Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of:                | * | CS Docket No. 01-290         |
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| Implementation of the Cable      | ) |                              |
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| Television Consumer Protection   | * |                              |
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| And Competition Act of 1992      | * |                              |
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| Development of Competition and   | ) |                              |
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| Section 628(c)(5) of the         | ) |                              |
| Communications Act               | * |                              |
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REPORT AND ORDER

**Adopted: June 13, 2002** **Released: June 28, 2002**

By the Commission: Commissioner Abernathy dissenting and issuing a
statement; Commissioner Copps

issuing a statement; and Commissioner Martin approving in part,
concurring in part,

> and issuing a statement.

# INTRODUCTION

1.  We issue this *Report and Order* ("*Order*") in accordance with
    Section 628(c)(5) of the Communications Act of 1934, as amended
    ("Communications Act").[^1] Section 628(c)(2)(D) generally
    prohibits, in areas served by a cable operator, exclusive contracts
    for satellite cable programming or satellite broadcast programming
    between vertically integrated programming vendors and cable
    operators.[^2] Section 628(c)(5) directs that the prohibition on
    exclusive programming contracts contained in Section 628(c)(2)(D)
    shall cease to be effective on October 5, 2002, unless the
    Commission finds that such prohibition "continues to be necessary to
    preserve and protect competition and diversity in the distribution
    of video programming." The Commission issued a *Notice of Proposed
    Rulemaking* seeking comment on the possible sunset of Section
    628(c)(2)(D).[^3] By this *Order*, we retain for five years, until
    October 5, 2007, the prohibition on exclusive programming contracts
    contained in Section 628(c)(2)(D).

2.  In undertaking our analysis in this proceeding, we first examine the
    question of the correct standard to apply in determining whether to
    continue the exclusivity prohibition. As a backdrop to our analysis,
    we examine the changes that have occurred in the multichannel video
    programming distribution market over the past decade beginning with
    the enactment of Section 628 as part of the Cable Television
    Consumer Protection and Competition Act of 1992 ("1992 Cable
    Act")[^4] through the present. We then consider whether, as Congress
    concluded in 1992, vertically integrated program suppliers today
    retain both the incentive and ability to favor their affiliated
    cable operators over nonaffiliated cable operators and program
    distributors using other technologies such that competition and
    diversity in the distribution of video programming would not be
    preserved and protected. As part of this analysis, we examine
    whether a partial sunset of the exclusivity prohibition may be
    appropriate as to a class of multichannel video programming
    distributors ("MVPDs") or a subset thereof. We examine whether the
    prohibition remains necessary to preserve and protect diversity in
    the distribution of video programming. We also address requests to
    either narrow or expand the scope of the prohibition. Finally, we
    discuss a new five-year term, *i.e*., until October 5, 2007, for the
    extension of Section 628(c)(2)(D).

3.  In examining whether the exclusivity prohibition "continues to be
    necessary," we find guidance in the concerns Congress expressed in
    1992, however, our analysis places substantial weight on whether, in
    the absence of the exclusivity prohibition, vertically integrated
    programmers would currently have the incentive and ability to favor
    their affiliated cable operators over nonaffiliated cable operators
    and program distributors using other technologies and, if they
    would, whether such behavior would result in a failure to protect
    and preserve competition and diversity in the distribution of video
    programming. The *Order* notes that Congress acknowledged that the
    enforcement of the prohibition on exclusivity against all vertically
    integrated programmers may not always serve the public interest, and
    that retention of the exclusivity prohibition does not foreclose all
    exclusive arrangements between vertically integrated programmers and
    cable operators. The *Order* finds that Congress explicitly
    recognized the existence of such programming by creating the public
    interest exception to the prohibition. The *Order* acknowledges the
    significant changes in the MVPD market over the last decade, and
    finds that, vertically integrated programmers generally retain the
    incentive and ability to favor their cable affiliates over
    nonaffiliated cable operators and other competitive MVPDs to such a
    degree that, in the absence of the prohibition, competition and
    diversity in the distribution of video programming would not be
    preserved and protected.

4.  With regard to the ability of programmers to favor their cable
    affiliates over other MVPDs, the *Order* finds that access to
    vertically integrated programming continues to be necessary in order
    for competitive MVPDs to remain viable in the marketplace. An MVPD's
    ability to provide service that is competitive with an incumbent
    cable operator is significantly harmed if denied access to "must
    have" vertically integrated programming for which there are no good
    substitutes. The *Order* also finds that vertically integrated
    programmers retain the incentive to favor their affiliated cable
    operators over competitive MVPDs such that competition and diversity
    in the distribution of video programming would not be preserved and
    protected. Cable operators today continue to dominate the MVPD
    marketplace and that horizontal consolidation and clustering
    combined with affiliation with regional programming, have
    contributed to cable's overall market dominance. The *Order* finds
    that an economic basis for denial of access to vertically integrated
    programming to competitive MVPDs continues, and that such denial
    would harm such competitors' ability to compete for subscribers. The
    *Order* finds that a partial sunset of the exclusivity prohibition
    is not warranted at this time, and that extending the prohibition on
    exclusivity remains necessary to preserve and protect diversity in
    the distribution of video programming.

5.  The Order finds that the scope of the exclusivity prohibition should
    not be narrowed to apply to particular types of programming or
    specified geographic areas. The Order also rejects expanding the
    prohibition to terrestrially delivered programming or non-vertically
    integrated programming. Finally, during the year before the
    expiration of the exclusivity prohibition on October 5, 2007, the
    Commission will undertake a review to again determine whether the
    prohibition continues to be necessary. During this five-year period,
    the Commission will continue to evaluate petitions for exclusivity,
    under the public interest factors established by Congress. We find,
    however, that if a dramatic shift in the competitive landscape
    should occur before five years, the Commission may initiate its
    review earlier on its own motion or in response to a petition.

# BACKGROUND

6.  Congress, in the 1992 Cable Act, was concerned that because ". . .
    cable system\[s\] face\[d\] no local competition . . . \[t\]he
    result is undue market power for the cable operator as compared to
    that of consumers and video programmers."[^5] The lack of
    competition to cable in the delivery of multichannel programming
    enabled cable operators to engage in anticompetitive behavior to the
    detriment of subscribers, nascent competitors, and nonaffiliated
    programmers. Congress sought to address this concern in two
    ways: (i) by imposing specific conduct restrictions that were
    intended to ameliorate the adverse consequences attendant to the
    absence of robust competition, such as customer service requirements
    and the regulation of the rates that cable operators charged for
    certain equipment and services; and (ii) by imposing (or in some
    cases eliminating, as in the case of certain ownership restrictions)
    obligations that it believed would increase competition to incumbent
    cable operators.

7.  One means of increasing competition in the distribution of
    programming was to prohibit contractual exclusivity,[^6] absent a
    public interest finding, in the sale of programming so that new
    entrants would have access to programming that was considered
    critical to competitive survival.[^7] Congress did so based on
    certain findings and basic assumptions. First, Congress found that
    increased horizontal concentration of cable operators, combined with
    extensive vertical integration, created an imbalance of power, both
    between cable operators and program vendors and between incumbent
    cable operators and their multichannel competitors.[^8] Congress
    determined that this imbalance of power limited the development of
    competition among MVPDs and restricted consumer choice.[^9] Second,
    the structure and legislative history of the 1992 Cable Act suggest
    that Congress believed it unlikely that new market entrants could
    compete effectively unless they could gain access to vertically
    integrated, satellite delivered programming.[^10] It was this
    programming that Congress believed incumbent providers had both the
    incentive and the ability to deny to new competitors.[^11] In terms
    of the nature of the competitors it anticipated, Congress explicitly
    expected competition to incumbent cable operators to develop from
    cable overbuilders, MMDS operators, SMATV systems, and DTH satellite
    providers (C-band and DBS).[^12]

8.  Finally, although the prohibition on exclusive contracts was
    intended to provide these new market entrants with a measure of
    protection, Congress recognized that exclusivity can be a legitimate
    business practice where there is competition.[^13] Accordingly,
    Congress provided that the prohibition would terminate at the end of
    10 years unless the Commission, after conducting a proceeding, found
    that the prohibition on exclusive contracting "continues to be
    necessary to preserve and protect competition and diversity in the
    distribution of video programming."[^14]

9.  During this ten-year period, the restrictions on exclusive
    programming contracts were intended to prohibit anticompetitive
    practices, foster the development of emerging competitors to cable,
    and level the competitive field for smaller MVPD competitors. The
    Commission therefore issued its *Notice* in this proceeding in order
    to determine whether competition to incumbent cable operators has
    reached the point at which the exclusivity prohibition no longer is
    necessary, or whether an extension of the prohibition is required.

# Standard For Review

10. At the outset, there is a question as to how to interpret the
    statutory standard the Commission must apply in determining whether
    to continue the prohibition in Section 628(c)(2)(D). Several cable
    multiple system operators ("MSOs") state that there is an
    unambiguous presumption that the prohibition against exclusive video
    programming contracts will sunset in October 2002.[^15] AT&T and
    NCTA argue that the sunset of Section 628(c)(5) is not merely
    conditional and that Congress expected the prohibition to sunset,
    unless extraordinary circumstances convince the Commission that it
    is necessary to retain the prohibition.[^16] Comcast asserts that,
    the Commission must find substantial evidence to support a
    conclusion that the rule remains necessary to preserve and protect
    competition.[^17] It argues that the burden of demonstrating a
    continued need for Section 628(c)(2)(D) is "insurmountable."[^18]
    AOLTW states that any analysis starts with the proposition that
    there must be substantial and specific evidence establishing that,
    without retention, competition and diversity in the distribution of
    video programming could not be preserved and protected.[^19]

11. Citing the United States Court of Appeals for the District of
    Columbia Circuit's decisions in *Sinclair Broadcast Group, Inc. v.
    FCC*[^20] and *Fox Television Stations, Inc., v. FCC*,[^21] AOLTW
    argues that Congress' use of the word "necessary" in Section 628
    imposes "an affirmative obligation on the Commission to justify
    retention of the ownership rules in question based on specific
    factual evidence in the record...."[^22] AOLTW asserts that evidence
    that retention would be "helpful," "beneficial" or "consonant with
    the public interest" is not enough; the rule may be retained only if
    shown to be "necessary to preserve and protect competition and
    diversity."[^23]

12. Responding to AOLTW's argument, WCA and BellSouth argue that
    regardless of where the burden of proof lies, the Commission has
    broad discretion to determine whether preserving the ban on
    exclusivity continues to be necessary.[^24] DBS providers and other
    competitive MVPDs argue that this inquiry does not require the
    Commission to prove that competition and diversity cannot under any
    circumstances be protected in the absence of Section 628(c)(2)(D),
    nor does it require the Commission to eliminate Section 628(c)(2)(D)
    unless "extraordinary circumstances" convince the Commission that it
    is necessary to retain the prohibition.[^25] EchoStar emphasizes
    that there should be no presumption one way or the other and instead
    the provision provides for a review in the final year of the 10-year
    period so that the Commission can assess the current status of the
    competitive marketplace to determine whether the original rule has
    outlived its usefulness.[^26] Media Access Project *et al.* asserts
    that for a variety of reasons the drafters of this provision
    recognized that real competition might not emerge after 10 years and
    left it to the Commission to make the determination as to whether
    the prohibition continues to serve a purpose.[^27] RCN argues that
    the existence of the provision in Section 628(c)(5) specifically
    contemplating an extension reveals not confidence, but a concern
    that a 10-year prohibition might not be sufficient.[^28] Thus,
    according to RCN, in the face of an anticompetitive record,
    including the lack of access to available programming, Congress
    imposed a ban for a period of years and left it to the Commission to
    determine at the end of that period whether to continue the ban,
    taking into account the facts at that time.[^29]

13. We approach this issue as one of statutory construction and thus
    begin with the plain language of Section 628(c)(5). The statute
    clearly states that unless the Commission decides that the program
    exclusivity provision \"continues to be necessary to preserve and
    protect competition and diversity in the distribution of video
    programming,\" the provision will sunset on October 5, 2002. The
    parties, however, raise the question of what exactly the Commission
    must find in determining whether the provision "continues to be
    necessary to preserve and protect competition and diversity."

