm size could, in fact, weaken a cable operator's
    bargaining position. For example, AT&T suggests that increased firm
    size reduces the likelihood of hold-up, because a larger cable
    operator can less credibly threaten to free-ride than a smaller
    cable operator, because the larger operator stands to lose more if
    it fails to carry programming that consumers value.[^108] Moreover,
    if a buyer becomes so large that it becomes "pivotal" to a
    supplier\'s production decision, the buyer cannot credibly abdicate
    responsibility for ensuring that the supplier's costs are covered.
    Time Warner, relying on Raskovich as well as a paper by Chipty and
    Snyder,[^109] claims that the larger cable operators' decreased
    bargaining power results in larger operators "sharing in
    efficiencies that they have helped to create rather than exerting
    greater buyer market power."[^110] Comcast also suggests that a
    cable operator would not exploit its bargaining power over
    programming for short-term gain because it would negatively affect
    its reputation and future programming negotiations.[^111] NCTA
    concludes that the complexity of applying bargaining theory makes it
    difficult to determine the single point at which horizontal
    ownership would begin to have adverse effects on the programming
    market.[^112]

### Discussion

28. Open Field Analysis: We find that a modified open field approach
    best enables us to implement a horizontal ownership limit designed
    to prevent a single cable operator from unfairly impeding the flow
    of programming to consumers in such a way as to undermine the
    statutory objective to enhance effective competition. Our
    application of this approach will ensure that no single operator can
    create a barrier to a programming network's entry into the market or
    cause a programming network to exit the market simply by declining
    to carry the network. The *Time Warner II* court acknowledged that
    the exercise of editorial discretion by a single cable operator can
    unfairly impede the flow of programming if the operator is so large
    that its decision not to carry the network seals its fate.[^113] The
    open field approach we adopt here results in a limit that ensures
    that the success of a programming network does not rely entirely on
    the carriage decision of a single cable operator. This approach
    prevents harms to the flow of programming caused by a number of
    possible factors, discussed below.

29. A cable operator may fail to carry a network valued by consumers for
    several reasons, including reasons related to market failures.[^114]
    For example, if there is asymmetric information about the costs and
    value of the network, inefficient trading will result, and
    negotiations can break down.[^115] Thus, a network might not be
    carried by a cable operator because the parties cannot agree to a
    price, even though consumers value it and both the programmer and
    the cable operator would profit from the deal. Second, the cable
    operator may mistakenly believe that the network will not be popular
    with consumers. The open field approach ensures that a single
    operator's mistake in judgment will not prevent a valued network
    from reaching consumers.

30. Cable operators may also fail to carry programming valued by
    consumers for reasons unrelated to the dynamics of marketplace
    competition. For example, a large cable operator may prefer to carry
    only that programming whose content reflects its viewpoint and
    tastes. One of the Commission's goals is to maintain diversity of
    programming in the marketplace.[^116] In addition to our competitive
    analysis, therefore, we have considered how the horizontal limit
    serves the public interest by promoting diversity of programming in
    the MVPD market.[^117] As the *Time Warner II* court recognized, in
    promoting this goal, the Commission "is on solid ground in asserting
    authority to be sure that no single company could be in a position
    singlehandedly to deal a programmer a death blow."[^118] If it can
    profitably sell its programming to multiple cable operators with
    different viewpoints and tastes, a network will not be pressured to
    make changes in the content and viewpoint of its programming to suit
    the desires of the largest cable operator. Our horizontal limit, and
    the framework supporting it, ensure that the largest cable operator
    will not be so large that the operator's failure to carry a network
    will prevent that network from entering or surviving in the market.

31. We conclude that the traditional models of monopsony and bargaining
    theories as applied to the available evidence are unable to predict
    the point at which an increase in cable operator concentration will
    unduly restrict the flow of programming. We find that the necessary
    assumptions for a traditional monopsony model do not hold in the
    programming market and that bargaining theory is inadequate for
    determining whether specific harms to the programming market are
    likely to result from an increase in bargaining power by cable
    operators. Thus while a number of likely harms to the flow of
    programming can be identified, the traditional economic theories of
    monopsony power and bargaining are not useful for setting a limit in
    these circumstances.

32. Monopsony Model: We agree with those commenters who argue that the
    traditional monopsony model is not useful in analyzing the impact of
    cable operators' market power on the flow of programming.[^119] The
    usual requirement for a monopsony model to be employed -- that the
    supply of programming for each firm be sensitive to a market price
    (thus yielding an upward-sloping supply curve) -- does not hold
    here. Under the traditional monopsony model, a monopsonist, because
    it is the only buyer, has the ability to set the price at which its
    desired input is acquired. And because of the existence of an upward
    sloping supply curve, it achieves a lower price by restricting the
    quantity of that input it acquires. In the market for programming,
    however, negotiations between programmers and cable operators are
    bilateral and largely confidential.[^120] Thus for every potential
    purchase that could yield a positive benefit to consumers, the cable
    operator has an incentive to negotiate a price and purchase the
    programming.[^121] From the perspective of a cable operator,
    agreeing to a higher price in a particular transaction for
    programming that has a higher cost may not raise the cost of
    purchasing programming from other sellers, as would occur in the
    usual monopsony model. In addition, the negotiated prices are
    complex and difficult to compare.[^122] Thus, there is no market
    price to be affected, and the usual incentive for a firm to exercise
    monopsony power does not occur in this market. In any event, even
    assuming that monopsony theory could be applied to this market, the
    record before us is inadequate to make a determination of the
    relevant market price.

33. We agree with Ordover and Higgins's contention that Waterman's model
    of monopsony, in which a large buyer with market power may attempt
    to pay only for the distribution costs and not for the fixed costs
    of producing programming, also does not apply here. As Ordover and
    Higgins note, the existence of most favored nation clauses ("MFNs")
    in many programming contracts prevents one MVPD from gaining a lower
    price than other MVPDs for the same programming. This eliminates
    cable operators' ability to free ride on other MVPDs' paying for the
    fixed costs of creating the programming.[^123] In addition, Waterman
    assumes that MVPDs are local monopolists and have no competition at
    all from other MVPDs for subscribers. Yet competition from DBS and
    other MVPDs limits, at least to some extent, a cable operator's
    ability to force programmers to accept low prices.[^124] Waterman's
    model also fails to reflect other realities of the programming
    market by assuming that negotiations are simultaneous, that there is
    complete information about pricing, and that the profit split
    between programmers and MVPDs is fixed and not subject to later
    renegotiation.

34. Bargaining Theory: Because of its ability to incorporate the key
    market-specific and transaction-specific factors that typically
    characterize negotiations for the purchase of programming,
    bargaining theory may be better able than monopsony theory to
    describe and model the programming market. We determine that
    bargaining theory does identify some of the harms likely to occur
    from the exercise of market power by a large cable operator. In
    particular, bargaining theory points out that even if both parties
    have an incentive to negotiate an agreement, and both parties would
    benefit from an agreement, bargaining can break down if there is
    asymmetric information (i.e., uncertainty about the cost of the
    network and its value to consumers), resulting in the programmer
    failing to gain carriage.[^125] Thus the rules we craft to ensure
    the flow of programming must take into consideration the possibility
    that a network valued by consumers will fail to gain carriage. In
    addition, bargaining theory shows that a cable operator with greater
    bargaining power can obtain lower prices than it would
    otherwise.[^126] This would have the effect of reducing programmers'
    incentive to enter the market and to invest in high-quality
    programming.[^127]

35. We find, however, that bargaining theory is not useful for setting a
    horizontal limit, because it cannot be applied specifically to
    determine at what particular level of concentration these harms are
    likely to occur. The results of the models used in bargaining theory
    are very sensitive to the particular circumstances of the
    transaction. Thus, whether or not a particular programming network
    is carried depends on a variety of factors specific to its
    negotiations with each cable operator. This makes it difficult to
    develop market-wide results relating market concentration and the
    general flow of programming using a theoretical bargaining
    model.[^128] Indeed, no commenters have proposed a reliable means of
    using bargaining theory to determine the horizontal limit needed to
    prevent the harms identified.

36. Horizontal Limit Concerns: We reject the proposition that a
    horizontal limit will reduce carriage of cable networks. Erdem, Katz
    and Morgan contend that an ownership cap will likely reduce the
    largest cable operator's investment in system capacity and therefore
    increase the probability that cable networks will fail to obtain
    widespread carriage.[^129] They hypothesize that larger cable
    operators will invest in cable systems with greater capacity. They
    conclude that a limit on the size of the operator will increase the
    probability that cable networks will fail to gain widespread
    carriage. We disagree. As the following graph illustrates, once
    cable operators exceed one million subscribers, there is very little
    change in the average capacity of their cable systems.[^130] Thus,
    we have no reason to believe that an increase in the size of the
    largest cable operator would lead to an increase in the system
    capacity of that operator. In fact, as the graph indicates, the
    average system capacities of the largest cable operators do not
    exceed the average system capacities of some of the smaller cable
    operators.

![](media/image1.wmf){width="5.993055555555555in"
height="4.358333333333333in"}

37. We are not persuaded that a horizontal cap will prevent cable
    operators from realizing economies of scale. Erdem, Katz, and Morgan
    argue that an ownership limit would check the realization of
    economies of scale and therefore deprive consumers of the lower
    prices and higher quality that would be associated with the
    economies of scale.[^131] However, commenters do not provide any
    evidence that incremental economies of scale are likely to exist for
    cable operators that exceed the ownership limit. If national
    subscriber reach above 30 percent were an important factor to cable
    operators to achieve economies of scale, we would expect to see
    multiple cable operators at or near 30 percent subscriber reach.
    Instead, however, we see many cable operators with far fewer
    subscribers and only one operator with a near 30 percent subscriber
    reach.[^132] Furthermore, to the extent that these economies of
    scale are realized not through the number of total subscribers a
    cable system serves, but rather through increased clustering of
    cable systems in given areas, the ownership limit does not curb
    cable operators' ability to cluster their systems, because we have
    not placed any limits on the size of a cable operator in specific
    geographic locations.

38. NCTA argues that a horizontal cap will put cable operators at a
    disadvantage in competing with the largest telephone companies,
    including AT&T and Verizon, for offering telephony, Internet, and
    video programming services ("the triple play").[^133] We do not
    believe that the ownership limit places cable operators at a
    significant disadvantage relative to large telephone companies such
    as AT&T and Verizon. As of June 2006, AT&T, the largest LEC,
    provided 35.2 percent of the end-user switched access lines in the
    United States, while Verizon, the second largest LEC, provided 23.8
    percent of lines.[^134] We expect the market share of these
    companies to decline due to the increased competition in the
    telephony segment.[^135] The largest cable operators and telephone
    companies are evenly matched in terms of the number of broadband
    subscribers they serve.[^136] With respect to telco entry into the
    MVPD market, their current plans suggest that they will pass fewer
    homes than the number of subscribers of the largest cable
    operator.[^137]

39. We also disagree with the conclusions that Hazlett derives from his
    econometric analysis of the revenues of cable programming networks.
    The analysis purports to show that past increases in size of the
    largest cable operator have not been associated with a statistically
    significant decline in licensing fees obtained by cable programming
    networks, and, therefore, further increases in size are unlikely to
    cause any harm to cable programming networks' revenues.[^138] Since
    the Commission began tracking cable operators' ownership statistics
    in 1996, no cable operator has served more than 30 percent of all
    MVPD subscribers, so we would expect to find no harmful effect so
    far.[^139] Hazlett's focus on the more successful programming
    networks in this econometric analysis, his financial event study,
    and his discussion of examples of cable network formation provided
    later in his study are also likely to bias his results, because his
    analysis does not reflect the experiences of less-successful cable
    networks.[^140] His reliance on cable network licensing fees and
    profits as a measure of the openness of the market also fails to
    account for other factors that speak to the ability of a single
    cable operator to force a network to exit from the market in the
    first five years of its existence.

## Establishing the Horizontal Limit

40. In this section we calculate the ownership limit using the modified
    open field approach. The resulting limit will ensure that no single
    operator can, by simply refusing to carry a programming network,
    cause it to fail. The individual elements of this approach account
    for the factors that govern a network's ability to obtain
    subscribers. The basic building block of the calculation is the
    minimum viable scale of a program network. This value represents the
    minimum number of subscribers a programming network requires in
    order to be viable. Because not all of an MVPD's subscribers receive
    access to all of the networks carried by the MVPD, the minimum
    viable scale must be modified to determine how many of an MVPD's
    subscribers will also be subscribers to the program network. The
    subscriber penetration rate is used to make this determination. The
    resulting value is the total number of subscribers, to MVPDs that
    carry the network, necessary in order for the program network to
    serve the minimum viable scale. This value is then expressed as a
    percentage of the total number of MVPD subscribers to determine the
    fraction of the MVPD market that must agree to carry the program
    network so that it can serve the minimum viable scale. If there is
    no coordinated denial of carriage by MVPDs, this value would
    represent the open field necessary to give a program network a
    reasonable chance of serving the minimum viable scale.[^141]
    Expressed as a formula, the ownership limit under the open field
    approach is:

    ![](media/image2.wmf){width="1.7777777777777777in"
    height="0.4722222222222222in"}

    Three values are required in order to calculate the ownership
    limit: (1) total MVPD subscribers ("*Subs*"), (2) the minimum viable
    scale ("*MVS*"), and (3) the subscriber penetration rate ("*Pen*").
    As described below, the resulting calculation indicates that an open
    field of 70 percent and an ownership limit of 30 percent are
    necessary to ensure that no single cable operator is able to impede
    unfairly the flow of programming to consumers.

### Total Subscribers

41. The Commission originally calculated the ownership limit in terms of
    the fraction of cable homes passed.[^142] In 1999, the Commission
    changed the methodology to use total MVPD subscribers in calculating
    the limit in order to account for the large and growing presence of
    competitors, particularly DBS.[^143]

42. CFA contends that if the Commission chooses to continue using all
    MVPD subscribers in the calculation, DBS subscribers should be
    discounted by 10 percent to account for the reduced advertising
    revenues associated with carriage on DBS.[^144] CFA notes that DBS
    draws more of its customers than cable does from rural markets,
    which are less valued by advertisers. The National Hispanic Media
    Coalition ("NHMC") supports the use of only cable subscribers in the
    calculation.[^145] Comcast, on the other hand, suggests that the
    existing methodology fails to capture other relevant distribution
    outlets for video programming, such as international markets, the
    Internet, mobile phones, video on demand, digital video recorders,
    and home video sales and rentals.[^146]

43. We will continue to use all MVPD subscribers when calculating the
    cable ownership limit. We estimate that as of June 2006, there were
    95,784,478 total MVPD subscribers.[^147] By including all MVPD
    subscribers, we account for the impact of the dynamic nature of the
    MVPD market on the viability of programming networks. DBS has grown
    dramatically since the Commission first established a limit in 1993.
    The recent entry of incumbent LECs into the MVPD marketplace may
    also have a significant effect on the role that cable operators play
    in the distribution of video programming. Programming networks can
    gain subscribers not only through distribution by cable operators
    but also through distribution by DBS operators and other MVPDs. The
    importance of taking these developments into account can be seen by
    comparing the maximum allowable size of a cable operator using total
    cable subscribers instead of total MVPD subscribers. If the limit
    were based solely on cable subscribers, the permitted maximum size
    of a cable operator would have been reduced from about 20 million
    subscribers in 2001 to about 19.6 million in 2005. In contrast,
    under a limit based on MVPD subscribers, the maximum size of a cable
    operator would have increased slightly from about 25.8 million
    subscribers in 2001 to about 28.3 million in 2005. If the cap were
    based solely on cable subscribers, an operator at the limit would
    have had to divest subscribers at the very time it was facing
    increased competition and programmers were finding more distribution
    outlets open to them. Clearly a calculation using only cable
    subscribers would fail to address the dynamic nature of competition
    in the MVPD market by failing to account for significant MVPDs other
    than cable, whose market shares continue to grow.

44. We do not include mobile phones, the Internet, home video rentals,
    or international distribution in the total subscriber count. There
    is scant evidence in the record whether and how these alternative
    outlets affect the viability of a cable programmer.[^148] Moreover,
    many of these alternative outlets operate based upon the existing
    popularity of the content, which is gained only through widespread
    distribution via MVPDs. Finally, including these types of outlets
    could result in double-counting or triple-counting the same
    consumers.

45. We reject CFA's suggestion that we discount DBS subscribers.[^149]
    We note that the survival analysis used to develop the minimum
    viable scale of a programming network includes DBS, and other MVPD
    competitors, as outlets for programming. Thus, the survival analysis
    accounts for any impact of DBS on the viability of networks,
    including the effects of DBS distribution patterns or product
    characteristics, or any effect related to advertising differentials.
    Moreover, even assuming that DBS yields a lower advertising rate, it
    is not clear that DBS subscribers would always be less valuable to
    all programming networks. DBS carriage enables a programming network
    to serve subscribers in all parts of the country through a single
    provider, an advantage that may partially or completely offset the
    drawback of receiving a lower advertising rate. Discounting DBS
    subscribers would also represent a partial return to the
    Commission's pre-1999 methodology and run counter the court's
    admonition in *Time Warner II* that the Commission should account
    for the effect of DBS in constraining cable operators' market
    power.[^150] As the court noted, the growth of DBS subscribership,
    although it has slowed in recent years, remains consistently faster
    than growth in cable subscribers.[^151]

46. CFA maintained in response to the *2001 Further Notice* that the
    Commission should establish the limit as a percentage of cable homes
    passed.[^152] CFA asserts that the statutory language calls for
    horizontal limits on the number of subscribers a cable operator is
    "authorized to reach." According to CFA, "\[e\]very home to which a
    cable operator can deliver service is a home which a franchised
    operator is 'authorized to serve.' Limiting the count to those who
    purchase the service ignores a large number of customers the
    operator is 'authorized to reach'."[^153] Comcast proposes that the
    Commission include every American household in the denominator
    because it contends that DBS passes every home in the U.S.[^154]

47. We do not agree that the statute mandates adoption of a homes-passed
    standard for the calculation of the horizontal limit. Indeed, the
    Commission has already considered and rejected this approach. [^155]
    Section 613(f)(1)(A) requires the Commission "to prescribe rules and
    regulations establishing reasonable limits on the *number of cable
    subscribers* a person is authorized to reach" through cable systems
    owned or attributed to such person.[^156] Neither the statute nor
    the underlying legislative history requires a "homes passed"
    standard, and the Commission is not precluded from adopting a
    subscriber-based standard.[^157]

48. As NCTA points out and we have recognized, cable operators negotiate
    with and purchase programming from video programmers based on the
    actual number of subscribers they serve, not the estimated number of
    homes passed within their franchise areas. [^158] Therefore, cable
    operators' share of actual subscribers nationwide more accurately
    reflects their market power in the video programming market than the
    homes passed standard -- using either cable homes passed or DBS
    homes passed. Moreover, in terms of "market structure," the
    Commission observed that although the breadth of cable operators'
    reach in terms of homes passed might be wide, their actual
    penetration in terms of homes served may be much lower, rendering
    the homes passed criterion an inaccurate measurement of their market
    power.[^159] In view of DBS's current nationwide reach and the
    presence of cable overbuilders passing the same homes as cable, the
    homes passed standard not only has come to represent an inaccurate
    indicator of market power, it has become an unworkable
    standard.[^160] As the same homes are passed by more than one MVPD,
    the homes passed standard inevitably results in double counting and
    renders it impossible to determine a cable operator's market share.
    A subscriber-based standard is a more accurate indicator of cable
    operators' size and market power in a dynamic and evolving
    communications marketplace. The adoption of the subscriber-based
    standard is consistent with and supports our decision to include the
    total MVPD subscribership in the calculation of the horizontal
    limit.

### Minimum Viable Scale

49. In 1999, based upon an examination of the number of subscribers that
    successful networks had acquired, as well as industry comments, the
    Commission calculated that the minimum viable scale of a programming
    network was on the order of 15 million subscribers.[^161] In 2005,
    the Commission sought comment on the number of subscribers a
    programming network requires in order to remain viable.[^162] The
    Commission proposed that viability is partly a function of the time
    the network has been in the market, and that simply because
    recently-launched networks tend to have a limited number of
    subscribers early in the launch, does not mean that those networks
    will remain viable in the future with a limited number of
    subscribers.[^163] Referring to the comments of programmers that
    were submitted in other proceedings, the Commission suggested that
    long term viability may require more than 40 million
    subscribers.[^164]

50. Comments filed in response to the *2005 Second Further Notice*
    reflect a wide range of viability estimates. CFA, for example,
    states that increased programming costs necessitate that a network
    serve 50 to 75 million subscribers in order to reach long-run
    viability.[^165] TAC asserts that there are two requirements for a
    new network to enter and survive in the marketplace: the ability to
    forecast distribution to 50 million households over five to seven
    years and access to the top television markets.[^166] TAC contends
    that in order for a network to reach the survivability target of 50
    million subscribers, a network first must reach the 20 million
    subscriber mark to obtain reliable Nielsen data.[^167] It states
    that networks that cannot provide advertisers with reliable ratings
    data are extremely limited in their ability to generate ad revenue
    and will not survive in the market.[^168] Observing that all of the
    cable networks with distribution to 25 million households or more
    are carried by both Comcast and Time Warner, TAC asserts that in
    order to exceed 25 million subscribers, a network must be carried by
    both MSOs.[^169] TAC estimates that there is an open field of 53.4
    million subscribers a network could reach without carriage by
    Comcast or Time Warner.[^170]

51. NCTA contends that it is not possible to calculate a single value
    for the minimum viable scale of a network, asserting that even if
    the Commission were to calculate the average number of subscribers
    needed for a network to be viable, the calculation would be
    imprecise.[^171] Erdem, Katz and Morgan argue that the average
    network may not be representative of the population of networks or
    potential networks.[^172] They also question the public policy
    rationale of protecting networks' decisions to follow a high-cost
    strategy.[^173] Comcast maintains that the minimum viable scale of a
    network is much lower than that suggested by other commenters and
    asserts that networks can launch and remain operational with far
    fewer than 40 to 60 million subscribers.[^174] Comcast provides
    several examples of national programming networks that it claims are
    thriving with fewer subscribers, specifically, Bloomberg Television
    (34.1 million subscribers), DIY (31 million), Fine Living (25
    million), Independent Film Channel (34.6 million), Fuse (36.8
    million), and NFL Network (24 million).[^175] In addition, Comcast
    asserts, the data supporting the Commission's 15 million subscriber
    threshold is outdated and unreliable, given the rapidly changing
    video programming marketplace.[^176] Comcast states that many
    successful networks, including regional programming networks, serve
    fewer than 15 million subscribers.[^177] Comcast adds that the video
    programming market is moving toward niche services that target
    specific demographics and do not require mass market distribution.
    Comcast also notes that the *Media Bureau Survival Study* indicates
    that "a network requires only 10.18 million subscribers from day one
    to have a survival probability of 70 percent over the first five
    years, and 13.94 million subscribers from day one to have a survival
    probability of 70 percent over its first ten years."[^178] In
    response to TAC's arguments, Comcast contends that the absence of
    other programming networks as participants in the proceeding
    suggests that "programmers do not believe that horizontal or
    vertical cable ownership rules are necessary to ensure the flow of
    video programming to consumers."[^179] Comcast disputes TAC's
    argument that independent programmers cannot obtain carriage from
    other MSOs without carriage by Time Warner and Comcast.[^180]
    Hazlett provides a number of examples of independent programming
    networks that have successfully entered the market, some without
    carriage from the largest cable operators, or are planning on
    entering the market, as evidence that market participants still
    believe that entry is feasible for an independent network.[^181]

52. In order to determine the minimum viable scale (MVS) of a
    programming network for purposes of calculating the ownership limit
    in the formula set out above, as previously proposed, we rely upon
    an analysis that estimates the probability that a programming
    network will continue to operate based on the number of subscribers
    it has at a point in time.[^182] The Commission previously proposed
    using the methodology set forth in the *Media Bureau Survival Study*
    to calculate the minimum viable scale and sought comment on this
    proposal.[^183] That study was based on survival analysis and is a
    standard method used in the fields of economics, biology, and
    engineering. The study accounts for all of the revenue sources that
    maintain the viability of the programming network, including
    international distribution, and reflects the impact of advertising
    revenues, which may vary based on the markets where the programming
    network is carried. It is based on an unbiased sample of networks
    that have launched service and gained distribution.[^184] The data
    also account for the impact of DBS competition on the carriage
    decisions of cable operators. For example, any competitive pressure
    from DBS that makes a cable operator's refusal to carry a particular
    programming network more costly will be reflected in an increase in
    the odds of network survival. The study also accounts for the effect
    of vertical integration with a cable operator on the viability of a
    network and the value of being associated with a successful network
    (a "spin-off").[^185] Because the study evaluates the viability of a
    network over its lifecycle beginning with its inception, it is able
    to account for the relatively small number of subscribers a network
    requires to remain viable in its early stages, while accounting for
    the larger number of subscribers necessary at later stages.[^186]

53. We reject Erdem, Katz, and Morgan's allegation that the study failed
    to address network heterogeneity and account for the endogeneity of
    network decisions on cost and quality.[^187] This is a curious
    position since the *Media Bureau Survival Study* discusses and
    estimates models that account for these issues.[^188] Unfortunately,
    there is not a statistical model that will address both issues
    simultaneously. It is necessary to choose the lesser of two evils.
    In the end, we have chosen to rely on the model that does not
    require strict exogeneity. We do so because one of the common causes
    of endogeneity is a failure to control for unobserved
    characteristics that influence the probability of survival.[^189] We
    believe that relaxing the assumption on strict exogeneity is more
    appropriate than using the model that requires strict exogeneity.
    Furthermore, we note that the peer-reviewed *Network Survival Study*
    on which we base our calculations reports results only for the model
    that eases the assumption on strict exogeneity.

54. We also reject Erdem, Katz, and Morgan's contention that the study
    is flawed because it does not explicitly model the source of
    dynamics and state dependence.[^190] The Commission's reasoning
    behind the ownership limit is to ensure that the actions of a single
    cable operator cannot unilaterally eliminate a network. Erdem, Katz,
    and Morgan's suggestion that larger cable operators could ensure
    that new networks grow more quickly is true only for those networks
    that the large cable operator chooses to carry. However, it does not
    address our concern that the largest cable operator would be able to
    effectively dictate which networks will be carried by all operators
    due to its ability to eliminate the viability of networks that it
    does not carry. The source of the state dependence is very clear.
    For an average cable network to be successful, it must reach a
    certain number of subscribers. While there may be other means to
    meet Congress' goal regarding the flow of video programming, the
    statute directs us to use a limit on the size of a cable operator to
    accomplish the goal. Our limit is designed to ensure that a large
    cable operator cannot unilaterally condemn a cable network by
    refusing carriage.

55. In order to use the *Network Survival* *Study* to estimate the
    minimum viable scale of a programming network, it is necessary to
    choose the point in the network's life at which to measure
    viability, as well as the probability that the network survives past
    that point. We consider five years from the launch of a network to
    be an appropriate point for measuring viability. In the course of
    its first five years, a network will have an opportunity to market
    itself to MVPDs, as well as to attract the attention of consumers,
    advertisers, the investment community, and the popular press.[^191]
    On the other hand, we believe that measuring viability at a later
    time (e.g., ten years) may be excessive. We have attempted to choose
    a viability date that is beyond the "start-up" phase and permits a
    programmer to establish itself, but not so long that it attempts to
    ensure success for an extended period.

56. Next, we must select an appropriate probability of survival.[^192]
    The *Network Survival* study calculates minimum viable scale at
    survival probabilities of 50 percent, 70 percent, and 90 percent. We
    choose to base our limit on the average survival rate of a
    programming network observed in the industry.[^193] According to the
    *Network Survival Study*, from 1984-2001 the failure rate among the
    305 networks in the sample was 31.5 percent,[^194] indicating that
    68.5 percent of networks in the sample survived. Thus, we choose a
    survival probability of 70 percent at the five year mark as this is
    the closest of the three choices we calculated to the number we
    observed in the study. In other words, we find that the minimum
    viable scale is represented by the number of subscribers a network
    needs to serve after five years in the market to have a 70 percent
    probability of survival.

57. We also need to decide which characteristics of a network should be
    taken into account when calculating the survival probability. We use
    the survival probability for a network that is not vertically
    integrated and is not a "spin-off" of an existing network. We
    exclude the effect of vertical integration and "spin-offs" from the
    calculation in order to account for the additional difficulties
    faced by independent and unaffiliated programming networks. Thus, we
    rely on empirical data indicating the number of subscribers needed
    for a network with the characteristics specified above to have a 70
    percent probability of survival after five years. These choices lead
    to a minimum viable scale of 19.03 million subscribers.[^195]

### Subscriber Penetration Rate

58. In 1999, the Commission estimated that the typical programming
    network had only a 50 percent chance of actually serving all
    available "open field" MVPD subscribers, based on lack of channel
    capacity on cable systems, penetration of digital tiers, and other
    factors.[^196] Today, that 50 percent chance is much lower as a
    consequence of the proliferation of digital tiers on which new
    programming networks are typically placed. When the impact of this
    digital tier placement is factored in with the number of MSOs a
    network is able to reach, and the limited number of systems under
    each of those MSOs in which they are given carriage rights, the
    result is a significantly lower penetration rate. In the present
    Order, we calculate more precisely the percentage of subscribers a
    programming network will serve.

59. Several commenters dispute the Commission's prior assumption that
    cable networks are available to only 50 percent of the subscribers
    to the MVPD on which they are carried, an assumption the Commission
    relied upon in determining that programmers need an open field equal
    to 40 percent of all MVPD subscribers.[^197] AT&T contends that a
    number of programming networks are viewed by more than 50 percent of
    all MVPD subscribers.[^198] AT&T also contends that competition in
    the MVPD market has grown rapidly, which gives all cable operators
    strong incentives to secure carriage rights for new programming that
    has received favorable consumer response.[^199] Additionally, AT&T
    asserts that increased channel capacity resulting from the
    deployment of digital technology has greatly expanded cable and
    non-cable outlets for programming and increased the demand for
    programming by cable operators and other program purchasers and
    distributors.[^200] On the other hand, cable operators have
    complained about capacity constraints because of the increased
    capacity demands of digital television, including high definition
    television, and their need to increase the speed of data services
    they provide. [^201] Time Warner maintains that the Commission's
    reliance on average penetration numbers for all national video
    programming services was misplaced because these subscribership
    numbers are not a valid proxy for entrants' probability of carriage
    success.[^202] Comcast argues that the Commission must clarify the
    meaning of the success rate assumption before the Commission can
    rely on it.[^203] It further argues that the fact that a network is
    denied carriage does not mean it was denied unfairly, and that the
    market factors used to set the success rate do not have any
    relevance to whether cable operators are acting in an "unfair"
    manner.[^204] It complains that the data used to establish the 50
    percent rate was flawed and out of date, and that the use of current
    data would yield a much higher rate.[^205]

60. We agree with commenters who contend that we must take into account
    tier placement and other carriage arrangements when determining the
    open field necessary to ensure that the decision of a single cable
    operator does not cause a network to exit the market. Accordingly,
    we take into account tier placement in our current analysis, and
    recognize that many, if not most, new cable networks are placed on a
    digital tier. A consequence of being placed on a digital tier versus
    one of the basic levels of service with the greatest penetration
    rates is a much lower penetration rate. Previously the Commission
    relied on a general 50 percent penetration rate for a new
    programming network that was based on an analysis which ignored the
    increased difficulties of recently launched networks in obtaining
    distribution. Instead, the Commission calculated a value based on
    the penetration of a limited sample of successful networks.[^206]
    Because our minimum viable scale estimate is based on the survival
    probability of a network five years after launch, our present
    analysis focuses on the subscriber penetration that a network is
    likely to achieve in that time frame.

61. For this purpose, we use data from the Commission's Cable Price
    Survey to estimate the likely penetration of a programming network
    given its age.[^207] Thus, our new calculation is based on empirical
    study of system carriage and tier placement of networks. The Cable
    Price Survey sampled 783 cable community units as of January
    1, 2006. For each franchise, the respondent provides a list of the
    programming networks that are carried, the tier on which each
    network is carried, and the number of subscribers to the tier. By
    aggregating all of this information to the level of an MSO, we
    calculate the fraction of each MSO's subscribers who have access to
    a specific programming network.[^208] We then calculate a weighted
    average of the MSO-specific penetration rates using the size of the
    MSO as the weight. In this manner we construct an estimate of the
    fraction of MSO subscribers that have access to the specific
    programming network on those MSOs that carry the network.[^209] The
    number of years since the launch of each of the networks is also
    calculated.[^210] With this information it is possible to predict
    the fraction of an MSO's subscribers a programming network is likely
    to have access to at any point in its lifecycle. Due to the small
    number of programming networks in any single age category, we use
    linear regression to develop a more robust estimate of the
    relationship between the subscriber penetration rate and the age of
    a network. As described in the technical appendix, ordinary least
    squares estimation yields:

    ![](media/image3.wmf){width="2.9583333333333335in" height="0.25in"}

    The regression predicts that five years after launch a network will
    be available to 27.42 percent of the subscribers of the MSOs that
    carry the network.[^211] Thus, 0.2742 will appear in the formula
    above in place of the variable for penetration rate, "Pen"[^212]

62. We note that this calculation represents an average value for
    penetration after five years. Alternatively, we could have chosen a
    value that reflects the typical penetration rate of either smaller
    or larger networks. As the Commission previously has noted, some
    networks can survive with greater or fewer subscribers than the
    average.[^213] Our direction under the statute, however, is to
    protect the flow of programming to consumers, while taking account
    of the efficiencies and benefits that may result from increased
    ownership. If we selected a penetration rate more suitable for
    networks that can survive with fewer subscribers, our calculations
    would result in a higher limit. Such a limit, though, would allow
    the largest MSO to impede the flow of programming from networks that
    require an average amount of subscribers or more to survive, in
    contravention of our statutory mandate. Reliance on the penetration
    rate for more widely distributed networks, on the other hand, would
    produce a lower horizontal limit potentially maximizing the flow of
    programming to consumers, but also denying consumers the benefits
    that result from economies of scale that cable operators can achieve
    through growth. Choosing an average network penetration rate
    balances these two concerns and thus fulfills our mandate most
    effectively.

### Accounting for Coordinated Action

63. In 1999, the Commission implicitly used a coordination index of two
    because it was concerned that two cable operators could jointly
    refuse to carry a programming network and therefore prevent the
    network from becoming viable. The court rejected the Commission's
    analysis and held that the Commission must present empirical or
    theoretical evidence that coordinated action is likely in order to
    sustain a limit based on a theory of joint action.