14. The parties focus on the word "necessary." The term "necessary" has
    been interpreted differently depending on the statutory context. For
    example, the United States Supreme Court has interpreted the term to
    mean "useful," "convenient," or "appropriate."[^30] The term has
    also been read in other contexts in a more restrictive sense to mean
    "indispensable" or "essential."[^31][^32] We do not believe the
    issue of whether the term "necessary" should be read in a more or
    less restrictive sense can or should be decided in the abstract.
    Rather, consistent with judicial precedent, the term is best
    construed in its statutory context.[^33] Here, the statute provides
    that the exclusivity prohibition shall cease to be effective unless
    the Commission finds that "such prohibition continues to be
    necessary to preserve and protect competition and diversity in the
    distribution of video programming." Accordingly, we conclude that
    the exclusivity prohibition continues to be "necessary" if, in the
    absence of the prohibition, competition and diversity would not be
    preserved and protected.[^34]

15. In applying the words of the statute to determine whether the
    exclusivity prohibition "continues to be necessary to preserve and
    protect competition and diversity in the distribution of video
    programming," we find guidance in the concerns Congress expressed
    in 1992. In the context of the market for the distribution of video
    programming as it existed in 1992, Congress determined that:

    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.... Vertically integrated program suppliers
    also have the incentive and ability to favor their affiliated cable
    operators over nonaffiliated cable operators and program
    distributors using other technologies.[^35]

16. Our analysis places substantial weight on whether, in the absence of
    the exclusivity prohibition, vertically integrated programmers would
    currently have the incentive and ability to favor their affiliated
    cable operators over nonaffiliated cable operators and program
    distributors using other technologies and, if they would, whether
    such behavior would result in a failure to protect and preserve
    competition and diversity in the distribution of video programming.
    AOLTW argues that the word "necessary" imposes an affirmative
    obligation on the Commission to justify retention of the exclusivity
    prohibition based on specific factual evidence in the record. We
    agree that Section 628(c)(5) creates a presumption that the rule
    will sunset unless the Commission finds that "such prohibition
    continues to be necessary to preserve and protect competition and
    diversity in the distribution of video programming." While specific
    factual evidence is necessary, it alone may not be sufficient to
    make that determination; we believe that the Commission may also
    rely on economic theory and its predictive judgment.[^36]

# Status of the MVPD Market: 1992-2002

17. In undertaking our analysis, the Commission must examine the
    developments and changes in the MVPD marketplace over the last
    decade to determine whether, in light of these changes, the
    prohibition on exclusivity continues to be necessary to preserve and
    protect competition and diversity in the distribution of video
    programming. We will examine developments affecting the programming
    market before turning to the state of competition among MVPD
    providers.

18. The *Eighth Annual Report* indicates that in 2001, there were 294
    satellite-delivered national programming networks.[^37] Of those 294
    networks, 104 networks, representing approximately 35 percent, were
    vertically integrated with at least one cable MSO.[^38] At the time
    of the *First Report on Competition*, there were 107
    satellite-delivered national programming services, of which 56
    services, or 53 percent, were vertically integrated with at least
    one cable MSO.[^39] The *First Report on Competition* indicates that
    at least ten different cable MSOs had attributable ownership
    interests in vertically integrated programming.[^40] Moreover, four
    of the top ten cable MSOs -- Tele-Communications, Inc. ("TCI")
    (largest MVPD), Time Warner (second largest MVPD), Cablevision
    (sixth largest MVPD) and Viacom (tenth largest MVPD)[^41] -- had an
    interest in at least 40 of the 56, or 71 percent, of the vertically
    integrated national satellite-delivered programming networks
    existing at that time.[^42] As of the *Eighth Annual Report*, all
    vertically integrated programming is attributable to only five cable
    operators, Cox Communications, AOLTW, Comcast, Cablevision, and
    Liberty Media.[^43] Four of these five are among the largest cable
    MSOs \-- Cox Communications (fifth largest MSO), AOLTW (second
    largest MSO), Comcast (third largest MSO), and Cablevision (seventh
    largest MSO). One or more of these four MSOs has an interest in 52
    of the 104 vertically integrated national satellite-delivered
    programming networks.[^44] Vertical integration is not only
    associated with the largest cable system operators, but also the
    programming networks with the largest number of subscribers. As
    stated in the *Eighth Annual Report*, nine of the top 20
    satellite-delivered video programming networks (ranked by
    subscribership) are vertically integrated with a cable MSO. These
    programming services are TBS, Discovery Channel, TNT, USA Network,
    CNN, TLC, QVC, CNN Headline News and AMC.[^45] In addition, seven
    out of the top 20 satellite-delivered video programming networks
    (ranked by prime time ratings) are vertically integrated with cable
    MSOs. These programming services are USA Network, TNT, Cartoon
    Network, TBS, Discovery Channel, TLC and Sci-Fi.[^46]

19. We also note the growing importance of regional video programming
    services. The Commission did not start tracking regional video
    programming services until 1998.[^47] At that time, there were 61
    regional video programming services, 36 of which (59 percent) were
    affiliated with at least one cable MSO.[^48] Twenty-seven of these
    regional video programming services were regional sports programming
    services, 22 of which (82 percent) were affiliated with at least one
    cable MSO.[^49] According to the *Eighth Annual Report*, there are
    currently 80 regional programming services, 39 of which (49 percent)
    are affiliated with at least one cable MSO.[^50] The majority of
    these services are currently satellite delivered.[^51] Moreover, 28
    of these regional video programming services are regional sports
    programming services, 24 of which (86 percent) are affiliated with
    at least one cable MSO.[^52] The large majority of these regional
    sports services are currently satellite delivered.[^53] Finally, we
    note that programmers continue to introduce new national and
    regional programming services -- both vertically and non-vertically
    integrated. The *Eighth Annual Report* indicates that programmers
    announced 51 new programming services that plan to launch in the
    future.[^54]

20. Turning to the status of MVPD competition over the last decade, we
    note that, in 1992, cable operators served more than 95 percent of
    all multichannel subscribers.[^55] According to the *Eighth Annual
    Report*, 78 percent of MVPD subscribers currently receive their
    video programming from a cable operator.[^56] Between 1993 and 2001
    cable subscribership increased by more than 11 million
    subscribers.[^57] The number of cable subscribers continues to grow,
    reaching almost 69 million as of June 2001, up 1.9 percent from 67.7
    million subscribers in June 2000.[^58] Moreover, the four largest
    vertically integrated cable operators serve 34 percent of all MVPD
    subscribers.[^59]

21. Over the last decade, there has been significant consolidation
    within the cable television industry. Consolidation within the cable
    industry continues today as cable operators acquire and trade
    systems. At the time of the *First Report on Competition*, the top
    four cable MSOs served 47 percent of all MVPD subscribers.[^60] The
    degree of consolidation that has occurred over the past decade is
    perhaps best demonstrated by the fact that, although DIRECTV has
    grown to become the third largest MVPD with 11 percent of MVPD
    subscribers, the four largest cable MSOs now serve 48 percent of all
    MVPD subscribers.[^61] The ten largest cable operators serve close
    to 87 percent of all U.S. cable subscribers.[^62] By contrast, the
    *First Report on Competition* indicates that the ten largest cable
    operators served 63 percent of all U.S. cable subscribers in
    1994.[^63]

22. In addition, to increased concentration at the national level,
    system "swaps" and purchases over the course of the last decade have
    dramatically changed the shape of the cable television industry in
    terms of local or regional market "clusters" -- *i.e.*, sets of
    commonly-owned cable systems within contiguous geographic market
    areas.[^64] This change in ownership, from what has been described
    as a "collection of balkanized local systems," into a smaller number
    of larger more economically rationalized operations has been
    associated with system-owned local or regional programming.[^65] As
    the pace of this trend was increasing, one analyst estimated that 20
    percent of the nation's cable subscribers would change hands in
    1995, and that nearly all of these transactions were driven by MSOs'
    interest in clustering systems.[^66] The number of clusters of
    systems serving 100,000 or more subscribers increased from 88 at
    year-end 1993 to 108 at year-end 2000 with the number of clusters
    actually appearing to decrease as existing clusters merged with
    other existing clusters.[^67] Some 34 of these systems had more than
    500,000 subscribers by year-end 2000.[^68] Close to 55 million of
    the nation's 69 million cable subscribers, or approximately 80
    percent of cable subscribers, are served by systems that are a part
    of regional clusters.[^69] For example, AT&T has large clusters in
    the Chicago, San Francisco/Oakland/San Jose, and Boston areas, with
    approximately five million subscribers in the three clusters.[^70]
    In addition, Cablevision has a cluster of approximately 3 million
    subscribers in the New York metropolitan area.[^71] Comcast's
    "Mid-Atlantic Super Cluster" with 4.4 million subscribers includes
    clusters in Pennsylvania, Maryland, Virginia, Washington, D.C., and
    Delaware.[^72] To further illustrate the degree to which clustering
    has occurred over the last several years, at the end of 1994, 26
    percent of Comcast subscribers were located in three regional
    clusters.[^73] By the end of 2000, 92 percent of Comcast subscribers
    were located in six regional clusters.[^74]

23. DBS providers, DIRECTV and EchoStar, have made significant progress
    as competitors to cable over the last decade, capturing 18 percent
    of MVPD subscribers.[^75] As indicated in the *First Report on
    Competition*, DBS had approximately 40,000 subscribers in 1994.[^76]
    Currently, DIRECTV (11 million subscribers) and EchoStar (7 million
    subscribers) are the third and seventh largest MVPDs
    respectively.[^77] Since 1992, however, other competitors, such as
    MMDS, SMATV and HSD, have not fared as well. Competitors to cable,
    other than DBS providers, serve less than 4 percent of MVPD
    subscribers. Moreover, subscribership to these services has either
    declined or remained flat over the last several years.[^78] At the
    time of the *First Report on Competition*, MMDS had 550,000
    subscribers, SMATV had one million subscribers, and HSD had four
    million subscribers.[^79] As of the *Eighth Annual Report*, MMDS had
    700,000 subscribers (down from 1,100,000 subscribers in 1997), SMATV
    had 1,500,000 subscribers and HSD had 1 million subscribers.[^80] In
    1996, the Communications Act was amended to allow local exchange
    carriers to enter the video distribution market within their
    telephone service areas and it was widely anticipated that they
    would become significant competitors in this market.[^81] Although
    the Commission has certified a number of open video system
    operators, they collectively serve only approximately 60,000
    subscribers nationwide.[^82]

# Incentive and Ability 

24. In enacting the program access provisions of the 1992 Cable Act,
    Congress concluded that "\[v\]ertically 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."[^83] We examine whether, 10
    years after enactment of the prohibition on exclusivity vertically
    integrated programmers, in the absence of the prohibition, retain
    the incentive and ability to favor their cable affiliates over
    nonaffiliated cable operators and other competitive MVPDs to a
    degree that would fail to preserve and protect competition and
    diversity in the distribution of video programming. We will first
    discuss whether these programmers retain the ability to favor their
    cable affiliates over other MVPDs. That is, in the current market
    for video programming, does satellite-delivered vertically
    integrated programming remain programming that is necessary to the
    viability of competitive MVPDs and for which there are often no good
    substitutes? If we conclude that this remains true in the current
    market, vertically integrated programmers would have the ability to
    favor their affiliated cable operators over competitive MVPDs such
    that competition and diversity in the distribution of video
    programming would not be preserved and protected. Thereafter, we
    will discuss whether vertically integrated programmers retain the
    incentive to favor their cable affiliates.

25. At the outset of our analysis, we observe that, because the program
    access provisions, and the prohibition on exclusivity in particular,
    have been in effect since 1992, there is little direct evidence of
    anticompetitive foreclosure of access to vertically integrated
    programming upon which we can rely to determine whether or not
    vertically integrated program suppliers have the incentive and
    ability to favor their affiliated cable operators over competitive
    MVPDs such that competition and diversity in the distribution of
    video programming would not be preserved and protected. Accordingly,
    in determining whether to sunset the exclusivity prohibition, we
    will rely on the factual evidence available, economic theory and the
    Commission's predictive judgment of the direction in which the
    future public interest lies.[^84] We further note that Congress
    acknowledged that the enforcement of the prohibition on exclusivity
    against all vertically integrated programmers may not always serve
    the public interest. Retention of the exclusivity prohibition does
    not foreclose all exclusive arrangements between vertically
    integrated programmers and cable operators.[^85] In enacting the
    prohibition in 1992, Congress explicitly recognized the existence of
    such programming by creating the public interest exception to the
    prohibition.[^86] Pursuant to this exception, when vertically
    integrated cable operators believe an exclusive arrangement will
    satisfy the public interest factors they may petition the Commission
    to approve such arrangements. For example, if a vertically
    integrated programmer contemplates the introduction of innovative
    services with limited or niche audiences and believes that these
    services will not be economically viable without a period during
    which they are offered on an exclusive basis, we encourage such
    programmer to petition the Commission to approve a period of
    exclusivity. Thus, in considering whether to retain the prohibition,
    our focus is appropriately directed toward whether access to
    vertically integrated programming in general is necessary to
    preserve and protect competition and diversity in the distribution
    of video programming.