64. TAC asserts that the behavior of the two largest cable operators,
    Comcast and Time Warner, is indicative of joint action. It contends
    that if one of the two cable operators agrees to carry a programming
    network, the other is likely to carry it as well. In addition, TAC
    contends that if one of the operators denies carriage, the other is
    very likely to deny carriage as well.[^214] CFA claims that "\[t\]he
    Court's standard, which requires the Commission to demonstrate the
    virtual certainty of collusion in analyzing the impact of two cable
    operators' refusal to grant carriage, fails to recognize that when a
    small number of firms are present in an industry, parallel actions
    accomplish virtually all of the anticompetitive harm of collusive
    activity."[^215] Consequently, they propose that the Commission
    should assume that the two largest firms engage in some level of
    coordination. Kang provides evidence that vertically integrated
    cable operators are more likely to carry the recently launched
    programming networks of other vertically integrated cable operators
    than are non-integrated cable operators. He states that this is
    evidence that a group of cable operators might collectively deny
    carriage to a start-up programming network.[^216] Ordover and
    Higgins suggest that Kang's results may be evidence that
    non-integrated cable operators favor non-integrated programming
    networks rather than evidence of discrimination on the part of
    integrated cable operators.[^217] Erdem, Katz and Morgan argue that
    Kang's study suffered from severe sample selection bias and that his
    study fails to distinguish between large MSOs and all owners of
    multiple cable networks. They also contend that Kang's conclusion
    that vertically integrated cable operators are likely to collude,
    causing harm to consumers and reduced entry by new networks, does
    not necessarily follow from the observed pattern of carriage his
    study purports to detect.[^218]

65. Other commenters state that the Commission's theory of collusion is
    flawed. AT&T asserts that the Commission's collusion theory is
    "entirely conjectural" and cannot stand without substantial evidence
    showing the existence or likelihood of unilateral or collusive
    anticompetitive actions by MSOs.[^219] In particular, AT&T asserts
    that cable operators have not disfavored unaffiliated programmers or
    unfairly favored affiliated programmers in their carriage
    decisions.[^220] Comcast finds a lack of evidence that collusion is
    "likely" and criticizes the Commission for not addressing (1) how or
    why participants in an allegedly collusive refusal to deal would
    reach an agreement to refuse to deal in the first place, (2) the
    extent to which they would have an incentive to deviate from such
    agreement, (3) whether participants could punish a firm for
    deviating, and (4) the role of maverick firms in preventing
    coordinated interaction.[^221] NCTA emphasizes that the court
    rejected the Commission's open field approach because the Commission
    lacked evidence that the top two cable operators are likely to
    collude.[^222] Reiterating its comments filed in response to the
    *2001 Further Notice*, NCTA states that beyond the lack of evidence
    of actual collusion, there is "no reason to believe that MSOs have
    any incentive to engage in such activity."[^223]

66. Accordingly, we do not include an adjustment for coordinated action.
    While commenters have provided some evidence that large cable
    operators tend to carry the same programming networks, they have not
    provided a sufficient set of arguments to demonstrate that it is
    coordinated action rather than individual action generating the
    observations. It is not surprising, for example, that nearly every
    cable MSO carries the most popular networks. Such an observation
    likely arises from the popularity of the network, not necessarily
    from collusive action. Thus, we lack evidence to draw definitive
    conclusions regarding the likelihood that cable operators will
    behave in a coordinated fashion.

### The Cable Horizontal Ownership Limit

67. After careful consideration of the evidence before us, including the
    language and intent of the statute and our understanding of the
    programming market, we determine that use of the open field approach
    to set a horizontal limit is the most appropriate means of ensuring
    that the flow of programming to consumers is not unfairly impeded.
    The modified open field method that we adopt in this *Order* yields
    a horizontal ownership cap that ensures that no cable provider is so
    large that it can prevent a programmer from serving "the number of
    viewers needed for viability -- independent of concerns over
    anticompetitive conduct."[^224] We apply the first three values
    discussed above to the ownership limit formula, and reject the
    fourth value concerning coordinated action. The values we apply are
    (1) a total MVPD subscriber number of 95,784,478;[^225] (2) a
    minimum viable scale of 19,030,000;[^226] and (3) a subscriber
    penetration rate of 0.2742.[^227] The calculation generates a result
    of .28, which reflects that as long as the largest cable operator
    does not serve more than 28 percent of all MVPD subscribers, that
    operator cannot significantly undermine the viability of a
    programming network by refusing to carry the network.[^228]

68. Based on this calculation, we conclude that a horizontal limit of 30
    percent will best serve the public interest. As noted above, the
    Commission first established a 30 percent horizontal ownership limit
    in 1993.[^229] In 1999, the Commission revised the method by which
    horizontal ownership was calculated, but retained a 30 percent
    ownership limit.[^230] Although that limit was subsequently remanded
    by the court, the Commission has continued to apply the 30 percent
    limit in merger reviews since that time and the media marketplace
    has continued to operate under this requirement. Therefore, for
    consistency, we adjust the limit slightly upward, from 28 percent to
    30 percent. This small upward adjustment is unlikely to cause harm.
    We do not believe this minor adjustment will adversely affect our
    ability to provide the protection the statute requires. Moreover,
    this adjustment will have no affect on the largest cable operator in
    the market today because it would satisfy either a 28 percent or 30
    percent limit.[^231] For these reasons, we set a 30 percent
    horizontal limit.

69. In setting the 30 percent limit, we must, as instructed by the *Time
    Warner II* court, assess "the determinants of market power in the
    cable industry" and draw "a connection between market power and the
    limit set."[^232] Comcast argues that the Commission should account
    for MVPD competition by excluding for the purposes of determining
    compliance with the ownership limit all of an MSO's cable
    subscribers in areas where the Commission has granted effective
    competition petitions.[^233] Admittedly, the focus of our open field
    analysis is on cable operators' influence and impact on the upstream
    programming market, not on their economic position in the downstream
    MVPD market. We recognize that competition in the downstream market
    may affect the ability of a large cable operator to prevent
    successful entry by a programming network, and that our open field
    analysis does not directly measure this. For example, it is possible
    that a large cable operator may be pressured by competition in the
    MVPD market, principally from DBS, into carrying reasonably popular
    networks within the five-year timeframe contemplated in our
    probability survival analysis, thus leaving a large operator unable
    to "unfairly impede" the success of that network.[^234]
    Alternatively, however, a cable operator controlling more than 30
    percent of the MVPD market may be able to significantly undermine
    the viability of a reasonably popular programming network by
    indefinitely refusing to carry it, notwithstanding that network's
    level of popularity and carriage by DBS competitors. We note that
    measuring cable operators' downstream market power, and determining
    its impact on the flow of programming in the upstream retail market,
    is quite difficult, and that no commenter has provided a reliable
    and appropriate theoretical framework or empirical data by which to
    do so.[^235] Thus, we are forced to make a determination concerning
    whether competition in the retail MVPD market negates the importance
    of having a sufficiently open field and, without the benefit of
    definitive evidence, we conclude for the reasons detailed below that
    it does not.

70. Most importantly, we do not believe that a single new programming
    network, having failed to gain carriage on the largest cable
    operator's system, would have a good chance of both gaining carriage
    on other MVPDs and then induce enough of the large cable operator's
    subscribers to switch to the other MVPDs either to allow the network
    to gain sufficient subscribership to be financially viable, or to
    place substantial pressure on the large cable operator to carry the
    network within a reasonable period of time. Specifically, we find
    that the shift of subscribers would be unlikely to be significant or
    sufficient to permit entry for several reasons. First, due to
    switching costs, consumers are reluctant to switch MVPDs except when
    there is a large benefit.[^236] Second, cable operators reduce the
    likelihood of switching by offering non-video services (e.g.,
    broadband Internet access and phone service), giving the cable
    operator some market power in video service.[^237] Third, consumers
    are unlikely to switch providers to gain access to new programming
    because video programming is a product, the quality of which cannot
    be known with certainty until it is consumed. It is difficult for
    consumers to know whether they would enjoy viewing a network which
    they have never seen before. While consumers can and do switch MVPDs
    in response to the loss of a program network with which they are
    familiar, they are unlikely to respond similarly for a program
    network that distributes content that they have never viewed.[^238]
    Consequently, DBS provides very little competitive pressure when it
    comes to carriage of new program networks.[^239]

71. In addition, without an open field that is large enough, many new
    programming networks might not even attempt to enter the market
    without a contract from the largest cable operator. If entering
    programming networks are unable to sign contracts with MVPDs that
    have enough subscribers to ensure reasonable prospects for survival,
    they may be unable to secure financing.[^240] Competitive pressures
    from DBS will not provide any assistance to networks that do not
    launch due to a lack of financing. In addition, smaller MVPDs may
    not want to carry networks that lack access to a sufficient number
    of subscribers to ensure a reasonable chance for survival because of
    the problems associated with carrying a weak network that eventually
    disappears (e.g., consumer dissatisfaction with changing channel
    lineups or other issues relating to obtaining substitute
    programming).[^241] If we allowed the largest cable operator to
    become so large that the open field is insufficient to permit a new
    programming network to enter the market with a reasonable
    probability of survival without gaining carriage on the largest
    cable operator, then competing MVPDs might not even have the
    opportunity to carry the network because it will not enter the
    market at all, thus impeding the flow of new programming to
    consumers.[^242] We therefore cannot rely on competitive pressures
    to ensure the flow of programming if there is not a sufficiently
    large open field for entry, because a large cable operator may not
    be aware, or may not care, that its choices have prevented entry by
    a cable network that would have become popular.[^243]

72. For all of these reasons, we think that it is quite likely that a
    large cable operator controlling more than 30 percent of the MVPD
    market would have the power to significantly undermine the viability
    of a reasonably popular programming network by refusing to carry it,
    despite the presence of competitive pressures from DBS and other
    competing MVPDs. Moreover, evidence submitted by The America Channel
    illustrates the importance of large cable operators in reaching the
    minimum viable scale. It shows that of the 92 non-premium
    nationally--distributed networks with more than 20 million
    subscribers, only one network, INSP -- Inspiration Network, was able
    to reach that scale without receiving carriage from the largest
    cable operator.[^244] Also evident is the importance of the second
    largest cable operator, Time Warner. Only two networks were able to
    reach 20 million subscribers without carriage by Time Warner,[^245]
    and no networks reach that scale without carriage by at least one of
    these large operators. This demonstrates the sensitivity of network
    survival to the size of the largest cable operator. Very few
    networks can reach minimum viable scale without carriage on a large
    MVPD. The record indicates that no networks with more than 24
    million subscribers have been able to do so without carriage by both
    of the largest cable operators.[^246]

73. Finally, to the extent that there is an inherent lack of certainty
    as to the operation of the MVPD market for these purposes, we
    believe that the statute provides guidance as to how we should weigh
    the relevant risks in formulating our regulations. In particular,
    while the statute compels the Commission to "take particular
    account" of the market structure, "including the nature and market
    power of the local franchise," it also requires us to "*ensure* that
    no cable operator . . . can unfairly impede . . . the flow of video
    programming from the video programmer to the consumer."[^247] Thus,
    although some uncertainty exists, we believe that our priority
    should be to make sure that a single cable operator may not
    significantly undermine the viability of programming network, and we
    do so here by establishing a 30 percent limit.

## Relevant Geographic Market

74. In 2005, the Commission tentatively concluded that the relevant
    market for purposes of setting the horizontal ownership limit under
    the Section 613(f) is no greater than the United States.[^248] In
    other words, the Commission tentatively concluded that the
    international market is not relevant to the establishment of the
    horizontal limit. We now affirm that tentative conclusion.

75. Very few commenters address the relevant geographic market. Comcast
    disagrees with the Commission's tentative conclusion to ignore the
    international distribution market, given what it characterizes as
    the increasing importance of the market to the health and vitality
    of programmers. Comcast states that the global marketplace offers
    program providers with significant alternative outlets for content.
    It claims that media companies have a strong presence in overseas
    markets and that many media companies view international sales as
    critical to their profit margins. As an example, Comcast states that
    in 2004, 22 percent of Disney's \$30.8 billion in revenue and 35
    percent of the company's \$4.5 billion in operating profit came from
    the international market.[^249]

76. We find it reasonable to concentrate our inquiry on the effects of
    cable concentration in the United States. The Commission has
    concluded in the past that the programming market is at least
    national.[^250] No commenter has presented economic data that define
    the contours of the programming market. Instead, commenters make the
    uncontroversial point that United States programmers sell some
    programming to international buyers and also rely on distribution
    outlets other than cable or DBS.[^251] Accordingly, we limit our
    inquiry to the national programming market and cable operators'
    effect on it. Nevertheless, our open field analysis accounts for the
    effects of international distribution in estimating the minimum
    viable scale needed for a programmer to achieve viability.

## Regional Limits

77. The Commission also sought comment on whether and to what extent a
    regional limit on concentration would better effectuate the
    statutory mandates set forth in Section 613(f)(2).[^252] Very few
    commenters directly address the issue of regional limits.[^253]
    Instead, a number of commenters discuss the importance of regional
    concentration to any analysis of market power. Some of these
    commenters offer proposals for taking regional concentration into
    account in formulating a horizontal limit, but no commenter proposes
    specific regional limits or a defined approach for devising them. As
    explained below, we decline to adopt regional limits.

78. CFA and MAP advocate adoption of regional limits, arguing that
    market power in the cable industry is expanding and is being
    reinforced by control and distribution of regional sports
    programming.[^254] In addition, CFA and CWA ask the Commission to go
    beyond simply counting subscribers, and, instead, to consider the
    effects of regional clustering, which they claim reinforces cable
    operators' market power and creates significant barriers to
    entry.[^255] Citing to the *11^th^ Annual Video Competition Report*,
    CFA points out that DBS penetration is lower in areas where cable
    operators carry regional sports networks.[^256] In addition, CWA
    states that clustering allows MSOs to attain regional market shares
    that make them indispensable to local and regional programming
    networks seeking distribution.[^257]

79. CFA also asks the Commission to consider, in both transaction review
    and its efforts to adopt a horizontal limit, the importance of the
    top 25 markets, which comprise 49 percent of the national TV
    households and 59 percent of advertising revenues.[^258]
    Specifically, CFA states that in determining whether a merging firm
    would exceed the national limit, the numerator (the market share of
    the merging firm) should be increased by the advertising premium of
    the top markets.[^259] In addition, as discussed above, it states
    that the Commission should discount the relative weight of DBS by
    applying a 10 percent discount in the denominator to reflect the
    advertising-revenue-adjusted weight of satellite subscribers.[^260]
    When these factors are considered, CFA concludes that the horizontal
    limit should be 20-30 percent.[^261]

80. DirecTV maintains that satellite providers are at a competitive
    disadvantage in the broadcast and regional programming market
    because clustering has given cable operators a significant advantage
    due to their large subscriberships within regions. It states that
    cable operators can withhold or raise prices of "must-have" regional
    programming from rivals because "the cost of withholding programming
    from rivals may be outweighed by whatever premium the cable operator
    is willing to pay for the exclusivity."[^262] DirecTV, however, does
    not advocate regional caps, but instead believes that the
    Commission's transaction review process should be used to address
    regional concentration issues.[^263] Specifically, DirecTV states
    that, in transaction review, the Commission can define geographic
    and product markets more accurately based on the facts of each
    case.[^264] It also states that the Commission should not consider
    all programming to be of equal value to consumers. For instance,
    DirecTV asserts that withholding regional sports is more likely to
    cause subscriber shifts than withholding other types of
    programming.[^265]

81. Comcast claims that it does not impede the flow of programming in
    regional markets, as evidenced by the increase in the number of
    regional networks.[^266] It notes that since 1998, regional networks
    have grown from 61 to 96, an increase of 57 percent, and that from
    1998 to 2004, regional sports networks have increased from 29 to 38
    and news networks have increased from 25 to 40.[^267] Comcast claims
    that clustering benefits subscribers because it enables cable
    operators to compete with DBS operators, which have "ubiquitous
    national coverage allowing for cost-effective national advertising
    campaigns and tie-ins to national retail chains to aggressively
    market services and promotions."[^268] It also states that
    clustering enables cable operators to compete with incumbent LECs
    with respect to geographic scope, and it provides examples of the
    markets where it has launched its competitive digital voice
    service.[^269] Finally, Comcast asserts that clustering stimulates
    investment and delivery of new local and regional programming
    services, offering examples of markets in which it has launched
    cable news networks.[^270]

82. The Commission previously considered whether to adopt regional
    subscriber limits, and declined to do so.[^271] In 1993, the
    Commission stated that other provisions of the 1992 Cable Act were
    specifically designed to introduce local competition and would
    better address issues regarding regional concentration.[^272] In
    addition, the Commission observed that there was no evidence in the
    record indicating that any anticompetitive effects outweighed the
    potential benefits of cable clustering, such as regional
    programming, upgraded cable infrastructure, and improved customer
    services.[^273] In 1999, the Commission found that the record in the
    proceeding showed that the benefits of clustering -- including
    market efficiencies and the deployment of telephony and Internet
    access services -- outweighed any alleged anti-competitive effects
    on local programming.[^274] We do not have a sufficient evidentiary
    basis here to reverse the Commission's previous decisions. Instead,
    we conclude that our case-by-case review of transactions will allow
    us to identify and prevent any unfair impediments to the flow of
    programming that may arise from regional concentration.

83. We also decline to adjust systematically the market share of a
    merging firm by advertising premiums, as suggested by CFA. We do not
    have definitive evidence in the record that distributors in all of
    the top 25 DMAs command significant premiums over, for example, the
    next 25 DMAs. Certainly, in some of the top DMAs, the existence of
    many outlets for advertising, and competition among them, may serve
    to reduce advertising rates. Rather than determine a mathematical
    formula for examining this issue, we will examine all aspects of
    regional concentration, including the market for advertising and its
    effect on programmers, when proposed transactions are before us.

## Application of the Limit

84. In 1999, the Commission revised the prior methodology by counting
    against a cable operator's horizontal limit only those cable
    subscribers served by its "incumbent cable franchises," excluding
    new subscribers gained through overbuilding "non-incumbent cable
    systems."[^275] The Commission also endorsed the use of published,
    current and widely-cited industry data to establish the number of
    MVPD subscribers nationwide, for purposes of establishing cable
    operators' share of the market.[^276]

85. CFA challenges the Commission's exclusion of non-incumbent cable
    franchise subscribers (the overbuild exception) in calculating
    compliance with the horizontal limit.[^277] Additionally, CFA
    challenges the *1999 Cable Ownership Order's* reliance upon industry
    data to establish cable operators' share of the MVPD market.[^278]
    As explained below, we reject in part and accept in part CFA's
    specific challenges to the overbuild exception. Specifically, we
    find that the exception creates the potential for a cable operator's
    use of the overbuild exception to reduce the open field below the
    required 70 percent, and we therefore eliminate it. At the same
    time, we reject CFA's challenge to the use of industry data for
    purposes of establishing a cable operator's share of the market to
    determine compliance with the cap.

### Exclusion of Overbuild, Non-Incumbent Cable Systems from the Horizontal Limit Calculation

86. We conclude that excluding overbuild subscribers from the numerator
    in the calculation of a cable operator's market share is
    fundamentally inconsistent with the open field approach we utilize
    to calculate the horizontal limit and must be eliminated. The
    overbuild exception would allow a cable operator near the horizontal
    limit to use the exception to exceed the 30 percent limit, which
    would have the effect of reducing the open field below the 70
    percent that is necessary to ensure that no single operator can, by
    simply refusing to carry a video network, cause it to fail.
    Accordingly, we conclude that exclusion of subscribers in overbuild
    cable franchises should be eliminated.[^279]

### Reliance on Industry Data

87. In addition, CFA faults the *1999 Cable Ownership Order* for
    allowing cable operators to rely on industry-wide data in
    determining and reporting their share of the MVPD subscribership
    market. CFA maintains that because industry reporting services
    derive information and figures from cable operators and vary in
    their reported figures, the *1999 Cable Ownership Order's* reliance
    upon such reported data invites manipulation[^280] and forum
    shopping.[^281] Additionally, CFA claims that the *1999 Cable
    Ownership Order* improperly delegated the government's role in
    monitoring and regulating the cable industry to private research and
    reporting services and thereby disallowed public input and
    scrutiny.[^282]

88. In an *ex parte* letter, CFA challenges the Commission's reliance on
    this standard based on several disclosures of questionable
    subscriber counts.[^283] CFA questions whether third-party
    publishers are a reliable source of industry data. CFA alleges that
    these publishers have a disincentive to question the information
    provided by cable operators because the operators are valued
    customers who provide a substantial amount of revenue to the
    publishers for their products and services. CFA contends that even
    if industry analysts questioned the numbers provided by cable
    operators, they would have no means to audit the numbers.[^284]
    Further, CFA asserts that MVPDs have incentives to over- or
    under-report their subscriber figures for various reasons. For
    example, CFA claims that small cable operators and competitive MVPDs
    have an incentive to inflate their subscriber numbers to impress
    Wall Street, which inflates the pool of total MVPD subscribers and
    reduces the apparent percentage of the largest MVPDs, while the
    largest MVPDs have an incentive to lower their subscriber counts to
    avoid the Commission's horizontal ownership limit.[^285]

89. CFA recommends that the Commission require all MVPDs to regularly
    file subscriber counts with the Commission under penalty of
    sanctions for falsifying information and that the Commission should
    establish the figure for total MVPD subscribers.[^286] CFA further
    urges the Commission to consider deliberate overcounts provided to
    private entities or government agencies, such as in statements to
    the Securities and Exchange Commission, evidence of bad character,
    such that licensees would jeopardize their licenses by engaging in
    such activities.[^287] NCTA contends that these proposed remedies
    are inappropriate and would be counterproductive.[^288]

90. We will continue to rely on widely accepted industry reports to
    establish the total number of U.S. MVPD subscribers. For purposes of
    establishing cable operators' market share and compliance with the
    horizontal rule provisions, the *1999 Cable Ownership Order*
    endorsed the use of any published, current, and widely cited
    industry data source to establish estimates of nationwide MVPD
    subscribership.[^289] Section 613(f) directs the Commission to
    establish reasonable limits.[^290] The *1999 Cable Ownership Order*
    accepted a certain degree of variance, estimation, and double
    counting, cognizant of the fact that the horizontal rule provisions
    are based on estimates.[^291] Utilization of current, widely
    accepted industry data represents a reasonable means by which to
    gauge cable operators' share of the MVPD market and fulfills the
    Commission's mandate under the statute. [^292] We reject CFA's
    contention that by relying on industry data, we improperly delegated
    our statutory obligations to monitor and regulate the cable
    industry. Utilization of industry data merely affords a reasonable
    means by which to estimate cable operators' market share. We agree
    with NCTA that the use of third-party industry-wide data conserves
    administrative resources and is consistent with this agency's
    reliance on industry data to carry out regulatory functions in other
    areas.[^293]

91. We agree with CFA that cable operators should be expected to report
    their subscriber figures accurately. The Commission's rules require
    any cable operator serving 20 percent or more of nationwide MVPD
    subscribers to certify, prior to acquiring additional MVPDs, "that
    no violation of the national subscriber limits prescribed in this
    section will occur as a result of \[its\] acquisition \[of
    additional cable systems\]."[^294] These rules do not prescribe a
    particular form of certification. We clarify here that
    certifications must be executed by an officer of the corporation and
    must state that the number of attributable subscribers served by the
    applicant is reported accurately in the certification. If this
    number varies from subscriber counts the cable operator has provided
    to the Commission in other contexts, other government agencies,
    financial institutions, or third-party publishers of industry-wide
    subscriber data, the certification shall disclose and explain the
    nature of such discrepancies.[^295] We will consider specific
    allegations of misrepresentation on a case-by-case basis.

# Further Notice of proposed rulemaking

## Attribution

### Background

92. The cable attribution rules seek to identify "those corporate,
    financial, partnership, ownership, and other business relationships
    that confer on their holders a degree of ownership or other economic
    interest, or influence or control over an entity engaged in the
    provision of communications services such that the holders should be
    subject to the Commission's regulation."[^296] Similarly, the
    broadcast attribution rules define which financial or other
    interests in a licensee must be counted in applying the broadcast
    ownership rules, and seek to identify "those interests in or
    relationships to licensees that confer on their holders a degree of
    influence or control such that the holders have a realistic
    potential to affect the programming decisions of licensees or other
    core operating functions."[^297] At the same time, the attribution
    rules "permit arrangements in which a particular ownership or
    positional interest involves minimal risk of influence, in order to
    avoid unduly restricting the means by which investment capital may
    be made available to the broadcast industry."[^298] Depending on the
    particular substantive rule and objective to be accomplished, a
    variety of different attribution standards are used in the
    Commission's rules.[^299]

93. *The General Attribution Standard.* In the cable television context,
    there are two strains of cable attribution rules: "the general
    attribution standard,"[^300] relevant here, and the "program access
    attribution standard."[^301] The general attribution standard, which
    applies to the cable horizontal ownership limits and vertical
    channel occupancy limits, is similar to the broadcast attribution
    rules. As the Commission has noted, "the broadcast attribution
    standard governs broad structural rules, such as the horizontal
    cable ownership limits and vertical channel occupancy limits that
    are designed to ensure competition and diversity in the video
    marketplace."[^302] The Commission also observed that the
    legislative history of the Cable Television Consumer Protection and
    Competition Act of 1992 expressly suggested use of the broadcast
    attribution standard in the context of the horizontal ownership and
    channel occupancy rules.[^303] The general attribution standard and
    the broadcast attribution rules attribute corporate voting stock
    interests of five percent or more.[^304] In other words, an investor
    owning five percent or more of the voting stock of a cable company
    will be attributed with all of that company's subscribers for
    purposes of the Commission's ownership limits. For specified
    "passive" institutional investors,[^305] voting stock interests of
    20 percent or more are attributable in both the cable and broadcast
    contexts.[^306] Non-voting stock interests, options, warrants, and
    debt are not attributable, subject to the equity and debt (ED) rule
    in the cable context,[^307] and the equity/debt plus (EDP) rule in
    the broadcast context, [^308] both of which are discussed below.

94. Both the general cable attribution standard and the broadcast
    attribution rules include a single majority shareholder exemption,
    which provides that a minority shareholder's corporate voting
    interests will not be attributed where a single corporate
    shareholder owns more than 50 percent of the outstanding voting
    stock.[^309] The Commission justified the exemption, which it first
    adopted for the broadcast attribution rules in 1984, on the grounds
    that without the agreement or assistance of any other shareholder, a
    minority shareholder cannot ordinarily direct the activities of a
    company when a single person or entity can outvote all other
    shareholders.[^310] The Commission later found that the same
    rationale justified application of the exemption to the cable
    attribution rules.[^311]

95. *EDP/ED Attribution Rules and Single Majority Shareholder
    Exemption.* In 1995, the Commission initiated a broad review of its
    broadcast attribution rules based on several considerations: (1)
    changes in the broadcasting industry and in the multiple ownership
    rules since its revision of the attribution rules ten years earlier
    and its consequent desire to ensure that the attribution rules
    remained effective in identifying interests to be counted for
    purposes of applying the multiple ownership rules; (2) concerns
    raised that certain nonattributable investments, while permissible
    under the rules in effect, may have permitted a degree of influence
    that warranted attribution; (3) concerns that individually
    permissible cooperative arrangements between broadcasters were being
    used in combination, resulting in significant influence in multiple
    stations that the multiple ownership rules were intended to
    prohibit; and (4) the need to address attribution treatment of
    Limited Liability Companies.[^312]

96. In the *1999 Broadcast Attribution Order* proceeding, the Commission
    adopted the EDP attribution rule. Under the broadcast EDP
    attribution rule, where an investor is either (1) a major program
    supplier (supplying over 15 percent of a broadcast station's total
    weekly broadcast programming hours); or (2) a same-market media
    entity subject to the broadcast multiple ownership rules, its
    interest in a licensee or other media entity will be attributed if
    that interest, aggregating both debt and equity holdings, exceeds 33
    percent of the total assets (equity plus debt) of the licensee or
    media entity.[^313] In other words, attribution results where the
    financial interest exceeds 33 percent and there is a triggering
    relationship, *i.e.*, either the investor is a major program
    supplier or a same-market media entity subject to the broadcast
    multiple ownership rules. The EDP rule was intended to operate "in
    addition to other attribution standards and would attempt to
    increase the precision of the attribution rules, address our
    concerns about multiple nonattributable relationships, and respond
    to concerns about whether the single majority shareholder and
    nonvoting stock attribution exemptions were too broad."[^314] The
    Commission targeted its remedy to address its concerns.[^315]

97. In the *1999 Broadcast Attribution Order*, the Commission did not
    eliminate the single majority shareholder exemption. Rather, by
    adopting the EDP attribution rule, it narrowed the availability of
    that exemption. The EDP attribution rule limits the applicability
    not only of the single majority shareholder exemption, but also the
    limited partnership exemption and the exemptions for nonvoting stock
    and debt, under the broadcast attribution rules.[^316]

98. In 1998, after commencing the broadcast attribution proceeding, the
    Commission also began a rulemaking to consider modifying the cable
    attribution rules, in light of developments in the cable industry,
    including numerous strategic alliances, partnerships, system swaps,
    and mergers and acquisitions of cable entities.[^317] In the *1999
    Cable Attribution Order*, the Commission revised several aspects of
    its cable attribution rules to track changes made to the broadcast
    attribution rules, and it adopted the cable ED attribution rule
    based on similar reasons expressed when it adopted the broadcast EDP
    rule. The cable ED rule attributes financial interests that exceed
    33 percent of the total asset value (equity plus debt) of the entity
    in which the investment is held. Unlike the EDP rule, no other
    triggering relationships are required for attribution under the ED
    rule where the requisite financial interest is present.[^318] Both
    the EDP rule and the ED rule are designed to improve the precision
    of the Commission's attribution rules with respect to otherwise
    non-attributable interests by capturing those financial interests
    that afford the incentive and ability to exert significant
    influence, as well as those that create significant common economic
    interests.

99. In contrast to the Commission's decision to retain the single
    majority shareholder exemption in the broadcast attribution context
    and to adopt the EDP attribution rule to address concerns regarding
    the under inclusiveness of the attribution rules,[^319] the
    Commission eliminated the single majority shareholder exemption from
    the general cable attribution rules in the *1999 Cable Attribution
    Order*. It found insufficient evidence to support retaining the
    exemption and expressed concern that a minority shareholder might be
    able to exert significant influence over a company even when a
    single majority shareholder exists.[^320] Thereafter, on
    reconsideration of the broadcast attribution rules, the Commission
    eliminated the exemption in the broadcast context as well, relying,
    in part, on the rationale for eliminating the exemption in the cable
    context.[^321]

100. The *Time Warner II* court reversed, remanded, and vacated the
     Commission's elimination of the single majority shareholder
     exemption in the cable attribution rules.[^322] The court held that
     the Commission's decision to eliminate the single majority
     shareholder exemption in the cable context was not sufficiently
     justified and dismissed the Commission's stated rationales that
     there was no record to support retaining the exemption and that no
     one claimed to be using the exemption.[^323] Finding that absence
     of current use is no reason to delete an exemption and that the
     removal of the exemption affected companies' investment plans, the
     court noted that the elimination was a "tightening of the
     regulatory screws" and therefore required some affirmative
     justification.[^324]

101. The Commission subsequently suspended the elimination of the single
     majority shareholder exemption in the broadcast context as well,
     thereby allowing the exemption for the broadcast and
     cable/MDS[^325] attribution rules pending resolution of this cable
     ownership proceeding.[^326] While *Time Warner II* did not directly
     address the Commission's elimination of the broadcast single
     majority shareholder attribution exemption, the Commission
     recognized that it had relied in part on the rationale rejected by
     the *Time Warner II* court in eliminating the exemption in the
     broadcast context.[^327] The Commission also noted that a
     suspension would enable it to consider all evidence provided in
     response to its *2001 Further Notice* on whether to reinstate the
     single majority shareholder exemption in the broadcast context and
     that the suspension would allow consistent processing of pending
     and future applications, among other benefits.[^328]

102. *Limited Partnership Interests.* Under the attribution rules
     governing partnership interests, general partnership and limited
     partnership interests are attributable regardless of the level of
     equity held.[^329] An exception from attribution applies only to
     those limited partners who meet the Commission's insulation
     criteria. In setting specific guidance as to what kind of
     insulation is sufficient to exempt a limited partnership interest
     from attribution, the Commission originally established seven
     criteria, collectively referred to herein as the "ILP criteria,"
     which, if met would make it safe to presume that a limited partner
     would not be materially involved in the management and operations
     of the media-related activities of the partnership.[^330]

103. The Commission considers attribution in the partnership context
     separately from attribution in the corporate context because, in
     the abstract, all partners may bind the partnership, and because
     partnership governance is far more a matter of the terms of the
     specific partnership agreement than it is of any general standards
     mandated by law or practice.[^331] Thus, for example, a partner
     contributing no equity might be entitled to a majority of the
     economic return or have very significant managerial control.[^332]
     Also, the Commission has recognized that because of the flexibility
     a partnership structure offers, certain partners, like individual
     corporate shareholders, may be involved on a largely passive basis
     or without any significant potential to influence or control the
     partnership operations in a manner that should trigger the
     Commission's ownership rules. Accordingly, the Commission developed
     insulation criteria to recognize these circumstances.

104. In the *1999 Cable Attribution Order*, the Commission revised the
     attribution rules governing partnership interests. The sixth
     insulation criterion applicable to cable ownership had generally
     barred a limited partner from performing "any services to the
     partnership relating to its media activities." Based on concerns
     that the cable attribution ILP criteria might inhibit investments
     in cable Internet and telephony services, the Commission narrowed
     the sixth insulation criterion, in the cable context, to prohibit
     only services performed by the limited partner for the partnership
     that are materially related to the partnership's *video
     programming* activities. The Commission thereby broadened the range
     of activities that could be performed without loss of insulation
     for the limited partner.[^333]

105. Thereafter, in its review of the *AT&T-MediaOne* license transfer
     application, the Commission clarified that the revised insulation
     criterion maintains the prior prohibition against a limited
     partner's sale of video programming to the partnership. Thus, a
     limited partner that operates cable systems and owns programming
     interests is prohibited from selling programming to the partnership
     ("the no-sale rule or criterion").[^334] Noting the prior
     insulation criterion prohibiting the sale of services related to
     the media activities of the partnership, the Commission reasoned
     that, "given that a cable operator's core media activity is the
     provision of video programming, there is no service more material
     to a cable operator's video programming than the sale of
     programming to the cable operator."[^335] The Commission also
     relied upon its interpretation of the sale of services insulation
     criterion in its *Twentieth Holdings* decision.[^336] The
     Commission made clear that the revised insulation criterion was
     intended to allow a limited partner to insulate its partnership
     interest even if the partner participates in the partnership's
     other media activities, including the provision of telephony
     services, so long as the partner is not materially involved in the
     partnership's video-programming related activities. It also noted
     that the rule thus maintains the earlier prohibition against an
     insulated limited partner's sale of video programming to the
     partnership.[^337]

106. The *Time Warner II* court reversed, remanded, and vacated the
     Commission's application of the cable limited partnership
     insulation rule that barred vertically integrated insulated limited
     partners from selling video programming to their general partner
     entities.[^338] The court found that the no-sale criterion is not
     rationally related to the goal of circumscribing a limited
     partner's control of, or influence on, the partnership's video
     programming decisions. The court recognized that a programmer might
     secure certain contractual terms giving the programmer some control
     over the programming choices of the partnership, but reasoned that
     the exercise of such power is barred by the criterion restricting
     communications related to the video programming business of the
     partnership. The court further noted that, even if the criterion
     did not bar such communications, "the bargaining opportunity would
     depend on the desirability of the partner's programming, not on its
     status as a partner."[^339]

107. *2001 Further Notice.* In the *2001 Further Notice*, the Commission
     invited commenters to address, *inter alia*, the *Time Warner II*
     court's remand of the cable single majority shareholder exemption
     and the cable no-sale prong of the ILP exemption.[^340] The
     Commission asked for empirical and/or theoretical evidence,
     including evidence from the cable industry or evidence based on
     studies of other industries, to support or contradict the
     Commission's prior decisions on these issues.[^341] It also sought
     comment on whether to retain or eliminate the broadcast single
     majority shareholder exemption, having incorporated into the
     proceeding requests that the Commission reconsider eliminating that
     exemption.[^342] We incorporate those petitions for reconsideration
     and comments into the record in this proceeding.[^343] We issue
     this *Further Notice* to update the record and obtain more specific
     comment on all of these attribution issues.

### Single Majority Shareholder Exemption

108. As discussed above, the Commission eliminated the single majority
     shareholder exemption from the general cable attribution rules
     because the record (1) failed to show that commenters were using
     this exemption and (2) lacked "credible arguments that it should be
     retained."[^344] In the record to date, the majority of commenters
     support retaining the single majority shareholder exemption.[^345]
     They state that the Commission has received no empirical evidence
     and little theoretical evidence to support eliminating the
     exemption, and no evidence of abuse or harm from the
     exemption.[^346]

109. In this *Further Notice*, we seek to update the record. We
     tentatively conclude that the record to date supports reinstating
     the single majority shareholder exemption and seek comment on that
     general conclusion. We invite commenters to address whether the
     goals of the attribution rules \-- capturing interests that convey
     the potential to exert significant influence such that they should
     be counted in applying the ownership rules, while not unduly
     restricting capital investment, as well as precision and regulatory
     certainty\-- would be better served by retaining or eliminating the
     exemption. Can a minority shareholder in a corporation with a
     single majority shareholder exert significant influence or control
     such that its interest should be counted? If so, how can it exert
     such influence or control? We ask that commenters provide empirical
     or theoretical evidence to support their proposals or points of
     view. In particular, we seek comment on whether eliminating the
     exemption would have a negative impact on capital investment,
     particularly in small businesses. Although the *Time Warner II*
     decision addressed only the cable exemption, we tentatively
     conclude that the cable and broadcast single majority shareholder
     exemptions should be applied in the same manner to promote
     consistency in the processing of applications.[^347] We seek
     comment on this tentative conclusion and on whether there is any
     reason to apply the exemption differently in the broadcast and
     cable contexts.[^348]

110. Generally, the record in response to the *2001 Further Notice*
     supports the conclusion that the existence of a single majority
     shareholder sufficiently attenuates the voting power of minority
     shareholders such that it should not be a basis for attribution.
     While corporate management could ordinarily be expected to be
     influenced by a 5 percent shareholder who is one of the largest
     shareholders in a widely held corporation, we tentatively conclude
     that corporate management cannot be expected to be significantly
     influenced by a minority shareholder where there is a single
     majority shareholder. Further, as a general matter, a majority
     shareholder has the right to manage and control a
     corporation.[^349] Therefore, we tentatively conclude that a single
     majority shareholder, absent a special shareholder agreement, would
     be able to outvote any minority shareholders on any issue,
     including the election of the corporation's board of
     directors.[^350] We seek comment on these tentative conclusions.