## Ability 

26. In enacting the program access provisions of the 1992 Cable Act,
    Congress indicated that it deemed vertically integrated programming
    to be vital to the success of new entrants and competitive MVPDs. We
    consider whether developments in the ten years since the passage of
    the 1992 Cable Act diminish the importance of vertically integrated
    programming or affect the ability of vertically integrated
    programmers to favor their affiliated cable operators over other
    MVPDs such that competition and diversity in the distribution of
    video programming would not be preserved and protected.

27. Competitive MVPDs argue that they continue to face hurdles in
    seeking access to critical programming because cable operators
    continue to control essential video programming services.[^87] In
    support, these commenters assert that more than one-third of all
    national programming networks are vertically integrated with at
    least one MSO.[^88] In addition, these commenters note that, in many
    cases, more than one of the top five cable MSOs holds an
    attributable interest in vertically integrated services, nine of the
    largest 20 video programming services in terms of subscribership are
    vertically integrated with cable MSOs,[^89] and 11 of the top 20
    services in terms of prime time ratings are vertically
    integrated.[^90]

28. Competitive MVPDs agree that access to programming is a key
    component to successful implementation of competitive services.[^91]
    These commenters argue that they must have access to what they refer
    to as "marquee" or "must have" vertically integrated programming,
    such as CNN, TNT, HBO, Discovery and others.[^92] APPA asserts that
    denial of even a handful of "must have" channels through use of
    exclusive contracts can destroy a new provider's ability to compete
    effectively against an entrenched incumbent.[^93] The Joint
    Commenters argue that the mere prospect that high-profile
    programming services might be taken exclusively by the largest MSOs
    is more than enough to sour investors on terrestrial competition and
    chill funding of terrestrial overbuild (wired or wireless)
    technologies.[^94] ACA argues that without enforceable access rights
    to vertically integrated programming, small cable systems risk
    losing between 30 to 42 percent of satellite programming. ACA
    contends that no supportable argument can be made that such a
    reduction in accessible satellite programming preserves and protects
    program diversity in smaller markets.[^95] EchoStar argues that if
    competitive MVPDs are denied access to desirable cable networks such
    as HBO or CNN, these MVPDs cannot simply go to the video programming
    market and obtain substitute programming that will prevent consumers
    from migrating to cable to see their favorite programs.[^96]
    EchoStar argues that this action may be feasible in a hypothetical
    perfectly competitive market, but not in the real world of video
    distribution. EchoStar argues that video programming is not a
    fungible good; it is a highly differentiated product for which, in
    many cases, there simply are no good substitutes available.[^97]

29. Competitive MVPDs are particularly concerned about the loss of
    national and regional sports programming absent the Section
    628(c)(2)(D) prohibition.[^98] These commenters argue that access to
    sports programming is necessary in order to provide a viable
    multichannel video programming package.[^99] Competitive MVPDs argue
    that regional or local sports programming presents a special problem
    because it is unique programming. Commenters argue that local sports
    cannot be duplicated by competing MVPDs or acquired from alternative
    sources, even if the cost of doing so were not an issue.[^100] RCN
    asserts that for the fan who wishes to see a Washington Redskins
    game, the alternative of a local NBA or NHL game, or even a distant
    NFL contest, is not an acceptable substitute.[^101] RCN and others
    argue that the cable industry has adopted ownership or control of
    local sports programming as a device to capture or assure dominance
    in local markets. These commenters contend that because local sports
    programming is so highly desired by subscribers, its unavailability
    imposes an unusually significant competitive harm.[^102]

30. Cable MSO commenters argue that over the course of a decade, the
    number of national video programming services competing for viewers
    has more than tripled, while the percentage of such services that
    are vertically integrated with a cable company has dropped by
    half.[^103] AOLTW contends that given the plethora of programming
    available today, particularly the wide variety of popular program
    services available from non-vertically integrated providers, the
    exclusivity restriction cannot be retained.[^104] Cablevision argues
    that, in contrast to ten years ago, there are ample substitutes and
    competing programming for most of the major, national video
    programming networks. Citing several examples, Cablevision asserts
    that there are multiple news channels (CNN, Fox News, MSNBC),
    children's channels (Nickelodeon, Disney, Toon Disney, Cartoon
    Network), national sports networks (ESPN and Fox Sports - as well as
    sports available on TNT and TBS), and music channels (VH-1, MTV,
    CMT, Much Music).[^105]

31. NCTA deems significant that over the past decade the percentage of
    vertically integrated programming has declined while there has been
    an increase in the number of program services in which cable
    operators have no ownership interest.[^106] Cable MSOs assert that
    the entry of new independent programming into the MVPD marketplace
    over the past decade has sufficiently weakened their ability to
    effectively foreclose access to enough programming to have
    anticompetitive effects. Additionally, NCTA asserts that Congress
    worried that cable operators controlled not just a relatively large
    number of satellite-delivered program networks, but also the most
    popular networks.[^107] In contrast, NCTA argues that today the
    number of popular vertically-integrated programming services has
    been substantially diluted.

32. We agree with competitive MVPDs that access to vertically integrated
    programming continues to be necessary in order for these MVPDs to
    remain viable in the marketplace. We acknowledge the arguments of
    cable MSOs that the amount and diversity of programming available
    for distribution by MVPDs has substantially increased since the
    enactment of the exclusivity prohibition, while the percentage of
    vertically integrated programming has declined. However, the most
    recent statistics on vertically integrated programming continue to
    demonstrate the importance of this programming. Perhaps most
    significant is that vertically integrated content constitutes 35
    percent of the most popularly rated satellite-delivered prime time
    programming and 45 percent of the most-subscribed-to programming.
    Moreover, the increased prominence of vertically integrated regional
    programming services, particularly sought-after and non-duplicable
    regional sports programming, strengthens the overall importance of
    vertically integrated programming to competitive MVPDs. In addition,
    some separate subscription premium networks, such as HBO and
    Cinemax, are also vertically integrated. Even though they are not
    among the top programming services in subscribership, they make an
    important contribution to an MVPD's revenue and profits. Various
    commenters cite HBO as "must have" programming, the absence of which
    could harm an MVPD. Failure to secure even a portion of vertically
    integrated programming would put a nonaffiliated cable operator or
    competitive MVPD at a significant disadvantage *vis-a-vis* a
    competitor with access to such programming.

33. Cable MSOs argue that, given the plethora of cable channels
    available, substitute programming \-- vertically integrated or
    otherwise \-- will be available to fill the niche left by vertically
    integrated programming subject to an exclusive arrangement.
    Doubtless, this would be true in some instances, but certainly not
    in every, nor perhaps in a majority of cases. As expressed in many
    comments, cable programming \-- be it news, drama, sports, music, or
    children's programming \-- is not akin to so many widgets. Cable
    programmers strive to build an identity for their channel that is
    recognizable and sought-after by viewers. For example, when an MVPD
    loses access to a popular national news channel, there is little
    competitive solace that there is a music channel or children\'s
    programming channel to replace it. Even when there is another news
    channel available, an MVPD may not be made whole because viewers
    desire the programming and personalities packaged by the unavailable
    news channel. Moreover, even if an acceptable substitute is found,
    the competitive MVPD is still harmed because its competitor can
    likely offer to subscribers both the unavailable programming and its
    substitute. Thus, there is a continuum of vertically integrated
    programming, ranging from services for which there may be
    substitutes (the absence of which from a rival MVPD's program lineup
    would have little impact), to those for which there are imperfect
    substitutes, to those for which there are no close substitutes at
    all (the absence of which from a rival MVPD's program lineup would
    have a substantial negative impact). Despite the progress that has
    been made in the 10 years since enactment of the 1992 Act, a
    considerable amount of vertically integrated programming in the
    marketplace today remains "must have" programming to most MVPD
    subscribers. We agree with the competitive MVPDs' assertion that if
    they were to be deprived of only some of this "must have"
    programming, their ability to retain subscribers would be
    jeopardized.[^108]

34. The more that the programming package offered by a competitive MVPD
    lacks the "must have" programming that is a part of the incumbent
    cable operator's programming package (*i.e.*, the new entrant offers
    a similar, but differentiated product) the less attractive the
    competitive MVPD's programming package will be to subscribers. Thus,
    we find that an MVPD's ability to provide a service that is
    competitive with the incumbent cable operator is significantly
    harmed if the MVPD is denied access to popular, vertically
    integrated programming for which no good substitute exists. We
    further find that, given the unique nature of cable programming,
    there frequently are not good substitutes available for vertically
    integrated programming services, including services that are
    considered "must have" programming by competitive MVPDs and the
    subscribers they serve, such as regional news and sports
    programming. Accordingly, we conclude that vertically integrated
    programmers continue to have the ability to favor their affiliated
    cable operators over competitive MVPDs in a manner that would
    competitively harm such MVPDs in the absence of the prohibition.

## Incentive

35. Determining whether vertically integrated programmers have the
    incentive to favor their affiliated cable operators over competitive
    MVPDs such that competition and diversity in the distribution of
    video programming would not be preserved and protected requires us
    to examine two factors. First, we must determine whether cable
    operators, through the number of subscribers they serve and their
    affiliations with satellite programmers, continue to have market
    dominance of sufficient magnitude that, in the absence of the
    prohibition, they would be able to act in an anticompetitive manner.
    Next we must consider whether there continues to be an economic
    rationale for vertically integrated programmers to engage in
    exclusive agreements with cable operators that will cause such
    anticompetitive harms.

36. To help understand the analysis that follows, we explain briefly how
    a vertically integrated cable programmer might attempt to harm rival
    MVPDs. The programmer could sign exclusive contracts for the
    distribution of its program networks for which good substitutes are
    not available. The programmer would likely contract with
    distributors (e.g., cable systems) in markets where it does not
    itself own cable systems, so as not to harm its distribution
    business. However, its programming business likely would suffer
    because the exclusive arrangements would reduce the number of
    platforms distributing the program networks and thereby the total
    number of subscribers to the networks. In the long term, however,
    the vertically integrated cable programmer can gain from the
    increased subscription to its cable distribution service that occurs
    when customers search for alternatives to the rival distribution
    systems that are precluded from carrying the popular programming
    networks in question. Thus, the exclusive distribution contract can
    be viewed as a kind of \"investment,\" in which an initial loss of
    profits from programming is incurred in order to achieve higher
    profits later from cable distribution.

37. An investment of this sort will tend to be most profitable when the
    costs of the investment are low and its benefits are high. The costs
    tend to be low when the initial loss in programming revenue is low
    (because, for example, the excluded platforms serve relatively fewer
    customers or the distributors that obtain exclusive rights to the
    program networks are willing to pay a large premium for this
    privilege). The benefits of the investment tend to be high when the
    vertically integrated cable programmer ultimately expects to serve a
    large number of subscribers, and will be able to charge them
    substantially more for cable distribution service than it could if
    it faced a strong rival distribution platform.[^109]

38. The number of subscribers that a vertically integrated cable
    programmer serves is of particular importance in calculating the
    benefits of withholding programming from rival MVPDs. The larger the
    number of subscribers controlled by the vertically integrated cable
    programmer the larger the benefits of withholding that accrue to
    that programmer. Other things being equal, then, as the number of
    subscribers rises, so does the likelihood that withholding would be
    profitable.[^110]

39. The same analysis applies to regional programming and cable system
    clusters. Consider a vertically integrated regional programming
    service for which 100 percent of demand comes from viewers in the
    region, and suppose that one MSO owns all of the cable systems in
    that region. If a programmer affiliated with that cable operator
    were to withhold programming from rival MVPDs, 100 percent of the
    benefits would accrue to that operator. Thus, even if the regional
    vertically integrated cable programmer has fewer than 100 percent of
    MVPD households in the region, and hence incurs costs by
    distributing programming exclusively via cable, the fact that the
    operator reaps 100 percent of the benefits may make the withholding
    profitable.