111. We also invite comment as to whether other factors weigh in favor
     or against attribution of minority shareholders in a corporation
     with a single majority shareholder. Could a minority shareholder
     exert influence either by virtue of its access to confidential
     information or by threatening to sell shares to depress the share
     price?[^351] Are there other situations in which contractual rights
     such as super-majority voting rights agreements afford minority
     shareholders voting power notwithstanding the general voting
     control of the single majority shareholder?

112. We have sought to make the Commission's attribution rules
     bright-line tests in order to provide reasonable certainty and
     predictability to our regulatees, to ease administrative
     processing, and to avoid unduly disrupting capital flow.[^352] As a
     bright-line test, the single majority shareholder exemption may,
     like any other attribution limit or regulatory line an agency
     draws, miss some interests that could conceivably convey
     significant voting power or significant influence given special
     contractual rights or other factors. Are there such situations? If
     so, are these situations adequately covered by the EDP and ED
     attribution rules and by the Commission's "discretion to review
     individual cases that present unusual issues on a case-by-case
     basis where it would serve the public interest to conduct such a
     review"?[^353]

### Cable Insulated Limited Partnership Criteria 

113. Under the insulated limited partnership or "ILP" criteria of the
     cable attribution rules, a limited partner can avoid attribution
     for purposes of Sections 76.501, 76.503, and 76.504 of the
     Commission's cable ownership rules if it is not "materially
     involved" in the management and operations of the partnership with
     respect to its video programming activities.[^354] "Non-material"
     involvement is permitted in some significant partnership
     activities, without attribution, so that limited partners can
     ensure that their investments are protected.[^355] More
     particularly, a limited partnership interest is not attributable
     for purposes of applying those ownership rules if it satisfies each
     of the following seven criteria, which are referenced in, but not
     included in, the rule and which identify those situations in which
     it is reasonable to assume no material involvement in partnership
     decisions by the limited partner.[^356] A limited partner seeking
     to avoid attribution in the cable context cannot:

     \(1\) act as an employee of the partnership if his or her
     functions, directly or indirectly, relate to the video-programming
     enterprises of the company; (2) serve, in any material capacity, as
     an independent contractor or agent with respect to the
     partnership's video-programming enterprises; (3) communicate with
     the licensee or general partners on matters pertaining to the
     day-to-day operations of its video-programming business; (4) vote
     on the admission of additional general partners subject to the
     power of the general partner to veto any such admissions; (5) vote
     to remove a general partner except where the general partner is
     subject to bankruptcy proceedings, is adjudicated incompetent by a
     court of competent jurisdiction, or is removed for cause as
     determined by a neutral arbiter; (6) perform any services for the
     partnership materially relating to its video-programming
     activities, except that a limited partner may make loans to or act
     as a surety for the business; and (7) become actively involved in
     the management or operation of the video-programming businesses of
     the partnership.[^357]

114. Following the court's decision in *Time Warner II*, a question
     remains regarding the extent to which a limited partner may engage
     in the sale of programming to the general partnership and still
     remain exempt from attribution. The court found no fault with the
     limitation on communications relating to video programming as an
     attribution insulation criterion, but it also found no basis for
     using programming sales by the limited partner to the partnership
     to trigger attribution.[^358] Left unclear is the manner and extent
     to which program promotions, sales, marketing, and contractual
     negotiations may take place without breaching the limitation on
     communications, as well as the scope of a limited partner's ability
     to perform services for the partnership materially related to its
     video programming activities without the interest being
     attributable.

115. The Commission received few comments on these issues in response to
     the *2001 Further Notice.* Although some commenters generally
     supported abandoning the "no-sale" provision of the cable limited
     partner insulation criteria, they did not address specifically
     whether a limited partner could sell programming to the partnership
     without violating the bar on communications with respect to the
     day-to-day operations of the video programming business.[^359]
     While one commenter supported retaining the no-sale provision, it
     did not explain how the sale of programming to the partnership
     would increase the influence or control of the limited
     partner.[^360] Therefore, we seek additional comment on this issue
     to address these issues and to update the record.

116. In particular, we seek comment with respect to the court's
     conclusion "that the no-sale criterion bears no rational relation
     to the goal" of ensuring that the limited partner will not be
     materially involved in the video-programming activities of the
     partnership.[^361] Does the sale of programming to the partnership
     by a limited partner provide the limited partner with the ability
     or the incentive to influence the partnership to make specific
     decisions, and, if so, would the limited partner otherwise have no
     such ability or incentive absent its status as a seller of
     programming?

117. In reversing and remanding the prohibition on the sale of
     programming by an insulated limited partner, the court relied, in
     part, on the continued existence of the prohibition on
     communications with respect to the day-to-day operations of the
     video programming business. Thus, the court noted that a programmer
     might secure contract terms giving it some control over a
     partnership's programming choices, "but, given the independent
     criterion barring even communications on the video-programming
     business,... exercise of that power would seem to be barred."[^362]
     The court also noted, however, that "even if it weren't, the
     bargaining opportunity would depend on the desirability of the
     partner's programming, not on its status as a partner."[^363]

118. We ask commenters to address the court's conclusion that the sale
     of programming is not rationally related to the control of program
     choices. Does status as a limited partner affect the willingness of
     the partnership to carry the partner's programming? Does it affect
     the terms and conditions on which that programming is carried? Are
     there scenarios in which a limited partner could improve its
     bargaining position with respect to the sale of its programming to
     the partnership by virtue of its status as a limited partner? If
     so, how could the limited partner achieve such a result without
     engaging in other activities that would defeat insulation? Does the
     analysis change if the limited partner is a programming vendor but
     is not selling programming to the partnership at the time it seeks
     insulation?

119. We ask commenters to address the court's suggestion that a limited
     partner selling programming would be unable to influence or control
     the partnership's programming choices because of the prohibition on
     communications with respect to the day-to-day operations of the
     video programming business. Could influence deriving from the dual
     status as a program supplier and limited partner be exercised
     without communications? Should we draw a distinction between
     substantive communications and ministerial communications? Are
     there circumstances involving the sale of programming where all
     communications are so ministerial that they should be allowed even
     though the general prohibition on communications is retained? In
     that case, how should we enforce a general criterion that prohibits
     communication while permitting some communications to exist, and
     where do we draw the line between permitted ministerial
     communications and prohibited substantive communications?

120. Finally, should we reconsider and eliminate the ban on
     communications with respect to programming sales even though the
     court assumed the continued existence of that prohibition? If we
     were to allow communications with respect to the sale of
     programming, would that so narrow the bar on communications as to
     raise questions as to its continued utility? Are there other
     communications that should still be prohibited? For instance,
     should discussions regarding the purchase of competitors'
     programming or placement of competitors' programming on specific
     tiers be prohibited? If we retain a bar on some communications, how
     should we draw the line between prohibited communications and
     permitted ones?

### Cable Equity Debt Attribution Rule

121. We propose to clarify the ED provision of the cable general
     attribution rules to correspond with and reflect the guidance
     provided in the Commission's reconsideration of the broadcast
     attribution rules.[^364] As stated above, under the ED rule, a
     financial interest in a media entity is attributed if, aggregating
     debt and voting and non-voting equity interests, the interest
     exceeds 33 percent of a media entity's total assets (combining
     equity plus debt value). In order to promote clarity and certainty
     in applying the ED rule and maintain consistency with the general
     application of the broadcast EDP attribution rule, from which it is
     derived, we propose to clarify the ED rule provisions as follows.

122. *Options, Warrants, and Loan Guarantees*. In the *Broadcast
     Ownership Reconsideration Order*, the Commission clarified how it
     would apply the EDP rule to options, warrants, and loan guarantees.
     It specified that it would include the amount of consideration paid
     for options and warrants in determining whether the 33 percent
     benchmark is exceeded for purposes of applying the broadcast EDP
     attribution rule. Similarly, with respect to loan guarantees, it
     specified that it would include the security deposit or financial
     contribution made by the guarantor for the guarantee of a loan,
     including sums held in escrow as security, in determining whether
     the guarantor's interest exceeds the 33 percent threshold and the
     interest is therefore attributable under the EDP attribution rule.
     The Commission also clarified that it would add any consideration
     or other amounts paid for options or warrants to any other equity
     or debt investment the holder has in the media entity for purposes
     of determining whether the 33 percent threshold is exceeded.
     Similarly, it noted that it would include any financial
     contributions made by a guarantor to any other equity or debt
     investments the guarantor has in the media entity.[^365] We propose
     to adopt the same clarifications for the ED attribution rule and
     seek comment on this proposal.

123. *Total Assets.* In the *Broadcast Ownership Reconsideration Order*,
     the Commission clarified the definition of "total assets" for
     purposes of applying the EDP rule. It clarified that it would
     include all equity and/or debt in whatever manner or amount held
     (*e.g.*, including all stock, non-stock, partnership, and other
     equity interests, as well as all forms of short-term and long-term
     debt liabilities) in computing whether an interest exceeds the 33
     percent EDP threshold. It also noted that parties could base the
     valuation of an entity's "total assets" on book value, as
     determined under standard financial accounting practices, or some
     other reasonable value, such as fair market value. It noted that
     clarifying the definition of total assets to include the foregoing
     reasonable methods of valuing a station's total assets for purposes
     of the EDP rule would provide applicants flexibility to use the
     most accurate valuation. [^366] It also advised that media entities
     should retain the documentation upon which they compute the value
     of the station so it can produce supporting documentation for
     Commission review if needed.[^367] We propose to adopt the same
     clarifications for purposes of applying the ED rule. As we did in
     the broadcast context, we also propose to reaffirm that parties
     must maintain compliance with the attribution criteria as any
     changes in a firm's assets occur.[^368] We seek comment on these
     proposals.

124. *Multiplier*. As the Commission did in the *Broadcast Ownership
     Reconsideration Order*, we propose to amend the Commission's cable
     attribution rules to provide that in applying the ED rule, the
     "multiplier" formula of the general cable attribution rules will be
     utilized for identifying indirect, intervening interests, except
     that the pass-through exception for linkages that exceed a 50
     percent interest, under which these interests are not multiplied,
     will not apply in the cable ED context as it does in the context of
     corporate voting stock.[^369] In the *Broadcast Ownership
     Reconsideration Order*, the Commission noted that the multiplier
     was adopted because multiplication of successive interests would
     more realistically reflect a party's attenuated interest in a media
     entity where there are intervening corporations. Under the
     pass-through exception, however, a link in the ownership chain that
     represents a percentage interest exceeding 50 percent is treated as
     a 100 percent interest when calculating the successive links in the
     ownership chain. The Commission established the pass-through
     exception where an interest exceeds 50 percent to reflect the *de
     jure* control, rather than the *de facto* control, that an entity
     might have over a licensee. It noted that it would not apply the
     pass-through exemption in the EDP rule because the EDP rule applies
     not only to voting equity but also to non-voting equity and debt.
     It also clarified that it would use the multiplier in applying the
     EDP rule not only to corporations but also to financial interests
     in partnerships, limited liability companies, or any other type of
     organizational form.[^370] We propose to apply these clarifications
     to the cable ED rule and seek comment on our proposal.[^371]

## Vertical Limit

### Background

125. Section 613(f) of the Communications Act directs the Commission to
     "prescribe rules and regulations establishing reasonable limits on
     the number of channels on a cable system that can be occupied by a
     video programmer in which a cable operator has an attributable
     interest."[^372] Among other things, in setting such limits, the
     Commission is directed to "ensure that cable operators affiliated
     with video programmers do not favor such programmers in determining
     carriage"[^373] and to refrain from "impos\[ing\] limitations which
     would impair the development of diverse and high quality video
     programming."[^374] In 1993, the Commission found that a 40 percent
     limit on the number of activated channels that can be occupied by
     affiliated video programming services struck an appropriate balance
     among the goals of reducing the incentive and ability of vertically
     integrated cable operators to favor their affiliated programming,
     increasing diversity, and permitting cable operators to realize the
     benefits and efficiencies associated with vertical
     integration.[^375] The Commission also set a 75-channel cap on the
     40 percent limit.[^376] Thus, except for 40 percent of 75 channels
     of activated channel capacity (i.e., 30 channels), there was no
     limit on the amount of capacity that a cable operator could devote
     to affiliated programming. In 1995, the Commission affirmed both
     the 40 percent vertical limit and the 75-channel cap.[^377]

126. The *Time Warner II* decision reversed and remanded the 40 percent
     channel occupancy limit, finding that the Commission had failed to
     justify its vertical limit with record evidence, and had failed
     adequately to consider the benefits and harms of vertical
     integration or current MVPD market conditions in its
     analysis.[^378] The Commission sought comment on how it could
     fashion a meaningful and relevant channel occupancy limit given the
     changes that had occurred in the MVPD industry since the limit was
     first adopted.[^379] The Commission also requested comment on the
     economic underpinnings of the statutory requirement and asked
     commenters to address the economic basis underlying the concern
     with vertical integration and market foreclosure.[^380]
     Additionally, the Commission asked whether the necessary conditions
     existed in the MVPD industry for cable operators to engage
     profitably in vertical foreclosure and for this foreclosure to be
     harmful to the flow of programming.[^381] It also sought comment on
     whether current and likely future developments in the MVPD market
     would mitigate past concerns regarding the ability of cable
     operators to discriminate against unaffiliated programming
     networks.[^382]

127. In response, cable operators point to market forces that, they
     believe, make vertical foreclosure unlikely.[^383] First, they
     state that a programmer can obtain carriage despite a cable
     operator's preference not to carry the programmer's service under
     several scenarios:[^384] (1) where the programmer is seeking
     carriage of a broadcast network entitled to "must carry" status
     under the Commission's rules;[^385] (2) where the programmer is
     seeking carriage of a "must have" programming network that
     consumers demand; and (3) where the programmer is seeking carriage
     of a service pursuant to the Commission's leased access
     rules.[^386] Second, they assert that discrimination on the basis
     of affiliation is already targeted by the program access
     rules.[^387] Third, they argue that competition from alternative
     MVPDs such as DBS makes it unprofitable for a cable operator to
     engage in foreclosure, because failure to carry unaffiliated
     popular networks will drive customers to other MVPDs.[^388] Lastly,
     they argue that market conditions have changed to make foreclosure
     unlikely, citing in particular cable systems' increased channel
     capacity.[^389] In this regard, however, we note that cable
     operators have also complained, in other contexts, about capacity
     constraints because of the increased capacity demands of digital
     television, including high definition television, and their need to
     increase the speed of data services they provide.[^390] Cable
     operators have also submitted studies that purport to show that
     they have no theoretical incentive to favor affiliated programming
     networks and not carry attractive unaffiliated programming
     networks;[^391] that programmers could use alternative distribution
     channels (such as broadcast TV, foreign MVPDs, and DVD sales) if a
     cable operator attempted to foreclose rival networks;[^392] that
     larger cable operators have tended to have more channel capacity
     and carry more channels;[^393] that cable operators have not
     engaged in foreclosure in the past, and there has been plentiful
     entry by unaffiliated programming networks;[^394] and that a cable
     operator's incentive to foreclose shrinks as its size
     increases.[^395]

128. In the *2005 Second Further Notice*, the Commission discussed the
     empirical studies and comments submitted in the docket in 2001 and
     found that they were insufficient to establish whether vertical
     foreclosure is likely to occur in the current marketplace.[^396]
     CFA had pointed to two academic studies that found that vertically
     integrated operators favor affiliated programming. AT&T and Time
     Warner provided evidence to the contrary.[^397] Because the
     industry had undergone tremendous change, including increases in
     channel capacity, since these studies were performed, the
     Commission tentatively concluded that these studies offer little
     probative value in the Commission's analysis.[^398] Thus, the
     Commission again sought theoretical and empirical evidence and
     comment to assist in the development of a reasonable limit and in
     the articulation of how the limit would address the statutory
     goals.[^399] Moreover, the Commission found that cable operators
     may have an incentive to engage in vertical foreclosure.[^400]

129. The Commission also rejected commenters' proposal that the
     Commission not set a vertical limit.[^401] The Commission found
     that the statute expressly requires the Commission to establish a
     limit and concluded that it lacks the authority to forbear from
     setting a limit.[^402] Moreover, the Commission determined that
     vertical integration can provide both harms and benefits, and there
     was insufficient evidence in the record to set a "reasonable" limit
     at that time.[^403]

130. Addressing the Commission's request for comment on harms that might
     flow from vertical integration, TAC asserts that networks
     affiliated with MVPDs and major broadcasters routinely are favored
     over independently owned networks in violation of Section
     613(f)(2)(B). Specifically, TAC claims that analysis of carriage
     decisions by Comcast and Time Warner demonstrates that these cable
     providers have placed their affiliated programming on more widely
     distributed tiers and have tended not to provide carriage to
     independent programming with a similar theme to their own
     affiliated programming.[^404] Thus, TAC maintains that vertically
     integrated media companies have strong incentives to favor
     affiliated networks because they retain the value of the
     programming assets, whereas new independent networks compete with
     the affiliated channels for channel capacity, viewers, and
     advertising dollars.[^405]

131. TAC contends that the expansion of digital capacity has not
     provided independent networks with additional carriage
     opportunities because of Comcast's practice of favoring carriage of
     affiliated networks.[^406] Similarly, ACA asserts that the growth
     of digital capacity has not increased the carriage capacity for
     independent networks because retransmission-consent tying
     arrangements consume digital channel capacity and drain the
     resources that could be used for carriage of independent
     networks.[^407] Moreover, ACA maintains that small and mid-sized
     cable systems often have no excess capacity and do not have the
     resources to upgrade to digital service.[^408]

132. CFA also alleges a large list of harms likely to occur due to
     vertical integration of cable operators and video programming. Like
     TAC, CFA asserts that cable operators are more likely to carry
     their own programming and are also more likely to carry programming
     developed by broadcasters.[^409] It also contends that vertical
     integration facilitates price squeezes, enhances price
     discrimination, forces potential competitors to enter in two stages
     of production, forecloses markets to competitors, and allows for
     easier cross-subsidization.[^410] CWA asserts that increased
     vertical integration by cable operators, combined with national and
     regional concentration in the cable industry, as well as control by
     cable operators over valuable sports programming, has resulted in
     increased market power for the large cable operators.[^411]

133. In 2001 and 2005, the Commission also sought comments and evidence
     on the benefits provided by vertical integration. In the *2001
     Further Notice* the Commission asked commenters to discuss the
     benefits of vertical integration and the extent to which these
     benefits mitigate or outweigh the harms caused by cable operators
     favoring affiliated programming.[^412] The Commission then asked
     how these benefits should affect the fashioning of a vertical
     limit. The Commission sought comment on the impact that relaxing or
     modifying the current limit of 40 percent might have on producing
     economic efficiencies, fostering innovation in services, and
     encouraging greater investment in and development of diverse and
     responsive programming.[^413] The Commission also asked whether the
     existence of these benefits means that the Commission should employ
     alternative regulatory restrictions, other than imposing a limit on
     cable operators' carriage of affiliated programming, to prevent
     foreclosure.[^414] In response, cable commenters maintain that
     vertical integration provides efficiencies by increasing the
     likelihood of financing for new networks and reducing the
     likelihood of "hold-up" (i.e., the cable operator demanding a lower
     price after the programming network has committed to entering and
     producing the programming).[^415] They also argue that it
     eliminates the problem of double marginalization (i.e., both
     parties attempting to exercise market power by charging prices
     above cost), which occurs when both upstream and downstream firms
     attempt to exercise market power by charging above-cost
     prices.[^416]

134. In the *2005 Second Further Notice* the Commission identified three
     kinds of benefits from vertical integration: (1) transaction
     efficiency, in which vertical integration prevents the
     post-transaction problems of "hold-up" and
     double-marginalization; (2) resources, where the cable operator
     provides the additional resources needed for a new network to
     survive; (3) signaling commitment, in which vertical integration
     signals that the programming network is likely to succeed, which
     may allow new programmers access to capital from sources other than
     the affiliated MVPD and the ability to acquire talent and
     content.[^417] The Commission concluded that cable commenters had
     failed to demonstrate that the benefits of vertical integration
     will always exceed the potential harms from vertical foreclosure.
     The Commission found that the cable commenters also failed to
     identify those circumstances in which the benefits from a
     particular vertical investment or merger are large enough to
     warrant exemption from the vertical limit.[^418]

### Discussion

135. The record developed in response to the *2005 Second Further
     Notice* remains inadequate to support a specific vertical limit. No
     commenter proposed a specific limit, provided us with evidence to
     support a specific limit, advanced any methodology that could help
     us to determine a specific limit, or demonstrated a link between
     any of the harms identified and a specific limit designed to
     prevent these harms.[^419] As detailed below, we again seek
     comments and evidence on these issues.

136. First we ask for comment on how to define the programming and
     distribution markets for purposes of determining an appropriate
     channel occupancy limit.[^420] In 2001, the Commission proposed
     that programming could be classified into two broad categories,
     general entertainment and niche programming.[^421] The Commission
     also suggested that programming networks vary according to whether
     they focus on a particular subject or are more general purpose,
     whether they gain a large nationwide audience, how narrowly focused
     they are in a particular subject, and whether they are national or
     regional in scope.[^422] The Commission asked, in 2005, whether the
     incentive and ability of cable operators to engage in vertical
     foreclosure could vary according to the type of programming network
     and whether a channel occupancy limit would prevent discrimination
     in a particular submarket.[^423] The Commission also sought comment
     on whether placement of networks on different tiers or in different
     packages affects how vertical foreclosure might be implemented by a
     cable operator, especially considering that digital tiers have much
     greater channel capacity than analog tiers, and whether a vertical
     limit should be applied on a tier-specific or package-specific
     basis.[^424] We urge commenters to address these issues*.*

137. We also seek further comment on the extent to which vertically
     integrated cable operators have an incentive to engage in
     strategic, anticompetitive behavior, leading to foreclosure of
     entry by unaffiliated programmers.[^425] We ask whether, in today's
     marketplace, vertically integrated cable operators have an
     incentive to discriminate unfairly against unaffiliated programming
     networks that compete against the cable operator's affiliated
     networks. In this regard we ask whether the Commission's finding
     that cable operators may have an incentive to engage in vertical
     foreclosure remains valid in today's marketplace and ask for
     analyses and studies based on current technological and market
     conditions.[^426] As noted above, the Commission received little
     comment directly addressing its request for theoretical and
     empirical evidence regarding how to establish the vertical limit.
     The Commission did receive, however, two academic studies that
     particularly address whether cable operators have in recent years
     engaged in vertical foreclosure and whether they have favored their
     affiliated programming networks.[^427]

138. Chen and Waterman use a 2004 database of 680 cable systems to
     examine whether Comcast and Time Warner are more likely to carry a
     program network in which they have an ownership interest than they
     are to carry a program network with similar content but in which
     they do not have an ownership interest. They find that vertical
     foreclosure is a persistent phenomenon in the cable industry
     despite channel capacity expansion, digitization, and DBS
     competition. The paper finds that vertically integrated cable
     operators (1) are more likely to carry a program network in which
     they have an ownership interest than they are to carry a program
     network with similar content but in which they do not have an
     ownership interest; and (2) when they do carry an unaffiliated
     program network with content similar to one of their affiliated
     networks, they tend to position the unaffiliated network on digital
     tiers or in other ways that limit consumer access.[^428]

139. In addition, a paper by Kang analyzes carriage decisions of 943
     cable systems to test whether large MSOs might be colluding tacitly
     by carrying each others' vertically integrated cable networks,
     which the paper refers to as "reciprocal carriage."[^429] The study
     finds that: (1) vertically integrated MSOs are more likely than
     non-vertically integrated MSOs to carry the start-up basic cable
     networks of other MSOs, and (2) vertically integrated MSOs are no
     more likely than non-vertically integrated MSOs to carry
     independent start-up basic cable networks. The study concludes that
     the Commission was correct to assume that the policy concern about
     excessive market power of cable operators in the programming market
     extends beyond the unilateral actions of individual MSOs.

140. Comcast disagrees with the findings of Chen and Waterman and Kang.
     Comcast contends that Chen and Waterman's conclusions are not
     supported by their findings, and that because programming on each
     channel tends to be unique, cable operators are motivated to carry
     programs that consumers will find attractive, regardless of whether
     an affiliated or unaffiliated network is the provider.[^430] It
     asserts that Kang's conclusions are based on a six-year old data
     sample that skews results and uses assumptions unsupported by
     evidence.[^431]

141. We seek comment on the validity of these studies and the responses
     to them. Do these studies establish that vertical foreclosure is
     occurring despite recent changes in the marketplace? Does Kang's
     study show that a more extended form of vertical foreclosure
     exists, based on "reciprocal carriage" of integrated programming,
     in which a coalition of cable operators unfairly favor each others'
     affiliated programming? Does carriage of an affiliated programming
     network reflect unfair discrimination against independent
     programming networks, which can deny consumers the ability to
     receive the programming they want, or is it simply a
     cost-minimizing move by a cable operator seeking to avoid paying
     affiliation fees, which may be more efficient and may enable cable
     operators to carry more programming that consumers desire?

142. We also seek comment on evidence regarding the benefits of vertical
     integration between cable operators and programming networks, and
     on their size relative to the potential harms of vertical
     integration. Both Congress and the Commission have recognized that
     vertical integration can produce efficiencies in the production,
     distribution, and marketing of video programming, enabling cable
     operators to make additional investments in distribution plant and
     programming.[^432] Accordingly, we seek comment and evidence, as we
     did in the *2005 Second Further Notice*, to assist in the
     establishment of a reasonable channel occupancy limit, taking into
     consideration these benefits.

143. We invite commenters to propose a specific vertical limit,
     including whether or not the current 75 channel cap is still
     appropriate and relevant. We tentatively conclude that the
     75-channel cap should be eliminated. We ask that commenters provide
     theoretical or empirical evidence to support any specific proposed
     limit and discuss how the proposed limit will appropriately balance
     the potential harms and benefits of vertical integration.
     Alternatively, we invite commenters to advance a particular
     methodology and rationale that will help us to determine a specific
     limit that is supported by record evidence. In either case, we
     request that commenters demonstrate a link between the specific
     harms sought to be prevented and the specific limit proposed to
     prevent or remedy such harms.

144. We also seek comment on whether the channel occupancy limit should
     apply to regional programming networks. In describing the limit on
     a cable operator's carriage of affiliated programming networks, the
     Commission's rule states that the limit applies to "national video
     programming services" owned by the cable operator or in which the
     cable operator has an attributable interest.[^433] The Commission
     stated when it adopted this language that a programming service
     does not have to be distributed in every state to be regarded as a
     national programming service. [^434] A programming service
     distributed to cable systems in numerous states across the country
     or in a variety of regions may also be considered a national
     programming service.[^435] Programming services distributed only to
     a particular community or to a discrete region, on the other hand,
     are exempt from the limit.[^436] The Commission explained that the
     application of the limit only to "national" networks would preserve
     cable operators' incentives to invest in the development of local
     and regional programming services and would thereby serve the
     Commission's goal of promoting localism.[^437] Since 1993, when the
     Commission implemented this rule, regional networks have
     proliferated. Whereas in 1998 there were 61 regional networks, 24
     of which were affiliated with one or more cable MSOs,[^438] in
     2005, there were 96, of which 44 were affiliated with at least one
     cable MSO.[^439] Does the proliferation of regional networks since
     the Commission first adopted its channel occupancy limit support
     continued application of the limit only to nationally distributed
     networks, or does this marketplace development suggest that the
     limit should now apply to networks that are distributed in discrete
     geographic regions? Commenters supporting a broadened application
     of the limit should discuss the effects of any such revision on
     cable operators' incentives to continue investing in the
     development of regional programming and on the Commission's
     localism goal. In addition, commenters who advocate continued
     exclusion of any type of non-national programming should explain
     how the excluded class of programming should be defined and should
     explain how their proposed definitions would serve the statutory
     goals of promoting competition and diversity and should discuss any
     resulting effects on localism.

145. Finally, we seek comment on whether or not to expand the class of
     networks that count toward the channel occupancy limit. Currently,
     the limit applies only to networks that are affiliated with the
     cable operator whose compliance is at issue. Should we revise the
     rule so that it also limits the number of channels that can be
     occupied by video programming networks owned by or affiliated
     with (1) any cable operator, i.e., not just the operator whose
     compliance is at issue, (2) other MVPDs, such as DBS providers
     and/or (3) broadcast networks. We tentatively conclude that we
     should expand the channel occupancy limit to include video
     programming networks owned by or affiliated with any cable
     operator.[^440] Congress did not distinguish between different
     types of cable operators for purposes of Section
     628(c)(2)(D)."[^441] Commenters are asked to provide a
     comprehensive analysis of why such revisions would be appropriate
     and necessary in order to enhance effective competition.
     Furthermore, because Section 613(f)(2) applies only to the actions
     of cable operators, commenters should discuss the jurisdictional
     basis for any revisions to the class of networks that are subject
     to the cap.

# PROCEDURAL MATTERS

## Fourth Report and Order

146. **Paperwork Reduction Act Analysis**. This document does not
     contain new or modified information collection requirements subject
     to the Paperwork Reduction Act of 1995 (PRA), Public Law
     104-13.  In addition, therefore, it does not contain any new or
     modified "information collection burden for small business concerns
     with fewer than 25 employees," pursuant to the Small Business
     Paperwork Relief Act of 2002, Public Law 107-198, *see* 44 U.S.C.
     3506(c)(4).

147. **Congressional Review Act.** The Commission will send a copy of
     this Fourth Report and Order in a report to be sent to Congress and
     the Government Accountability Office, pursuant to the Congressional
     Review Act.[^442]

148. **Final Regulatory Flexibility Analysis.** As required by the
     Regulatory Flexibility Act,[^443] the Commission has prepared a
     Final Regulatory Flexibility Analysis ("FRFA") relating to this
     Fourth Report and Order. The SFRFA is set forth in Appendix B.

## Further Notice of Proposed Rulemaking

149. **Ex Parte Rules.** This is a permit-but-disclose 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).

150. Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47
     CFR §§ 1.415, 1.419, interested parties may file comments and reply
     comments on or before the dates indicated on the first page of this
     document. Comments may be filed using: (1) the Commission's
     Electronic Comment Filing System (ECFS), (2) the Federal
     Government's eRulemaking Portal, or (3) by filing paper copies.
     *See Electronic Filing of Documents in Rulemaking Proceedings*, 63
     FR 24121 (1998).

-   Electronic Filers: Comments may be filed electronically using the
    Internet by accessing the ECFS: <http://www.fcc.gov/cgb/ecfs/> or
    the Federal eRulemaking Portal:
    [http://www.regulations.gov](http://www.regulations.gov/). Filers
    should follow the instructions provided on the website for
    submitting comments.

    -   For ECFS filers, if multiple docket or rulemaking numbers appear
        in the caption of this proceeding, filers must transmit one
        electronic copy of the comments for each docket or rulemaking
        number referenced in the caption. In completing the transmittal
        screen, filers 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, filers should send
        an e-mail to <ecfs@fcc.gov>, and include the following words in
        the body of the message, "get form." A sample form and
        directions will be sent in response.

```{=html}
<!-- -->
```
-   Paper Filers: 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 appears in the caption of this proceeding, filers
    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). All filings must be addressed to the
> Commission's Secretary, Office of the Secretary, Federal
> Communications Commission.

-   The Commission's contractor will receive hand-delivered or
    messenger-delivered paper filings for the Commission's Secretary at
    236 Massachusetts Avenue, NE, Suite 110, Washington, DC 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]{.underline} 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, Express, and Priority mail must be
    addressed to 445 12^th^ Street, SW, Washington DC 20554.

People with Disabilities: To request materials in accessible formats for
people with disabilities (Braille, large print, electronic files, audio
format), send an e-mail to <fcc504@fcc.gov> or call the Consumer &
Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

151. This document does not contain proposed information collection(s)
     subject to the Paperwork Reduction Act of 1995 (PRA), Public Law
     104-13.  In addition, therefore, it does not contain any new or
     modified "information collection burden for small business concerns
     with fewer than 25 employees," pursuant to the Small Business
     Paperwork Relief Act of 2002, Public Law 107-198, *see* 44 U.S.C.
     3506(c)(4).

152. **Supplemental Initial Regulatory Flexibility Analysis.** As
     required by the Regulatory Flexibility Act,[^444] the Commission
     has prepared a Supplemental Initial Regulatory Flexibility Analysis
     (SIRFA) of the possible significant economic impact on a
     substantial number of small entities of the proposals addressed in
     this *Further Notice of Proposed Rulemaking*. The SIRFA is set
     forth in the Appendix. Written public comments are requested on the
     SIRFA. These comments must be filed in accordance with the same
     filing deadlines for comments on the *Further Notice*, and they
     should have a separate and distinct heading designating them as
     responses to the SIRFA.

153. **Additional Information.** For additional information on this
     proceeding, please contact Elvis Stumbergs, Industry Analysis
     Division, Media Bureau at (202) 418-2330. For Press Inquiries,
     please contact Mary Diamond, Media Bureau, at (202) 418-7200.

# ordering clauses 

154. Accordingly, IT IS ORDERED, that pursuant to the authority
     contained in sections 2(a), 4(i), 303, 307, 309, 310, and 613 of
     the Communications Act of 1934, as amended, 47 U.S.C. §§ 152(a),
     154(i), 303, 307, 309, 310, 533, the *Fourth Report and Order* and
     *Further Notice of Proposed Rulemaking* are ADOPTED.

155. IT IS FURTHER ORDERED, pursuant to Sections 4(i), 303 and 613 of
     the Communications Act of 1934, as amended, [47 U.S.C. §§
     154(i)](http://web2.westlaw.com/find/default.wl?tf=-1&rs=WLW7.02&fn=_top&sv=Split&tc=-1&findtype=L&docname=47USCAS154&db=1000546&vr=2.0&rp=%2Ffind%2Fdefault.wl&mt=Westlaw),
     [303](http://web2.westlaw.com/find/default.wl?tf=-1&rs=WLW7.02&fn=_top&sv=Split&tc=-1&findtype=L&docname=47USCAS303&db=1000546&vr=2.0&rp=%2Ffind%2Fdefault.wl&mt=Westlaw)
     and
     [533](http://web2.westlaw.com/find/default.wl?tf=-1&rs=WLW7.02&fn=_top&sv=Split&tc=-1&findtype=L&docname=47USCAS533&db=1000546&vr=2.0&rp=%2Ffind%2Fdefault.wl&mt=Westlaw),
     that the amendment to [47 C.F.R. §
     76.503](http://web2.westlaw.com/find/default.wl?tf=-1&rs=WLW7.02&fn=_top&sv=Split&tc=-1&findtype=L&docname=47CFRS76.503&db=1000547&vr=2.0&rp=%2Ffind%2Fdefault.wl&mt=Westlaw)
     discussed in this *Fourth Report and Order* IS ADOPTED. The
     amendment shall become effective 30 days after publication in the
     Federal Register.

156. IT IS FURTHER ORDERED, that pursuant to authority contained in
     sections 2(a), 4(i), 303, 307, 309, 310, and 613 of the
     Communications Act of 1934, as amended, 47 U.S.C. §§ 152(a),
     154(i), 303, 307, 309, 310, 533, NOTICE IS HEREBY GIVEN of the
     proposals described in the *Further Notice of Proposed Rulemaking*.

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

158. IT IS FURTHER ORDERED, that MM Docket No. 87-154 and CS Docket No.
     96-85 are TERMINATED and MM Docket No. 92-51 is SEVERED.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Marlene H. Dortch
>
> Secretary

**APPENDIX A**

**LIST OF COMMENTERS**

**[Initial Comments]{.underline}**

The America Channel (TAC)

American Telephone & Telegraph (AT&T)

American Cable Association (ACA)

Doug Chen

Cablevision Systems Corporation (Cablevision)

Comcast Corporation (Comcast)

Communications Workers of America (CWA)

Consumer Federation of America (CFA)

DIRECTV, Inc.

ION Media Networks (Paxson)

Jun-Seok Kong

Media Access Project (MAP)

Media General, Inc.

National Cable Television Association (NCTA)

National Hispanic Media Coalition (NHMC)

Project and Freedom Foundation (PFF)

Alexander Raskovich

Time Warner Cable (Time Warner)

Viacom, Inc.

Daniel Waterman

Writers Guild of America (Writers Guild)

**[Supplemental Comments]{.underline}**

Comcast Corporation (Comcast)

**[Further Supplemental Comments]{.underline}**

Comcast Corporation (Comcast)

**[Opposition and Reply Comments]{.underline}**

National Cable Television Association (NCTA)

**[Reply Comments]{.underline}**

American Telephone & Telegraph (AT&T)

Comcast Corporation (Comcast)

National Association of Broadcasters (NAB)

ION Media Networks (Paxson)

Time Warner Cable, Inc. (Time Warner)

**APPENDIX B**

**RULE CHANGES**

Part 76 of Title 47 of the Code of Federal Regulations is amended to
read as follows:

PART 76 MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

1\. The authority citations for part 76 continue to read as follows:

AUTHORITY: 47 U.S.C. §§ 152(a), 154(i), 303, 307, 309, 310, 533.

2\. Section 76.503 is amended by:

a\) Revising paragraph (a) to read as follows:

§ 76.503(a) [National subscriber limits.]{.underline} No cable operator
shall serve more than 30 percent of all multichannel-video programming
subscribers nationwide through multichannel video programming
distributors owned by such operator or in which such cable operator
holds an attributable interest.

b\) Replacing the text in subsections (b), (c), and (d) with the word
"Reserved."

**APPENDIX C**

**Final Regulatory Flexibility Analysis**

As required by the Regulatory Flexibility Act of 1980, as amended
(RFA),[^445] an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated in the *2005 Second Further Notice of Proposed Rulemaking*
in MB Docket No. 92-264, FCC 05-96.[^446] The Commission sought written
public comment on the proposals in the *2005 Second Further Notice*,
including comment on the IRFA. This present Final Regulatory Flexibility
Analysis (FRFA) conforms to the RFA.[^447]

**A. Need for, and Objectives of, this Fourth Report and Order**

In this Fourth Report and Order, we set the Commission's cable
horizontal ownership limit[^448] to bar cable operators from having an
attributable interest in cable systems serving more than 30 percent of
multichannel video programming subscribers nationwide. Our action here
responds to the court's decision in Time Warner Entertainment Co. v. FCC
("Time Warner II"),[^449] which remanded the Commission's 30 percent
limit. Our decision implements the statutory directive that we impose a
limit designed to ensure that no single cable operator or group of
operators, because of their size, unfairly impede the flow of
programming to consumers.[^450]

In establishing the 30 percent cable horizontal ownership limit, we rely
on a modified "open field" approach to ensure that no single cable
operator becomes so large that a programming network can survive only if
that largest operator carries it. To calculate a horizontal limit that
meets this test, we first determine the minimum number of subscribers a
network needs in order to survive in the marketplace, and then estimate
the percentage of subscribers a network is likely to serve once it
secures a carriage contract. The resulting calculation indicates that an
open field of 70 percent and an ownership limit of 30 percent are
necessary to ensure that no single cable operator is able to impede
unfairly the flow of programming to consumers.

**B. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA**

None of the parties in this proceeding filed comments on how issues
raised in the 2001 Further Notice or the 2005 Second Further Notice
would impact small entities.

**C. Description and Estimate of the Number of Small Entities to Which
the Rule Will Apply**

The RFA directs agencies to provide a description of, and, where
feasible, an estimate of, the number of small entities that may be
affected by the rules adopted herein.[^451] The RFA generally defines
the term "small entity" as having the same meaning as the terms "small
business," "small organization," and "small governmental
jurisdiction."[^452] In addition, the term "small business" has the same
meaning as the term "small business concern" under the Small Business
Act.[^453] 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).[^454]

**Cable and Other Program Distribution.** The Census Bureau recently
updated the NAICS so that these firms are included in the Wired
Telecommunications Carriers category[^455] which is described as
follows: "This industry comprises establishments primarily engaged in
operating and/or providing access to transmission facilities and
infrastructure that they own and/or lease for the transmission of voice,
data, text, sound, and video using wired telecommunications networks.
Transmission facilities may be based on a single technology or a
combination of technologies. Establishments in this industry use the
wired telecommunications network facilities that they operate to provide
a variety of services, such as wired telephony services, including VoIP
services; wired (cable) audio and video programming distribution; and
wired broadband Internet services. By exception, establishments
providing satellite television distribution services using facilities
and infrastructure that they operate are included in this
industry."[^456] The SBA has updated the small business size standards
to accord with the revised NAICS. The size standard for Wired
Telecommunications Carriers is all firms having an average of 1,500 or
fewer employees. The Census Bureau has not collected information on the
size distribution of firms in the revised classification of Wired
Telecommunications Carriers. Accordingly we will apply the new size
standard to Census Bureau data for 2002 regarding the size distribution
of Cable and Other Program Distribution.[^457] There were a total of
1,191 firms in this category that operated for the entire year.[^458] Of
this total, 1,178 firms had fewer than 1,000 employees.[^459] Thus,
under this size standard, the majority of firms can be considered small.

**Cable System Operators.** The Communications Act of 1934, as amended,
also contains a size standard for small cable system operators, which is
"a cable operator that, directly or through an affiliate, serves in the
aggregate fewer than 1 percent 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."[^460] The Commission
has determined that an operator serving fewer than 653,000 subscribers
shall be deemed a small operator, if its annual revenues, when combined
with the total annual revenues of all its affiliates, do not exceed
\$250 million in the aggregate.[^461] Industry data indicate that, of
994 cable operators nationwide, all but thirteen are small under this
size standard.[^462] We note that the Commission neither requests nor
collects information on whether cable system operators are affiliated
with entities whose gross annual revenues exceed \$250 million,[^463]
and therefore we are unable to estimate more accurately the number of
cable system operators that would qualify as small under this size
standard.

**Private Cable Operators (PCOs) also known as Satellite Master Antenna
Television (SMATV) Systems**. PCOs, also known as SMATV systems or
private communication operators, are video distribution facilities that
use closed transmission paths without using any public right-of-way.
PCOs acquire video programming and distribute it via terrestrial wiring
in urban and suburban multiple dwelling units such as apartments and
condominiums, and commercial multiple tenant units such as hotels and
office buildings. The SBA definition of small entities for Wired
Telecommunications Carriers includes PCOs or SMATV systems and, thus,
small entities are defined as all such companies with 1,500 or fewer
employees.[^464] Currently, there are approximately 76 members in the
Independent Multi-Family Communications Council (IMCC), the trade
association that represents PCOs.[^465] Individual PCOs often serve
approximately 3,000-4,000 subscribers, but the larger operations serve
as many as 15,000-55,000 subscribers. In total, PCOs currently serve
approximately 900,000 subscribers.[^466] Because these operators are not
rate regulated, they are not required to file employment data with the
Commission. Furthermore, we are not aware of any privately published
employment information regarding these operators. Based on the estimated
number of operators and the estimated number of units served by the
largest ten PCOs, we believe that a substantial number of PCO may
qualify as small entities.

**D. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements**

The new rule imposes a 30 percent limit on the number of MVPD
subscribers nationwide that one person or entity may serve. No new
reporting, recordkeeping or other compliance requirements are adopted.

**E. Steps Taken to Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered**

The RFA requires an agency to describe any significant alternatives that
it has considered in developing its 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 and
reporting requirements under the rule for such 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 such small
entities."[^467]

In this *Fourth Report and Order*, based on its calculations using an
open field approach, the Commission sets a 30 percent horizontal
ownership limit.[^468] This rule limits the size of large MSOs and does
not prevent small cable operators from growing larger. We also continue
to base the limit on the number of actual MVPD subscribers, a figure
used by cable operators when they negotiate with and purchase
programming from video programmers. *See id*. Finally, the horizontal
cap would not change pursuant to the Order. Accordingly, we do not find
that the Order will impose new burdens on small cable operators.

The Commission considered other alternatives,[^469] with respect to the
horizontal limit, but the Order adopted a 30 percent horizontal
ownership limit based on evidence that this is the level necessary to
preserve programmer viability. The Commission believes that the
decisions it adopts in the Order serve our public interest goals and
comport with the evidence.

**F. Report to Congress:** The Commission will send a copy of the
*Fourth Report and Order*, including this Supplemental FRFA, in a report
to be sent to Congress pursuant to the Congressional Review Act.[^470]
In addition, the Commission will send a copy of the *Fourth Report and
Order*, including this Supplemental FRFA, to the Chief Counsel for the
advocacy of the SBA. A copy of the *Fourth Report and Order* and the
Supplemental FRFA (or summaries thereof) will also be published in the
Federal Register.[^471]

**APPENDIX D**

**SUPPLEMENTAL INITIAL REGULATORY FLEXIBILITY ANALYSIS**

As required by the Regulatory Flexibility Act, as amended ("RFA")[^472]
the Commission has prepared this Supplemental Initial Regulatory
Flexibility Analysis ("Supplemental IRFA") of the possible significant
economic impact on a substantial number of small entities of the
policies and rules considered in this *Further Notice of Proposed Rule
Making* ("*Further* *Notice*")*.* Initial Regulatory Flexibility
Analyses were included in the *2001 Further Notice of Proposed
Rulemaking* ("*2001 Further Notice*") [^473] and the *2005 Second
Further Notice of Proposed Rulemaking* ("*2005 Second Further
Notice*").[^474] Written public comments are requested on this
Supplemental IRFA. Comments must be identified as responses to the
Supplemental IRFA and must be filed by the deadlines for comments on the
*Second Further Notice*. The Commission will send a copy of the *Further
Notice*, including this Supplemental IRFA, to the Chief Counsel for
Advocacy of the Small Business Administration ("SBA").[^475] In
addition, the *Further Notice* and the Supplemental IRFA (or summaries
thereof) will be published in the Federal Register.[^476]

A.  **Need for, and Objectives of, the Proposed Rules**

    The attribution rules identify which interests in a media entity are
    counted for purposes of applying the broadcast and cable ownership
    rules. The *Further Notice* invites comment on (1) whether to retain
    the single majority shareholder attribution exemption in the cable
    and broadcast contexts; (2) whether, under the cable attribution
    rules, a limited partner may sell programming to the partnership and
    retain insulation; and (3) whether the Commission should clarify
    certain aspects of the cable Equity Debt ("ED") attribution rule.
    With respect to the first two issues, the Commission invites further
    comment on how to respond to the remand of the court in *Time Warner
    II*, which reversed, vacated, and remanded the Commission's decision
    to eliminate the single majority shareholder exemption and the
    Commission's prohibition of the sale of programming by an insulated
    limited partner to the partnership*.*[^477]

[Section
613(f)](http://web2.westlaw.com/find/default.wl?tf=-1&rs=WLW7.02&fn=_top&sv=Split&tc=-1&findtype=L&docname=47USCAS613&db=1000546&vr=2.0&rp=%2Ffind%2Fdefault.wl&mt=Westlaw)
of the Communications Act requires the Commission to establish
reasonable limits on the number of channels that can be occupied by the
cable system\'s owned or attributed video programming services
(vertical, or channel occupancy, limit). In *Time Warner II*, the D.C.
Circuit remanded the Commission\'s channel occupancy limit.[^478]

The Commission subsequently issued its *2001 Further Notice*, seeking
comment on whether to reinstate the single majority shareholder
exemption in the cable attribution rules, and whether to prohibit
insulated limited partners from selling programming to their general
partners. The Commission also sought comment aimed at establishing a
sound record on which to fashion meaningful and relevant channel
occupancy limits given the changes that have occurred in the MVPD
industry.[^479] While many commenters presented theoretical, legal, or
economic arguments and anecdotal evidence, no party provided a
compelling approach that supported a particular vertical limit. The
Commission subsequently sought to augment the record by means of a
programming network survey and econometric analysis, with limited
results. In its *2005 Second Further Notice*, the Commission again
sought to develop a more focused and useful record.

In this *Further Notice*, we seek additional comment on (1) whether to
retain the single majority shareholder attribution exemption, which
currently applies to the cable and broadcast ownership rules; (2)
whether, under the cable attribution rules, a limited partner may sell
programming to the partnership and retain insulation; and (3) whether
the Commission should clarify the Equity Debt ("ED") provision in the
cable attribution rules, to correspond with and reflect the guidance
provided in the Commission's reconsideration of its broadcast
attribution rules.[^480] We also invite comment in the *Further Notice*
on how to set a specific channel occupancy limit, responding to the
remand of the court in *Time Warner II*. We issue this Supplemental IRFA
in order to invite comment on the effects on small entities of the
proposals identified in this *Further Notice*. We particularly solicit
comment from all small business entities, including minority-owned and
women-owned small businesses.

**B. Basis**

The *Further* *Notice* is adopted pursuant to sections 2(a), 4(i), 303,
307, 309, 310, and 613 of the Communications Act of 1934, as amended, 47
U.S.C. §§ 152(a), 154(i), 303, 307, 309, 310, and 533.

**C. Description and Estimate of the Number of Small Entities to Which
the Proposed Rules Will Apply**

The RFA directs agencies to provide a description of, and, where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted.[^481] The RFA defines the
term "small entity" as having the same meaning as the terms "small
business," "small organization," and "small governmental entity" under
Section 3 of the Small Business Act.[^482] In addition, the term "small
business" has the same meaning as the term "small business concern"
under the Small Business Act.[^483] 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 SBA.[^484]

**Television Broadcasting.** In this context, the application of the
statutory definition to television stations is of concern. The Small
Business Administration defines a television broadcasting station that
has no more than \$13 million in annual receipts as a small
business.[^485] Business concerns included in this industry are those
"primarily engaged in broadcasting images together with sound."[^486]
According to Commission staff review of the BIA Financial Network, Inc.
Media Access Pro Television Database as of December 7, 2007, about 825
(66 percent) of the 1,250 commercial television stations in the United
States have revenues of \$13 million or less.[^487] However, in
assessing whether a business entity qualifies as small under the above
definition, business control affiliations[^488] must be included. Our
estimate, therefore, likely overstates the number of small entities that
might be affected by any changes to the attribution rules, because the
revenue figures on which this estimate is based do not include or
aggregate revenues from affiliated companies.

An element of the definition of "small business" is that the entity not
be dominant in its field of operation. The Commission is unable at this
time and in this context to define or quantify the criteria that would
establish whether a specific television station is dominant in its
market of operation. Accordingly, the foregoing estimate of small
businesses to which the rules may apply does not exclude any television
stations from the definition of a small business on this basis and is
therefore over-inclusive to that extent. An additional element of the
definition of "small business" is that the entity must be independently
owned and operated. 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.

**Radio Broadcasting.** The Small Business Administration defines a
radio broadcasting entity that has \$6.5 million or less in annual
receipts as a small business.[^489] Business concerns included in this
industry are those "primarily engaged in broadcasting aural programs by
radio to the public."[^490] According to Commission staff review of the
BIA Financial Network, Inc. Media Access Radio Analyzer Database as of
December 7, 2007, about 10,500 (95 percent) of 11,050 commercial radio
stations in the United States have revenues of \$6.5 million or less. We
note, however, that in assessing whether a business entity qualifies as
small under the above definition, business control affiliations[^491]
must be included. Our estimate, therefore, likely overstates the number
of small entities that might be affected by any changes to the ownership
rules, because the revenue figures on which this estimate is based do
not include or aggregate revenues from affiliated companies.

In this context, the application of the statutory definition to radio
stations is of concern. 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 and in this context to define or quantify the
criteria that would establish whether a specific radio station is
dominant in its field of operation. Accordingly, the foregoing estimate
of small businesses to which the rules may apply does not exclude any
radio station from the definition of a small business on this basis and
is therefore over-inclusive to that extent. 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 Census Bureau recently
updated the NAICS and these firms are included in the Wired
Telecommunications Carriers category,[^492] described as: "This industry
comprises establishments primarily engaged in operating and/or providing
access to transmission facilities and infrastructure that they own
and/or lease for the transmission of voice, data, text, sound, and video
using wired telecommunications networks. Transmission facilities may be
based on a single technology or a combination of technologies.
Establishments in this industry use the wired telecommunications network
facilities that they operate to provide a variety of services, such as
wired telephony services, including VoIP services; wired (cable) audio
and video programming distribution; and wired broadband Internet
services. By exception, establishments providing satellite television
distribution services using facilities and infrastructure that they
operate are included in this industry."[^493] The SBA has updated the
small business size standards to accord with the revised NAICS. The size
standard for Wired Telecommunications Carriers is all firms having an
average of 1,500 or fewer employees.[^494] The Census Bureau has not
collected information on the size distribution of firms in the revised
classification of Wired Telecommunications Carriers. Accordingly we will
apply the new size standard to Census Bureau data for 2002 regarding the
size distribution of Cable and Other Program Distribution.[^495] There
were a total of 1,191 firms in this category that operated for the
entire year.[^496] Of this total, 1,178 firms had fewer than 1,000
employees.[^497] Thus, under this size standard, the majority of firms
can be considered small.

**Cable Companies and Systems*.*** The Commission has also developed its
own small business size standards, for the purpose of cable rate
regulation. Under the Commission's rules, a "small cable company" is one
serving 400,000 or fewer subscribers, nationwide.[^498] Industry data
indicate that, of 994 cable operators nationwide, all but thirteen are
small under this size standard.[^499] In addition, under the
Commission's rules, a "small system" is a cable system serving 15,000 or
fewer subscribers.[^500] Industry data indicate that, of 6,391 systems
nationwide, 5,399 systems have under 10,000 subscribers, and an
additional 352 systems have 10,000-19,999 subscribers.[^501] Thus, under
this second size standard, most cable systems are small.

**Cable System Operators.** The Communications Act of 1934, as amended,
also contains a size standard for small cable system operators, which is
"a cable operator that, directly or through an affiliate, serves in the
aggregate fewer than 1 percent 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."[^502] The Commission
has determined that an operator serving fewer than 653,000 subscribers
shall be deemed a small operator, if its annual revenues, when combined
with the total annual revenues of all its affiliates, do not exceed
\$250 million in the aggregate.[^503] Industry data indicate that, of
994 cable operators nationwide, all but thirteen are small under this
size standard.[^504] We note that the Commission neither requests nor
collects information on whether cable system operators are affiliated
with entities whose gross annual revenues exceed \$250 million,[^505]
and therefore we are unable to estimate more accurately the number of
cable system operators that would qualify as small under this size
standard.

**Private Cable Operators (PCOs) also known as Satellite Master Antenna
Television (SMATV) Systems.** PCOs, also known as SMATV systems or
private communication operators, are video distribution facilities that
use closed transmission paths without using any public right-of-way.
PCOs acquire video programming and distribute it via terrestrial wiring
in urban and suburban multiple dwelling units such as apartments and
condominiums, and commercial multiple tenant units such as hotels and
office buildings. The SBA definition of small entities for Wired
Telecommunications Carriers includes PCOs or SMATV systems and, thus,
small entities are defined as all such companies with 1,500 or fewer
employees.[^506] Currently, there are approximately 76 members in the
Independent Multi-Family Communications Council (IMCC), the trade
association that represents PCOs.[^507] Individual PCOs often serve
approximately 3,000-4,000 subscribers, but the larger operations serve
as many as 15,000-55,000 subscribers. In total, PCOs currently serve
approximately 1.1 million subscribers.[^508] Because these operators are
not rate regulated, they are not required to file employment data with
the Commission. Furthermore, we are not aware of any privately published
employment information regarding these operators. Based on the estimated
number of operators and the estimated number of units served by the
largest ten PCOs, we believe that a substantial number of PCO may
qualify as small entities.

**Home Satellite Dish ("HSD") Service.** Because HSD provides
subscription services, HSD falls within the SBA-recognized definition of
Wired Telecommunications Carriers, which includes all such companies
with 1,500 or fewer employees.[^509] HSD or the large dish segment of
the satellite industry is the original satellite-to-home service offered
to consumers, and involves the home reception of signals transmitted by
satellites operating generally in the C-band frequency. Unlike DBS,
which uses small dishes, HSD antennas are between four and eight feet in
diameter and can receive a wide range of unscrambled (free) programming
and scrambled programming purchased from program packagers that are
licensed to facilitate subscribers' receipt of video programming. There
are approximately 30 satellites operating in the C-band, which carry
over 500 channels of programming combined; approximately 350 channels
are available free of charge and 150 are scrambled and require a
subscription. HSD is difficult to quantify in terms of employment. HSD
owners have access to program channels placed on C-band satellites by
programmers for receipt and distribution by MVPDs. In January 2007,
there were 68,781 households authorized to receive HSD service.[^510]
The Commission has no information regarding the number of employees for
the four C-Band distributors.

**Wireless Cable Systems.** Wireless cable systems use the Broadband
Radio Service ("BRS")[^511] and Educational Broadband Service
("EBS")[^512] frequencies in the 2 GHz band to transmit video
programming and provide broadband services to subscribers. The Census
Bureau recently updated the NAICS and these firms are now included in
the Wireless Telecommunications Carriers (except Satellite)
category,[^513] described as: "This industry comprises establishments
engaged in operating and maintaining switching and transmission
facilities to provide communications via the airwaves. Establishments in
this industry have spectrum licenses and provide services using that
spectrum, such as cellular phone services, paging services, wireless
Internet access, and wireless video services."[^514] The SBA has updated
the small business size standards to accord with the revised NAICS and,
for Wireless Telecommunications Carriers (except Satellite), the
standard is all firms having an average of 1,500 or fewer
employees.[^515]

The Commission has also defined small BRS entities in the context of
Commission license auctions.  In the 1996 BRS (MMDS) auction,[^516] the
Commission defined a small business as an entity that had annual average
gross revenues of less than \$40 million in the previous three calendar
years.[^517] This definition of a small entity in the context of MDS
auctions was approved by the SBA.[^518] In the 1996 auction, 67 bidders
won 493 licenses.  Of the 67 auction winners, 61 claimed status as a
small business.  At this time, the Commission estimates that of the 61
small business 1996 auction winners, 48 remain small business
licensees.  Specifically, the Commission estimates that some of the EBS
licensees are small businesses since there are currently 2,032 EBS
licensees, and all but 100 of these licenses are held by educational
institutions.[^519] In addition to the 48 small businesses that hold BTA
authorizations, there are also approximately 392 incumbent BRS licensees
that have gross revenues that are not more than \$40 million and are
thus considered small entities.[^520]

Although the SBA changed the small business definition in 2007 so that
BRS and EBS now fall under Wireless Telecommunications Carriers (except
Satellite), we lack the data to estimate how many entities will be
affected by the regulation.  Therefore, we continue to employ the
definition for small businesses used in the 1996 auction, and estimate
that the majority of the affected entities are small.

**Open Video Systems ("OVS").** The OVS framework provides opportunities
for the distribution of video programming other than through cable
systems. Because OVS operators provide subscription services,[^521] OVS
falls within the SBA-recognized definition of Wired Telecommunications
Carriers, which provides that a small entity is one with 1,500 or fewer
employees.[^522] The Commission has certified 25 OVS operators, with
some now providing service. Broadband service providers (BSPs) are
currently the only significant holders of OVS certifications or local
OVS franchises, even though OVS is one of four statutorily-recognized
options for local exchange carriers (LECs) to offer video programming
services.[^523] As of June 2007, BSPs served approximately 1.4 million
subscribers, representing 1.46 percent of all MVPD households.[^524]
Among BSPs, however, those operating under the OVS framework are in the
minority, with approximately eight percent operating with an OVS
certification.[^525] BSPs include companies such as RCN, Champion
Broadband, Knology, and SureWest Communications.[^526] RCN received
approval to operate OVS systems in New York City, Boston, Washington,
D.C. and other areas. The Commission does not have employment
information regarding the entities authorized to provide OVS, some of
which may not yet be operational. We thus believe that at least some of
the OVS operators may qualify as small entities.

**Cable and Other Subscription Programming.** The Census Bureau defines
this category as follows: "This industry comprises establishments
primarily engaged in operating studios and facilities for the
broadcasting of programs on a subscription or fee basis . . . . These
establishments produce programming in their own facilities or acquire
programming from external sources. The programming material is usually
delivered to a third party, such as cable systems or direct-to-home
satellite systems, for transmission to viewers."[^527] The SBA has
developed a small business size standard for firms within this category,
which is: firms with \$13.5 million or less in annual receipts.[^528]
According to Census Bureau data for 2002, there were 270 firms in this
category that operated for the entire year.[^529] Of this total, 217
firms had annual receipts of under \$10 million and 13 firms had annual
receipts of \$10 million to \$24,999,999.[^530] Thus, under this
category and associated small business size standard, the majority of
firms can be considered small.

A "small business" under the RFA is one that, *inter alia*, meets the
pertinent small business size standard (*e.g.*, a telephone
communications business having 1,500 or fewer employees), and "is not
dominant in its field of operation."[^531] The SBA's Office of Advocacy
contends that, for RFA purposes, small incumbent local exchange carriers
are not dominant in their field of operation because any such dominance
is not "national" in scope.[^532]

**D. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements**

Depending on the rules adopted as a result of this *Further Notice*, the
Report and Order ultimately adopted in this proceeding may contain new
or modified information collections. We anticipate that none of the
changes would result in an increase to the reporting and recordkeeping
requirements of broadcast stations, newspapers, or applicants for
licenses. As noted above, we invite small business entities to comment
in response to this *Further Notice*.

**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.[^533]

We are directed under law to describe any alternatives we consider,
including alternatives not explicitly listed above.[^534] The *Further
Notice* seeks comment on whether or not it should retain the single
majority shareholder exemption, and whether eliminating the exemption
would negatively impact capital investment, particularly in small
businesses. Additionally, it seeks comment on whether or not to bar a
limited partner from selling video programming to the general partner
cable entity in order to maintain insulated limited partner status for
purposes of the attribution rules. It also seeks comment on whether to
conform various aspects of the ED cable attribution rule to the amended
EDP broadcast attribution rule upon which the cable rule was
based.[^535] Finally, it seeks comment on how it should craft a rule to
limit the number of cable channels that can be occupied by affiliated
video programming services. Cable ownership limits are intended to
prevent large cable entities from unfairly impeding the flow of video
programming to consumers through their horizontal reach or their level
of vertical integration. We anticipate that any channel occupancy limits
adopted by the Commission will have little adverse impact on small cable
entities because small entities as a general matter do not approach the
channel occupancy limits and are not the focus of the rule. We also
expect that, whichever alternatives are chosen with respect to revising
the cable attribution rules, the Commission will seek to minimize any
adverse effects on small businesses.

**F. Federal Rules that May Duplicate, Overlap, or Conflict with the
Proposed Rules**

None.

**APPENDIX e**

**Technical Appendix**

**A. Estimating the Penetration Rate**

1.  We estimate the penetration rate as the fraction of a cable
    operator's subscribers that will have access to a network if the
    operator reaches a carriage agreement with the network. Two elements
    play a role in this penetration rate. An operator, once having
    reached an agreement with a network, may not carry the network on
    all of the systems the operator controls. Furthermore, even when the
    network is available on a cable system, the network may be placed on
    a tier which is not purchased by all of the system's subscribers. We
    use confidential data from the Commission's Cable Price Survey to
    determine the subscriber penetration rate of 135 cable networks. The
    launch date of each network is used to calculate the age of each
    network.[^536] With this information it is possible to predict the
    fraction of a cable operator's subscribers a programming network is
    likely to have access to at any point in its lifecycle. We limit our
    analysis to cable networks that are standard definition,
    predominately English language, nationally distributed, and are not
    generally sold on an a la carte basis. These requirements yield the
    135 cable networks in the analysis.

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159. Due to the small number of programming networks in any single age
     category, we use linear regression to develop a more robust
     estimate of the relationship between the subscriber penetration
     rate and the age of a network. We explore several specifications of
     the relationship between the age of a network and the network's
     subscriber penetration rate. We consider, in succession, the
     addition of higher level polynomials of the age variable in the
     regression, up through inclusion of age to the fourth power. The
     regression result when only age is included in the analysis are:

+----------------+-----------------+------------------+----------------+
| **Regression   |                 |                  |                |
| Specification  |                 |                  |                |
| 1**            |                 |                  |                |
+----------------+-----------------+------------------+----------------+
| *              | **Coefficient** | **Robust**       | *              |
| *Independent** |                 |                  | *t-Statistic** |
|                |                 | **Standard       |                |
| **Variable**   |                 | Error**          |                |
+----------------+-----------------+------------------+----------------+
| Constant       | 0.1775261       | 0.0325708        | 5.45           |
+----------------+-----------------+------------------+----------------+
| Age            | 0.0243273       | 0.0025334        | 9.60           |
+----------------+-----------------+------------------+----------------+
| R^2^ = 0.398   |                 |                  |                |
+----------------+-----------------+------------------+----------------+

Both the constant and the coefficient on age are statistically different
from zero in this result. The result generates an estimate of the
penetration rate of a network five years after launch of 29.92%.
However, this expression also predicts that the penetration rate of a
network that has been in existence for 35 years would have a predicted
penetration rate of 105%. While the oldest network in our data is 33
years old, this is still a drawback to using this simple specification.
Therefore it is best to incorporate additional polynomial terms to
better fit the data.

160. The next specification includes age and age raised to the second
     power, with the following results:

+----------------+-----------------+------------------+----------------+
| **Regression   |                 |                  |                |
| Specification  |                 |                  |                |
| 2**            |                 |                  |                |
+----------------+-----------------+------------------+----------------+
| *              | **Coefficient** | **Robust**       | *              |
| *Independent** |                 |                  | *t-Statistic** |
|                |                 | **Standard       |                |
| **Variable**   |                 | Error**          |                |
+----------------+-----------------+------------------+----------------+
| Constant       | 0.0489173       | 0.0500314        | 0.98           |
+----------------+-----------------+------------------+----------------+
| Age            | 0.0492842       | 0.0099937        | 4.93           |
+----------------+-----------------+------------------+----------------+
| Age^2^         | -.0008458       | -0.0003409       | -2.48          |
+----------------+-----------------+------------------+----------------+
| R^2^ = 0.430   |                 |                  |                |
+----------------+-----------------+------------------+----------------+

The coefficients on the age variables are statistically different from
zero; however, the estimated constant is not. This is not a cause for
concern since we would expect a network less than one year old to have a
relatively low penetration rate. This result generates an estimate of
the penetration rate of 27.42% for a network five years after launch.
The result also yields coefficients that ensure that no network,
regardless of its age, has a penetration rate above 100%. Furthermore,
the regression yields a reasonable increase in the value of R^2^, which
represents the fraction of the variation in the data that is explained
by the regression.

161. The next specification adds age raised to the third power to the
     previous specification and yields the following results:

+----------------+-----------------+------------------+----------------+
| **Regression   |                 |                  |                |
| Specification  |                 |                  |                |
| 3**            |                 |                  |                |
+----------------+-----------------+------------------+----------------+
| *              | **Coefficient** | **Robust**       | *              |
| *Independent** |                 |                  | *t-Statistic** |
|                |                 | **Standard       |                |
| **Variable**   |                 | Error**          |                |
+----------------+-----------------+------------------+----------------+
| Constant       | 0.1080096       | 0.0563045        | 1.92           |
+----------------+-----------------+------------------+----------------+
| Age            | 0.0283781       | 0.0183821        | 1.54           |
+----------------+-----------------+------------------+----------------+
| Age^2^         | 0.0009049       | 0.0015611        | 0.58           |
+----------------+-----------------+------------------+----------------+
| Age^3^         | -0.0000393      | 0.0000367        | -1.07          |
+----------------+-----------------+------------------+----------------+
| R^2^ = 0.435   |                 |                  |                |
+----------------+-----------------+------------------+----------------+

This result generates an estimate of the penetration rate of 26.76% for
a network five years after launch. The result also yields coefficients
that ensure that no network, regardless of its age, has a penetration
rate above 100%. The increase in the value of R^2^ is much less
pronounced when adding the cubic term of age. Furthermore, all of the
estimated coefficients are individually not statistically different from
zero, though this is likely due to the high degree of correlation
between the polynomial terms rather than the likelihood that there is no
relationship between the age of the network and its penetration rate.
This is reinforced by an F-test, which tests whether all of the
estimated coefficients, except the constant, are zero. This hypothesis
is soundly rejected with a test statistic of 51 distributed with (3,
131) degrees of freedom.

162. The final specification adds age raised to the fourth power to the
     previous specification and yields the following re results:

+----------------+-----------------+------------------+----------------+
| **Regression   |                 |                  |                |
| Specification  |                 |                  |                |
| 4**            |                 |                  |                |
+----------------+-----------------+------------------+----------------+
| *              | **Coefficient** | **Robust**       | *              |
| *Independent** |                 |                  | *t-Statistic** |
|                |                 | **Standard       |                |
| **Variable**   |                 | Error**          |                |
+----------------+-----------------+------------------+----------------+
| Constant       | 0.0048196       | 0.0709284        | 0.07           |
+----------------+-----------------+------------------+----------------+
| Age            | 0.0847567       | 0.0359461        | 2.36           |
+----------------+-----------------+------------------+----------------+
| Age^2^         | -0.0068894      | 0.0049475        | -1.39          |
+----------------+-----------------+------------------+----------------+
| Age^3^         | 0.0003392       | 0.0002325        | 1.46           |
+----------------+-----------------+------------------+----------------+
| Age^4^         | -0.0000059      | 0.0000035        | -1.69          |
+----------------+-----------------+------------------+----------------+
| R^2^ = 0.443   |                 |                  |                |
+----------------+-----------------+------------------+----------------+

This result generates an estimate of the penetration rate of 29.51% for
a network five years after launch. The result also yields coefficients
that ensure that no network, regardless of its age, has a penetration
rate above 100%. The increase in the value of R^2^ is a bit more
pronounced when adding the additional term, though it provides less of a
lift than adding the squared value of age in specification 2. All of the
estimated coefficients, with the exception of the coefficient on age,
are not statistically different from zero. As with the previous
specification, this is likely due to the high degree of correlation
between the polynomial terms rather than the lack of higher order
polynomial effects in the relationship between the age of the network
and its penetration rate. An F-test rejects the hypothesis that all of
the estimated coefficients except the constant are zero.

163. We will use regression specification 2 to determine the appropriate
     penetration rate for use in the open field analysis. This
     specification strikes a balance between statistical significance
     and explanatory power as measured by the R^2^ value. The following
     diagram shows the estimated profile of penetration over the
     lifetime of the network. Most of the differences in the
     specifications occur in older networks. There is little variation
     in estimated penetration rates at five years among the four
     specifications.