40. In concluding in 1992 that vertically integrated programmers had the
    incentive to favor their cable affiliates, Congress stressed the
    market dominance that cable operators exercised in the distribution
    of video programming.[^111] Accordingly, we examine the changes that
    have occurred in the intervening years and how these changes may
    have impacted this incentive. An important component of this
    analysis will be an evaluation of the current status of competition
    in the market for the distribution of video programming. AOLTW and
    other cable MSO commenters assert that the exclusivity prohibition
    should sunset in light of indisputable competitive developments in
    the MVPD market.[^112] NCTA notes that in 1992, multichannel
    competitors to cable comprised about one million C-band satellite
    dish customers, about 300,000 MMDS customers, and 1.3 million
    overbuild customers.[^113] NCTA states that the situation had not
    changed materially by the time the *First Report on Competition* was
    issued two years after the 1992 Cable Act was passed.[^114] NCTA
    argues that today cable competes with these providers and a wide
    range of others.[^115] NCTA asserts that customers have increasingly
    subscribed to these alternatives, with non-cable subscribership
    growing nearly ten-fold from an aggregate of 2,330,000 non-cable
    MVPD customers in December 1992 to more than 20,876,000 in September
    2001.[^116] Cable MSO commenters argue that, in contrast, cable's
    share of total MVPD customers has dropped from 95% in 1992 to 77% in
    2001.[^117] Cable MSO commenters assert that their market share has
    dropped because the MVPD marketplace has significantly developed to
    include real competition from DBS, SMATV providers, OVS operators,
    cable overbuilders, incumbent telephone companies, municipalities
    and utilities.[^118] Cable MSO commenters place particular emphasis
    on competition received from national MVPD competitors such as DBS
    and from local terrestrial MVPD competitors, such as RCN, Wide Open
    West, Western Integrated Networks and Knology.[^119]

41. Cable MSO commenters unanimously agree that DBS in particular has
    proven itself to be a competitive substitute for cable.[^120] Today,
    NCTA argues that the technology, program selection, and market
    status of DBS have been completely transformed.[^121] AT&T and
    others note that DIRECTV and EchoStar are now the third and sixth
    largest MVPDs respectively and that they are larger than the
    majority of cable MSOs.[^122] Cable MSO commenters assert that if
    the planned merger between DIRECTV and EchoStar is approved and
    consummated, the combined company would have more subscribers than
    any other MVPD.[^123] AOLTW and others note that DBS providers'
    share of total MVPD subscribers has grown to 18 percent.[^124] NCTA
    reports that the total number of DBS subscribers jumped from 14
    million to 16.73 million between September 2000 and September 2001
    and this represents a 19 percent annual growth rate.[^125] Cable MSO
    commenters also contend that the ability of DBS to continue to
    attract new subscribers has only been enhanced by the enactment of
    the Satellite Home Viewer Improvement Act of 1999 ("SHVIA"), which
    enabled DBS to offer local broadcast signals.[^126]

42. Competitive MVPDs argue that the Commission should not overemphasize
    the growth of DBS in assessing the competitive landscape.[^127] The
    Joint Commenters argue that the fact that the market for
    multichannel video service has evolved from a cable monopoly to a
    market dominated by cable and DBS is hardly persuasive evidence that
    the market is fully competitive.[^128] ACA argues that small cable
    companies and other competitors are at risk if the Commission
    accepts the argument that the exclusivity prohibition is no longer
    required due to competition from DBS.[^129]

43. Competitive MVPDs assert that the transition to a competitive
    marketplace that Congress and the Commission envisioned ten years
    ago has yet to occur.[^130] CBC argues that while the video
    distribution market is somewhat more competitive than it was in
    1992, the market has not yet reached a level of sustainable
    competition such that the exclusivity prohibition should be allowed
    to sunset.[^131] Competitive MVPD commenters argue that cable
    remains the dominant MVPD, accounting for approximately 80 percent
    of the MVPD market.[^132] Moreover, competitive MVPDs also note that
    the top ten cable MSOs serve nearly 90 percent of all cable
    subscribers.[^133]

44. In the *Notice*, the Commission sought comment on the degree to
    which clustering and consolidation should inform our decision with
    regard to the sunset of the exclusivity prohibition.[^134]
    Competitive MVPDs argue that cable operator market power is
    evidenced by the increasing industry consolidation that has taken
    place over the last several years.[^135] These commenters assert
    that horizontal consolidation in the cable industry increases the
    incentives for anticompetitive foreclosure of access to vertically
    integrated programming.[^136] Competitive MVPDs also contend that
    the effects of horizontal consolidation on nondiscriminatory access
    to key programming is only exacerbated by the phenomenon of
    "clustering" which has also increased in recent years. As WSNet
    observes, MSOs have managed, either through the sale or swap of
    territories, to cluster large numbers of cable communities so that
    various companies serve contiguous portions of the country.[^137]
    The Joint Commenters assert that cable programmers once had
    significant opportunities to sell their programming to multiple
    cable operators in a local market. The Joint Commenters contend that
    today many programmers are forced to deal with a single cable
    operator which has consolidated previously independent systems into
    a cluster so that it controls a majority of the market's
    subscribers. Accordingly, the Joint Commenters argue that this
    exposes terrestrial competitors to a risk that programmers will
    accede to cable's dominance over distribution and refuse to sell
    their programming to alternative MVPDs that don't serve a critical
    mass of subscribers in the relevant geographic market.[^138]

45. It is evident that competition in the MVPD market has increased in
    some respects since 1992. We are not persuaded by the arguments
    presented by cable MSOs, however, that market conditions have
    changed so fundamentally, and competition in the distribution of
    video programming is now so robust, that vertically integrated
    programmers no longer have the incentive to favor affiliated cable
    operators such that, in the absence of the prohibition, competition
    and diversity in the distribution of video programming would not be
    preserved and protected.[^139] The *Eighth Annual Report* indicates
    that the market for the delivery of video programming to households
    continues to be highly concentrated and characterized by substantial
    barriers to entry.[^140] Among these barriers is the strategic
    behavior by incumbent cable operators designed to raise rivals'
    costs, *e.g.*, limiting the availability to rivals of certain
    popular programming and equipment.[^141] In addition, although
    competitive satellite alternatives to the incumbent wireline MVPDs
    are developing and attracting an increasing number of MVPD
    subscribers, most consumers have limited choices among video
    distributors. Only a small percentage of consumers have a second
    wireline alternative, such as an open video system or overbuild
    cable system.[^142] Moreover, among the several wireless
    technologies used to provide video programming service, DBS is the
    only wireless technology available to a majority of subscribers
    nationwide. Homes are generally passed by only one wireline cable
    operator and the two major DBS providers, DIRECTV and
    EchoStar.[^143] Of the 33,000 cable community units nationwide, only
    419, or approximately one percent, have been certified as having
    effective competition as a result of consumers having a choice of
    more than one MVPD.[^144]

46. In 1992, cable operators served more than 95 percent of all
    multichannel subscribers.[^145] Nearly ten years later, cable
    operators still control a formidable share of the market with 78
    percent of MVPD subscribers receiving their video programming from a
    cable operator.[^146] DBS providers have made significant progress
    as competitors to cable, capturing 18 percent of MVPD subscribers,
    due in part to authority granted by SHVIA to DBS operators to
    distribute local broadcast television stations in their local
    markets.[^147] Indeed, we believe that the marked growth of DBS
    since the enactment of SHVIA provides an informative example of the
    impact on competition in the distribution of video programming when
    marketplace participants gain access to valuable programming to
    which they were previously denied. Other competitors, such as MMDS,
    open video systems, SMATV and HSD, however, have not fared as well,
    serving less than 4 percent of MVPD subscribers. Subscribership to
    these services has either declined or remained flat over the last
    several years.[^148] Moreover, we note that the strong overbuild
    competition from local exchange carriers and others that Congress
    anticipated as a result of the 1996 amendments to the Communications
    Act has, as yet, failed to develop.

47. The incentive to favor affiliated cable operators over nonaffiliated
    MVPDs, specifically with respect to regional programming, is also
    strengthened by cable system clustering. A significant portion of
    cable operator system acquisition and trading activity is devoted to
    creating and expanding clusters. Today, close to 55 million of the
    nation's 69 million cable subscribers, or approximately 80 percent
    of cable subscribers, are served by systems that are a part of
    regional clusters.[^149] One of the stated reasons for pursuing
    clusters of cable systems is the ability to "offer more local and
    regional programming for consumers."[^150] We have already noted
    that regional programming services, the majority of which are
    satellite delivered, are significantly more vertically integrated
    than national programming services.[^151] Moreover, 86 percent of
    "must have" regional sports programming is vertically
    integrated.[^152] We believe that clustering, accompanied by an
    increase in vertically integrated regional programming networks
    affiliated with cable MSOs that control system clusters, will
    increase the incentive of cable operators to practice
    anticompetitive foreclosure of access to vertically integrated
    programming. All things considered, the evidence submitted in this
    proceeding indicates that cable operators continue to dominate the
    market for distribution of multichannel video programming with
    regard to both national and regional programming.

48. Having concluded that cable operators dominate the market for the
    delivery of video programming in a manner that would allow them to
    act in an anticompetitive manner, we next address whether vertically
    integrated programmers continue to have an economic rationale to
    engage in such anticompetitive behavior (*i.e.*, to favor their
    cable operator affiliates over other competitive MVPDs). It is
    important to examine whether vertically integrated programmers
    retain an economic rationale to favor their cable operator
    affiliates over other competitive MVPDs because this will determine
    whether there is a significant potential for denial of access to
    vertically integrated programming in the absence of regulation.

49. Cable MSOs argue that despite the concerns of competitive MVPDs,
    there is no real threat of a wide-scale withdrawal of the vertically
    integrated programming that non-cable customers enjoy today.[^153]
    AT&T asserts that the suggestion that cable MSOs might enter into
    exclusive contracts as some sort of predatory investment is
    implausible.[^154] Cable MSOs argue that even absent a statutory ban
    on exclusivity, strong incentives remain to provide programming to
    all MVPDs. These commenters contend that virtually all programmers
    rely on subscription revenues to support their programming efforts
    and that advertiser-supported cable networks compete vigorously for
    access to as many households as possible in order to maximize their
    advertising sales.[^155] NCTA cautions, however, that in order to
    differentiate a cable system from its competitors, new programming
    created only for cable may develop if the exclusivity prohibition
    were to sunset, but such a development would increase, not decrease,
    competition and diversity.[^156] AT&T adds that in the unlikely
    event that harm could be shown from exclusive arrangements, redress
    is readily available to injured competitors under the antitrust
    laws.[^157] In addition, in urging the Commission to sunset the
    exclusivity prohibition, cable MSOs assert that, in virtually every
    segment of the American economy other than vertically integrated
    programming, the opportunity to enter into exclusive contracts is
    the norm, rather than the exception.[^158]

50. ACA argues that, for its small cable operator members, the threat is
    not wide scale withdrawal, but small scale withdrawal of
    programming.[^159] ACA argues that denial of access to core
    satellite programming in just a few franchise areas would cripple a
    small cable system.[^160] Similarly, BELD challenges AT&T's
    assertion that it is implausible that cable MSOs might enter into
    exclusive contracts as a predatory investment. BELD refers to AT&T's
    refusal to allow New England Cable News ("NECN") to distribute its
    service to BELD and states that this plainly contradicts AT&T's
    statement. BELD notes that NECN, and its owner at the time,
    Continental Cablevision, once benefited from a waiver of the
    exclusivity prohibition when a claim was made that exclusivity was
    necessary for the survival of the fledgling service.[^161] Shortly
    after receiving its exclusivity waiver, BELD notes that NECN shifted
    to terrestrial distribution. BELD states that NECN has been on the
    air for over eight years and is a well-established service.
    Nonetheless, while BELD states that it wants to carry NECN on its
    cable system and has offered to pay NECN's monthly license fees for
    its service, AT&T has refused to allow carriage. BELD notes that
    while AT&T does not have to grant BELD carriage because NECN is now
    terrestrially delivered, BELD contends that the sole reason for such
    exclusivity is to maximize AT&T's predatory investment.[^162]