     ![](media/image4.wmf){width="5.594444444444444in"
     height="4.094444444444444in"}

**B. The Subscriber Penetration Rates from the Cable Price Survey**

164. We use confidential data from the Commission's Cable Price Survey
     to estimate the likely penetration of a programming network given
     its age. The Cable Price Survey sampled 783 cable community units
     as of January 1, 2006. For each franchise, the respondent provides
     a list of the programming networks that are carried, the tier on
     which each network is carried, and the number of subscribers to the
     tier.[^537] By aggregating all of this information to the level of
     a cable operator, we calculate the fraction of each cable
     operator's subscribers who have access to a specific programming
     network. The penetration rate of a network on the surveyed cable
     operator's systems is then averaged with the penetration rate of
     the network among the other surveyed cable operators that carry the
     network on at least one system to obtain an estimate of the
     network's penetration rate nationwide among those operators that
     carry the network. The resulting penetration rates for the 135
     networks in the analysis are presented in the following
     table.[^538]

  ------------------------------------- ------------------- -----------------
  **Network**                           **Year of Launch**  **Penetration**

  ABC Family                            1977                85.2%

  American Movie Classics               1984                84.1%

  AmericanLife TV                       1985                17.8%

  America\'s Store                      1986                13.3%

  Animal Planet                         1996                85.9%

  Anime Network                         2002                0.8%

  Arts & Entertainment                  1984                87.0%

  AZN                                   1990                19.8%

  BBC America                           1998                41.6%

  BET                                   1980                79.8%

  BET Gospel                            2002                1.8%

  BET Jazz                              1996                33.2%

  Biography Channel                     1998                40.5%

  Black Family Channel                  1999                22.4%

  Bloomberg Television                  1995                31.2%

  Boomerang                             2000                14.2%

  Bravo                                 1980                79.9%

  Bridges TV                            2004                1.4%

  Cartoon Network                       1992                85.9%

  Celtic Vision                         1995                1.8%

  Church Channel                        2002                0.5%

  CNBC                                  1989                86.2%

  CNBC World                            1989                13.9%

  CNN                                   1980                86.8%

  CNN Headline News                     1982                87.0%

  CNN International                     1995                9.2%

  College Sports Television             2003                20.2%

  Comedy Central                        1991                86.0%

  Country Music TV                      1983                75.8%

  Court TV                              1991                83.2%

  C-SPAN                                1979                86.9%

  C-SPAN2                               1986                79.8%

  C-SPAN3                               1997                23.6%

  Current                               2005                18.1%

  DayStar Television                    1998                6.1%

  Discovery Channel                     1985                87.8%

  Discovery Health                      1998                45.3%

  Discovery Home & Leisure              1996                41.9%

  Discovery Kids                        1996                44.5%

  Discovery Science                     1996                44.6%

  Discovery Times                       1996                44.6%

  Disney Network                        1983                85.1%

  Do-It-Yourself                        1994                36.9%

  E! Entertainment Television           1990                85.5%

  ESPN                                  1979                87.3%

  ESPN Classics                         1995                55.3%

  ESPN2                                 1993                87.3%

  ESPNews                               1996                44.6%

  ESPNU                                 2005                3.3%

  EWTN                                  1981                57.7%

  FamilyNet                             2000                7.9%

  Fine Living                           2002                32.9%

  FIT TV                                2004                39.4%

  Food Network                          1993                85.9%

  Fox Movie Channel                     1994                34.6%

  Fox News Channel                      1996                86.5%

  Fox Reality Channel                   2005                4.2%

  Fox Soccer Channel                    1997                45.0%

  FUEL                                  2003                19.6%

  FUSE                                  1994                37.7%

  FX                                    1994                85.9%

  G4/TechTV                             2002                55.3%

  Game Show Network                     1994                54.4%

  Golf Channel                          1995                73.8%

  Great American Country                1995                39.3%

  Hallmark Channel                      1998                64.1%

  Hallmark Movie Channel                2004                6.8%

  History Channel                       1995                87.7%

  History Channel International         2004                38.5%

  Home and Garden TV                    1994                86.4%

  Home Shopping Network                 1985                83.4%

  Horse Racing TV                       2002                3.7%

  Independent Film Channel              1994                33.9%

  Inspirational Life                    1998                18.8%

  Inspirational Network                 1990                29.0%

  JCTV                                  2002                0.2%

  Jewelry Channel                       1993                22.4%

  Learning Channel                      1980                87.8%

  Lifetime                              1984                87.1%

  Lifetime Movie Network                1998                47.2%

  Lifetime Real Women                   2001                13.3%

  LOGO                                  2005                20.3%

  Military Channel                      1998                42.5%

  MSNBC                                 1996                81.4%

  MTV                                   1981                87.6%

  MTV Hits                              2002                34.5%

  MTV Jams                              2002                23.7%

  MTV2                                  1998                56.8%

  NASA                                  1991                7.0%

  National Geographic Channel           2001                56.0%

  NBA TV                                1999                36.7%

  NFL Network                           2003                23.1%

  Nick Too                              1998                25.7%

  Nickelodeon                           1979                87.4%

  Nickelodeon Gas                       1999                43.5%

  Nicktoons                             1999                40.0%

  NOGGIN                                1999                44.7%

  Outdoor Channel                       1993                34.2%

  Outdoor Life Network                  1995                65.5%

  Ovation                               1996                15.4%

  Oxygen                                2000                60.6%

  PBS Kids Sprout                       2005                15.2%

  Product Information Network           1994                8.5%

  QVC                                   1986                85.3%

  Sci-Fi Channel                        1992                83.5%

  Shop at Home                          1986                14.5%

  Shop NBC                              1991                50.3%

  SoapNet                               2000                39.6%

  Speed Channel                         1996                67.0%

  Spike                                 1983                87.1%

  Sportsman Channel                     2003                3.3%

  Style                                 1998                58.5%

  Sundance                              1996                42.2%

  TBS                                   1976                82.9%

  Tennis Channel                        2003                24.6%

  TNT                                   1988                85.1%

  Toon Disney                           1998                48.1%

  Travel Channel                        1987                80.6%

  Trinity Broadcast Network             1973                34.5%

  Turner Classic Movies                 1994                69.1%

  TV Games Network                      1994                11.4%

  TV Guide Channel                      1988                65.4%

  TV Land                               1996                83.2%

  TV One                                2004                20.1%

  USA Network                           1980                86.8%

  VH1                                   1985                87.3%

  VH1 Classic                           2000                44.0%

  VH1 Country                           1998                27.6%

  VH1 Soul                              1998                25.6%

  WE: Women\'s Entertainment            1997                52.1%

  Weather Channel                       1982                86.5%

  Weatherscan                           1999                17.2%

  WGN Superstation                      1978                48.2%

  Wisdom                                1997                4.5%

  Word Network                          2000                17.5%
  ------------------------------------- ------------------- -----------------

**STATEMENT OF**

**CHAIRMAN KEVIN J. MARTIN**

Re: *The Commission's Cable Horizontal and Vertical Ownership Limits*;
*Implementation of Section 11 of the Cable Television Consumer
Protection and Competition Act of 1992*; *Implementation of Cable Act
Reform Provisions of the Telecommunications Act of 1996*; *Review of the
Commission's Regulations Governing Attribution of Broadcast and
Cable/MDS Interests*; *Review of the Commission's Regulations and
Policies Affecting Investment in the Broadcast Industry*; *Reexamination
of the Commission's Cross-Interest Policy*.

I pleased that today the Commission takes action on an issue that is
long overdue. In September 2001, at only my second Open Meeting as a
Commissioner, we adopted a notice seeking comment on this issue. More
than six years later, we finally adopt an order.

In 1992, Congress instructed the FCC to establish "reasonable limits" on
horizontal and vertical cable ownership. Specifically, Congress in the
1992 Cable Act, directed the FCC to establish limits on the number of
subscribers a cable operator is authorized to reach.

Today's Order provides appropriate justification for a 30% limit on
horizontal ownership. We therefore respond to the D.C. Circuit and
Congress's mandate. In so doing, we ensure that a single operator cannot
unduly limit the viability of a new independent network in its formative
years. As Congress observed, it is important that we "ensure that no
cable operator or group of cable operators can unfairly impede, either
because of the size of any individual cable operator or because of joint
actions by a group of operators of sufficient size, the flow of video
programming from the video programmer to the consumer." 47 U.S.C. § 533
(f)(2)(A).

As with all our ownership rules, it is important that the Commission
promote competition and the diversity of voices.

**STATEMENT OF**

**COMMISSIONER MICHAEL J. COPPS**

 

Re:       *The Commission's Cable Horizontal and Vertical Ownership
Limits*; *Implementation of Section 11 of the Cable Television Consumer
Protection and Competition Act of 1992*; *Implementation of Cable Act
Reform Provisions of the Telecommunications Act of 1996*; *Review of the
Commission's Regulations Governing Attribution of Broadcast and
Cable/MDS Interests*; *Review of the Commission's Regulations and
Policies Affecting Investment in the Broadcast Industry*; *Reexamination
of the Commission's Cross-Interest Policy*.

 

            I'm pleased that we have finally complied with our statutory
obligation and the 2001 court remand and re-established our horizontal
cable ownership limit.  The 30% limit should help ensure that no cable
operator, because of its size, is able to unfairly impede the flow of
video programming to consumers.  Although the percentage cap remains the
same, the underlying economic justification is quite different and is, I
believe, completely responsive to the issues raised by the D.C. Circuit
Court.  I recognize that setting a prophylactic limit like this is never
easy, and inevitably involves some line-drawing that can always be
second-guessed.  But just because the task Congress gave us is difficult
is no reason to shirk it.    

 

It is with some disappointment, however, that I note we are initiating
yet another *Further Notice of Proposed Rulemaking* on our vertical
ownership rules.  These are the rules that provide a structural limit on
the amount of capacity a cable operator can devote to affiliated
programming.  In other words, vertical ownership rules would ensure that
cable operators open at least part of their systems to independent
programming.  Unfortunately, this NPRM marks the ***third*** time since
the 2001 Court remand that we have put this issue out for comment
without moving forward to a decision.  It's reminds me of the movie
*Groundhog Day*.  I keep re-living the same scene over and over again. 
But maybe this time we will get it right and finally adopt a rule that
provides the breathing room for independent programming that Congress
intended.  That would be a significant win-win, giving consumers access
to some honest-to-goodness diversity in their programming and providing
the creative community with the access to distribution it needs to
survive and to thrive.  

 

**STATEMENT OF**

**COMMISSIONER JONATHAN S. ADELSTEIN**

Re: *The Commission's Cable Horizontal and Vertical Ownership Limits*;
*Implementation of Section 11 of the Cable Television Consumer
Protection and Competition Act of 1992*; *Implementation of Cable Act
Reform Provisions of the Telecommunications Act of 1996*; *Review of the
Commission's Regulations Governing Attribution of Broadcast and
Cable/MDS Interests*; *Review of the Commission's Regulations and
Policies Affecting Investment in the Broadcast Industry*; *Reexamination
of the Commission's Cross-Interest Policy*.

Our media frames our society both as an outlet for individual expression
and as a reflection of our collective values, diversity, and creative
voices. With so much riding on the vitality, openness, and diversity of
our media, this Commission has an obligation to engage in a careful,
comprehensive and thoughtful review of our ownership rules for cable
systems, which serve as the primary video delivery platform for so many
American consumers.

I have long expressed concerns about the negative effects of media
consolidation for this country, and I have encouraged the Commission to
adopt well-justified rules addressing both horizontal ownership limits
for cable operators and the problems raised by growing vertical
integration of programming and distribution. Although we push off
decisions on many important questions of vertical ownership into the
attached Further Notice, I am pleased that we finally establish in this
Order sustainable horizontal cable ownership rules, as directed by
Congress almost 15 years ago in Section 613(f) of the Act.

Section 613 directs the Commission to enhance "effective competition"
and makes clear that Congress was concerned that unchecked growth of
cable providers could increase their incentives to foreclose or engage
in other anticompetitive practices against independent, unaffiliated
programmers. As the U.S. Court of Appeals for the District of Columbia
(D.C. Circuit) observed, the Commission has identified important
governmental objectives in setting horizontal ownership limits,
including ensuring that cable operators do not preclude new programming
services from reaching a critical mass of viewers necessary to survive,
and preserving a diversity of information available to the public.[^539]
So, I support the Commission's decision to adopt a horizontal ownership
cap that responds to the concerns of the D.C. Circuit.[^540]

As the court noted, the market for the delivery of video programming has
experienced significant changes since Congress first directed the
Commission to establish a cap. It is important for the Commission to
assess the impact of these developments, including the continued growth
of direct broadcast satellite (DBS) and the entry of incumbent local
phone providers into the video marketplace. For example, in 2001, DBS
providers DirectTV and EchoStar served 16 million subscribers, while
today they serve approximately 28 million subscribers, representing a
growing percentage of the total multichannel video programming
distribution (MVPD) market. I take seriously Section 613's admonition
that we take into account the dynamic nature of the marketplace. This
growth gives increasing merit to the argument that the horizontal
ownership rules should be applied to DBS providers, as well. While
Section 613 does not explicitly authorize such a cap on DBS providers,
the Commission should further explore these issues in the context of its
annual video competition reports and consider any appropriate
recommendations to Congress.

As I have often stated, the prospect of new distribution networks holds
the promise of reducing the ability of vertically integrated
conglomerates from imposing an economic, cultural or political agenda on
a public with few alternative choices. While the presence of DBS has
reduced cable's dominance, concentration remains a concern. In 2006, the
top four MVPDs served 63 percent of all MVPD subscribers. The effects of
this continued concentration are reflected not only in the upstream
market, but also, in the downstream MVPD market. As the Commission
recently acknowledged in its most recent video competition report, DBS
competition has not checked cable prices to the same extent as
competition from wireline providers.

In this Order, the Commission's focus is trained particularly on the
potential influence of cable operators on the upstream programming
market. The Order finds that a large cable operator would have the power
to significantly undermine the viability of a reasonably popular
programming network by refusing to carry it, despite the competitive
pressures of DBS and other providers. It is apparent that video
programming delivery involves an intricate web of relationships, and
this Order attempts to boil these down into an appropriate horizontal
limit. Given the contentious nature of this proceeding and its history
in the courts, we put our best foot forward in defense of this difficult
task. Significantly, this Order embraces the consistent message I have
heard from many small and independent creators of local and diverse
programming, namely that they find it difficult or impossible to gain
access to and carriage on cable systems. This Order is a necessary
measure to prevent that problem Congress sought to address from growing
more acute.

**STATEMENT OF**

**COMMISSIONER DEBORAH TAYLOR TATE**

*Re: The Commission's Cable Horizontal and Vertical Ownership Limits*;
*Implementation of Section 11 of the Cable Television Consumer
Protection and Competition Act of 1992*; *Implementation of Cable Act
Reform Provisions of the Telecommunications Act of 1996*; *Review of the
Commission's Regulations Governing Attribution of Broadcast and
Cable/MDS Interests*; *Review of the Commission's Regulations and
Policies Affecting Investment in the Broadcast Industry*; *Reexamination
of the Commission's Cross-Interest Policy*.

Section 613(f) of the 1992 Cable Act requires the Commission to
establish "reasonable limits" regarding the number of cable subscribers
a cable operator is authorized to reach. In 1993, the Commission set the
limit at 30%. The Commission's decision was appealed, and was reversed
by the D.C. Circuit Court in 2001. In its holding, the Circuit Court
found that "While a 60% limit might be appropriate as necessary to
ensure that programmers had an adequate 'open field' even in the face of
rejection by the largest company, the present record supports no more."
Today we are again considering an Order that would set the limit at 30%.

In accordance with the D.C. Circuit Court's directive, we must examine
the marketplace, and set a limit that protects competition while
promoting successful business models. As the Court said, "Congress also
sought to 'ensure that cable operators continue to expand, where
economically justified, their capacity,' and it specifically directed
the FCC, in setting the ownership limit, to take into account the
'efficiencies and other benefits that might be gained through increased
ownership or control.'" In addition to increased efficiencies, we must
also remember that cable operators play a crucial role in the deployment
of broadband, which continues to be one of the FCC's top priorities.

In 2001, when the Court reversed the 30% cap, the landscape was much
different than it is today. DirecTV and EchoStar served 16 million
subscribers, or 18% of the MVPD marketplace. Today they serve almost
twice that many subscribers, with 30% of the MVPD marketplace. In
addition, they have exclusive rights to highly sought after programming
that cannot be provided by cable operators.

In 2001, telecommunications giants like Verizon and AT&T had not yet
entered the video marketplace. Today these companies are aggressively
promoting their video services, and they have an enormous pre-existing
customer base on which to draw. The FCC is doing all it can to
facilitate entry of competitors into the video market so that consumers
will have greater choice. In fact, the Commission's recent franchising
decision allows entry into new markets more efficiently than in the
past.

Another change in the marketplace is the explosion of online video,
which offers programmers yet another means of distribution.
Approximately 70% of American households subscribe to an Internet
service, and in 2006, three out of five watched video online. We have
recently seen ABC, CBS, NBC, and Fox offering episodes of their popular
primetime shows on the Internet free of charge. Consumers are also
getting video on their mobile phones. Nearly eight million were using
their phones to watch video as of October 2006, and the numbers continue
to grow. As viewers begin watching programming on these devices\-- at
any time they choose, from anywhere in the world \-- more programmers
will likely turn to online distribution.

Programmers today have a greater variety of options than ever before,
and are constantly trying new business models, new platforms, new ways
of producing and presenting their content. Cable operators are no longer
the gatekeepers they may once have been. And where programmers feel they
are being unfairly denied carriage, the FCC has a complaint process in
place to deal with such disputes. Therefore, it is difficult to see why,
in this increasingly diverse video marketplace, the FCC would once again
seek to institute a 30% limit on the size of their customer base.

While I recognize our statutory directive to set a limit on the number
of subscribers a cable operator can have, I am also mindful of the
importance of getting that number right. If the record in 2001 supported
no less than a 60% cap, I cannot be persuaded that the record before us
today does either. For these reasons, I respectfully dissent.

**DISSENTING STATEMENT OF**

**COMMISSIONER ROBERT M. MCDOWELL**

*Re: The Commission's Cable Horizontal and Vertical Ownership Limits*;
*Implementation of Section 11 of the Cable Television Consumer
Protection and Competition Act of 1992*; *Implementation of Cable Act
Reform Provisions of the Telecommunications Act of 1996*; *Review of the
Commission's Regulations Governing Attribution of Broadcast and
Cable/MDS Interests*; *Review of the Commission's Regulations and
Policies Affecting Investment in the Broadcast Industry*; *Reexamination
of the Commission's Cross-Interest Policy*.

What we have before today us may be the "Ghost of Christmas Past."
Almost seven years ago, the court rejected the FCC's attempt to impose a
30 percent cable ownership cap. So what is the majority doing today?
It's sending back up to the very same court the very same 30 percent
cap. Maybe this is really the "Ghost of Christmas Present" then. In
Charles Dickens' tale, "A Christmas Carol," that ghost carried the
specters of "Ignorance" and "Want." Today's order does the same. This
order goes out of its way to remain ignorant of current market
conditions which obviate a need for a cap. And the order is wanting for
any sustainable legal or evidentiary justification to trample on the
First Amendment, in defiance of the court's 2001 warning. Certainly, the
ghost of the future will foretell an inescapable fate for this order.
Its dark, cold epitaph is all but carved on its tomb. This order *will
be overturned* by the D.C. Circuit. Even Ebeneezer Scrooge would pry a
few coins from his miserly hands to place that bet.

My dissent is focused on three primary concerns:

1\) The cap is out-of-date, is bad public policy and is not needed in
today's market;

2\) The court is sure to strike down the cap again; and

> 3\) The cap is contrary to the existing policy goals of *this*
> Commission by creating regulatory *dis*parity and asymmetry.

I.  **[The Cap Is Out-of-Date]{.underline}.**

In 1992, Congress authorized the Commission, through Section 613, to
"prescribe rules and regulations establishing reasonable limits on the
number of cable subscribers a person is authorized to reach" in order to
prevent any "cable operator or group of cable operators" from "unfairly
imped\[ing\]... the flow of video programming from the video programmer
to the consumer."[^541] In instructing the Commission to craft these
rules, however, Congress was clear that the Commission must "make sure
such rules and regulations reflect the dynamic nature of the
communications marketplace" and must not "impose limitations which would
impair the development of diverse and high quality video programming."
[^542] Congress also required the Commission to "take particular account
of the market structure" of the cable industry and "account for any
efficiencies and other benefits that might be gained through increased
ownership."[^543]

When Congress enacted this section, vertical integration between cable
operators and programmers was at about 57 percent, which sparked
legitimate concerns regarding potential exclusion of independent
programmers by cable companies. In contrast, vertical integration today
stands at less than 15 percent. The unwritten story here is that, back
then, fewer than 100 national programming networks existed; now there
are about 550. That's more diversity, not less.

In 1992, the average consumer had a "choice" of only one subscription
video provider. Today, the average consumer has a choice of at least
three such providers, and sometimes five. In 2001, when the court last
looked at the cap, DirecTV and Echostar had a combined 16 million
subscribers with an 18 percent market share. Today, they serve over 30
million consumers and have grown to a 30 percent market share. These two
companies are now the second and third largest subscription video
service providers. DirecTV is now 54 percent bigger, and Echostar is 92
percent bigger. In the meantime, cable's video subscribership is 4
percent *smaller*.

And there are other differences. In 1992 and 2001, phone companies were
not in the video business. Now they are - big time. For instance,
Verizon alone has almost 1 million video subscribers. Cable overbuilders
are much more viable as well. In 1992, there was no public Internet, let
alone Internet video. Today there is so much Internet video, that
YouTube alone requires more bandwidth than the *entire Internet* did in
2000. And that's not counting new ventures such as Joost, Cinema Now,
Movielink and others that allow consumers to avoid traditional
subscription video paradigms altogether. In fact, as the FCC's own
research shows, by July 2006, 107 million Americans viewed video online
and about 60 percent of U.S. Internet users download videos.[^544]
Furthermore, today's video market will only become more competitive as
broadcasters beam new HDTV and multi-cast video programming,
over-the-air, for *free*, and as wireless providers build out powerful
new platforms using our recently-auctioned Advanced Wireless Services
spectrum and the 700 MHz spectrum being auctioned next month.

This order is unnecessary because the bottleneck threat to programming
distribution that existed in 1992 no longer exists. Deregulatory
policies have spurred new investment and competition in the marketplace.
As a result, new delivery platforms and new content providers have
sprouted up, supplanting the need for regulation. However, should a
programmer find that a cable operator is unfairly excluding its content
from carriage, and all other private sector avenues for resolution have
failed, then the statute and our regulations allow that programmer to
pursue a complaint here at the Commission. But, to date, only two such
complaints have been filed---which underscores the point that the
majority is concocting an unconstitutional cure for an illness that does
not exist. If a viewer wants specific programming not carried by a cable
operator, the viewer and the programmer both have a panoply of ways to
find each other -- certainly more than they had in 1992 or 2001. In
short, other less heavy-handed alternatives exist to address the
majority's concerns without having to resort to such archaic industrial
policy.

II. **[The Cap Is Sure to Be Struck Down Again by the
    Court]{.underline}.**

Today's 30 percent cap has a smaller chance of surviving appeal than did
the ill-fated and ill-advised 2001 30 percent cap. In 2001 in *Time
Warner Entertainment Co. v. FCC*, the D.C. Circuit rejected the 30
percent cable ownership cap and imposed a heavy burden on the Commission
to adopt any new cap on remand.[^545] The court found that the
Commission lacked an evidentiary basis for a 30 percent cap and, as a
result, did not meet its obligation under the First Amendment to show a
"real risk" of "non-conjectural harm" to programmers. The court also
rejected the Commission's argument that a 30 percent cap was justified
in order to "enhance diversity."

Indeed, the court stated that based on the marketplace evidence in 2001,
the Commission could justify *at most*, a 60 percent cap---*twice* the
number the majority adopts today.[^546] Specifically, the court
maintained that a 60 percent limit "might be appropriate as necessary to
ensure that programmers had an adequate 'open field' even in the face of
rejection by the largest company" and that the "present record supports
no more." In particular, the court found that the Commission had not
given sufficient weight to marketplace developments, especially the
increasing success of Direct Broadcast Satellite ("DBS"). The court
pointed out that because "DBS could be considered to 'pass every home in
the country'" its competitive effect is especially significant. The
Court admonished the Commission to account for this fact when
considering any new ownership cap. The majority's order does not clear
this hurdle, not by a mile. How can the same 30 percent limit that
*insufficiently* accounted for DBS in 2001 possibly satisfy the
requirements of *Time Warner II* today when DBS is roughly *twice as
large* a competitive presence as it was in 2001, and when other
competitors are competing vigorously with cable operators? The answer is
that it cannot.

III. **[The Cap Creates Regulatory *Dis*parity and
     Asymmetry]{.underline}.**

Placing a horizontal ownership cap on cable creates regulatory disparity
and asymmetry, all at a time when this Commission has been trying to
level the regulatory playing field by creating parity. Order after order
over the past few years has sought to change the stove-pipe paradigm of
old in an attempt to treat similar technologies and services alike, not
differently. Today's cap applies only to cable, not to satellite.
Furthermore, we don't cap the number of:

-   wireline telephone subscribers one company can have;

-   wireless subscribers one company can have; or

-   websites a company can own.

Even in the era of rapid technological convergence, such asymmetry will
only create market distortions that will inhibit investment and
innovation. How does that serve the public interest? In a world where
cable companies compete directly against telephone companies and others
to provide video, voice and data services, restricting the ability of
one group of competitors to achieve the economies of scale enjoyed by
others undermines years of efforts to spur intermodal competition and
violates the well-established principle of competitive neutrality. If
the majority sees so many flaws in the cable industry, it should remedy
those shortcomings by encouraging competition, as we did with our video
franchising order, not through unnecessary and unconstitutional
regulation. Likewise, it is ironic that those who are voting today to
*limit* cable company growth have consistently voted to *expand*
telephone company growth. Such a reversal of policy just for this one
sector defies logic.

IV. **[Conclusion]{.underline}.**

Today's item also contains a further notice of proposed rulemaking,
seeking comments regarding the cable attribution rules and the vertical
ownership limit. While I am not opposed to asking questions about the
attribution issues, the answers will make little sense with the 30
percent horizontal ownership cap in place. I hope that our consideration
of the vertical limit will be far better-reasoned than today's action.

For these reasons, I respectfully dissent from today's order.

[^1]: 47 U.S.C. § 533(f)(2)(A).

[^2]: *Time Warner Entertainment Co. v. FCC*, 240 F.3d 1126 (D.C. Cir.
    2001) ("*Time Warner II*").

[^3]: This is the Second Further Notice of Proposed Rulemaking with
    respect to certain aspects of our attribution rules and the Third
    Further Notice of Proposed Rulemaking with respect to the channel
    occupancy limit.

[^4]: We ask that commenters submit comments regarding issues raised in
    the *Further Notice of Proposed Rulemaking* only in MM Docket No.
    92-264, MM Docket No. 94-150, and CS Docket No. 98-82. We terminate
    MM Docket Nos. 87-154 and CS Docket No. 96-85. MM Docket No. 87-154
    concerned the Commission's previous cross interest rules, which have
    long since been eliminated and replaced in part by the bright-line
    EDP attribution rule. The issues raised in MM Docket No. 87-154 have
    either been resolved or have been incorporated into MM Docket No.
    94-150, the Commission's broadcast attribution review proceeding.
    *See 1995 Broadcast Attribution Notice*, 10 FCC Rcd 3606, 3612-12 ¶¶
    9-10 (1995). In CS Docket No. 96-85, the Commission initiated a
    rulemaking to amend its rules to implement provisions from the
    Telecommunications Act of 1996. The issues addressed in that
    rulemaking proceeding are unrelated to the matters addressed in this
    *Report and Order* and *Further Notice* and either have been
    resolved or incorporated into separate proceedings. *See
    Implementation of Cable Act Reform Provisions of Telecommunications
    Act of 1996*, CS Docket No. 96-85, *Order on Reconsideration*, 17
    FCC Rcd 7609 (2002). Accordingly, in the interest of administrative
    efficiency, we are terminating these two proceedings. MM Docket No.
    92-51 generally reviewed the Commission's policies affecting
    investments in the broadcast industry and sought comment on how
    attribution affects capital investment and new entry. While most of
    the issues raised in the proceeding were incorporated in MM Docket
    No. 94-150, there may be outstanding issues that have not been
    resolved. Therefore, we are severing MM Docket No. 92-51 from this
    proceeding.

[^5]: Cable Television Consumer Protection and Competition Act of 1992,
    Pub. L. No. 102‑385, 106 Stat. 1460 ("*1992 Cable Act"*); [H. R.
    Rep. No]{.smallcaps}. 102-628 (1992) ("*House Report*");
    Communications Act of 1934, 47 U.S.C. §§  151, et seq.
    ("*Communications Act*").

[^6]: *Id*. § 613(f), 47 U.S.C. § 533(f).

[^7]: *Id.* ("In order to enhance effective competition, the Commission
    shall . . . conduct a proceeding . . . to prescribe rules and
    regulations establishing reasonable limits on the number of cable
    subscribers a person is authorized to reach through cable systems
    owned by such person, or in which such person has an attributable
    interest \[and\] to prescribe rules and regulations establishing
    reasonable limits on the number of channels on a cable system that
    can be occupied by a video programmer in which a cable operator has
    an attributable interest . . . ").

[^8]: *See* [S. Rep. No]{.smallcaps}. 102-9 (1991) ("*Senate Report*");
    *House Report* at 27; *see also* 1992 Act § 2(a)(4), (b)(1)-(5); 47
    U.S.C. § 521 (a)(4), (b)(1)-(5).

[^9]: Multichannel video programming distributors ("MVPDs") include, but
    are not limited to, providers of cable service, multichannel
    multipoint distribution service ("MMDS"), direct broadcast satellite
    service ("DBS"), and television receive-only program distribution
    services that make "available for purchase by subscribers or
    customers, multiple channels of video programming." 47 U.S.C. §
    522(13).

[^10]: Communications Act § 613(f)(2)(A), 47 U.S.C. § 533(f)(2)(A).
    Congress directed that "\[i\]n prescribing rules and regulations . .
    . the Commission shall, among other public interest objectives . . .
    ensure that no cable operator or group of cable operators can
    unfairly impede, either because of the size of any individual
    operator or because of joint actions by a group of operators of
    sufficient size, the flow of video programming from the video
    programmer to the consumer . . . ensure that cable operators
    affiliated with video programmers do not favor such programmers in
    determining carriage on their cable systems or do not unreasonably
    restrict the flow of the video programming of such programmers to
    other video distributor . . . take particular account of the market
    structure, ownership patterns, and other relationships of the cable
    television industry, including the nature and market power of the
    local franchise, the joint ownership of cable systems and video
    programmers, and the various types of non-equity controlling
    interests . . . account for any efficiencies and other benefits that
    might be gained through increased ownership or control . . . make
    such rules and regulations reflect the dynamic nature of the
    communications marketplace . . . not impose limitations which would
    bar cable operators from serving previously unserved rural areas;
    and . . . not impose limitations which would impair the development
    of diverse and high quality video programming." Communications Act
    § 613(f)(2)(A)-(G), 47 U.S.C. § 533(f)(2)(A)-(G).

[^11]: *House Report* at 41, 43; *see also Senate Report* at 27, 33. In
    prescribing its rules and regulations, the Commission must "account
    for any efficiencies and other benefits that might be gained through
    increased ownership or control." 47 U.S.C. § 533(f)(2)(D).

[^12]: *Implementation of Sections 11 and 13 of the Cable Television
    Consumer Protection and Competition Act of 1992, Horizontal and
    Vertical Ownership Limits, Cross-Ownership Limitations, and
    Anti-trafficking Provisions*, 8 FCC Rcd 8565, 8567, 8577 ¶¶ 3, 25
    (1993) (*1993 Second Report and Order*) (prohibiting cable operators
    from owning systems serving more than 30 percent of all homes passed
    by a cable operator); *see also id.* at 8569, 8582-84 ¶¶ 8, 37-42
    (concluding that the 30 percent limit represented a careful balance
    between (1) limiting the possible exertion by a cable operator of
    excessive market power in the purchase of video programming; and (2)
    ensuring that cable operators are able to expand and benefit from
    the economies of size necessary to encourage investment in new video
    programming technology and the deployment of other advanced
    technologies). The Commission also stated that it intended to review
    the horizontal limit every five years in order to determine whether
    it was still reasonable under new market conditions and continued to
    meet the stated policy objectives. *Id.* at 8583 ¶ 40.

[^13]: *1993 Second Report & Order*, 8 FCC Rcd at 8577 ¶ 26 (citing 47
    U.S.C. § 533(f)(2)(A)).

[^14]: *Implementation of Section 11(c) of the Cable Television Consumer
    Protection and Competition Act of 1992 Horizontal Ownership Limits,*
    14 FCC Rcd 19098, 19101 (1999) (*1999 Cable Ownership Order*) *see
    also Implementation of 11(c) of the Cable Television Consumer
    Protection and Competition Act of 1992 Horizontal Ownership Limits,*
    13 FCC Rcd 14462, 14464-65 ¶ 4 (1998) ("*1998 Horizontal
    Reconsideration Order"*) (seeking comment on possible revisions to
    the horizontal ownership rules and the method by which horizontal
    ownership is calculated).

[^15]: *Id.*

[^16]: *1999 Cable Ownership Order*, 16 FCC Rcd at 19031.

[^17]: *Id.*

[^18]: *Id.* at 19114-16 ¶¶ 38-44.

[^19]: The 40 percent "open field" was based on the Commission's
    findings that in order to be viable, a new programming network needs
    access to approximately 15‑20 million subscribers (20 percent of the
    market), and that, even with such access, it has only a 50 percent
    chance of actually reaching subscribers given tier packaging and
    consumer preferences. *See 1999 Cable Ownership Order*, 14 FCC Rcd
    at 19114‑18 ¶¶ 40-50.

[^20]: *Id.* at 19119 ¶ 53.

[^21]: *Time Warner Entertainment Co. v. United States*, [211 F.3d 1313
    (D.C. Cir.
    2000)](http://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&DB=506&FindType=Y&SerialNum=2000307813)
    ("*[Time Warner
    I](http://www.westlaw.com/Find/Default.wl?rs=dfa1.0&vr=2.0&FindType=Y&SerialNum=2000307813)"*).

[^22]: *Id.* at 1319.

[^23]: *Id.* at 1320.

[^24]: *Id.*

[^25]: *Time Warner II*, 240 F.3d at 1126. The court also reversed the
    Commission's 40 percent channel occupancy limit.

[^26]: *Id.* at 1130.

[^27]: *Id.* at 1131.

[^28]: *Id*. at 1135.

[^29]: *Id.* at 1132‑33. The court found it unnecessary to reach the
    issue of whether the record supported the Commission's premise that
    new programmers would need access to an "open field" of 40 percent
    of U.S. subscribers. *Id*. at 1132.

[^30]: *Id.* at 1134 (emphasis in original).

[^31]: *Id.* at 1133.

[^32]: *Id.* We note that, in 1992, Congress instructed the Commission
    to adopt rules prohibiting cable operators from demanding equity in
    exchange for carriage. *See* 47 U.S.C § 536; 47 C.F.R. § 76.1301.
    Despite these protections, the court in *Time Warner II* recognized
    that "a single MSO, acting alone rather than 'jointly,' might
    perhaps be able to do so while serving somewhat less than the 60
    percent of the market (*i.e.*, less than the fraction that would
    allow it unilaterally to lock out a new cable programmer) despite
    the existence of antitrust laws and specific behavioral prohibitions
    enacted as part of the 1992 Cable Act, *see* 47 U.S.C. § 536, and
    the risk might justify a prophylactic limit \[horizontal cap\] under
    the statute." *Time Warner* *II,* 240 F.3d at 1133.

[^33]: *Id.* at 1132‑34.

[^34]: *Id.* at 1131-32, 1134.

[^35]: *Id.* at 1131-32.

[^36]: *Implementation of Section 11 of the Cable Television Consumer
    Protection and Competition Act of 1992,* Further Notice of Proposed
    Rulemaking, 16 FCC Rcd 17312 17320-21 ¶ 7 (2001) ("*2001 Further
    Notice")*.

[^37]: *Id.* at 17316-34 ¶¶ 2-45; 17338-47 ¶¶ 50-73; 17349-52 ¶¶ 76-84.

[^38]: *See* *The Commission's Cable Horizontal and Vertical Ownership
    Limits*, Second Further Notice of Proposed Rulemaking, 20 FCC Rcd
    9374, 9385 ¶ 17 (2005) ("*2005 Second Further Notice*").