51. Competitive MVPD commenters also argue that the antitrust laws are
    not adequate to protect the public from the adverse effects of
    program exclusivity.[^163] Northpoint contends that it cannot be
    argued that the antitrust laws, which provide competitors with an
    after-the-fact remedy for anti-competitive conduct, can supplement
    sound Commission policies designed to afford competitors with some
    semblance of a level playing field.[^164] Northpoint argues that new
    entrants face immense hurdles in the competitive market and
    protracted antitrust litigation would be yet another unnecessary and
    costly hurdle.[^165] Competitive commenters argue that the
    exclusivity prohibition still serves an important purpose and
    continues to be necessary. In that regard, IMCC contends that the
    fact that exclusive programming contracts do not currently appear to
    present a significant problem in competitive access is evidence that
    Section 628(c)(2)(D) has worked and should remain in place.[^166]

52. Competitive MVPDs argue that in the absence of restrictions on
    exclusive arrangements between cable operators and vertically
    integrated programmers, incumbent cable interests will be likely to
    withhold access to programming that is vital for competing MVPDs to
    succeed.[^167] These commenters argue that cable MSOs still have the
    incentive to use control over program packages to stymie the
    development of MVPDs just as they did when Congress enacted the
    exclusivity prohibition ten years ago.[^168] EchoStar points out
    that in most cases, the principal interest of the programmer will be
    in reaching as many viewers as possible through as many outlets as
    possible. However, in the case of vertically integrated programmers,
    EchoStar contends that an additional factor enters the equation.
    EchoStar asserts that vertically integrated providers have the
    ability to forego the short-term revenues that could be secured by
    licensing their programming to other MVPDs and instead choose to
    funnel programming only to cable outlets, thereby protecting their
    market power, *i.e*, their ability to charge consumers what they
    choose without concern that consumers will switch to another
    competitor.[^169] In support, EchoStar and DIRECTV have submitted an
    economic analysis that states that the costs of foreclosure are the
    foregone revenue from all other MVPD outlets.[^170] This theory
    suggests that the benefit of foreclosing access to programming is
    that it increases relative demand for the cable package because the
    package would be the only avenue to view exclusive programming. The
    gains from foreclosure would be reflected in the potential increase
    in the prices charged by the cable system and in the number of
    subscribers that shift from alternatives to the vertically
    integrated cable system in order to view the foreclosed programming,
    or that remain with the cable system when they would have otherwise
    moved.[^171]

53. Cable's dominant market position coupled with the continuing need
    for access to "must have" vertically integrated programming by
    competitive MVPDs, in many cases, imparts an incentive for cable
    MSOs to exert anticompetitive control over vertically integrated
    programming services. We agree that in many instances, the economic
    incentive of vertically integrated programmers will be to make their
    programming available to as many MVPD outlets as possible. However,
    there will likely also be many instances in which the economic
    incentive will be to offer programming on an exclusive basis to a
    subset of MVPDs. Moreover, as argued by EchoStar and DIRECTV, this
    need not be financially disadvantageous to the vertically integrated
    programmer.[^172] As discussed above, cable operators dominate the
    market for the distribution of video programming serving 78 percent
    of all MVPD subscribers. This suggests that the costs of withholding
    programming from non-cable MVPDs (*i.e.*, the revenues foregone by
    not selling the programming to non-cable MVPDs) remain relatively
    low. A "cable-only" distribution strategy would, in the first
    instance, reduce subscribership by approximately one-fifth.[^173]
    However, cable operators would likely see increased consumer demand
    for their services, because of the reduced attraction of non-cable
    MVPDs \-- some non-cable subscribers would likely switch to cable to
    retain access to the cable-exclusive programming. Moreover, in
    consideration of exclusivity, the vertically integrated programmer
    may be able to raise the price it charges for programming to other
    cable operators. This would mitigate losses of program subscription
    revenue attributable to the cable-only distribution strategy.
    Additionally, in those areas where the vertically integrated
    programmer is also the cable operator, the increased demand for
    cable service would translate into higher profits, even if retail
    cable rates remained unchanged. However, because of the increased
    demand, cable operators might be able to increase profits further by
    raising the price of cable service. Because four of the five largest
    vertically integrated cable operators serve 34 percent of all MVPD
    subscribers, this further suggests that these programmers could reap
    a substantial portion of the gains from withholding programming from
    rivals. A review of economic literature supports this view.[^174]
    Thus, particularly where competitive outlets are limited in their
    market share, the programmer is able to recoup much, if not all, of
    the money that is foregone by the limited availability of its
    product, at the same time, imparting a valuable competitive
    advantage to the exclusive distributor of the programming. Moreover,
    if the long-term result is to limit or eliminate competition, the
    exclusive arrangement will result in increased profit through the
    subscribers that migrate from failing or defunct competitors to the
    programmer's cable affiliate, and through the ability to raise rates
    without fear of losing subscribers to competitive MVPDs.

54. The concerns outlined above are more pronounced with respect to
    vertically integrated regional programming distributed within an
    affiliated cable operator's regional cluster. In addition to noting
    the growing importance of regional programming services,[^175] we
    have also observed that regional programming tends to be
    significantly more vertically integrated than are national
    programming services.[^176] In such cases, a programmer foregoes
    only those revenues associated with DBS's penetration within the
    cluster, not the revenues associated with DBS subscribers
    nationwide. In contrast to the national DBS penetration rate of 18
    percent,[^177] DBS subscriber penetration in various cities where
    cable MSOs have clusters is much lower. For example, DBS household
    penetration is 3.9 percent in Philadelphia, 5.3 percent in New York,
    4.8 percent in San Francisco, and 7.3 percent in San Diego.[^178]
    Thus, it appears that the cost to a vertically integrated cable
    programmer of withholding regional programming would be
    proportionately lower than the cost of withholding national
    programming. Moreover, the affiliated cable operator will reap a
    substantial share of the benefits of withholding programming, since
    its share of total cable subscribers within the cluster is,
    presumably, high. The harm to the competitive MVPD, and thus the
    incentive for the vertically integrated regional programmer to
    foreclose programming, is further increased in situations in which
    there is no readily acceptable substitute for the programming, such
    as regional sports programming.

55. There is also evidence based on market experience that a sunset of
    the exclusivity prohibition would provide incumbent cable operators
    with an economically sustainable mechanism for depriving developing
    competitive program distributors of programming content. The
    rationale for such withholding was observed by the Commission in its
    1990 report to Congress pursuant to Section 623(h) of the Cable
    Communications Policy Act of 1984. There the Commission found that
    "vertically integrated cable operators often have the ability to
    deny alternative multichannel video providers access to their
    vertically owned programming services."[^179] Congress received
    evidence prior to passage of the 1992 Cable Act demonstrating the
    ability of cable operators faced with a lack of effective
    competition to obtain exclusive rights to programming content.[^180]
    After passage of the 1992 Act, the Commission has continued to
    observe that retention of exclusive rights to vertically integrated
    programming is of importance to incumbent cable operators faced with
    potential competition.[^181] Indeed, public interest petitions for
    exemptions from Section 628's requirements demonstrate a belief that
    exclusivity may be an effective competitive tool.[^182] The
    withholding of programming from competitors as a competitive tactic
    also has been evidenced by the acquisition of such rights in
    terrestrial-delivered content not covered by the statutory
    restriction.[^183] This experience tends to confirm our economic
    analysis and confirms statements in this proceeding from both cable
    operators and other MVPDs that competitors will seek, and can
    acquire, exclusivity to advantage themselves in the competitive
    struggle.[^184]

## Partial Sunset

56. In the *Notice*, we sought comment on whether the prohibition should
    be lifted in areas in which the level of MVPD competition reaches a
    certain level and whether it should be lifted as to all MVPD
    competitors or solely for MVPDs of sufficient competitive
    presence.[^185] Cable MSOs direct our attention to the success of
    DBS competitors and ask that we, at minimum, allow partial sunset of
    Section 628(c)(2)(D), arguing that vertically integrated programmers
    lack the incentive to deny programming to such significant market
    competitors. These commenters assert that, even if the Commission
    believes the prohibition continues to be necessary for new entrants
    and small competitors, it cannot find that it is so for DIRECTV and
    EchoStar, the third and seventh largest MVPDs respectively.[^186]

57. We agree that it is likely that it would not be in the economic
    interest of a vertically integrated entity to withdraw some
    programming channels from satellite distribution. Prior to adoption
    of any governmental limitations on exclusivity there clearly were
    vertically integrated programming services that did not engage in
    exclusive sales practices.[^187] And, depending on factors such as
    the nature of the programming, the established economic model
    underlying its operation, and the size and geographic location and
    growth expectations of the vertically integrated cable system, it
    may not make economic sense for such an entity to withdraw an
    existing service or collection of services from DBS distribution.
    Moreover, there clearly are services that either lack sufficient
    subscriber appeal to make them critical to the competitive success
    of DBS or for which reasonable substitutes are either available or
    could be created.

58. The decision whether or not to sunset the prohibition, however, is
    not related to the loss or lack of need for particular services but
    to the effect abolition of the limitation would have on competition
    and diversity in the distribution of video programming generally. We
    are persuaded that the costs that competition imposes on established
    cable service providers are sufficiently high that the incentive to
    withhold some important programming services exists and likely would
    be exercised in a manner that would reduce competition. We need not
    anticipate that a partial sunset would necessarily lead to the
    wholesale foreclosure of vertically integrated programming to
    DIRECTV or EchoStar to conclude that the limitation remains
    necessary. Such wholesale foreclosure is not necessary to injure
    either provider's ability to compete. Cable operators in purchasing
    additional systems have been willing to pay as much as \$4000-\$6000
    for each subscriber acquired.[^188] Protection of this investment
    provides an extraordinary degree of motivation in terms of
    programming sales as well as other competitive considerations.
    Although vertically integrated program providers must still recoup,
    through higher programming rates, a share of the value they provide
    to nonaffiliated cable systems through exclusivity if they withhold
    content from DBS, consolidation within the industry since passage of
    the 1992 Act[^189] affords operators greater direct incentives to
    advantage their own system operations even at the cost of some
    immediate advantage in terms of foregone revenues from content
    distribution to competitors.

59. Because the prohibition has been in effect for the last decade, the
    availability of direct evidence of how the market would react in the
    absence of the restriction is limited. However, the marketplace
    evidence that does exist tends to confirm that, where permitted,
    vertically integrated programmers will use foreclosure of
    programming to provide a competitive edge to their affiliated cable
    operators.[^190] The evidence suggests that the ability to foreclose
    vertically integrated programming is especially significant in the
    regional programming market which may not be covered by the rules if
    the programming is distributed terrestrially. This type of
    programming has in fact been withdrawn from DBS competitors.[^191]
    Further, the national distribution of DBS services, and the large
    DBS subscriber base do not provide the economic base for substantial
    regional programming investments of the type that cable MSOs have
    developed for their system clusters. Without a sufficient mass of
    subscribers on a regional basis, DBS lacks the market presence that
    would make it economically rational to produce regional programming
    to compete with vertically integrated regional programming on a
    market-by-market basis. Access to regional programming is an
    important component of competitive success, and the withdrawal of
    regional services by itself would threaten the preservation of
    competition and diversity in the distribution of video
    programming.[^192]

60. We have already discussed the continuing importance of vertically
    integrated programming to the viability of competitive MVPDs -- the
    foreclosure of even a small part of which would damage an MVPD's
    ability to compete.[^193] We believe that vertically integrated
    programmers, given the opportunity, will foreclose strategic
    programming, either new or existing, to one or both DBS competitors
    to undermine their service offering and harm their competitive
    ability. Such targeted foreclosure could be accomplished even while
    selling the majority of their program offerings to one or both
    providers. Permitting such conditions to arise through a partial
    sunset would be inconsistent with our instruction to retain the
    prohibition if it "continues to be necessary to preserve and protect
    competition and diversity in the distribution of video
    programming."[^194] We need not reach the question of whether
    partial sunset is permissible under the statute because we find that
    it is necessary to apply the exclusivity prohibition to the market
    as a whole in order to reach the statutory objectives under current
    market conditions.