[^39]: *See* Letter from W. Kenneth Ferree, Chief, Cable Services
    Bureau, FCC, to Programming Network Owners (Feb. 15, 2002). The
    letter sought information from programming network owners for each
    network in which they had an interest, including the number of
    subscribers at the time the network became profitable, the number of
    subscribers at the end of calendar years 1997-2001, and information
    on the vertical integration status and genre of each network.

[^40]: Mark Bykowsky, Anthony Kwasnica, & William Sharkey, *Horizontal*
    *Concentration in the Cable Television Industry: An Experimental
    Analysis*, FCC Office of Plans and Policy, Working Paper No. 35
    (June 2002 & rev. July 2002) ("*BKS Study*"). The BKS Study was
    released for public comment and generated a substantial record in
    response.

[^41]: Public Notice, Media Bureau Releases Two Staff Research Papers
    Relevant to the Cable Ownership Rulemaking and the AT&T-Comcast
    Proceedings, 17 FCC Rcd 19608 (MB 2002) (citing Nodir Adilov & Peter
    J. Alexander*, Asymmetric Bargaining Power and Pivotal Buyers*, FCC
    Media Bureau Working Paper No. 13 (Sept. 2002) ("*Asymmetric
    Bargaining Power*"); Nodir Adilov & Peter J. Alexander,
    *Most-Favored Customers in the Cable Industry*, FCC Media Bureau
    Working Paper No. 14 (Sept. 2002)).

[^42]: *See generally Asymmetric Bargaining Power, supra* note Error:
    Reference source not found, at 1-2, 8.

[^43]: *2005 Second Further Notice*, *supra* note Error: Reference
    source not found.

[^44]: *See Applications for Consent to the Transfer of Control of
    Licenses, Comcast Corporation and AT&T Corp., Transferors, to AT&T
    Comcast Corporation, Transferee*, 17 FCC Rcd 23246 (2002)
    (*AT&T-Comcast Order*).

[^45]: *General Motors Corporation and Hughes Electronics Corporation,
    Transferors, and the News Corporation Limited*, *Transferee*,
    Memorandum Opinion and Order, 19 FCC Rcd 473 (rel. Jan. 14, 2004)
    ("*News Corp-Hughes Order*"*)*. The programming assets involved in
    the transaction included 35 owned and operated (O&O) full-power
    television broadcast stations, a national television broadcast
    network, ten national cable programming networks, and 22 regional
    cable programming networks.

[^46]: *Fox Television Stations, Inc. v. FCC*, 280 F.3d 1027 (D.C. Cir.
    2002), *modified on rehearing*, 293 F.3d 537 (D.C. Cir. 2002)
    (remanding the Commission's retention of the then
    congressionally-established 35 percent national television ownership
    rule); *Sinclair Broadcasting Group, Inc. v. FCC*, 284 F.3d 148
    (D.C. Cir. 2002) (*Sinclair*) (remanding the Commission's 1999
    revision of its local television multiple ownership rule);
    *Prometheus Radio Project, et al. v. FCC*, 373 F.3d 372 (3rd Cir.
    2004), *stay modified on rehearing*, No. 03-3388 (3rd Cir. Sept. 3,
    2004), *cert. denied*, 545 U.S. 1123 (U.S. June 13, 2005) (Nos.
    04-1020, 04-1033, 04-1036, 04-1045, 04-1168, and 04-1177) (remanding
    the cross-media limits, the local television multiple ownership
    rule, and the local radio ownership rule).

[^47]: *2005 Second Further Notice*, 20 FCC Rcd at 9385 ¶ 16.

[^48]: In a monopsony market, a large buyer has the market power to
    drive down prices. A monopsony market is sometimes referred to as a
    buyer's monopoly.

[^49]: Keith S. Brown, *A Survival Analysis of Cable Networks*, Media
    Bureau Staff Research Paper No. 2004-1 (rel. Dec. 7, 2004) ("*Media
    Bureau Survival Study*"). The *Media Bureau Survival Study* uses the
    statistical tools of survival or duration analysis to estimate how
    different variables affect a cable network's probability of survival
    and expected length of life. Using these results, the study
    estimates the number of subscribers a cable network needs for any
    given probability of survival over a given length of time. The
    *Media Bureau Survival Study* concludes, for example, that a network
    growing at an average rate requires approximately 42 million
    subscribers to have a 70 percent probability of survival over its
    first 10 years. The study was placed in the record of this
    proceeding concurrently with the release of the *2005 Second Further
    Notice*.

[^50]: *2005 Second Further Notice*, 20 FCC Rcd at 9385 ¶ 16.

[^51]: *See, e.g.,* TAC Comments to the *2005 Second Further Notice* at
    13-23 (addressing carriage decisions of Comcast and Time Warner,
    programmer viability, and top-market distribution); CFA Comments to
    the *2005 Second Further Notice* at 69 (addressing the role of DBS
    in markets); Comcast Reply Comments to the *2005 Second Further
    Notice*, Ordover and Higgins Decl. at 8-9 (discussing impact of DBS
    on programming pricing).

[^52]: CFA Comments to the *2005 Second Further Notice* at 25-26, 69-70;
    CWA Comments to the *2005 Second Further Notice* 12-13; MAP Comments
    to the *2005 Second Further Notice* at 6-10, 29-35; DirecTV Comments
    to the *2005 Second Further Notice* at 5-9; NAB Reply Comments to
    the *2005 Second Further Notice* at 2-5.

[^53]: *See* Comments of Dong Chen, Jun-Seok Kong and David Waterman to
    the *2005 Second Further Notice*.

[^54]: *See* Comcast Reply Comments to the *2005 Second Further Notice*
    at 26; Time Warner Reply Comments to the *2005 Second Further
    Notice* at 9; NCTA Comments to the *2005 Second Further Notice* at
    16-17; ACA Comments to the *2005 Second Further Notice* at 8
    (suggesting elimination of the horizontal limit in smaller markets);
    PFF Comments to the*2005 Second Further Notice* at 46.

[^55]: *See, e.g.,* Comcast Comments to the *2005 Second Further Notice*
    at 13, 16, 60-69, 74-79. Comcast also claims that, absent record
    evidence of actual harms that the cap is designed to address, any
    horizontal ownership limit would be unduly burdensome and overly
    broad. Accordingly, it claims that a cap would violate the First
    Amendment under the intermediate scrutiny test applicable to cable
    ownership regulations. Comcast Supp. Comments at 23-24.

[^56]: *See, e.g., Id*. at 16, 74.

[^57]: Comcast March 16, 2007 Further Supp. Comments, Erdem, Katz, and
    Morgan Decl. at 34-35.

[^58]: *2001 Further Notice*, 16 FCC Rcd at 17338-47 §§ 52-74; *2005
    Second Further Notice*, 20 FCC Rcd at 9417-26 ¶¶ 80-100. The
    Commission also sought comment on an appropriate channel occupancy
    limit. That issue is addressed below in the *Further Notice*, *see
    infra* Section III.

[^59]: *1999 Cable Ownership Order*, 14 FCC Rcd at 19117 ¶ 47.

[^60]: *Id*. at 19115‑16 ¶¶ 42-43.

[^61]: *Id.* at 19119 ¶ 53.

[^62]: *Id.* at 19121 ¶ 57.

[^63]: CWA Comments to the *2005 Second Further Notice* at 12-13.

[^64]: CFA Comments to the *2005 Second Further Notice* at 69-70.

[^65]: TAC Comments to the *2005 Second Further Notice* at 13-23.

[^66]: *See* AT&T Comments to the *2001 Further Notice* at 61-68, Besen
    Decl. at ¶¶ 3, 11, 14, Ordover Decl. at ¶¶ 142-45; Time Warner
    Comments to the *2001 Further Notice* at 19-28; Time Warner Reply
    Comments to the *2001 Further Notice* at 14-18.

[^67]: AT&T Comments to the *2001 Further Notice* at 63-66, Besen Decl.
    at ¶¶ 3-6; Time Warner Comments to the *2001 Further Notice* at
    24-26; Time Warner Reply Comments to the *2001 Further Notice* at
    17-18.

[^68]: MAP Comments to the *2005 Second Further Notice* at 6-10.

[^69]: NCTA Comments to the *2005 Second Further Notice* at 14.

[^70]: Comcast Comments to the *2005 Second Further Notice* at 75.

[^71]: *Id.* at 74-79. Comcast apparently derives its 40-60 million
    subscriber threshold from a single statement in the *2005 Second
    Further Notice* describing CFA as believing that a "far greater open
    field may be necessary for competitive entry by a new programmer, as
    much as 30 to 40 million subscribers instead of the 15 million
    figure previously relied on by the Commission." *Id.* at 75 n.226
    (citing *2005 Second Further Notice*, 20 FCC Rcd at 9417 ¶ 79).
    Comcast also argues that the purpose of Section 613(f)(1)(A) of the
    Act is to avoid anticompetitive behavior in the "wholesale" video
    programming market, and, thus, the Commission's focus on the
    economic success or failure of any particular video programmer in
    the marketplace is misplaced. Comcast April 4, 2007 *ex parte*
    letter at 2-3.

[^72]: *See,* e.g., Dennis Carlton & Jeffrey Perloff[, Mod. Indus. Org.
    105-07 (]{.smallcaps}3d ed. 2000) ("Carlton and Perloff").

[^73]: In contrast, under perfect competition, no single buyer has the
    ability to affect the price at which an input is acquired.

[^74]: *2001 Further Notice*, 16 FCC Rcd at 17340 ¶ 57; *2005 Second
    Further Notice*, 20 FCC Rcd at 9420-23 ¶¶ 85, 87-88.

[^75]: *2001 Further Notice*, 16 FCC Rcd at 17328, 17340-41 ¶¶ 28, 58.

[^76]: *2005 Second Further Notice,* 20 FCC Rcd at 9421 ¶ 87.

[^77]: In the case of a new programming network, an MVPD may demand that
    the programmer pay it for the right to access its subscribers (a
    practice sometimes referred to as a "launch fee"). *Id.* at 9421 n.
    32.

[^78]: *Id.* at 9421-22 ¶ 88.

[^79]: *Id.* at 9422 ¶ 89.

[^80]: *Id*.

[^81]: CFA Comments to the *2005 Second Further Notice* at 62-67; MAP
    Comments to *2001 Further Notice* at 85-90.

[^82]: CFA Comments to the 2005 *Second Further Notice* at 67-68; MAP
    Comments to *2001 Further Notice* at 90-91.

[^83]: CFA Comments to *2005 Second Further Notice* at 61-62; MAP
    Comments to *2001 Further Notice* at 91.

[^84]: Comments of Dong Chen, Jun-Seok Kang and David Waterman to the
    *2005 Second Further Notice* (citing David Waterman, *Local
    Monopsony & Free Riders*, 8 [Info. Econ. & Policy]{.smallcaps} 337,
    337-355 (1996) ("*Waterman Study*").

[^85]: *Waterman Study* at 339-41, 350-51.

[^86]: *Id.* at 350-51.

[^87]: NCTA Comments to the *2005 Second Further Notice* at 7-8 (NCTA
    states that consumers have access to at least one cable operator and
    two DBS operators).

[^88]: Comcast Comments to the *2005 Second Further Notice* at 69-70;
    Comcast Supp. Comments at 15-16; Comcast March 16, 2007 Further
    Supp. Comments at 6. Joskow and McLaughlin maintain that cable
    operators do not have "textbook" monopsony power, because they lack
    "the critical element necessary to give firms monopsony power in
    input markets . . . that the buying firms individually face
    upward-sloping input (i.e., labor) supply curves and recognize that
    by buying fewer inputs they can reduce the *market price* that they
    pay for these inputs." Time Warner Comments to *the 2001 Further
    Notice*, Joskow & McLaughlin Decl. at 8-10 (emphasis in original).

[^89]: Comcast Comments to the *2005 Second Further Notice* at 71-72.

[^90]: *Id.* at 70. Comcast March 16, 2007 Further Supp. Comments at 6.

[^91]: Comcast Comments to the *2005 Second Further Notice* at 67, 74.

[^92]: AT&T Comments to the *2001 Further Notice* at 44, Ordover Decl.
    at ¶ 72. *See also* Comcast Supp. Comments at 16.

[^93]: AT&T Comments to *2001 Further Notice* at 44, Ordover Decl. at ¶
    74.

[^94]: AT&T Comments to *2001 Further Notice* at 44-45.

[^95]: AT&T Comments to *2001 Further Notice* at 45, Ordover Decl. at ¶¶
    72-76.

[^96]: *See*, e.g., [Jurgen Eichberger, Game Theory for
    Economists]{.smallcaps} Ch. 9 (Academic Press, Inc. 1993); [Eric
    Rasmusen, Games and Information: An Introduction to Game
    Theory]{.smallcaps} Ch. 10 (Blackwell Publishing, Inc. 1989).

[^97]: *2001 Further Notice*, 16 FCC Rcd at 17327 ¶ 26.

[^98]: *2005 Second Further Notice*, 20 FCC Rcd at 9423-24 ¶¶ 93, 94-95.

[^99]: *Id.* at 9422-23 ¶¶ 90-92.

[^100]: *Id.* at 9423 ¶ 93.

[^101]: *Id.*

[^102]: *Id.* at 9424 ¶ 94.

[^103]: *Id.* at 9424 ¶ 95.

[^104]: *Id.* at 9424-25 ¶ 96.

[^105]: Comcast March 16, 2007 Further Supp. Comments at 7-9, Erdem,
    Katz, and Morgan Decl. at ¶¶ 30-44.

[^106]: Comcast March 16, 2007 Further Supp. Comments at 6, 7-8, Erdem,
    Katz, and Morgan Decl. at ¶ 2.

[^107]: See Raskovich Comments to the *2001 Further Notice*, later
    revised and published as Alexander Raskovich, *Pivotal Buyers and
    Bargaining Position*, 51 [J. of Indus. Econ]{.smallcaps}. 4, 405-26
    (Dec. 2003) ("Raskovich, *Pivotal Buyers and Bargaining Position*").

[^108]: AT&T Comments to the *2001 Further Notice*, Ordover Decl. at ¶¶
    78-81; AT&T Comments to the *2001 Further Notice* at 47; *See also*
    Comcast March 16, 2007 Further Supp. Comments at 8, Ergam, Katz, and
    Morgan Decl. at ¶¶ 22-24.

[^109]: Tasneem Chipty & Christopher Snyder, *The Role of Firm Size in
    Bilateral Bargaining: A Study of the Cable Television Industry*, 81
    [Rev. Econ. & Stat]{.smallcaps}. 2, 326-40 (1999).

[^110]: Time Warner Comments to *2001 Further Notice*, Joskow and
    McLaughlin Decl. at 15. *See also* Comcast March 16, 2007 Further
    Supp. Comments at 9. Raskovich's model is a generalization of the
    work of Chipty and Snyder, who construct a bargaining framework in
    which a program seller engages in simultaneous bilateral bargaining
    with multiple program buyers. Raskovich amended the model of Chipty
    and Snyder to include pivotal buyers, that is, buyers without whom
    sellers would produce zero output. Assuming that there is an even
    split between buyers and seller (i.e., 50 percent-50 percent of a
    trade's surplus), Raskovich demonstrated conditions under which the
    pivotal buyer finds its bargaining position worsened. Raskovich
    posited a situation in which a buyer becomes so large through merger
    that only the buyer can cover the seller's cost of producing
    programming. In this context, the programmer's surplus from
    bargaining with the single large cable operator would be greater
    than the sum of the surpluses the programmer would receive from the
    two buyers prior to the merger. This implies that once a cable
    operator reaches a sufficient size, its payments to programmers will
    increase. Raskovich, *Pivotal Buyers and Bargaining Position, supra*
    note Error: Reference source not found at 3-4; *2005* *Second
    Further Notice*, 20 FCC Rcd at 9425 ¶ 98.

[^111]: Comcast March 16, 2007 Further Supp. Comments at 8, Erdem, Katz,
    and Morgan Decl. at ¶ 25.

[^112]: NCTA Comments to the *2005 Second Further Notice* at 13.

[^113]: *Time Warner II*, 240 F.3d at 1135 ("The statute goes further,
    plainly treating exercise of editorial discretion by a single cable
    operator as 'unfair' simply because that operator is the only game
    in town.").

[^114]: We define a "network valued by consumers" as a network for which
    consumers' willingness to pay exceeds the cost of the network.

[^115]: The Myerson-Satterthwaite theorem says that if both parties have
    incomplete information about both the cost and value of the good,
    even if trade would likely be beneficial, there exists no efficient
    bargaining process. Jean Tirole[, The Theory of Indus. Org. 22-23
    (The MIT Press]{.smallcaps} 1988); Roger Myerson and M.
    Satterthwaite, *Efficient Mechanisms for Bilateral Trading*, 28 [J.
    of Econ. Theory]{.smallcaps} 265, 265-81 (1983). Akerlof's famous
    used car example demonstrates that if there is uncertainty about the
    value of a product, under certain conditions no deal will be reached
    even though both parties would benefit from it. This problem is
    known as adverse selection, in which uncertainty about sellers'
    quality can cause market quality to decline to the lowest level, or
    prevent the market from functioning at all. Carlton & Perloff,
    *supra* note Error: Reference source not found at 423-25 (for
    example, in a market with high and low quality goods offered, in
    which only the sellers know the quality of the goods, then only the
    lowest quality goods will be sold. This is because buyers will only
    offer a price that reflects the average value of the goods, which
    the sellers of the high quality goods will reject because it is less
    than the value of their goods.); George A. Akerlof, *The Market for
    'Lemons': Quality Uncertainty and the Market Mechanism,* 84 [Q. J.
    of Econ]{.smallcaps}*.* 488-500 (1970).

[^116]: In setting the horizontal limit adopted herein, we have focused
    primarily on the competitive dynamics of the multichannel video
    programming marketplace. Additionally, we have considered how the
    horizontal limit serves the public interest by promoting diversity
    of programming in the multichannel video programming market. *See
    Time Warner II*, 240 F.3d at 1134-36 (instructing that the
    Commission may set a horizontal limit based in part on diversity of
    programming outlets when it sets a limit primarily designed to
    achieve Congress' directive of promoting fair and effective
    competition).

[^117]: *See Time Warner II*, 240 F.3d at 1134-36 (instructing that the
    Commission may set a horizontal limit based in part on diversity of
    programming outlets when it sets a limit primarily designed to
    achieve Congress' directive of promoting fair and effective
    competition).

[^118]: *Time Warner II*, 240 F.3d at 1131.

[^119]: *See, e.g.*, AT&T Comments to *2001 Further Notice* at 42-45,
    Ordover Decl. at ¶¶ 66-67, 70-71.

[^120]: *See* Letter from Richard Ramlall, Sr. Vice President, External
    and Regulatory Affairs, RCN Corp., to Chairman Martin and
    Commissioners Adelstein, Copps and Tate in MB Dkt. No. 05-192, at 6,
    transmitted by letter from Jean Kiddoo, Bingham McCutchen to Marlene
    H. Dortch, Secretary (May 19, 2006) ("Programmers currently impose
    restrictive confidentiality and non-disclosure requirements on their
    contracts which foreclose other buyers from knowing whether the
    rates, terms and conditions offered them are consistent with the
    rates, terms and conditions provided to affiliated multichannel
    video programming distributors (MVPDs) and larger competitors.").

[^121]: Comcast Comments to *2005 Second Further Notice* at 71-72.

[^122]: *Id*. at 70.

[^123]: Comcast Reply Comments to *2005 Second Further Notice*, Ordover
    and Higgins Decl. at 7-8.

[^124]: *See Id*. at 8-9.

[^125]: *2005 Second Further Notice*, 20 FCC Rcd at 9424 ¶ 95, n.341.
    *See* *supra* note Error: Reference source not found (discussing the
    Myerson-Satterthwaite theorem). We note that there are numerous
    examples of popular networks not gaining carriage because of a
    breakdown of negotiations, such as MASN failing to get carriage on
    Comcast in Washington, D.C. in 2005, and YES not getting carriage on
    Cablevision in New York in 2002. *See Applications for Consent to
    the Assignment and/or Transfer of Control of Licenses Adelphia
    Communications Corporation, (and subsidiaries,
    debtors-in-possession), Assignors, to Time Warner Cable Inc.
    (subsidiaries), Assignees; Adelphia Communications Corporation, (and
    subsidiaries, debtors-in-possession), Assignors and Transferors, to
    Comcast Corporation (subsidiaries), Assignees and Transferees;
    Comcast Corporation, Transferor, to Time Warner Inc., Transferee;
    Time Warner Inc., Transferor, to Comcast Corporation, Transferee*,
    21 FCC Rcd 8203, 8286 ¶ 186 (2006) ("*Adelphia Order*"); *News
    Corp.-Hughes Order*, 19 FCC Rcd at 539, 546 ¶¶ 140, 158.

[^126]: *2005 Second Further Notice*, 20 FCC Rcd at 9423 ¶ 93. Comcast's
    argument that consumers will benefit from the cable operator's
    ability to lower its costs only holds in particular circumstances.
    *See supra ¶* 24; Comcast Comments to *2005 Second Further Notice*
    at 67, 74. Consumers may not benefit if the reduced costs are not
    passed through, or if the cable operator uses its bargaining power
    to exclude competitors from obtaining the network. *See Adelphia
    Deal May Cut Time Warner's Programming Cost, but Not Consumer's
    Bills*, [New York Times]{.smallcaps}, July 31, 2006, at C6 (it is
    not guaranteed that lower programming costs are passed through to
    consumers). The economics literature suggests that if prices are
    non-linear (i.e., where there is a non-constant relationship between
    price and quantity), increases in the bargaining power of a cable
    operator relative to that of a programmer may make consumers worse
    off. *See* Leslie Marx & Greg Shaffer, *Upfront Payments and
    Exclusion in Downstream Markets* [Rand J. of Econ]{.smallcaps}.
    (forthcoming 2007) (available at
    http://faculty.fuqua.duke.edu/\~marx/bio/papers/upfront.pdf).

[^127]: We note that it is not clear that cable operators pass on their
    lower programming costs to consumers in the form of lower
    subscription prices. *See, e.g., Adelphia Deal May Cut Time Warner's
    Programming Cost, but Not Consumer's Bills*, [New York
    Times]{.smallcaps}, July 31, 2006, at C6.

[^128]: Monopsony theory, on the other hand, does provide in principle
    such a link between market concentration and harms. As discussed
    above, we have determined that the traditional monopsony models do
    not appropriately describe the programming market, and therefore are
    not useful for our analysis. *See supra* ¶ 13 (stating that the *BKS
    Study* did not model some potentially important aspects of the
    industry \[i.e., vertical integration, retail competition from DBS,
    entry into and exit from the cable network programming industry, or
    differences in MFN agreements across different-sized buyers\]).

[^129]: Comcast March 16, 2007 Further Supp. Comments, Erdem, Katz, and
    Morgan Decl. at 34-35.

[^130]: Data from 2006 Cable Price Survey. *Implementation of Section 3
    of the Cable Television Consumer Protection and Competition Act of
    1992*, *Statistical Report on Average Rates for Basic Service, Cable
    Programming Service, and Equipment*, 21 FCC Rcd 15087 (2006).

[^131]: Comcast March 16, 2007 Further Supp. Comments, Erdem, Katz, and
    Morgan Decl. at 64-65.

[^132]: *See* Relationship between Channel Capacity and the Size of a
    Cable Operator, *supra* chart following ¶ 36.

[^133]: NCTA March 16, 2007 ex parte at 5-6. In NCTA's filing, it refers
    to Regional Bell Operating Companies ("RBOCs"), but we refer to them
    as Local Exchange Carriers or "LECs."

[^134]: *Local Telephone Competition: Status as of June 30, 2006*,
    released January 31, 2007 (available at
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-270133A1.pdf)
    and *Selected June 30, 2006 Data Filed for the Incumbent Local
    Exchange Carrier Operations of the Regional Bell Operating
    Companies* (available at
    http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/RBOC_Local_Telephone_June_2006
    .xls). For the purpose of this calculation, the end-user switched
    access lines for AT&T and BellSouth have been aggregated in order to
    estimate the post-merger size of AT&T. *See* *In the Matter of AT&T
    Inc. and BellSouth Corp.,* *Application for Transfer of Control*, 22
    FCC Rcd 5662 (2007).

[^135]: AT&T reports that "operating income continued to be pressured by
    access line declines due to increased competition, as customers
    disconnected both primary and additional lines and switched to
    competitors' alternative technologies, such as wireless, VoIP and
    cable for voice and data." AT&T Inc. SEC Form 10-Q for the quarterly
    period ended June 30, 2007 at 23.

[^136]: AT&T has 13.3 million broadband customers, Comcast has 12.4
    million customers, Verizon has 7.7 million customers, and Time
    Warner has 7.2 million customers. *2^nd^ Quarter 2007 Wrap-Up*, The
    Bridge Vol. 35, No. 6 (August 28, 2007) (available at
    http://www.thebridgemediagroup.com/media/archives/2Q_BR082807.pdf).

[^137]: AT&T's U-verse video service is projected to pass 18 million
    homes by the end of 2008 and Verizon's FiOS video service is
    projected to pass up to 15 million homes by 2009. *Standard & Poors
    Industry Surveys, Broadcasting, Cable, & Satellite*, June 14, 2007.

[^138]: Comcast March 16, 2007 Further Supp. Comments, Hazlett Decl. at
    18-21.

[^139]: *See* *Implementation of Section 19 of the 1992 Cable Act,
    Annual Assessment of the Status of Competition in the Market for the
    Delivery of Video Programming*, *1996 Video Competition Report*, 12
    FCC Rcd 4358 (1997); *1997 Video Competition Report*, 13 FCC Rcd
    1034 (1998); *1998 Video Competition Report*, 13 FCC Rcd 24284
    (1998); *1999 Video Competition Report*, 15 FCC Rcd 978 (2000);
    *2000 Video Competition Report*, 16 FCC Rcd 6005 (2001); *2001 Video
    Competition Report*, 17 FCC Rcd 1244 (2002); *2002 Video Competition
    Report*, 17 FCC Rcd 26901 (2002); *2003 Video Competition Report*,
    19 FCC Rcd 1606 (2004); *2004 Video Competition Report*, 20 FCC Rcd
    2755 (2005); *and 2005 Video Competition Report*, 21 FCC Rcd 2503
    (2006). Hazlett's results on the effect of the market share of the
    largest MSO on the revenues of programmers are mixed. He finds that
    there is a negative effect, so that an increase in the size of the
    largest MSO depresses the revenues of programmers. Comcast March 16,
    2007 Further Supp. Comments, Hazlett Decl at 21. However, the effect
    is not statistically different from zero at the reported levels of
    significance. The information, as presented by Hazlett, does not
    allow us to determine if the estimated magnitude of the impact would
    be financially significant to programmers. One possibility is that
    the estimated impact is financially significant, though the estimate
    is imprecise and therefore is not statistically significant. It
    would be preferable to have had the estimated impact expressed as a
    percentage of the revenue of programmers in order to determine
    whether this study merits additional study.

[^140]: This is the concern raised by Erdem, Katz, and Morgan regarding
    the *Network Survival Study*. Comcast March 16, 2007 Further Supp.
    Comments, Erdem, Katz, and Morgan Decl. at 36. While the *Network
    Survival Study* does include a substantial number of unsuccessful
    networks, Hazlett provides no indication that any failed networks
    are included in his sample.

[^141]: An allowance for coordinated action by MVPDs is also possible.
    This is implemented by dividing the open field by the number of
    MVPDs that are likely to engage in coordinated denial of carriage.

[^142]: *1993 Second Report and Order,* 8 FCC Rcd at 8576 ¶ 24.

[^143]: *1999 Cable Ownership Order*, 14 FCC Rcd at 19110 ¶ 27.

[^144]: CFA Comments to the *2005 Second Further Notice* at 69.

[^145]: *See* NHMC Comments to *2005 Second Further Notice* at 1
    (evaluating the "current cable situation" in terms of numbers of
    cable subscribers served by major cable operators because it
    considers the two largest cable operators to be gatekeepers that
    determine the success of programming networks).

[^146]: *See* Comcast Comments to the *2005 Second Further Notice* at
    22-34. *See also* Comcast Supp. Comments at 7-9; NCTA March 16, 2007
    *ex parte* letter at 4.

[^147]: In the formula above, all MVPD subscribers will be used as the
    value for "Subs." Sources for individual elements are: (1) NCTA
    Comments in MB Docket No. 06-189 at 9; (2) Kagan Media Research,
    Media Trends 2006 at 64; (3) *C-Band Numbers Keep Dwindling,
    Satellite Business News FAXUpdate*, July 7, 2005; (4) The DIRECTV
    Group, Inc., SEC Quarterly Report Form 10-Q Pursuant to Section 13
    or 15(d) of the Securities Act of 1934 for the Quarterly Period
    Ended June 30, 2006, at 31, (4) EchoStar Communications Corp., SEC
    Quarterly Report Form 10-Q Pursuant to Section 13 or 15(d) of the
    Securities Act of 1934 for the Quarterly Period Ended June 30, 2006,
    at 28; and (5) Commission estimates based on the Broadband Service
    Providers Association Comments in MB Docket No. 06-189 at 6. *Id.
    at* 2617-18 App. B, Table B-1.

[^148]: As discussed in the calculation of the minimum viable scale,
    however, the calculation does account for the effect of alternative
    revenue sources on network program viability. *See infra* ¶ 52. *See
    also* MAP March 21, 2007 *ex parte* letter at 2 (stating that DVDs
    and video iPods do not increase the availability of independent
    programming channels that would otherwise support new networks).

[^149]: *See* CFA Comments to the *2005 Second Further Notice* at 68-70.

[^150]: Addressing petitioners' arguments that the Commission failed to
    adequately account for competitive pressures from DBS, the D.C.
    Circuit stated that "in revisiting the horizontal rules the
    Commission will have to take account of the impact of DBS on that
    market power." *Time Warner II*, 240 F.3d at 1134. For a further
    discussion of the competitive effect of DBS, *see* *infra* ¶ 70.

[^151]: *Time Warner II*, 240 F.3d at 1133 (citing *2000 Video
    Competition Report*, 16 FCC Rcd 6005, 6008 at ¶¶ 6-8).

[^152]: Consumer Federation of America, Consumers Union, the Center for
    Digital Democracy, and the Media Access Project, CS Docket No.
    98-82, et al. (Oct. 11, 2002) (CFA Oct. 11, 2002 *Ex Parte*).

[^153]: *Id.* at 4.

[^154]: Comcast Supp. Comments at 27-28.

[^155]: *Implementation of Sections 11 and 13 of the Cable Television
    Consumer Protection and Competition Act of 1992, Horizontal and
    Vertical Ownership Limits, Cross-Ownership Limitations and
    Anti-Trafficking Provisions*, 8 FCC Rcd 210, 217 ¶ 36 (1992)
    (stating that "the Commission may prescribe subscriber limits either
    as a share of cable subscribers or as a share of homes passed,"
    since the 1992 Act does not define the term "reach" in the context
    of subscriber limits).

[^156]: 47 U.S.C. § 533(f)(1)(A)(emphasis added).

[^157]: NCTA suggests that the provision "authorized to reach," which
    the statute does not define, may be interpreted "simply means that
    the Commission is required to set limits on the number of
    subscribers a cable operator is 'permitted to serve' through owned
    and affiliated cable systems." NCTA Feb. 18, 2000 Opposition at 4.
    Language in the *Conference Report* supports the "permissive
    interpretation" NCTA suggests. The *Conference Report* states, in
    pertinent part, that: The Senate bill amends 613(f) of the
    Communications Act as follows: Subsection (f)(1) requires the FCC to
    establish reasonable limits on (A) the number of cable subscribers
    that any one cable operator may serve through cable systems owned by
    the operator or in which the operator has an attributable interest.
    H.R. Rep. No. 102-862 at 81 (1992) (*Conf. Rep.*); *see also*
    *Senate Report* at 80.

[^158]: *See* NCTA Feb. 18, 2000 Opposition at 6; *Sixth Annual Report*,
    15 FCC Rcd at 1056 ¶ 175 and n.629; *1999 Cable Ownership Order*, 14
    FCC Rcd at 19108 ¶ 22.

[^159]: *See 1999 Cable Ownership Order*, 14 FCC Rcd at 19108 ¶ 22.

[^160]: *See id* at 19108-09 ¶¶ 22-23; NCTA Oct. 23, 2002 *Ex Parte* at
    2.

[^161]: *1999 Cable Ownership Order*, 14 FCC Rcd at 19115 ¶ 41.

[^162]: *2005 Second Further Notice*, 20 FCC Rcd at 9414-20 at ¶¶ 74-84.

[^163]: *Id.* at 9415-16 ¶¶ 75-76.

[^164]: *Id.* at 9418-19 ¶ 82.

[^165]: CFA Comments to the *2005 Second Further Notice* at 10-11.

[^166]: TAC Comments to the *2005 Second Further Notice* at 13-18.
    According to CFA, the Commission should assign an
    advertising-weighted premium to the subscribers in the top markets
    when reviewing a specific transaction. CFA contends that without
    that adjustment, the "true market power of top-market clusters will
    be ignored to the detriment of consumers and programmers." CFA
    Comments to the *2005 Second Further Notice* at 68-70.

[^167]: TAC Comments to the *2005 Second Further Notice* at 20.

[^168]: *Id.*

[^169]: *Id.* at 21. TAC also emphasizes that of 92 national,
    non-premium cable programming networks that have succeeded in
    reaching 20 million households, "not a single one had achieved the
    20 million household milestone without carriage by either Comcast or
    Time Warner, or both." *Id.* at 20.

[^170]: *Id.* at 21-22. TAC states, however, that if a network is denied
    carriage by both Comcast and Time Warner, it would need to be
    carried by every other MVPD and added to their basic analog tiers to
    reach the 50 million subscribers that advertisers require. In
    addition, TAC provides data suggesting that of 114 independent
    networks seeking national carriage, none has launched without
    carriage by Time Warner or Comcast, and the total numbers of
    independent networks actually launched are low. Id. at 22-23, 35-37.
    TAC defines "Independent Network" and "Unaffiliated Network" as "any
    Network without financial ties to Comcast, Time Warner, Viacom, News
    Corp, NBC Universal, Disney, or their subsidiaries." *Id*. at 34
    n.46. TAC states that if Time Warner or Comcast deny carriage of a
    network, other cable operators will be less willing to dedicate
    channel capacity, marketing, and other resources to distribute the
    network because its survivability is in doubt. *Id.* at 22-23.

[^171]: NCTA Comments to the *2005 Second Further Notice* at 14.

[^172]: Comcast March 16, 2007 Further Supp. Comments, Erdem, Katz, and
    Morgan Decl. at 33.

[^173]: *Id.* at 33-34.

[^174]: Comcast Comments to the *2005 Second Further Notice* at 75*.*

[^175]: *Id*.

[^176]: Comcast Supp. Comments at 11.

[^177]: Comcast Comments to the *2005 Second Further Notice* at 75-76.
    Comcast provides a list of 52 networks, including launch dates, that
    have fewer than 15 million subscribers. Comcast April 4, 2007 *ex
    parte*, at 3-4, App. A.

[^178]: Comcast Comments to the *2005 Second Further Notice* at 78-79.
    AT&T claims that because advertising supports programming, networks
    can be viable even if they reach fewer than 15 million MVPD
    subscribers. AT&T Comments to the *2001 Further Notice*, Besen Decl.
    at ¶ 3. More generally, AT&T asserts that the open field approach
    assumes that all services need the same size open field to achieve
    viability, when in reality the open field requirement is highly
    individualized and depends on the unique characteristics of each
    programming package. *Id*. at 62-65; *see also id*. at Besen Decl.
    at ¶¶ 3, 11, 14.

[^179]: Comcast Reply Comments to the *2005 Second Further Notice* at 5.

[^180]: Comcast asserts that its decisions to carry programming are
    based on the content and theme of the network, the necessity or
    desirability of its presentation as a linear network, the financing
    of the network, the experience and proven capability of the
    management team, the distribution secured by the network elsewhere,
    and the fees and terms of carriage and that TAC's lack of carriage
    is not attributable to unfair treatment by a particular MVPD or a
    structural problem in the industry. Comcast Reply Comments to the
    *2005 Second Further Notice* at 7-8.