## Diversity

61. We briefly discuss the issue of diversity within the context of
    Section 628(c)(5). Cable MSOs contend that exclusivity is necessary
    to spur MSO investment in programming and to ensure the creation and
    development of new cable networks.[^195] Cable MSOs contend that
    DBS, in particular, has the financial wherewithal to develop
    programming, but has not done so.[^196] Competitive MVPDs, on the
    other hand, assert that extending the exclusivity ban will not
    significantly reduce incentives to create new or more diverse
    programming.[^197] These commenters argue that in the past ten years
    since the ban has been in effect, the quantity and diversity of
    video programming has greatly increased.[^198] Competitive MVPDs
    also argue that the cost of vertical integration upstream for some
    competitors is a significant impediment to competitive entry.[^199]
    ACA argues that their members are not media companies and no
    realistic expectation can exist that small cable companies could
    launch their own news, entertainment, and educational programming to
    replace CNN, TNT, Discovery, Animal Planet, or other core satellite
    programming services.[^200]

62. Commenters have almost exclusively devoted comment on the issue of
    diversity to the prohibition's impact on programming diversity. We
    recognize that this is certainly a component of our analysis. We
    note, however, that Section 628(c)(5) instructs the Commission to
    determine whether Section 628(c)(2)(D) remains necessary to
    "preserve and protect . . . diversity in the *distribution* of video
    programming. "[^201] In this regard, one of Congress' express
    findings in enacting the 1992 Cable Act was that "\[t\]here is a
    substantial governmental and First Amendment interest in promoting a
    diversity of views provided through multiple technology
    media."[^202] These provisions persuade us that, in considering
    whether to retain the exclusivity prohibition, our primary focus
    should be on preserving and protecting diversity in the distribution
    of video programming \-- *i.e.*, ensuring that as many MVPDs as
    possible remain viable distributors of video programming.

63. Under this analysis, we believe that retaining the prohibition is
    necessary to preserve and protect diversity in the distribution of
    programming. Other than the two largest non-cable MVPDs, DIRECTV and
    EchoStar,[^203] nonaffiliated cable operators and competitive MVPDs,
    such as BELD, Carolina Broadband, CNI Wireless, Everest, Altrio,
    Qwest, RCN, Wide Open West and WSNet to name a few, assert that they
    lack the resources and ability to develop their own programming and
    are thus dependent on access to the programming of others, including
    "must have" vertically integrated programming. We have already
    concluded that access to vertically integrated programming continues
    to be important to the success of nonaffiliated cable operators and
    competitive MVPDs, and that vertically integrated programmers
    continue to have the incentive and ability to favor their affiliated
    cable operators such that competition and diversity in the
    distribution of video programming would not be preserved and
    protected. We have also noted that, other than DBS providers,
    subscribership to competitive MVPDs has remained flat, or actually
    declined, over the last several years. Were the prohibition on
    exclusivity permitted to sunset, access to vertically integrated
    programming would be limited or foreclosed and the viability of
    these MVPDs would be threatened. Even with respect to DBS, we
    conclude that some foreclosure is likely and that such foreclosure
    would impose a competitive risk to such providers. Extending the
    prohibition on exclusivity therefore remains necessary to preserve
    and protect diversity in distribution of video programming.

64. Finally, we believe that the retention of the exclusivity
    prohibition will not reduce the incentives to create new or diverse
    programming. As demonstrated from the record before us, the number
    of national programming services increased since the enactment of
    the prohibition on exclusivity from 87 in 1992 to 294 in 2001.[^204]
    Moreover, the number of vertically integrated services has nearly
    doubled since 1994.[^205] We do not believe that the exclusivity
    prohibition has been a disincentive for cable MSOs to develop new
    profitable cable networks.[^206]

## Conclusion 

65. The competitive landscape of the market for the distribution of
    multichannel video programming has changed for the better
    since 1992. The number of MVPDs that compete with cable and the
    number of subscribers served by those MVPDs have increased
    significantly. We find, however, that the concern on which Congress
    based the program access provisions \-- that in the absence of
    regulation, vertically integrated programmers have the ability and
    incentive to favor affiliated cable operators over nonaffiliated
    cable operators and programming distributors using other
    technologies such that competition and diversity in the distribution
    of video programming would not be preserved and protected --
    persists in the current marketplace. Controlling 78 percent of all
    MVPD subscribers, cable operators continue to decisively dominate
    the market for the distribution of programming. DBS has been
    relatively successful in attracting subscribers over the last few
    years, garnering nearly one-fifth of MVPD subscribers. We will
    continue to monitor DBS's progress in the market and plan to examine
    in future proceedings, whether the prohibition remains necessary to
    that class of competitor, or a subset thereof. Competitors other
    than DBS, however, such as cable overbuilders, open video systems,
    and MMDS, have not been as successful. Vertically integrated
    programming, although not as pervasive as it was in 1992, continues
    to play a significant part in the channel package of any viable
    MVPD. Moreover, vertically integrated programmers continue to have
    the incentive and ability to favor affiliated cable operators over
    other MVPDs such that competition and diversity in the distribution
    of video programming would not be preserved and protected. Given
    these findings, we conclude that, were the prohibition on exclusive
    contracts permitted to sunset in the current market conditions,
    competition and diversity in the distribution of video programming
    would not be preserved and protected.[^207]

# SCOPE OF EXCLUSIVITY PROHiBITION 

## Narrowing the Prohibition.

66. In the *Notice,* we discussed whether the Commission should consider
    narrowing the scope of, rather than eliminating, the exclusivity
    restriction.[^208] In pointing out that certain programming services
    may be more essential than others to the viability and success of
    competing program distributors, we sought comment on whether the
    exclusivity prohibition could be limited to cover only essential
    programming services.[^209] We requested comment on the extent to
    which limiting the prohibition to particular services raises First
    Amendment concerns.[^210] The *Notice* also sought comment on
    whether the prohibition on exclusivity should be tied to the
    specific geographic circumstances of an area.[^211] We also
    questioned whether the exclusivity prohibition should apply to areas
    in which a programming service is not vertically integrated with the
    local cable operator.[^212] The consensus from the few parties
    commenting on this issue is that the scope of the exclusivity
    prohibition should not be narrowed to apply to certain core or
    essential programming services or specified geographic areas.[^213]

67. DIRECTV asserts that the Commission should not set itself up as the
    arbiter of which programming is essential, but credits the
    Commission for recognizing the First Amendment issues arising from
    such a content-based determination.[^214] EchoStar states that a
    ratings-based test would not reflect the importance to consumers of
    having a complete complement of channels.[^215] Cablevision argues
    that attempts to define essential programming would entangle the
    Commission into subjective and unproductive inquiries about the
    value of certain programming.[^216] An additional approach suggested
    by RCN proposes that programming that is able to be duplicated or
    replicated by a competitor through the expenditure of its own
    resources should be excluded from the scope of the prohibition. RCN
    argues that programming that cannot be replicated, such as local
    sports programming, should be covered by the prohibition.[^217] For
    example, RCN proposes that a locally-produced news or public affairs
    program, the content of which could reasonably be duplicated by any
    MVPD competitor, need not be subject to the exclusivity prohibition,
    whereas sports programming (because of the uniqueness of particular
    sports programming and the inability to be readily duplicated) would
    be covered by the prohibition.[^218] Cablevision counters that RCN's
    proposal to define "duplicable" programming would be
    problematic.[^219]

68. In Demand, a provider of pay-per-view ("PPV") services,[^220] argues
    that the justification for allowing the exclusivity prohibition to
    sunset is particularly compelling with respect to PPV
    programming.[^221] It asserts that DBS operators have developed a
    sophisticated PPV business that exceeds the PPV offering of cable
    operators and that there are substantial existing and emerging
    competitors in the PPV arena, including MMDS providers, SMATV
    operators, and cable overbuilders, providing a variety of PPV
    options to their customers.[^222] Consequently, In Demand asserts
    that there is no basis to find that the exclusivity prohibition
    continues to be necessary to preserve and protect competition and
    diversity in the distribution of PPV programming.[^223] Moreover, In
    Demand argues that since Congress authorizes the Commission,
    pursuant to Section 628(c)(5), to allow the exclusivity prohibition
    to sunset for *all* vertically integrated satellite cable
    programming services, the Commission may do something *less* than
    authorized, by narrowing the scope of the exclusivity to certain
    video programming services, exempting services such as PPV.[^224] In
    addition, In Demand asserts that the extent to which PPV services
    are covered by the program access rules is unclear because the PPV
    business was in its "embryonic" stage in 1992 and the prohibition
    provisions may not have been intended to extend to PPV.[^225]

69. We concur with the majority of commenters that the scope of the
    exclusivity prohibition should not be altered to apply to particular
    types of programming that are considered essential programming
    services. Although the Commission has recognized that certain
    programming services, such as sports programming, or marquee
    programming, such as HBO, may be essential and for all practical
    purposes, "must haves" for program distributors and their
    subscribers,[^226] we recognize the difficulty of developing an
    objective process of general applicability to determine what
    programming may or may not be essential to preserve and protect
    competition. Besides being difficult to classify which programming
    services would be designated essential, making such a
    channel-by-channel determination would place the Commission in the
    untenable position of designating certain programming as more
    essential than others and thus raise constitutional questions. We
    believe treating all satellite cable programming and satellite
    broadcast programming uniformly for purposes of the exclusivity
    prohibition is consistent with Section 628(c)(2)(D) and the
    definitions set forth in Sections 628(i)(1) and (3).[^227] We will
    therefore not narrow the scope of the exclusivity prohibition to
    only so-called essential programming services. With regard to PPV,
    the basis of our decision regarding PPV is consistent with our
    determination regarding other satellite programming services
    affiliated with a cable operator. Because we are not changing the
    scope of the program access provisions, if a PPV service provider is
    vertically integrated with a cable operator and provides satellite
    cable programming as defined by the Communications Act,[^228] it is
    subject to the program access rules, including the prohibition
    regarding exclusive contracting.

70. There was a dearth of comment on the geographic limitation issue.
    Everest states that the limitation on exclusivity should not be tied
    to the specific geographic or competitive circumstances of an
    area.[^229] DIRECTV asserts that Section 628(c)(2)(D) already
    contains the relevant geographic limitation mandated by Congress by
    prohibiting exclusive agreements between cable operators and
    vertically integrated programmers "in areas served by a cable
    operator."[^230] Based on the meager record on this issue, we agree
    with DIRECTV that Congress apparently delineated a geographic
    demarcation applicable to the prohibition \-- areas served by a
    cable operator. Given this language, we decline in this proceeding
    to alter the applicability of the prohibition to a geographic area
    other than that set forth in Section 628(c)(2)(D).

## Expanding the Prohibition

71. Section 628(c)(2)(D) is applicable to cable operators, satellite
    cable programming vendors in which a cable operator has an
    attributable interest, and satellite broadcast programming vendors
    in which a cable operator has an attributable interest.[^231]
    Numerous commenters submit that the scope of the provision should be
    extended to include terrestrially delivered programming as well as
    non-vertically integrated programming. Some competitive MVPDs
    contend that cable affiliated regional sports programming and other
    regional services such as local news networks are being moved to
    terrestrial modes of distribution to circumvent the exclusivity
    prohibition and that the Commission should close what they refer to
    as the "terrestrial loophole" by applying Section 628(c)(2)(D)'s
    prohibition to cable-affiliated programming services regardless of
    the mode of delivery. Cable MSOs assert that terrestrially delivered
    programming is outside the scope of the exclusivity ban in Section
    628(c)(2)(D).[^232]

72. RICA argues that large, well-entrenched cable incumbents that have
    exclusive contracts with unaffiliated programming vendors are able
    to prevent new entrants from competing in a meaningful way. RICA
    asserts that lack of programming not only deters new customers from
    signing up with a competitor, but also drives customers back to the
    incumbent.[^233] Viacom urges the Commission to reject requests for
    extending the program access exclusivity ban to non-vertically
    integrated satellite-delivered programming suppliers or otherwise
    increasing regulation of program distribution.[^234] Viacom contends
    that regulatory action would impede the continuing diversity and
    growth of independent programming in the marketplace.[^235] Viacom
    asserts that it has used exclusivity in order to build a
    distribution base for its programming because it lacks the ready
    pool of commonly-owned cable subscribers of a vertically integrated
    program service.[^236] DIRECTV also asserts that exclusivity between
    non-cable MVPDs and non-vertically integrated programmers has been a
    boon to new MVPD entrants.[^237] NCTA notes that the Commission has
    repeatedly and properly refused to interfere with affiliation
    decisions of independent, non-vertically integrated programmers,
    finding no evidence to warrant government intervention in these
    private negotiations.[^238]

73. The Commission has noted that terrestrial distribution of
    programming could have a substantial impact on the ability of
    competitive MVPDs to compete in the MVPD market.[^239] Nonetheless,
    the Commission has concluded that the language of Section 628(c)
    expressly applies to "satellite cable programming and satellite
    broadcast programming," and that terrestrially delivered programming
    is "outside of the direct coverage of Section 628(c)."[^240] We have
    been presented with no basis to alter that conclusion in this
    proceeding. To the contrary, the legislative history to Section 628
    reinforces our conclusion. The Senate version of the legislation
    that became Section 628 would have applied the program access
    provisions to all "national and regional cable programmers who are
    affiliated with cable operators."[^241] The House version, by
    contrast, expressly limited the provisions to "satellite cable
    programming vendor\[s\] affiliated with a cable operator."[^242] The
    Conference agreement adopted the House version with
    amendments.[^243] Given this express decision by Congress to limit
    the scope of the program access provisions to satellite delivered
    programming, we continue to believe that the statute is specific in
    that it applies only to satellite delivered cable and broadcast
    programming.