[^181]: Hazlett cites the examples of Fox News Channel, Oxygen
    Television, American Life TV, The NFL Network, CSTV Networks, and
    The Sportsman's Channel as independent networks that have entered
    recently. Comcast March 16, 2007 Further Supp. Comments, Hazlett
    Decl. at 30-35.

[^182]: Keith Brown, *How many viewers does a cable network need? A
    survival analysis of cable networks*, [39 Applied Econ.]{.smallcaps}
    2581 ("*Network Survival Study"*). The study is based on the same
    data and method as a Media Bureau Staff Research Paper (Keith S.
    Brown, *A Survival Analysis of Cable Networks*, Media Bureau Staff
    Research Paper No. 2004-1 ("*Media Bureau Survival Study"*) (rel.
    Dec. 7, 2004)).

[^183]: *2005 Second Further Notice*, 20 FCC Rcd at 9420 ¶ 84.

[^184]: Erdem, Katz and Morgan claim that the sample is biased because
    it is based on financially successful networks. Comcast March 16,
    2007 Further Supp. Comments, Erdem, Katz, and Morgan Decl. at 36.
    However, the sample includes successful as well as unsuccessful
    networks and therefore is not biased. In fact, it is not possible to
    estimate a survival model if the sample only includes successful
    networks. Of the networks in the sample, 31.5 percent were
    unsuccessful in the sense that they exited the market during the
    sample period. *See* *infra* ¶ 56. The author of the study attempted
    to obtain data on all networks that were in existence during the
    sample period. While it is possible that the author did not obtain
    data on all networks, we are confident that the majority of existing
    networks are in the sample. Furthermore, the *Media Bureau Survival
    Study* lists all of the networks in the sample, and Comcast has
    failed to identify any "unsuccessful" networks that should have been
    included in the sample but were not.

[^185]: *Network Survival Study*, Table 2.

[^186]: Erdem, Katz and Morgan claim that the study is not based on any
    underlying economic theory that would provide a foundation for the
    estimation method. Comcast March 16, 2007 Further Supp. Comments,
    Erdem, Katz, and Morgan Decl. at 36. However, economic theory
    examining the effect of uncertainty in a dynamic context on firm
    decisions, a well-developed area of economics, indicates that
    longitudinal studies such as the *Network Survival Study* that can
    incorporate state dependence are more appropriate tools than those
    that do not. State dependence occurs when current actions are
    affected by past decisions and conditions, even after controlling
    for the explanatory variables used in the model to describe current
    conditions. Jeffrey D. Wooldridge, *Econometric Analysis of Cross
    Section and Panel Data* ( MIT Press 2002). For example, Jovanovic
    illustrates the importance of the need to account for the history of
    firms when examining exit. Boyan Jovanovic, *Selection and the
    Evolution of Industry*, 50 [Econometrica 649-70 (1982).]{.smallcaps}
    Dixit also uses dynamic optimization to develop a model explaining
    exit decisions of firms. Avinash Dixit, *Entry and Exit Decisions
    under Uncertainty*, 97 [J. of Pol. Econ. 620-38]{.smallcaps} (1989).
    In these models, and their many derivatives over the intervening
    years, the cause of firm exit is unpredictable fluctuations in cost,
    demand, or other parameters. *See also* David B. Audretsch and Talat
    Mahmood, *The rate of hazard confronting new firms and plants in
    U.S. manufacturing*, 9 [Rev. of Indus. Org. 41-56]{.smallcaps}
    (1994); Rajshree Agarwal and Michael Gort, *The Evolution of Markets
    and Entry, Exit and Survival of Firms*, [78 Rev. of Econ. and
    Stat.]{.smallcaps} 489-98 (1996); Dietmar Harhoff, Konrad Stahl and
    Michaerl Woywode, *Legal Form, Growth and Exit of West German
    Firms - Empirical Results for Manufacturing, Construction, Trade and
    Service Industries*, 46 [J. of Indus. Econ.]{.smallcaps} 453-88
    (1998); Jose Mata and Pedro Portugal, *The survival of new domestic
    and foreign-owned firms*, 23 [Strat. Mgmt. J.]{.smallcaps} 323-43
    (2002). The estimation strategy is designed to model these
    fluctuations without assigning an underlying cause to each
    fluctuation. In fact, we think it is impractical to obtain the
    precise reason that each network failed and incorporate it into an
    empirical model. The model we have chosen acknowledges the basic
    reality that if a network has sufficient subscribers to generate
    revenue to cover its costs, failure is much less likely.

[^187]: *See supra* note Error: Reference source not found.

[^188]: *Media Bureau Survival Study*, Table 2.

[^189]: Jeffrey Wooldridge, *Econometric Analysis of Cross Section and
    Panel Data*, MIT Press, 2002, p. 50-51.

[^190]: Comcast March 16, 2007 Further Supp. Comments, Erdem, Katz, and
    Morgan Decl. at 36-37. As noted above, state dependence occurs when
    current actions are affected by past decisions and conditions, even
    after controlling for the explanatory variables used in the model to
    describe current conditions. *See supra* note Error: Reference
    source not found.

[^191]: This is consistent with TAC's claim that the success of
    programming networks is generally evaluated over a
    five-to-seven-year time horizon. TAC Comments to the *2005 Second
    Further Notice* at 16.

[^192]: To derive estimates of programmers' subscribership requirements,
    the *Network Survival Study* uses a survival/duration model that
    estimates a programming network's probability of exit from the
    marketplace based on different characteristics, including the
    network's subscribership at specific points in time.

[^193]: We chose a minimum viable scale and penetration rate that
    reflect the average cable network. Our calculations provide a
    minimal amount of protection to average networks. Networks that
    choose high-cost strategies that require a large number of
    subscribers to remain viable will not be protected under this
    ownership limit, contrary to the allegations of Erdem, Katz and
    Morgan. Comcast March 16, 2007 Further Supp. Comments, Erdem, Katz,
    and Morgan Decl. at 33; see *supra* note Error: Reference source not
    found. Furthermore, even these networks are protected only for the
    first five years of their existence. After those five years, the
    ownership limit will not provide them with a safe harbor in which
    they can survive without carriage by the largest MSO.

[^194]: That is, of all the networks in the sample at any time, 31.5
    percent of them exited the market at some point. *Network Survival
    Study* at 18, Table 1.

[^195]: *Network Survival Study* at 10 and Table 4 at 22. This figure
    will be inserted in the formula above for the variable "MVS."

[^196]: *1999 Cable Ownership Order*, 14 FCC Rcd at 19114‑18 ¶¶ 40-50.

[^197]: AT&T Comments to the *2001 Further Notice* at 65-66; Time Warner
    Comments to the *2001 Further Notice* at 26-28; Time Warner Reply
    Comments to the *2001 Further Notice* at 18.

[^198]: *See* AT&T Comments to *the 2001 Further Notice* at 65; *see
    also* Time Warner Comments to the *2001 Further Notice* at 26.

[^199]: AT&T Comments to the *2001 Further Notice* at 65

[^200]: *Id.* at 66.

[^201]: *See, e.g.,* NCTA Comments in Docket No. 98-120 (June 14, 2006)
    at 7-8, available at
    http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6518359837
    (stating that cable operators have to choose among the content
    offered by broadcasters because of the "scarce available capacity;"
    the competitive marketplace in which cable does business requires
    that operators use their capacity to promote services, particularly
    in light of their decreasing market share); NCTA Comments in Docket
    No. 98-120 (June 12, 2006), available at
    http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6518359613
    (stating that full carriage of digital signals would interfere with
    the ability of independent programmers to compete for carriage on
    cable systems.); NCTA Comments in Docket No. 98-120 (June 8, 2006)
    at 2, 6, available at
    http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6518359266
    (stating that full carriage of digital broadcast signals consumes
    cable capacity that would otherwise be available for other consumer
    services); *Ex Parte* Letter from Willkie, Farr and Gallagher, LLP
    on behalf of Comcast (Nov. 15, 2004) at 2, available at
    http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6516882143
    (stating that full carriage of digital signals would interfere with
    the ability of Comcast to offer additional services, such as VOIP).

[^202]: Time Warner Comments to the *2001 Further Notice* at 27 (arguing
    that low penetration rates in certain instances were due to poor
    marketing, unappealing content, and recent market entrance).

[^203]: Comcast June 8, 2007 Further Supp. Comments at 3, 5-8.

[^204]: *Id*. at 11-15.

[^205]: *Id*. at 15-19.

[^206]: *1999 Cable Ownership Order*, 14 FCC Rcd at 19117 ¶ 49.

[^207]: This data is drawn from the Cable Price Survey as of January 1,
    2006.

[^208]: We base our calculation on the responses of Comcast, Time
    Warner, Cox, Charter, Adelphia, Cablevision, BrightHouse, Mediacom,
    Insight, Cable One, RCN, BellSouth, Knology, WideOpenWest, and
    WEHCO. These firms comprise approximately 90 percent of cable
    subscribers. We are unable to account for DBS in this calculation
    because we do not have information on the number of subscribers to
    the various tiers of service sold by each DBS operator.

[^209]: We exclude premium networks such as HBO and Showtime as well as
    high-definition and foreign language networks. Premium networks
    operate on a significantly different economic footing than other
    networks since they are sold individually to consumers. We exclude
    high-definition networks because this market remains in early growth
    phases and does not provide sufficient long-term data to develop
    estimates. Foreign language networks are excluded since in many
    cases the fixed costs of program production are recovered in the
    home countries of the networks and therefore the need to recover
    fixed costs from U.S. distribution is lessened. Our estimation
    procedure uses data on 135 programming networks.

[^210]: *12^th^ Annual Video Competition Report*, 21 FCC Rcd at 2622-43,
    Tables C-1 and C-2.

[^211]: Due to rounding, the listed regression coefficients do not
    generate exactly 27.42 percent, which is calculated using the full
    precision of the regression coefficients.

[^212]: *See supra* ¶ 40.

[^213]: *2001 Further Notice*, 16 FCC Rcd at 17323 ¶ 13.

[^214]: TAC Comments to the *2005 Second Further Notice* at 29.

[^215]: CFA asserts that the Commission should continue to use the open
    field approach, and account for both Comcast and Time Warner in its
    analysis, not just the top firm as it has in the past. CFA maintains
    that the Commission should include Comcast and Time Warner in its
    open field analysis because "\[n\]o current programmer denied
    carriage by either of the top two firms has come close to achieving
    the necessary reach to attract advertising on the scale that is
    widely recognized as the threshold for long term survival of
    national programming." CFA Comments to the *2005 Second Further
    Notice* at 15-17.

[^216]: Jun-Seok Kang, *Reciprocal Carriage of Vertically Integrated
    Cable Networks: An Empirical Study* at 21.

[^217]: Comcast Reply Comments to the *2005 Second Further Notice*,
    Ordover & Higgins Decl. at 11-12.

[^218]: Comcast March 16, 2007 Further Supp. Comments, Erdem, Katz, and
    Morgan Decl. at 44-45.

[^219]: AT&T Comments to the *2001 Further Notice* at 67-68

[^220]: *Id.*

[^221]: Comcast Comments to the *2005 Second Further Notice* at 75.
    Comcast Supp. Comments at 12-14. Comcast Further Supp. Comments at
    11. Comcast March 16, 2007 Further Supp. Comments, Erdem, Katz, and
    Morgan Decl. at 38-43.

[^222]: NCTA Comments to the *2005 Second Further Notice* at 13-14.

[^223]: *Id.* at 13-14 (quoting NCTA Comments to the *2001 Further
    Notice* at 19 (arguing that cable operators' incentives to collude
    to deny carriage to a programming network or to artificially
    suppress the price or quality of programming are constrained by the
    same changed marketplace conditions that make unilateral
    anticompetitive activity unlikely)). NCTA also claimed in its
    comments in response to the *Second Further Notice* that the open
    field approach is too difficult to apply empirically because there
    is not a single "critical mass" of households that a programmer must
    achieve to be viable. *Id*. at 14.

[^224]: *Time Warner* II, 240 F.3d at 1131-32.

[^225]: *See supra* ¶ 43.

[^226]: *See supra* ¶ 57.

[^227]: *See supra* ¶ 61

[^228]: 1- (19,030,000 / (0.2742 x 95,784,478)) = 0.28.

[^229]: *See 1993 Second Report and Order,* 8 FCC Rcd at 8567, ¶ 3.

[^230]: *See 1999 Cable Ownership Order,* 14 FCC Rcd at 19101, ¶ 6.

[^231]: Letter from Peter H. Feinberg, Assoc. General Counsel for
    Comcast Corp., to Marlene H. Dortch, Secretary, FCC (Sept. 24, 2007)
    at 1-2. In its latest filing, Comcast states that it reaches 27.1
    percent of U.S. MVPD subs. Comcast uses a figure of 95.7 million for
    total MVPD subscribers, based on an August 2006 Kagan report.
    http://fccweb01w.fcc.gov/prod/ecfs/retrieve.cgi?native_or\_
    df=pdf&id\_ document =6518508506.

[^232]: *Time Warner II*, 240 F.3d at 1133-34.

[^233]: Comcast Supp. Comments at 27-28.

[^234]: The modified open field approach, however, appropriately
    accounts for the effects of competition from DBS providers in one
    important respect. Because of the inclusion of DBS subscribers in
    the calculation of the size of the MVPD market, continued growth of
    DBS subscribers will increase the size of the open field available
    to a network, which will be reflected in our calculations by a
    reduction of cable operators\' share of the MVPD market. This effect
    is real, not hypothetical. From 2001 through 2005, the number of
    MVPD subscribers increased by 8.16 million, but the number of cable
    subscribers *decreased* by 1.3 million, and cable's share of MVPD
    subscribers declined from 77.54 percent to 69.41 percent. During the
    same period, DBS providers added 10 million subscribers, and their
    share of MVPD subscribers increased from 18.67 percent to 27.72
    percent. *See* *2005 Video Competition Report*, Table B-1.

[^235]: There is no simple rule concerning the relationship between the
    level of competition in the downstream market and the likelihood of
    foreclosure in the upstream market. It is possible for the
    downstream market to be a perfect monopoly while the upstream market
    is perfectly competitive, if many firms that are monopolists in
    their local market compete with each other for inputs in the
    upstream market. It is also possible for the downstream market to be
    perfectly competitive, while each firm has a perfect monopsony in
    the upstream market.

[^236]: *See* Andrew Wise & Kiran Duwadi, "*Competition between Cable
    Television and Direct Broadcast Satellite -- It's More Complicated
    than You Think*," FCC Working Paper, Jan. 2005, at 21("Wise &
    Duwadi"). For example, DBS providers typically require customers to
    agree to one year service commitments to receive subsidized
    equipment and installation. Customers that do not meet credit
    criteria may be required to purchase equipment. DirecTV requires
    customers who do not have a sufficiently high credit score to pay an
    upfront fee of \$200 to \$300 that is paid back to them in the form
    of credits each month they remain subscribers. These subscribers
    receive their full upfront fee back in \$5 increments over 40 to 60
    months. *Satellite Business News Fax Update*, Mar. 7, 2007 at 2.
    These costs are not insignificant and will limit the number of
    subscribers willing to switch MVPDs. Moreover, we note that some
    cable subscribers are unable to switch to DBS because it requires a
    sufficient view of the southern sky in order to aim the receiving
    dish at the DBS satellites. In northern latitudes, as well as highly
    urbanized or forested locations, it may not be possible to receive a
    DBS signal because of these line of sight issues. Residents on the
    north side of large buildings with multiple dwelling units may also
    be unable to receive a DBS signal. For an explanation of various
    signal interference issues, *see*
    http://www.dishnetwork.com/content/faq/general_information/index.shtml.

[^237]: Wise & Duwadi at 21; *Adelphia Order*, 21 FCC Rcd at 8286 ¶¶
    186-87. *See also 2005 Video Competition Report* at ¶ 72 (noting
    that DBS providers' penetration rate was 36 percent in areas where
    cable operators did not offer advanced services such as digital
    cable, cable modem service, or telephone service, but only 16
    percent in areas where cable operators offered some but not all of
    those advanced services, and only 14 percent where cable operators
    offered all three).

[^238]: Even in instances where the program network may be highly valued
    by consumers, a cable operator may refuse carriage for unspecified
    reasons. For example, Comcast did not carry the regional sports
    network MASN in the Washington D.C. area, despite the strong value
    consumers place on the programming of regional sports networks, and
    apparently with little harm to its subscribership count. *Adelphia
    Order*, 21 FCC Rcd at 8286 at ¶¶ 186-87.

[^239]: Our *Cable Price Report* demonstrates the lack of aggressive
    substitution between cable and DBS. In the large number of
    communities in which there has been a finding that the statutory
    test for effective competition has been met due to the presence of
    DBS service, competition does not appear to be restraining price as
    it does in the small number of communities with a second cable
    operator. *Report on Cable Industry Prices* at ¶ 14 (Dec. 27, 2006).

[^240]: TAC Comments to the *2005 Second Further Notice* at 26 (citing
    *How Come Vultures Don't Flock to Cable*, [CableWORLD]{.smallcaps},
    Apr. 5, 2005.

[^241]: The America Channel indicates that investors are reluctant to
    provide financing, and MVPDs are reluctant to provide carriage, for
    a new network whose survivability is uncertain.  For investors and
    MVPDs, a new network\'s likelihood of survival is indicated by the
    network\'s ability to obtain contracts for carriage with the largest
    MVPDs.  Thus a new network that fails to obtain carriage with the
    largest MVPDs will find it difficult to even enter the market,
    because it will be unable to obtain the financing and carriage
    necessary to begin operations.  TAC Comments to the *2005 Second
    Further Notice* at 15-17, 22-23, 25-27, 31-32.

[^242]: The open field approach, in fact, ensures that the downstream
    MVPD market provides effective competition to the incumbent cable
    operator, because it ensures that a popular programming network that
    fails to secure distribution by the incumbent cable operator will
    have sufficient subscribership to enter the marketplace viably and
    make itself available to competing MVPDs. Without an adequate open
    field, a programming network's failure to secure distribution by the
    largest cable operator may prevent the network from entering the
    market, thus denying consumers the ability to receive desired
    programming from any MVPD.

[^243]: A cable operator will not learn of its mistake, or find out the
    cost of not carrying the network, unless there is a sufficiently
    large open field for the network to gain carriage and demonstrate
    its popularity with other MVPDs.

[^244]: TAC Comments to the *2005 Second Further Notice*, Exh. 2 at
    56-58.

[^245]: According to TAC, these two networks are TV One and The NFL
    Network. *Id*. at 58.

[^246]: Id. at 56-58.

[^247]: 47 U.S.C. § 533(f)(2)(A), (C) (emphasis added).

[^248]: *2005 Second Further Notice*, 20 FCC Rcd at 9413 ¶ 70.

[^249]: Comcast Comments to the *2005 Second Further Notice* at 47.

[^250]: *See AT&T-Comcast Order,* 17 FCC Rcd at 23261 ¶ 43; *Adelphia
    Order,* 21 FCC Rcd at 8237 ¶ 68.

[^251]: *See, e.g.*, AT&T Broadband Comments to the *2001 Further
    Notice* at 30; Comcast Comments to the *2005 Second Further Notice*
    at 45-48; Comcast Comments to the *2001 Further Notice* at 17-20.

[^252]: *2005 Second Further Notice*, 20 FCC Rcd at 9413 ¶ 70.

[^253]: *See, e.g.,* AT&T Comments to *2001 Further Notice* at 30-34;
    Comcast March 16, 2007 Further Supp. Comments at 20-22.

[^254]: CFA Comments to the *2005 Second Further Notice* at 25-26; MAP
    Comments to the *2005 Second Further Notice* at 29-35.

[^255]: CWA Comments to the *2005 Second Further Notice* at 8-10, CFA
    Comments to the *2005 Second Further Notice* at 54-55.

[^256]: CFA Comments to the *2005 Second Further Notice* at 53-54.

[^257]: CWA Comments to the *2005 Second Further Notice* at 8-10.

[^258]: CFA Comments to the *2005 Second Further Notice* at 55-56.

[^259]: *Id*.

[^260]: *Id*. at 58-60, 69.

[^261]: *Id*. at 68-70.

[^262]: DirecTV Comments to the *2005 Second Further Notice* at 5.

[^263]: *Id*. at 6-7

[^264]: *Id.* at 8.

[^265]: *Id*. at 8-9. In its reply comments, Comcast notes DirecTV's
    opposition to regional limits, and claims that if DirecTV and other
    competitive outlets offer programmers a viable alternative to cable
    for program distribution, then a cable ownership limit is
    unnecessary. Comcast Reply Comments to the *2005 Second Further
    Notice* at 8-10.

[^266]: Comcast Comments to the *2005 Second Further Notice* at 43-45.

[^267]: *Id.* at 43-44

[^268]: *Id*. at 51.

[^269]: *Id*. at 51-53

[^270]: *Id*. at 51-53.

[^271]: *1993 Second Report and Order*, 8 FCC Rcd at 8572-73 ¶ 16; *1999
    Cable Report and Order*, 14 FCC Rcd at 19124 ¶ 63.

[^272]: *1993 Second Report and Order*, 8 FCC Rcd at 8572-73 ¶ 16.

[^273]: *Id*. at 8573 ¶ 17

[^274]: *1999 Cable Ownership Order*, 14 FCC Rcd at 19124 ¶ 63.

[^275]: *See 1999 Cable Ownership Order*, *see also* 47 C.F.R. §§
    76.503(b)-(d)(defining incumbent cable franchise as including all
    franchises, and all successors in interest to those franchises, that
    were in existence on October 20, 1999, the date on which the *1999
    Cable Ownership Order* was released).

[^276]: *See 1999 Cable Ownership Order*, 14 FCC Rcd at 19112 ¶ 35.

[^277]: CFA Comments to the *2001 Further Notice* at 45.

[^278]: *Id*. at 45-47.

[^279]: In light of our decision to eliminate the overbuild exception,
    we need not reach CFA's argument regarding our statutory authority
    to retain it.

[^280]: CFA Comments to the *2001 Further Notice* at 45-47.

[^281]: CFA Feb. 28, 2000 Reply at 6.

[^282]: CFA Comments to the *2001 Further Notice* at 45-47; CFA Feb. 28,
    2000 Reply at 8-10.

[^283]: CFA cites to DirecTV's counting of subscribers who merely
    expressed interest in its service and its subsequent revision of its
    subscriber numbers significantly downward to correct its improperly
    inflated subscriber count. CFA Oct. 11, 2002 *ex parte* at 3. CFA
    also cites to inflated subscriber counting by Charter and Adelphia.
    *Id*. at 3-4.

[^284]: *Id.* at 4.

[^285]: *Id.* at 4.

[^286]: *Id* at 4-5.

[^287]: *Id.* at 5.

[^288]: Letter from Daniel L. Brenner, Senior Vice President, NCTA, to
    Marlene H. Dortch, Secretary, FCC (Oct. 23, 2002) at 2 ("NCTA Oct.
    23, 2002 *ex parte*").

[^289]: *See 1999 Cable Ownership Order*, 14 FCC Rcd at 19112 ¶ 35.

[^290]: *See* 47 U.S.C. § 533(f)(1); *Senate Report* at 80.

[^291]: *See 1999 Cable Ownership Order*, 14 FCC Rcd at 19112 ¶ 35.

[^292]: NCTA states that industry data research and reports are
    reliable, and are followed and utilized "by all segments of the
    video industry, not merely cable operators." NCTA Feb. 17, 2000
    Opposition at 16. NCTA maintains that small operators will not
    inflate their numbers because their license fees are based on their
    actual subscribership, and large cable operators will not understate
    their numbers because they are required to report their compliance
    with the horizontal limit. *Id.* at 14-15.

[^293]: *E.g.*, 47 U.S.C. § 548(g) (annual assessment of MVPD
    competition); 47 U.S.C. § 159 (regulatory fees).

[^294]: *See* 47 C.F.R. § 76.503(g).

[^295]: Certifications need not identify each and every subscriber count
    that has been provided to another entity. Rather, they should
    explain whether the filing company has reported or routinely reports
    subscriber counts to other entities using methodologies that differ
    from those used for purposes of compliance with the Commission's
    horizontal limit.

[^296]: *See Implementation of the Cable Television Consumer Protection
    and Competition Act of 1992*, 14 FCC Rcd 19014, 19016 ¶ 2 (1999)
    (*1999 Cable Attribution Order*).

[^297]: *Regulations Governing Attribution of Broadcast and Cable/MDS
    Interests, Regulation and Policies Affecting Investment in the
    Broadcast Industry and Reexamination of the Commission's Cross
    Interest Policy*, 14 FCC Rcd 12559, 12560 ¶ 1 (1999) (*1999
    Broadcast Attribution Order*), *recon. granted in part*, *Review of
    the Commission's Regulations Governing Attribution of Broadcast and
    Cable/MDS Interests*, *Review of the Commission's Regulations and
    Policies Affecting Investment in the Broadcast Industry,
    Reexamination of the Commission's Cross-Interest Policy*, 16 FCC Rcd
    1097 (2001) (*Broadcast Ownership Reconsideration Order*), *stayed*,
    16 FCC Rcd 22310 (2001).

[^298]: *See 1999 Broadcast Attribution Order,* 14 FCC Rcd at 12562-63 ¶
    5.

[^299]: The broadcast attribution rules are detailed in Note 2 of
    Section 73.3555 of the Commission's rules. *See* 47 C.F.R. § 73.3555
    Note 2. In the cable context, as discussed below, there are two
    strains of attribution rules, the general attribution standard,
    which applies to the cable horizontal and vertical ownership rules,
    and the program access attribution standard. *See infra* ¶ 93. The
    Commission also applies attribution rules in other services not
    pertinent here, such as, for example, in the wireless context. *See*
    47 C.F.R. § 1.919(2)(C)(ii).

[^300]: The general cable attribution standard applies to the horizontal
    ownership limits, 47 C.F.R. § 76.503; the channel occupancy limits,
    47 C.F.R. § 76.504; the cable/SMATV cross-ownership limits, 47
    C.F.R. § 76.501(d); the cable-telco buyout prohibition, 47 C.F.R. §
    76.505; and the effective competition test, 47 C.F.R. § 76.905.

[^301]: The Commission adopted the more restrictive program access
    attribution standard for its rules imposing specific behavioral
    restraints on cable operators and programmers, such as its rules
    regarding program access and program carriage, "both of which were
    designed, in part, to prevent cable operators from using their
    market power to engage in improper conduct." *See Implementation of
    the Cable Television Consumer Protection and Competition Act of
    1992, Review of the Commission's Cable Attribution Rules, Notice of
    Proposed Rulemaking*, 13 FCC Rcd 12990, 12993 ¶¶ 5-6 (1998) (*1998
    Cable Attribution NPRM*). The program access attribution standard
    attributes an entity's stockholdings, whether voting or non-voting,
    and all partnership interests above 5 percent. The single majority
    shareholder exemption and insulated limited partner exceptions do
    not apply. *See* *1999 Cable Attribution Order*, 14 FCC Rcd at 19018
    ¶ 4. The program access attribution rules apply to cable commercial
    leased access, 47 C.F.R. § 76.970; program access, 47 C.F.R. §
    76.1000; carriage discrimination, 47 C.F.R. § 76.1300; open video
    systems, 47 C.F.R. § 76.1500; asset transfers between a cable
    operator and affiliate, 47 C.F.R. § 76.924(i); and rate
    pass-throughs for programming services between a cable operator and
    an affiliated programmer, 47 C.F.R. § 76.922(f)(6). The program
    access attribution standard is not at issue here.

[^302]: *See* *1998 Cable Attribution NPRM*, 13 FCC Rcd at 12993 ¶ 4
    (citing *Implementation of Sections 11 & 13 of Cable Television
    Consumer Protection and Competition Act of 1992 -- Horizontal and
    Vertical Ownership Limits*, 8 FCC Rcd 8565, 8568-69, 8577-79
    (1993)).

[^303]: *See 1999 Cable Attribution Order*, 14 FCC Rcd at 19017-18 ¶ 3;
    *1998 Cable Attribution NPRM*, 13 FCC Rcd at 12993 ¶ 4. *See also*
    Pub. L. No. 102-385, 106 Stat. 1460 (1992), 47 U.S.C. § 521, *et.
    seq*. (1992).

[^304]: *See Corporate Ownership Reporting and Disclosure by Broadcast
    Licensees, Amendment of Sections 73.35, 73.240 and 73.636 of the
    Commission's Rules Relating to Multiple Ownership of Standard, FM
    and Television Broadcast Stations, Amendment of Sections 73.35,
    73.240, 73.636 and 76.501 of the Commission's Rules Relating to
    Multiple Ownership of AM, FM, and Television Stations and CATV
    Systems, Reexamination of the Commission's Rules and Policies
    Regarding the Attribution of Ownership Interests in Broadcast, Cable
    Television, and Newspaper Entities*, 97 FCC 2d 997, 1005-06 ¶ 14-15
    (1984) (*1984 Broadcast Attribution Order*), *recon. in part*, 58
    R.R.2d 604 (1985), *further recon. granted in part*, 1 FCC Rcd 802
    (1986) ("*1985 Attribution Reconsideration Order*"). *See also* 47
    C.F.R. § 73.3555 Note 2(a).

[^305]: Passive investors are "investment companies, as defined by 15
    U.S.C. § 80a-3, insurance companies, and banks holding stock through
    their trust departments in trust accounts." 47 C.F.R. § 76.501 Note
    2(b).

[^306]: 47 C.F.R. § 73.3555 Note 2(b); 47 C.F.R. § 76.501 Note 2(b).

[^307]: 47 C.F.R. § 76.501 Notes 2(e) & (i); *see also 1999 Cable
    Attribution Order*, 14 FCC Rcd at 19049-50 ¶¶ 88-89.

[^308]: 47 C.F.R. § 73.3555 Notes 2(e) & (i).

[^309]: *See* former 47 C.F.R. § 73.3555 Note 2(b); former 47 C.F.R. §
    76.501 Note 2(b).

[^310]: *See* *1984 Broadcast Attribution Order*, 97 FCC 2d 997, 1008-09
    ¶ 21; *1999 Cable Attribution Order*, 14 FCC Rcd at 19044-46 ¶¶
    74-81.

[^311]: *See 1993 Second Report and Order*, 8 FCC Rcd at 8580-81¶¶
    34-35.

[^312]: *1999 Broadcast Attribution Order*, 14 FCC Rcd at 12561 ¶ 2.

[^313]: 47 C.F.R. § 73.3555 Notes 2(a) & (i).

[^314]: *Id*. at 12573 ¶ 27.

[^315]: *Id*. at 12580 ¶ 41.

[^316]: *See 1999 Broadcast Attribution Order*, 14 FCC Rcd at 12579 ¶
    36.

[^317]: *1998 Cable Attribution NPRM*, 13 FCC Rcd at 12999 ¶ 16.

[^318]: *See 1999 Cable Attribution Order*, 14 FCC Rcd at 19047 ¶ 82.

[^319]: *Review of the Commission's Regulations Governing Attribution of
    Broadcast and Cable/MDS Interests, Review of the Commission\'s
    Regulations and Policies Affecting Investment in the Broadcast
    Industry, Reexamination of the Commission's Cross-Interest Policy*,
    11 FCC Rcd 19895, 19901 ¶ 12 (1996).

[^320]: *1999 Cable Attribution Order*, 14 FCC Rcd at 19046 ¶ 81.

[^321]: *Broadcast Ownership Reconsideration Order,* 16 FCC Rcd at
    1116-17 ¶¶ 41-44.

[^322]: *See Time Warner II*, 240 F.3d at 1139-43. The D.C. Circuit both
    vacated and remanded the Commission's decisions on the single
    majority shareholder exemption and the no sale prong of the ILP
    exemption. *See id.*, 240 F.3d at 1128, 1144.

[^323]: *Time Warner II*, 240 F.3d at 1142-43.

[^324]: *Id.* at 1143.

[^325]: In 2004, the Commission changed the name of "Multichannel
    Distribution Services" to "Broadband Radio Service." *see*
    *Amendment of Parts 1, 21, 73, 74 and 101 of the Commission's Rules
    to Facilitate the Provision of Fixed and Mobile Broadband Access,
    Educational and Other Advanced Services in the 2150-2162 and
    2500-2690 MHz Bands; Part 1 of the Commission\'s Rules - Further
    Competitive Bidding Procedures; Amendment of Parts 21 and 74 to
    Enable Multipoint Distribution Service and the Instructional
    Television Fixed Service Amendment of Parts 21 and 74 to Engage in
    Fixed Two-Way Transmissions; Amendment of Parts 21 and 74 of the
    Commission\'s Rules With Regard to Licensing in the Multipoint
    Distribution Service and in the Instructional Television Fixed
    Service for the Gulf of Mexico*; 19 FCC Rcd 14165 (2004) ("*MDS/ITFS
    Order"*).

[^326]: *See Order,* 16 FCC Rcd 22310 (2001) ("*Suspension Order*"). In
    the *2001 Further Notice*, adopted to address the issues on remand
    of the *Time Warner II* decision, the Commission incorporated, by
    reference, the three petitions for reconsideration and comments
    supporting reconsideration of the Commission's decision to eliminate
    the single majority shareholder exemption in the context of the
    broadcast attribution rules filed by NBC, Paxson, and Viacom***.**
    See* *2001 Further Notice*, 16 FCC Rcd at 17356-57 ¶ 91.

[^327]: *See Suspension Order*, 16 FCC Rcd at 22311-12 ¶ 4.

[^328]: *Id.*

[^329]: 47 C.F.R. § 76.501 Note 2(a).

[^330]: *1999 Cable Attribution Order*, 14 FCC Rcd at 19038 ¶ 57 n.163.
    The Commission adopted insulation criteria in the broadcast context
    because there is no uniform state law that establishes criteria with
    respect to the scope of permissible limited partner activities.
    State laws vary significantly and may fail to provide sufficient
    assurance that a limited partner will lack the ability to
    significantly influence or control the partnership\'s activities of
    concern. The Commission initially decided to use the Revised Uniform
    Limited Partnership Act ("RULPA") when determining which limited
    partnership interests should be attributed and which should be held
    exempt. Ultimately, however, the Commission rejected that approach.
    It noted that the RULPA provisions were not uniformly interpreted
    and that the scope of permissible limited partner activities was not
    statutorily set by the RULPA, but rather was determined by the
    limited partnership agreement. The Commission also decided that the
    RUPLA provisions did not provide adequate assurance that limited
    partners would not significantly influence or control partnership
    affairs. *1985 Attribution Reconsideration Order*, 1 FCC Rcd at 804
    ¶ 9.

[^331]: *See id* at 803-04 ¶ 9*.*

[^332]: *See* *1984 Broadcast Attribution Order*, 97 F.C.C.2d at 1022 ¶
    50; 47 C.F.R. §§ 73.3555 Notes 2(a)&(g), 76.501 Note 2(a), 76.503
    Note 2(c).

[^333]: *Id*. at 19039-41 ¶¶ 61-64; *Applications for Consent to the
    Transfer of Control of Licenses and Section 214 Authorizations from
    MediaOne Group, Inc., Transferor, to AT&T Corp., Transferee*, 15 FCC
    Rcd 9816, 9838 ¶ 45 (2000) (*AT&T-MediaOne Order*). In various
    filings, CFA challenges the modification of the insulation rule
    provisions for limited partners and for officers and directors for
    purposes of implementing the cable ownership limits. CFA argues that
    the *1999 Cable Attribution Order* impermissibly modified the
    insulation criteria in violation of Section 613(f). In opposition,
    NCTA asserts that the *1999 Cable Attribution Order's* adoption of
    the video programming insulation standard is consistent with the
    language and purpose of Section 613(f). In its comments, CFA
    reiterates arguments raised in its petition for reconsideration of
    the *1999 Cable Attribution Order*, which the Commission had
    dismissed as moot in the *2001 Further Notice*, 16 FCC Rcd at 17316
    ¶ 2 n.11. We will address this issue in the Order arising out of the
    *Further Notice*.

[^334]: *See AT&T-MediaOne Order*, 15 FCC Rcd at 9839-40 ¶¶ 47-49
    (finding that the no-sale rule is intended to determine whether a
    shareholder has the ability or influence to control a licensee but
    determining that under the facts of the transaction, adequate
    safeguards exist to protect against such influence); *see also
    AT&T-Comcast*, 17 FCC Rcd at 23279-82 ¶¶ 84-88.