74. With regard to non-vertically integrated programming, we note that
    Congress designed the program access rules to constrain the ability
    of cable operators and vertically integrated programmers to impede
    the development of nonaffiliated cable operators and competitive
    MVPDs. The program access rules, including the exclusivity
    prohibition, apply only to satellite-delivered program services in
    which a cable operator has an attributable interest. The program
    access provisions do not prohibit exclusive arrangements between
    cable operators and independent programmers. The record in this
    proceeding provides no support for statutory authority to expand the
    program access rules to include independent programmers within the
    exclusivity prohibition.[^244] Such an expansion would directly
    contradict Congress' intent in limiting the program access
    provisions to a specific group of market participants.

## Exclusive Contracts in Areas Not Served by Cable

75. Section 628(c)(2)(C) of the Communications Act prohibits all
    "practices, understandings, arrangements and activities, including
    exclusive contracts" that prevent an MVPD from obtaining vertically
    integrated programming "for distribution to persons in areas *not*
    served by a cable operator as of the date of enactment" of the 1992
    Cable Act, October 5, 1992.[^245] Section 628(c)(2)(C) is not
    subject to potential sunset. By contrast, the prohibition on
    exclusive arrangements of Section 628(c)(2)(D) applies to "areas
    served by a cable operator" and is subject to the sunset provision
    of Section 628(c)(5). We sought comment on whether the sunset of
    Section 628(c)(2)(D) would impact the prohibition set forth in
    Section 628(c)(2)(C) and whether the prohibition in Section
    628(c)(2)(C) would continue to bar exclusive agreements in areas
    that were not served by a cable operator before October 5, 1992, but
    in which cable service has commenced in the intervening years.[^246]
    DIRECTV argues that a sunset of Section 628(c)(2)(D) would have no
    impact on Section 628(c)(2)(C)'s absolute ban on exclusive
    agreements.[^247] With regard to the provision in Section
    628(c)(2)(C) regarding "areas not served by a cable operator *as of
    the date of enactment of this section,"* DIRECTV indicates that this
    provision was given a fixed definition by Congress, defined by
    reference to unserved areas as they existed when the 1992 Cable Act
    was enacted.[^248] The NRTC states that the Commission would still
    be required to enforce the exclusivity prohibition required under
    Section 628(c)(2)(C) in areas not served by cable in the event the
    Commission allows Section 628(c)(2)(D) to sunset.[^249]

76. As we observed in the *Notice,* Section 628(c)(5) permits the sunset
    only of the exclusivity prohibition of Section 628(c)(2)(D) while
    preserving the overall structure of program access and Section
    628.[^250] The presence or absence of Section 628(c)(2)(D) has no
    impact on the continuing implementation of Section 628(c)(2)(C), as
    each provision is separate and independent of the other. Section
    628(c)(2)(C) serves the purpose of prohibiting exclusive agreements
    "in areas not served by a cable operator *as of the date of
    enactment of this section*."[^251] In the *First Report and Order,*
    we concluded that Section 628(c)(2)(C) was unequivocal.[^252] Our
    interpretation remains unchanged \-- the specific language Congress
    adopted and what it intended is clear. The phrase "areas not served
    by a cable operator as of the date of enactment" indicates that the
    exclusivity prohibition applies to areas unserved by cable as of
    October 5, 1992, regardless of whether such area has been
    subsequently served by cable. We will continue to enforce Section
    628(c)(2)(C) as enacted by Congress.

# NeW Term FOR EXCLUSIVITY PROHIBITION

77. Although Congress established a date for the exclusivity prohibition
    to sunset if we determined that its existence no longer was
    necessary, no specific time period was established in the event that
    it did not sunset. Because the statute does not expressly state a
    term of years for the prohibition to continue, the Commission will
    by rule prescribe the period. Given this discretion, we requested
    comment regarding the length of time the provision should be
    retained, whether the provision should automatically sunset at the
    end of a further period, or whether the Commission should at that
    time be required to revisit and analyze the continuing value and
    need for Section 628(c)(2)(D).[^253] Although many commenters have
    urged the Commission to extend the current prohibition beyond the
    October 5, 2002 sunset date, few set forth a time frame for
    continuation of the requirement. RCN indicates that it is not aware
    of any marketplace factors that would suggest that an extension of
    the ban should be either longer or shorter than the period chosen by
    Congress.[^254] RCN additionally argues that development of the MVPD
    market since 1992 illustrates the time frame in which reasonable
    competitive progress can be anticipated, and it is not substantially
    less than 10 years.[^255] Another approach suggested by Everest is
    that the Commission extend the sunset period for Section
    628(c)(2)(D) at least until January 1, 2006, to coincide with the
    expiration of the existing prohibition on exclusive retransmission
    consent agreements between television broadcast stations and
    MVPDs.[^256] According to Everest, the Commission will be in a
    better position at that time to assess whether there is meaningful
    competition.[^257] Joint Reply Commenters argue that it would be
    premature for the Commission to conclude that terrestrial
    competitors no longer will require protection against exclusive
    cable programming contracts by January 1, 2006, or any other date
    certain.[^258]

78. In enacting the exclusivity prohibition, Congress sought to
    establish a video programming marketplace that is competitive and
    diverse, and made provisions in the statute for the protection
    against potentially anticompetitive exclusive agreements to continue
    until these objectives are achieved. Establishing a predetermined
    date on which the prohibition would automatically sunset without
    conducting a further proceeding to determine whether these
    objectives are met is not consistent with this congressional intent.
    What we seek in continuing to enforce the exclusivity prohibition is
    a video programming environment consonant with that envisioned by
    Congress in 1992. The language of Section 628(c)(5) indicates that
    Congress intended the prohibition to sunset, but only when it no
    longer was necessary to preserve and protect competition and
    diversity in the distribution of video programming.

79. Congress initially set a 10 year period for Commission review of
    Section 628(c)(2)(D). At the time the exclusivity prohibition was
    enacted, the MVPD market operated without effective competition and
    very limited non-vertically integrated programming choices. The
    success of some competitive MVPDs and the increase in national
    programming networks over the past 10 years demonstrates that
    program access, and the exclusivity provision in particular, are
    serving their purpose. Some of the trends that we have observed are
    moving the MVPD distribution and program production sectors toward
    the type of market structure in which the exclusivity prohibition
    could in time be lifted. These trends include the steady increase in
    non-cable MVPD market share and the expansion of
    independently-produced program channels (including such popular
    areas as news, children's programming, and movies), and the decline
    in vertically integrated programmers. Given these trends, we believe
    that extending the exclusivity prohibition for an additional 10
    years is not required. We believe an additional 5 year term provides
    a sufficient time period in which the video distribution marketplace
    may have the opportunity to achieve the level of competition and
    diversity envisioned by Congress. Given the pace of competitive
    development over the last 10 years, we believe, based on our
    expertise in this area, that a period shorter than 5 years likely
    would be insufficient for the market to develop to the point at
    which the sunset of the prohibition would be appropriate. Moreover,
    we also decline to tie the sunset of the exclusivity prohibition
    provision to the January 1, 2006, termination date for the
    prohibition on exclusive retransmission consent agreements. Although
    both provisions involve prohibition of exclusive contracts, they are
    not so intertwined that consolidating the termination dates is
    appropriate. Should a dramatic shift in the competitive landscape
    occur before 5 years, the Commission could initiate its review
    earlier either on its own motion or in response to a petition.
    Moreover, as discussed above, the Commission will continue to
    evaluate petitions for exclusivity under the public interest factors
    established by Congress.[^259]

80. Based on the record in this proceeding, we conclude that the term of
    the prohibition on exclusive agreements between cable operators and
    vertically integrated programmers should extend for 5 years from
    October 5, 2002. Thus, the prohibition on exclusivity will expire on
    October 5, 2007, unless circumstances in the video programming
    marketplace indicate that the prohibition continues to be necessary
    within the meaning of the statute. Accordingly, during the year
    before the expiration of the 5-year term, the Commission will
    undertake a review to again determine whether the exclusivity
    prohibition continues to be necessary to preserve and protect
    competition and diversity in the distribution of video programming.

# Procedural matters

81. *Final Regulatory Flexibility Analysis*. As required by the
    Regulatory Flexibility Act ("RFA"), *see* 5 U.S.C. § 603, an Initial
    Regulatory Flexibility Analysis ("IRFA") was incorporated into the
    *Notice*. The Commission sought written public comment on the
    possible significant economic impact of the proposed policies and
    rules on small entities in the *Notice*, including comments on the
    IRFA. Pursuant to the RFA, *see* 5 U.S.C. § 604, a Final Regulatory
    Flexibility Analysis is contained in Appendix C.

82. *Paperwork Reduction Act of 1995 Analysis*. Although the *Notice*
    indicated that some of the issues on which we sought comment might
    entail a modified information collection subject to the Paperwork
    Reduction Act of 1995 ("PRA"), Public Law 104-13, the rule change
    adopted herein does not affect the information collection previously
    approved by the Office of Management and Budget ("OMB") under
    Control Number: 3060-0551.

# ORDERING CLAUSES

83. Accordingly, **IT IS ORDERED** that, pursuant to authority found in
    Sections 4(i), 303(r) and 628 of the Communications Act of 1934, as
    amended, 47 U.S.C. §§ 154(i), 303(r) and 548, the Commission's rules
    **ARE HEREBY AMENDED** as set forth in Appendix B.

84. **IT IS FURTHER ORDERED** that the rule adopted herein **WILL BECOME
    EFFECTIVE** 15 days after publication in the Federal Register.

85. **IT IS FURTHER ORDERED** that the Commission's Consumer and
    Government Affairs Bureau **SHALL SEND** a copy of this *Report and
    Order,* including the Final Regulatory Flexibility Analysis, to the
    Chief Counsel of the Small Business Administration.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

**Appendix A**

**Comments filed in CS Docket No. 01-290**

American Cable Association ("ACA")

American Public Power Association ("APPA")

AOL Time Warner, Inc. ("AOLTW")

AT&T Corporation ("AT&T")

Braintree Electric Light Department ("BELD")

Broadband Service Providers Association ("BSPA")

Cablevision Systems Corporation ("Cablevision")

Carolina Broadband, Inc. ("Carolina Broadband")

CDV Inc.

CNI Wireless, Inc. ("CNI Wireless")

Comcast Corporation ("Comcast")

Competitive Broadband Coalition ("CBC")

Digital Broadcast Corporation ("DBC")

DIRECTV Inc. ("DIRECTV")

EchoStar Satellite Corporation ("EchoStar")

Everest Midwest Licensee LLC. d/b/a Everest Connections Corporation
("Everest")

Gemini Networks Inc. ("Gemini")

InDemand

Independent Multi-Family Communications Council ("IMCC")

Joint Comments - Altrio Communications, Inc, BellSouth Entertainment,
LLC, Independent Multi-Family Communications Council, Qwest Broadband
Services, Inc, and Wireless Communications Association International,
Inc. ("Joint Comments" or "Joint Commenters").

National Cable & Telecommunications Association ("NCTA")

National Rural Telecommunications Cooperative ("NRTC")

QWEST Broadband Services Inc. ("Qwest")

RCN Telecom Services, Inc. ("RCN")

Rural Independent Competitive Alliance ("RICA")

Satellite Broadcasting and Communications Association ("SBCA")

Satellite Industry Association ("SIA")

Seren Innovations, Inc. ("Seren")

World Satellite Network ("WSNet")

**Reply Comments filed in CS Docket No. 01-290**

Altrio Communications, Inc. ("Altrio")

American Cable Association ("ACA")

AOL Time Warner, Inc. ("AOLTW")

AT&T Corporation ("AT&T")

Braintree Electric Light Department ("BELD")

Broadband Service Providers Association ("BSPA")

Cablevision Systems Corporation ("Cablevision")

C.D.V., Inc.