[^335]: *AT&T-MediaOne Order*, 15 FCC Rcd at 9839-40 ¶ 47.

[^336]: *See* *Twentieth Holdings Corp. (Transferor) and Edward W.
    Brooke and Hugh L. Carey, Trustees* (*Transferees*), 4 FCC Rcd 4052,
    4054 ¶¶ 15-17 (1989) (*Twentieth Holdings*).^?^ Because video
    programming is at the heart of media activities, the Commission in
    *Twentieth Holdings* held that an investor in a broadcast station
    could not shield its investment from attribution if it sold video
    programming to the company in which the investment was made. *Id.*

[^337]: *AT&T-MediaOne Order*, 15 FCC Rcd at 9840 ¶ 48.

[^338]: *See Time Warner II*, 240 F.3d at 1139-43.

[^339]: *Id*.

[^340]: *2001 Further Notice*, 16 FCC Rcd at 17355-56 ¶¶ 88-90, 17358-59
    ¶¶ 93-97.

[^341]: *Id.*

[^342]: *Id.* at 17356-57 ¶¶ 91-92. *See* *also* National Broadcasting
    Company, Inc., Petition for Reconsideration, MM Docket Nos. 94-150,
    92-51, and 87-154 (Mar. 12, 2001); Paxson Communications
    Corporation, Petition for Reconsideration, MM Docket Nos. 94-150,
    92-51, and 87-154 (Mar. 15, 2001); Viacom Inc., Petition for
    Reconsideration, MM Docket Nos. 94-150, 92-51, and 87-154 (Mar. 15,
    2001). These three petitions all challenged the Commission's
    reliance on the rationale for eliminating the exemption rejected by
    the *Time Warner* II decision, which is discussed below.

[^343]: *Id.*

[^344]: *1999 Cable Attribution Order*, 14 FCC Rcd at 19046 ¶ 81.

[^345]: *See*, *e.g.*, AT&T Comments to *2001 Further Notice* at 77-81;
    Media General Comments to *2001 Further Notice* at 3; Paxson
    Comments to *2001 Further Notice* at 3; Time Warner Comments to
    *2001 Further Notice* at 38-40; Viacom Comments to *2001 Further
    Notice* at 5-21; NAB Comments to *2001 Further Notice* at 5-10;
    Cablevision Comments to *2001 Further Notice* at 12-14; Comcast
    Comments to *2001 Further Notice* at 41-42; and Fox et. al. Reply
    Comments to *2001 Further Notice* at 3. Because the D.C. Circuit
    reversed and remanded the elimination of the single majority
    shareholder exemption, Comcast argues that it was effectively
    reinstated by the court's decision. *See* Comcast Reply Comments to
    *2001 Further Notice* at 41-42.

[^346]: *See*, *e.g.*, AT&T Reply Comments to *2001 Further Notice* at
    29; Comcast Reply Comments to *2001 Further Notice* at 41-42; Paxson
    Comments to *2001 Further Notice* at 3; Viacom Comments to *2001
    Further Notice* at 10; NAB Reply Comments to *2001 Further Notice*
    at 2; and Media General Comments to *2001 Further Notice* at 2, 5.

[^347]: *Cf*., S*uspension of the SMS Elimination Order*, 16 FCC Rcd at
    22311-12 ¶ 4.

[^348]: We ask that parties submit comments only in MM Docket Nos.
    92-264, 94-150, and CS Docket No. 98-82. All other proceedings
    referenced in the caption are being terminated or severed. *See
    supra* note Error: Reference source not found.

[^349]: *See* AT&T Comments to *2001 Further Notice* at 77-78 (citing
    12B [Fletcher Cyclopedia of Private Corporations]{.smallcaps} §
    5783); *see also* NAB Reply Comments to *2001 Further Notice* at 3;
    NCTA Comments to *2001 Further Notice* at 27 n. 54; Time Warner
    Comments to *2001 Further Notice* at 39; and Paxson Reply Comments
    to *2001 Further Notice* at 3.

[^350]: *See* Viacom Comments to *2001 Further Notice* at 8.

[^351]: Viacom notes that a minority shareholder's threat to trade the
    stock based on confidential information may be illegal. *See* Viacom
    Comments to *2001 Further Notice* at 16-17 (citing 17 C.F.R. §
    243.100 (requiring that if a corporation discloses material,
    non-public information to one of its shareholders under
    circumstances in which it is reasonably foreseeable that the
    shareholder will either purchase or sell the corporation's shares on
    the basis of that information, the corporation must make a public
    disclosure of that information unless the shareholder expressly
    agrees to hold that information in confidence)).

[^352]: *See* *1999 Broadcast Attribution Order*, 14 FCC Rcd at 12560,
    12562, 12581 ¶¶ 1, 5, 43.

[^353]: *See id*. at 12581 ¶ 44.

[^354]: *See* *1999 Cable Attribution Order*, 14 FCC Rcd at 19039-41 ¶¶
    61-64.

[^355]: *See Reexamination of the Commission's Rules and Policies
    Regarding the Attribution of Ownership Interests in Broadcast, Cable
    Television, and Newspaper Entities*, 1 FCC Rcd 802, 803 ¶ 6 (1986).

[^356]: *See* *1999 Broadcast Attribution* Order, 14 FCC Rcd at 12615-16
    ¶ 130; Reexamination *of the Commission's Rules and Policies
    Regarding the Attribution of Ownership Interests in Broadcast, Cable
    Television and Newspaper Entities*, 58 R.R.2d 604, 618-19 ¶ 46
    (1985) (*1985 Broadcast Attribution Reconsideration Order*).

[^357]: *See* 47 C.F.R. § 76.503 Note 2(b)(2); 47 C.F.R. § 76.504 Note
    1(b)(2); *1999 Cable Attribution Order*, 14 FCC Rcd at 19040-41 ¶
    64.

[^358]: *See Time Warner II*, 240 F.3d at 1143.

[^359]: *See* AT&T Comments at to *2001 Further Notice* 71-73, Time
    Warner Comments to *2001 Further Notice* at 41-42, Fox *et. al*
    Reply Comments to *2001 Further Notice* at 5; Comcast Reply Comments
    to *2001 Further Notice* at 42; AT&T Comments to *2001 Further
    Notice* at 71; and Time Warner Comments to *2001 Further Notice* at
    40-41. The commenters note only that a limited partner cannot be
    materially involved in the video programming activities of the
    partnership because the limited partner is separately prohibited
    from communicating about day-to-day activities. They do not address
    how the two provisions relate.

[^360]: *See* CFA Reply Comments to *2001 Further Notice* at 27-28.

[^361]: *Time Warner II*, 240 F.3d at 1143 (stating that the Commission
    "has drawn no connection between the sale of programming and the
    ability of a limited partner to control programming choices.").

[^362]: *Id.*

[^363]: *Id.*

[^364]: *Broadcast Ownership Reconsideration Order*, 16 FCC Rcd at
    1112-15 ¶¶ 30-39.

[^365]: *Id*. at 1112-13 ¶¶ 31-32

[^366]: *Id.* at 1112 ¶ 28.

[^367]: *Id*. at 1111 ¶¶ 27-28

[^368]: *Id*. at 1111-12 ¶ 29

[^369]: *Id*. at 1113-14 ¶¶ 33-35.

[^370]: *Id*. at 1114 ¶ 35

[^371]: In the *Broadcast Ownership Reconsideration Order*, the
    Commission clarified how the EDP rule would apply where an investor
    holds an interest in an entity that owns several stations in one
    market or multiple stations in several markets. It also clarified
    how it would apply the EDP rule to officers and directors. *Id*. at
    1114-15 ¶ ¶ 36-39. We tentatively conclude that these clarifications
    are not relevant in the cable ED context because they relate mainly
    to issues related the EDP triggering prong. We invite comment on
    this tentative conclusion.

[^372]: *See* 47 U.S.C. § 533(f)(1)(A)-(B).

[^373]: 47 U.S.C. § 533(f)(2)(B).

[^374]: 47 U.S.C. § 533(f)(2)(G). The Commission is also directed to
    consider the other public interest objectives listed in Section
    613(f)(2). *See* 47 U.S.C. § 533(f)(2)(A), (C)-(F).

[^375]: *1993 Second Report and Order*, 8 FCC Rcd at 8593-95 ¶ 68.

[^376]: *See Implementation of Sections 11 and 13 of the Cable
    Television Consumer Protection and Competition Act of 1992,
    Horizontal and Vertical Ownership Limits*, Second Report and Order,
    8 FCC Rcd 8565, 8567 ¶¶ 3-4 (1993).

[^377]: *See Implementation of Sections 11 and 13 of the Cable
    Television Consumer Protection and Competition Act of 1992,
    Horizontal and Vertical Ownership Limits,* Memorandum Opinion and
    Order on Reconsideration of the Second Report and Order, 10 FCC Rcd
    7364 (1995).

[^378]: *Time Warner II*, 240 F.3d at 1137-39.

[^379]: *2001 Further Notice*, 16 FCC Rcd at 17350-51 ¶ 81.

[^380]: *Id*.

[^381]: *Id.*

[^382]: *Id*. at 17351-52 ¶ 83.

[^383]: *See*, *e.g.*, AT&T Comments to the *2001 Further Notice* at
    50-54.

[^384]: *See id.* at 50-51; Comcast Comments to the *2001 Further
    Notice* at 25-28.

[^385]: *See* 47 C.F.R. § 76.56.

[^386]: *See* 47 C.F.R. § 76.701.

[^387]: Time Warner Comments to the *2001 Further Notice* at 35-37
    (citing 47 U.S.C. § 536(a)(3); 47 C.F.R. §76.1301(c)).

[^388]: Cablevision Comments to the *2001 Further Notice* at 7-10; NCTA
    Comments to the *2001 Further Notice* at 21.

[^389]: Cablevision Comments to the *2001 Further Notice* at 7-9.

[^390]: *See* *Hearing on Completing the Digital Transition Before the
    S. Comm on Commerce, Science, and Transportation*, 109^th^ Cong.
    (2005) (statement of Kyle McSlarrow, President, National Cable &
    Telecommunications Association).

[^391]: AT&T Comments to the *2001 Further Notice*, Besen Decl. at 6-8;
    AT&T Comments to the *2001 Further Notice* , Ordover Decl. at 48-52.

[^392]: AT&T Comments to the *2001 Further Notice*, Ordover Decl. at
    52-65. Ordover focuses his analysis on program developers' ability
    to find outlets to distribute their programming, and not on the
    ability of a new programming network to enter the market.

[^393]: Time Warner Comments to the *2001 Further Notice*, Joskow and
    McLaughlin Decl. at 5-6.

[^394]: *Id*. at 2-4; AT&T Comments, Besen Decl. at 10-14.

[^395]: AT&T Comments to the *2001 Further Notice,* Besen Decl. at
    14-20; AT&T Comments, Ordover Decl. at 48-52.

[^396]: *2005 Second Further Notice*, 20 FCC Rcd at 9439-42 ¶¶ 130-36.

[^397]: AT&T Comments to the *2001 Further Notice*, Besen declaration
    and Time Warner Comments to the *2001 Further Notice*, Joskow and
    McLaughlin declaration.

[^398]: *2005 Second Further Notice* at 20 FCC Rcd at 9439-40 ¶¶ 130-31.

[^399]: *Id.* at 9446-47 ¶ 147.

[^400]: *Id.* at 9442 ¶ 136. In response, Comcast and NCTA reiterate
    their arguments that cable operators do not have an incentive to
    engage in vertical foreclosure because of the presence of MVPD
    competition and of other distribution channels. Comcast Comments to
    the *2005 Second Further Notice* at 60-66; NCTA Comments to the
    *2005 Second Further Notice* at 4-7, 14-16.

[^401]: Several commenters respond to the *2001 Further Notice* by
    asserting that the Commission should not adopt any channel occupancy
    rules and should not limit the carriage of affiliated programming.
    *See* Cablevision Comments to the *2001 Further Notice* at 5-11;
    Comcast Comments the *2001 Further Notice* at 29-33; NCTA Comments
    the *2001 Further Notice* at 20-23; Time Warner Comments the *2001
    Further Notice* at 35-37. They assert that changes in the
    marketplace have eliminated the need for such limits and that
    therefore no channel occupancy limit can survive constitutional
    scrutiny. Cablevision Comments at 6 (arguing that given the
    technological advancements and today's "vigorously competitive" MVPD
    marketplace, no channel occupancy limit will survive constitutional
    scrutiny); NCTA Comments the *2001 Further Notice* at 11, 14
    (contending that competition in the sale of video programming has
    effectively eliminated incentives to discriminate, and that if a
    cable operator refuses to carry attractive programming services, it
    will not only fail to attract subscribers and fail to maximize
    revenue from existing subscribers, it may lose subscribers). Other
    commenters assert, on the other hand, that horizontal concentration
    and vertical integration in the MVPD industry require that the
    Commission enact and enforce a strict channel occupancy limit. *See*
    CFA Comments the *2001 Further Notice* at 93-105 (arguing that
    vertical integration of cable firms facilitates the imposition of
    higher costs on programming rivals or a degradation in their quality
    of service (by withholding desired programming) to gain an
    advantage); Writer's Guild Comments at 15 (contending that the
    Commission should not only retain the existing 40 percent channel
    occupancy limit but also strengthen it through ownership limits on
    both cable and broadcast networks, regardless of whether the owner
    is a cable operator).

[^402]: *2005 Second Further Notice,* 20 FCC Rcd at 9446-47 ¶ 147.

[^403]: *Id.* at 9446 ¶ 146.

[^404]: The America Channel provides analysis of how Comcast and Time
    Warner's carriage decisions varied according to tier and theme,
    based on an analysis of carriage decisions for new networks launched
    in the period of January 1, 2003 to May 15, 2005. It finds that
    Comcast and Time Warner have placed affiliated programming on analog
    and standard tiers, while unaffiliated programming has generally
    been relegated to digital or premium tiers that have less
    distribution or not provided carriage at all. It also examines the
    carriage of programming by theme and finds that Comcast and Time
    Warner provided carriage to affiliated programming networks but not
    independent networks for programming targeting the African-American,
    gay and lesbian, and English-speaking Latino communities. TAC
    Comments to the *2005 Second Further Notice* at 34-39; Exh.5.

[^405]: *See* TAC Comments to *2005 Second Further Notice* at 32-33.
    Time Warner criticizes TAC's survey on the grounds that TAC counts a
    channel as "affiliated" whenever it is owned by Comcast, Viacom,
    News Corp., NBC Universal, or Disney, which Time Warner claims
    disregards the lack of corporate affiliation with Time Warner and
    undercounts independent services that are most likely to succeed.
    *See* Time Warner Reply Comments to *2005 Second Further Notice* at
    7-8.

[^406]: *See* TAC Comments to *2005 Second Further Notice* at 39-42.

[^407]: *See* ACA Comments to *2005 Second Further Notice* at 3-5.

[^408]: *See Id*. at 5-6.

[^409]: *See* CFA Comments to *2005 Second Further Notice* at 13-14. We
    otherwise received little comment on whether a cable operator's
    incentive and ability to engage in vertical foreclosure varies by
    type of programming network or by placement on different tiers.

[^410]: *See* CFA Comments to *2005 Second Further Notice* at 37-40. CFA
    contends that cable operators discriminate and use other
    anticompetitive practices by leveraging their control of
    distribution to defend their franchise product and concludes
    programmers must either own a wire or have transmission rights to be
    in the top tier of program networks. *See Id*. at 43-44; Exhibit 12.

[^411]: *See* CWA Comments to *2005 Second Further Notice* at 10-11.

[^412]: *2001 Further Notice*, 16 FCC Rcd at 17351 ¶ 82.

[^413]: *Id*. at 17352 ¶ 84.

[^414]: *Id*. at 17351 ¶ 82.

[^415]: Time Warner Comments to the *2001 Further Notice*, Joskow and
    McLaughlin Decl. at 22.

[^416]: *Id*. at 23.

[^417]: *2005 Second Further Notice*, 20 FCC Rcd at ¶¶ 156-59.

[^418]: *Id.* at 9449 ¶ 155.

[^419]: Commenters address issues related to vertical integration, such
    as digital capacity, the issue of whether vertically integrated
    cable operators discriminate in favor of affiliated programming, and
    generalized complaints about anticompetitive effects of vertical
    integration. *See* CFA Comments to *2005 Second Further Notice* at
    13-14, 37-40, 43-46; CWA Comments to *2005 Second Further Notice* at
    10-11. No commenter, however, links any of these issues to a
    specific vertical limit.

[^420]: *2005 Second Further Notice*, 20 FCC Rcd at 9447 ¶ 148.

[^421]: *2001 Further Notice*, 16 FCC Rcd at 17321 ¶ 9.

[^422]: *Id*. at 17322-23 ¶¶ 12-13.

[^423]: *2005 Second Further Notice*, 20 FCC Rcd at 9447 ¶ 148.

[^424]: *Id.* at 9447 ¶ 149.

[^425]: *See Senate Report* at 25-27, 81; *House Report* at 41; *1995
    Vertical Reconsideration Order*, 10 FCC Rcd at 7365 ¶ 4; *1993
    Second Report and Order*, 8 FCC Rcd at 8583-84 ¶¶ 41-42; *Initial
    Notice*, 8 FCC Rcd at 218 ¶¶ 42-43; *2005 Second Further Notice* at
    para. 146. *Cf. generally* *Program Access Order*, 17 FCC Rcd at
    12135-50 ¶¶ 24-55 (discussing ability and incentive of vertically
    integrated programming networks to favor affiliated cable
    operators).

[^426]: *2005 Second Further Notice* at ¶ 136.

[^427]: In his study of programming network carriage by cable systems,
    based on a sample of 11 networks, Goolsbee found that vertical
    integration generally increases the probability of carriage.  He
    also found that increased DBS share in a market reduces this
    probability, suggesting that the propensity for self-carriage is
    driven more by market power considerations than by efficiencies from
    vertical integration.  Austan Goolsbee, *Vertical Integration and
    the Market for Broadcast and Cable Television Programming* (April
    2007) (MB Docket No. 06-121).

[^428]: Dong Chen and David Waterman, *Vertical Foreclosure in the U.S.
    Cable Television Market: An Empirical Study of Program Network
    Carriage and Positioning* (Aug. 2005).

[^429]: Jun-Seok Kang, *Reciprocal Carriage of Vertically Integrated
    Cable Networks: An Empirical Study.*

[^430]: Comcast Reply Comments to the *2005 Second Further Notice* at
    19-23, citing Exhibit 1.

[^431]: *Id*. at 17-19, citing Exhibit 1.

[^432]: *See Senate Report* at 26-27, 81; *House Report* at 41; *1995
    Vertical Reconsideration Order*, 10 FCC Rcd at 7365-66 ¶¶ 5-6; *1993
    Second Report and Order*, 8 FCC Rcd at 8584-85 ¶¶ 43-44; *Initial
    Notice*, 8 FCC Rcd at 218-19 ¶¶ 44-45; *2005 Second Further Notice*
    at ¶ 146.

[^433]: 47 C.F.R. § 76.504(a) (2007).

[^434]: See *In the Matter of Implementation of Sections 11 and 13 of
    Cable Television Consumer Protection Act of 1992* *Horizontal and
    Vertical Ownership Limits*, Second Report and Order, 8 FCC Rcd 8566,
    8599, ¶ 78 (1993) ("Second Report and Order")

[^435]: *Id.*

[^436]: *Id*.

[^437]: *Id.*

[^438]: *1998 Video Competition Report*, 13 FCC Rcd at 24380-81,
    24439-41 ¶ 171, Appendix D, Table D-3.

[^439]: *2005 Video Competition Report*, 21 FCC Rcd at 2579, ¶ 166.

[^440]: We note that, in adopting the exclusive contract prohibition in
    Section 628(c)(2)(D), Congress applied the prohibition to *all*
    cable operators. *See* Program Access Order 22 FCC Rcd 17791,
    17840-1¶71. *See also* H.R. Rep No. 102-862, at 2 (1992) (Conf.
    Rep.):

    > The cable industry has become vertically integrated; cable
    > operators and cable programmers often have common ownership. As a
    > result, cable operators have the incentive and ability to favor
    > their affiliated programmers. This could make it more difficult
    > for noncable-affiliated programmers to secure \*1461 carriage on
    > cable systems. Vertically integrated program suppliers also have
    > the incentive and ability to favor their affiliated cable
    > operators over nonaffiliated cable operators and programming
    > distributors using other technologies.

[^441]: *Id.* at ¶ 72.

[^442]: *See* 5 U.S.C. § 801(a)(1)(A).

[^443]: *See* 5 U.S.C. § 604.

[^444]: *See* 5 U.S.C. § 603.

[^445]: *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).

[^446]: *The Commission's Cable Horizontal and Vertical Ownership
    Limits,* Second Further Notice of Proposed Rulemaking, 20 FCC Rcd
    9374, 9453 ¶ 165 (2005) ("*2005 Second Further Notice*").

[^447]: *See* 5 U.S.C. § 604.

[^448]: 47 C.F.R. § 76.503.

[^449]: *Time Warner Entertainment Co. v. FCC*, 240 F.3d 1126 (D.C. Cir.
    2001).

[^450]: 47 U.S.C. § 533(f)(2)(A).

[^451]: 5 U.S.C. § 604(a)(3).

[^452]: 5 U.S.C. § 601(6).

[^453]: 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."

[^454]: 15 U.S.C. § 632.

[^455]: 13 C.F.R. § 121.201 (2007), NAICS code 517110.

[^456]: U.S. Census Bureau, 2007 NAICS Definitions, 517110 Wired
    Telecommunications Carriers,
    http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.

[^457]: 13 C.F.R. § 121.201 (2002), NAICS code 517510.

[^458]: U.S. Census Bureau, 2002 Economic Census, Subject Series:
    Information, Table 5, Receipts Size of Firms for the United States:
    2002, NAICS code 517510 (issued November 2005).

[^459]: *Id.*

[^460]: 47 U.S.C. § 543(m)(2); *see* 47 C.F.R. § 76.901(f) & nn. 1-3.

[^461]: 47 C.F.R. § 76.901(f); *see* Public Notice*, FCC Announces New
    Subscriber Count for the Definition of Small Cable Operator*, DA
    01‑158 (Cable Services Bureau, Jan. 24, 2001).

[^462]: These data are derived from: R.R. Bowker, *Broadcasting & Cable
    Yearbook 2007*, "Top 25 Cable/Satellite Operators," pages A-8 & C-2
    (data current as of March 30, 2006); Warren Communications News,
    *Television & Cable Factbook 2007*, "Ownership of Cable Systems in
    the United States," pages D-1737 to D-1786.

[^463]: The Commission does receive such information on a case-by-case
    basis if a cable operator appeals a local franchise authority's
    finding that the operator does not qualify as a small cable operator
    pursuant to § 76.901(f) of the Commission's rules. *See* 47 C.F.R. §
    76.909(b).

[^464]: 13 C.F.R. § 121.201 (2007), NAICS code 517110.

[^465]: For a list of IMCC members, see
    http://www.imcc-online.org/membership (visited Jan. 4, 2008).

[^466]: *See* Kagan Research, LLC, *Basic Cable Network Economics,
    2005-2015,* Media Trends 2006, at 64.

[^467]: 5 U.S.C. § 603(c)(1) -- (c)(4).

[^468]: *See Fourth Report & Order*, ¶¶ 40-73.

[^469]: *See* *e.g., Fourth Report & Order,* ¶¶ 77-83 (discussion of
    regional limits proposal).

[^470]: *See* 5 U.S.C. § 801(a)(1)(A).

[^471]: *See* 5 U.S.C. § 604(b).

[^472]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. §§ 601-612, has
    been amended by the Contract With America Advancement Act of 1996,
    Pub. L. No. 104-121, 110 Stat. 847 (1996) ("CWAAA"). Title II of the
    CWAAA is the Small Business Regulatory Enforcement Fairness Act of
    1996 ("SBREFA").

[^473]: *Implementation of Section 11 of the Cable Television Consumer
    Protection and Competition Act of 1992,* Further Notice of Proposed
    Rulemaking, 16 FCC Rcd 17312 (2001) ("*2001 Further Notice")*.

[^474]: *The Commission's Cable Horizontal and Vertical Ownership
    Limits*, Second Further Notice of Proposed Rulemaking, 20 FCC Rcd
    9374, 9385 ¶ 17 (2005) ("*2005 Second Further Notice*").

[^475]: *See* 5 U.S.C. § 603(a).

[^476]: *See id*.

[^477]: *Time Warner Entertainment Co. v. FCC,* 240 F.3d 1126 (D.C. Cir.
    2001) ("*Time Warner II*").

[^478]: *Id*. at 1139.

[^479]: *2001 Further Notice*, 16 FCC Rcd at 17350-51 ¶ 81.

[^480]: *1999 Broadcast Attribution Reconsideration Order,* 16 FCC Rcd
    at 1110-15 ¶¶ 25-39.

[^481]: 5 U.S.C. § 603(b)(3).

[^482]: *Id*. § 601(3) (incorporating by reference the definition of
    "small business concern" in 15 U.S.C. § 632). Pursuant to the RFA,
    the statutory definition of a small business applies, "unless an
    agency, after consultation with the Office of Advocacy of the SBA
    and after opportunity for public comment, establishes one or more
    definitions of the term where appropriate to the activities of the
    agency and publishes the definition(s) in the Federal Register."

[^483]: *Id.*

[^484]: 15 U.S.C. § 632.

[^485]: 13 C.F.R. § 121.201 (2007), NAICS Code 515120.

[^486]: OMB, North American Industry Classification System: United
    States, 1997, at 508-09 (1997) (NAICS Code 51320 which was changed
    to 51520 in October 2002). This category description continues,
    "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 studio, from an affiliated network, or
    from external sources." Separate census categories pertain to
    businesses primarily engaged in produced programming. *See* *id.* at
    502-505, NAICS Code 512110. Motion Picture and Video Production;
    Code 512120, Motion Picture and Video Distribution, Code 512191, 19
    FCC Rcd 15238 (2004). Teleproduction and Other Post-Production
    Services, and Code 512199, Other Motion Picture and Video
    Industries.

[^487]: 13 C.F.R. § 121.201, NAICS code 517510.

[^488]: "\[Business concerns\] are affiliates of each other when one
    business concern controls or has the power to control the other or a
    third party or parties controls or has the power to control both."
    13 C.F.R. § 121.103(a)(1).

[^489]: *See* NAICS Code 515112.

[^490]: *Id.*

[^491]: "\[Business concerns\] are affiliates of each other when one
    business concern controls or has the power to control the other or a
    third party or parties controls or has the power to control both."
    13 C.F.R. § 121.103(a)(1).

[^492]: 13 C.F.R. § 121.201 (2007), NAICS code 517110

[^493]: U.S. Census Bureau, 2007 NAICS Definitions, 517110 Wired
    Telecommunications Carriers,
    http://www.census.gov/naics/2007/def/ND517110.HTM#N517110.

[^494]: 13 C.F.R. § 121.201 (2007), NAICS code 517110.

[^495]: 13 C.F.R. § 121.201 (2002), NAICS code 517510.

[^496]: U.S. Census Bureau, 2002 Economic Census, Subject Series:
    Information, Table 5, Receipts Size of Firms for the United States:
    2002, NAICS code 517510 (issued November 2005).

[^497]: *Id.*

[^498]: 47 C.F.R. § 76.901(e). The Commission determined that this size
    standard equates approximately to a size standard of \$100 million
    or less in annual revenues. *Implementation of Sections of the 1992
    Cable Act: Rate Regulation,* Sixth Report and Order and Eleventh
    Order on Reconsideration, 10 FCC Rcd 7393, 7408 (1995).

[^499]: These data are derived from: R.R. Bowker, *Broadcasting & Cable
    Yearbook 2007*, "Top 25 Cable/Satellite Operators," pages A-8 & C-2
    (data current as of March 30, 2006); Warren Communications News,
    *Television & Cable Factbook 2007*, "Ownership of Cable Systems in
    the United States," pages D-1737 to D-1786.

[^500]: 47 C.F.R. § 76.901(c).

[^501]: Warren Communications News, *Television & Cable Factbook 2007*,
    "U.S. Cable Systems by Subscriber Size," page F-2 (data current as
    of Oct. 2006). The data do not include 699 systems for which
    classifying data were not available.

[^502]: 47 U.S.C. § 543(m)(2); *see* 47 C.F.R. § 76.901(f) & nn. 1-3.

[^503]: 47 C.F.R. § 76.901(f); *see* Public Notice*, FCC Announces New
    Subscriber Count for the Definition of Small Cable Operator*, DA
    01‑158 (Cable Services Bureau, Jan. 24, 2001).

[^504]: These data are derived from: R.R. Bowker, *Broadcasting & Cable
    Yearbook 2007*, "Top 25 Cable/Satellite Operators," pages A-8 & C-2
    (data current as of March 30, 2006); Warren Communications News,
    *Television & Cable Factbook 2007*, "Ownership of Cable Systems in
    the United States," pages D-1737 to D-1786.

[^505]: The Commission does receive such information on a case-by-case
    basis if a cable operator appeals a local franchise authority's
    finding that the operator does not qualify as a small cable operator
    pursuant to § 76.901(f) of the Commission's rules. *See* 47 C.F.R. §
    76.909(b).

[^506]: 13 C.F.R. § 121.201 (2007), NAICS code 517110.

[^507]: For a list of IMCC members, see
    http://www.imcc-online.org.membership (visited Jan. 4, 2008).

[^508]: Kagan Research, LLC, *Basic Cable Network Economics, 2005-2015,*
    Media Trends 2006, at 64.

[^509]: 13 C.F.R. § 121.201 (2007), NAICS code 517110.

[^510]: *C-*Band, SKYREPORT, Feb. 12. 19, 2006 at 4 and *C-Band Numbers
    Keep Dwindling,* Satellite Business News FAXUpdate, July 7, 2006.
    These numbers are based on a report from Motorola's Access Control
    Center, which oversees authorizations and de-authorizations of
    satellite receivers using Motorola's proprietary conditional access
    systems.

[^511]: Broadband Radio Service ("BRS"), formerly known as Multipoint
    Distribution Service ("MDS") or Multichannel Multipoint Distribution
    Service ("MMDS"), is regulated by Part 27 of the Commission's rules;
    *see* 47 C.F.R. Part 27.

[^512]: Educational Broadband Service ("EBS"), formerly known as
    Instructional Television Fixed Service ("ITFS"), is regulated by
    Part 27 of the Commission's rules; *see* 47 C.F.R. Part 27. EBS
    licensees, however, are permitted to lease spectrum for BRS
    operation.

[^513]: 13 C.F.R. § 121.201 (2007), NAICS code 517210.

[^514]: U.S. Census Bureau, 2007 NAICS Definitions, 517110 Wireless
    Telecommunications Carriers (except Satellite),
    http://www.census.gov/naics/2007/def/ND517210.HTM#N517210.

[^515]: 13 C.F.R. § 121.201 (2007), NAICS code 517210.

[^516]: MDS Auction No. 6 began on November 13, 1995, and closed on
    March 28, 1996. (67 bidders won 493 licenses.) Multipoint
    Distribution Service ("MDS"), also known as Multichannel Multipoint
    Distribution Service ("MMDS"), is now known as Broadband Radio
    Service ("BRS").

[^517]: 47 C.F.R. § 21.961(b)(1).

[^518]: *See ITFS* *Order*, 10 FCC Rcd at 9589.

[^519]: In addition, the term "small entity" under SBREFA applies to
    small organizations (nonprofits) and to small governmental
    jurisdictions (cities, counties, towns, townships, villages, school
    districts, and special districts with populations of less than
    50,000). 5 U.S.C. §§ 601(4)-(6). We do not collect annual revenue
    data on EBS licensees.

[^520]: 47 U.S.C. § 309(j). Hundreds of stations were licensed to
    incumbent BRS licensees prior to implementation of Section 309(j) of
    the Communications Act of 1934, 47 U.S.C. § 309(j). For these
    pre-auction licenses, the applicable standard is SBA's small
    business size standards for "other telecommunications" (annual
    receipts of \$12.5 million or less). *See* 13 C.F.R. § 121.201,
    NAICS code 517910.

[^521]: *See* 47 U.S.C. § 573.

[^522]: 13 C.F.R. § 121.201 (2007), NAICS code 517110.

[^523]: For a complete list of OVS certifications, *see* Current Filings
    For Certification of Open Video Systems, at
    http://www.fcc.gov/mb/ovs/csovscer.html (visited Jan. 4, 2008).

[^524]: BSP subscribers: 2003 subscribers from NCTA Comments for the
    *2003 Report* at 8; 2004 subscribers from BSPA Comments at 6 for the
    *2004 Report* and Commission estimates; 2005 from *2005 Report*, 21
    FCC Rcd at 2617; 2006 subscribers from BSPA Comments at 6 and
    Commission estimates.

[^525]: *See 2005 Cable Competition Report*, 20 FCC Rcd at 2802, ¶ 71.

[^526]: As of June 2007, RCN serves 355,000 subscribers and Knology
    serves 221,800 subscribers. *See*
    http://www.ncta.com/Statistic/Statistic/Top25MSOs.aspx (visited Jan.
    4, 2008).

[^527]: U.S. Census Bureau, 2002 NAICS Definitions, "515210 Cable and
    Other subscription Programming";
    http://www.census.gov/epcd/naics02/def/ND515210.HTM#N515210.

[^528]: 13 C.F.R. § 121.201 (2007), NAICS code 515210.

[^529]: U.S. Census Bureau, 2002 Economic Census, Subject Series:
    Information, "Establishment and Firm Size (Including Legal Form of
    Organization)," Table 4, NAICS code 515210 (issued Nov. 2005). As
    noted above, the U.S. Census Bureau has not yet collected data for
    2007, so we continue to rely on 2002 data.

[^530]: *Id*. An additional 40 firms had annual receipts of \$25 million
    or more.

[^531]: 15 U.S.C. § 632.

[^532]: Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, to
    William E. Kennard, Chairman, FCC (May 27, 1999). The Small Business
    Act contains a definition of "small-business concern," which the RFA
    incorporates into its own definition of "small business." *See* 15
    U.S.C. § 632(a) (Small Business Act); 5 U.S.C. § 601(3) (RFA). SBA
    regulations interpret "small business concern" to include the
    concept of dominance on a national basis. *See* 13 C.F.R.
    § 121.102(b).

[^533]: 5 U.S.C. § 603(c).

[^534]: [5 U.S.C. §
    603(b)](http://web2.westlaw.com/find/default.wl?DB=1000546&DocName=5USCAS603&FindType=L&AP=&mt=Westlaw&fn=_top&sv=Full&vr=2.0&rs=WLW5.06).

[^535]: The Equity Plus Debt (ED) rule attributes the interest of those
    who hold 33 percent or more of a cable entity's total assets,
    including interests which otherwise would not be attributable
    (including non-voting stock and insulated partnership interests).

[^536]:  *12^th^ Annual Video Competition Report*, 21 FCC Rcd at
    2622-43, Tables C-1 and C-2.

[^537]: The survey contains information on the basic, expanded basic,
    and most popular digital tier.

[^538]: The data in this table were derived from the responses to the
    Cable Price Survey. Although individual responses are subject to
    confidentiality requests, the table presents aggregated data.

[^539]: *Time Warner Entertainment Co. v. U.S.,* 211 F.3d 1313 (D.C.
    Cir. 2000) (*Time Warner I*).

[^540]: *Time Warner Entertainment Co. v. U.S.,* 240 F.3d 1126 (D.C.
    Cir. 2001) (*Time Warner II*).

[^541]: 47 U.S.C. § 533(f)(1)(A), (f)(2)(A).

[^542]: *Id.* at § 533(f)(2)(E), (f)(2)(G).

[^543]: *Id. at* § 533(f)(2)(C)-(D).

[^544]: News Release, FCC, *FCC Adopts 13^th^ Annual Report to Congress
    on Video Competition and Notice of Inquiry for the 14^th^ Annual
    Report* 4 (Nov. 27, 2007).

[^545]: *Time Warner Entertainment Co. v. FCC*, 240 F.3d 1126, 1134
    (D.C.Cir. 2001).

[^546]: *Id.* at 1136.