CNI Wireless, Inc.

Comcast Corporation ("Comcast")

Competitive Broadband Coalition ("CBC")

DIRECTV, Inc. ("DIRECTV")

EchoStar Satellite Corporation ("EchoStar")

Grande Communications, Inc. ("Grande")

Joint Reply Comments - Altrio Communications, Inc, BellSouth
Entertainment, LLC, Independent Multi-Family Communications Council,
Qwest Broadband Services, Inc, and Wireless Communications Association
International, Inc. ("Joint Reply Comments" or "Joint Reply
Commenters").

Media Access Project, Consumer Federation Of America, Consumers Union,
Center For Digital Democracy, Office Of Communication Of The United
Church Of Christ, Inc., National Alliance For Media Arts And Culture,
and The Association Of Independent Video And Filmmakers ("Media Access
Project *et al*.")

National Cable & Telecommunications Association ("NCTA")

National Rural Telecommunications Cooperative ("NRTC")

National Telephone Cooperative Association ("NTCA")

Northpoint Technology ("Northpoint")

Organization for the Promotion and Advancement of Small
Telecommunications Companies ("Opastco")

RCN Telecom Services, Inc. ("RCN")

Rural Independent Competitive Alliance ("RICA")

Satellite Broadcasting and Communications Association ("SBCA")

Satellite Industry Association ("SIA")

SES Americom, Inc. ("SES")

Verizon

Viacom Inc. ("Viacom")

World Satellite Network, Inc. ("WSNet")

Appendix B

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

Part 76 -- Multichannel Video and Cable Television Service

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

AUTHORITY: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a, 307, 308,
309, 312, 315, 317, 325, 503, 521, 522, 531, 532, 533, 534, 535, 536,
537, 543, 544, 544a, 545, 548, 549, 552, 554, 556, 558, 560, 561, 571,
572, 573.

2.  Section 76.1002(c)(6) is amended as follows:

§ 76.1002 **Specific Unfair Practices Prohibited.**

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

(c)(6) **Sunset provision.** The prohibition of exclusive contracts set
forth in paragraph (c)(2) of this section shall cease to be effective on
October 5, 2007, unless the Commission finds, during a proceeding to be
conducted during the year preceding such date, that said prohibition
continues to be necessary to preserve and protect competition and
diversity in the distribution of video programming.

**Appendix C**

# Final Regulatory Flexibility Act Analysis For the Report and Order {#final-regulatory-flexibility-act-analysis-for-the-report-and-order .unnumbered}

As required by the Regulatory Flexibility Act of 1980, as amended,
(\"RFA\"),[^260] an Initial Regulatory Flexibility Analysis (IRFA) of
the possible significant economic impact on small entities was
incorporated in the *Notice of Proposed Rulemaking* in CS Docket No.
01-290 (hereinafter referred to as the *Notice)*.[^261] The Commission
sought written public comment on the proposals in the *Notice*,
including comment on the IRFA. The comments received are discussed
below. This present Regulatory Flexibility Analysis (FRFA) conforms to
the RFA.[^262]

## A. Need for, and Objectives of, the Report and Order {#a.-need-for-and-objectives-of-the-report-and-order .unnumbered}

The purpose of Section 628 of the Communications Act is to promote the
public interest, convenience, and necessity by increasing competition
and diversity in the multichannel video market, to increase the
availability of satellite cable programming and satellite broadcast
programming to persons in rural and other areas not currently able to
receive such programming, and to spur the development of communications
technologies, for example new MVPDs. Specifically, this proceeding
involves Section 628(c)(2)(D), which prohibits, in areas served by a
cable operator, exclusive contracts for satellite cable programming or
satellite broadcast programming between vertically integrated
programming vendors and cable operators unless the Commission determines
that such exclusivity is in the public interest.[^263] The exclusivity
prohibition set forth in Section 628(c)(2)(D) ceases to be effective
after a 10-year period ending October 5, 2002. Section 628(c)(5) of the
Communications Act requires that restriction on exclusive contracts,
within areas served by cable, are to sunset unless the Commission finds,
in a proceeding conducted during the last year of such 10-year period,
that such prohibition continues to be necessary to preserve and protect
competition and diversity in the distribution of video programming.
Pursuant to this statutory mandate, we have concluded that the
exclusivity prohibition set forth in Section 628(c)(2)(D) continues to
be necessary to preserve and protect competition and diversity in the
distribution of video programming because cable MSOs continue to possess
significant market power and continue to control a significant
proportion of programming, to the detriment of DBS and other competitive
MVPDs, some of which are smaller entities.[^264] Retention of the
exclusivity prohibition in this proceeding addresses the competitive
imbalance that continues to exist in the marketplace by maintaining and
securing the ability of competitive MVPDs to access vertically
integrated programming.

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

The American Cable Association ("ACA") filed comments and states that
access to satellite programming is essential for smaller cable systems
and a sunset of the prohibition could result in small cable companies
losing access to over one-third of their satellite programming
services.[^265] To remedy the situation, the ACA urges the Commission to
extend the sunset of the prohibition on exclusive contracts, as the loss
of access rights to particular programming would have a significant
impact on the continuing viability of many small cable businesses.[^266]
The Commission considered the potential economic impact on small
entities because this issue was pertinent to our determination whether
to retain or sunset the exclusivity prohibition and it was a central
concern raised in some comments. Cable operators control a formidable
share of the market with 78 percent of MVPD subscribers receiving their
video programming from a cable operator. DBS has made competitive
strides to the point where its share of total MVPD subscribers has grown
to 18 percent. But other competitive MVPDs, such as SMATV providers, OVS
operators, MMDS, and cable overbuilders, to name a few of the
competitive alternatives to cable, have not made similar inroads into
cable's market dominance. In general, comments filed by competitive
MVPDs, many of which are smaller entities, assert that the market is
dominated by cable and not fully competitive.[^267] In enacting the
exclusivity prohibition in 1992, Congress concluded that because cable
MSOs dominated the video environment vertically integrated program
suppliers had the incentive and ability to favor their affiliated cable
operators over other multichannel programming distributors. Competitive
MVPDs assert that the market dominance of cable has not significantly
changed in the years since the enactment of the provision. They contend
that there is a likelihood that access to particular programming
affiliated with cable operators will be threatened and compromised if
the prohibition against exclusivity contracts were allowed to sunset.
Individual proposals as to how to address this problem generally support
the position that the exclusivity prohibition should be retained. If the
prohibition were not retained, these entities will not have access to
significant programming that is vital to their subscribers. Comments
from competitive MVPDs regarding the importance of the prohibition to
their economic viability and survival and the Commission's decision and
justification to continue to retain the exclusivity prohibition are
discussed in the Section entitled Incentive and Ability in this *Report
and Order*.

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

The RFA directs the Commission to provide a description of and, where
feasible, an estimate of the number of small entities that will be
affected by the proposed rules.[^268] The RFA generally defines the term
\"small entity\" as having the same meaning as the terms \"small
business,\" \"small organization,\" and \"small governmental
jurisdiction.\"[^269] In addition, the term "small business" has the
same meaning as the term "small business concern" under the Small
Business Act.[^270] 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\").[^271]

**Small MVPDs**. The SBA has developed a small business size standard
for cable and other program distribution services, "which includes all
such companies generating \$11 million or less in revenue
annually.[^272] This category includes, among other, cable operators,
closed circuit television services, direct broadcast satellite services,
multipoint distribution services, open video systems ("OVS"). Satellite
master antenna television ("SMATV") systems, and subscription television
services. According to the Census Bureau data from 1992, there were
1,788 total cable and other pay television services and 1,423 had less
than \$11 million in revenue.[^273] We address below each service
individually to provide a more precise estimate of small entities.

**Cable Systems**. The Commission has developed, with SBA\'s approval,
our own definition of a small cable system operator for the purposes of
rate regulation. Under the Commission\'s rules, a \"small cable
company\" is one serving fewer than 400,000 subscribers
nationwide.[^274] We last estimated that there were 1439 cable operators
that qualified as small cable companies.[^275] Since then, some of those
companies may have grown to serve over 400,000 subscribers, and others
may have been involved in transactions that caused them to be combined
with other cable operators. Consequently, we estimate that there are
fewer than 1439 small entity cable system operators that may be affected
by the decisions and rules adopted in this *Report and Order*.

The Communications Act, as amended, also contains a size standard for a
small cable system operator, which is \"a cable operator that, directly
or through an affiliate, serves in the aggregate fewer than 1% of all
subscribers in the United States and is not affiliated with any entity
or entities whose gross annual revenues in the aggregate exceed
\$250,000,000.\"[^276] The Commission has determined that there are
67,700,000 subscribers in the United States. Therefore, an operator
serving fewer than 677,000 subscribers shall be deemed a small operator,
if its annual revenues, when combined with the total annual revenues of
all of its affiliates, do not exceed \$250 million in the
aggregate.[^277] Based on available data, we find that the number of
cable operators serving 677,000 subscribers or less totals approximately
1450.[^278] Although it seems certain that some of these cable system
operators are affiliated with entities whose gross annual revenues
exceed \$250,000,000, we are unable at this time to estimate with
greater precision the number of cable system operators that would
qualify as small cable operators under the definition in the
Communications Act.

**Open Video Systems**. Because OVS operators provide subscription
services[^279] OVS falls within the SBA-recognized definition of "Cable
and Other Pay Television Services[^280] This definition provides that a
small entity is one with \$ 11 million or less in annual receipts.[^281]
The Commission has certified 25 OVS operators with some now providing
service. Affiliates of Residential Communications Network, Inc.
(\"RCN\") received approval to operate OVS systems in New York City,
Boston, Washington, D.C. and other areas. RCN has sufficient revenues to
assure us that they do not qualify as small business entities. Little
financial information is available for the other entities authorized to
provide OVS that are not yet operational. Given that other entities have
been authorized to provide OVS service but have not yet begun to
generate revenues, we conclude that at least some of the OVS operators
qualify as small entities.

**Program Producers and Distributors**. The Commission has not developed
a definition of small entities applicable to producers or distributors
of cable television programs. Therefore, we will use the SBA
classifications of Motion Picture and Video Tape Production (NAICS Code
51211),[^282] Motion Picture and Video Tape Distribution (NAICS Code
42199),[^283] and Theatrical Producers (Except Motion Pictures) and
Miscellaneous Theatrical Services (NAICS Codes 56131, 71111, 71141,
561599, 71151, 71112, 71132, 51229, 53249).[^284] These SBA definitions
provide that a small entity in the cable television programming industry
is an entity with \$21.5 million or less in annual receipts for NAICS
Codes 56131, 51211, 42199, and 51212, and \$5 million or less in annual
receipts for NAICS Codes 56131, 71111, 71141, 561599, 71151, 71112,
71131, 71132, 51229, and 53249.[^285] Census Bureau data indicate the
following: (a) there were 7,265 firms in the United States classified as
Motion Picture and Video Production (NAICS Code 51211), and that 6,987
of these firms had \$16.999 million or less in annual receipts and 7,002
of these firms had \$24.999 million or less in annual receipts;[^286]
(b) there were 1,139 firms classified as Motion Picture and Video Tape
Distribution (NAICS Codes 42199 and 51212), and 1007 of these firms had
\$16.999 million or less in annual receipts and 1013 of these firms had
\$24.999 million or less in annual receipts; and (c) there were 5,671
firms in the United States classified as Theatrical Producers and
Services (NAICS Codes 56131, 71111, 71141, 561599, 71151, 51229, and
53249), and 5627 of these firms had \$4.999 million or less in annual
receipts.[^287]

Each of these NAICS categories is very broad and includes firms that may
be engaged in various industries, including cable programming. Specific
figures are not available regarding how many of these firms exclusively
produce and/or distribute programming for cable television or how many
are independently owned and operated. Thus, we estimate that our rules
may affect approximately 6,987 small entities primarily engaged in the
production and distribution of taped cable television programs and 5,627
small producers of live programs that may be affected by the rules
adopted in this proceeding.

**Direct Broadcast Satellite Service ("DBS").** Because DBS provides
subscription services, DBS falls within the SBA-recognized definition of
"Cable and Other Pay Television Services."[^288] This definition
provides that a small entity is one with \$11 million or less in annual
receipts.[^289] There are four licensees of DBS services under Part 100
of the Commission\'s Rules. Three of those licensees are currently
operational. Two of the licensees that are operational have annual
revenues that may be in excess of the threshold for a small
business.[^290] The Commission, however, does not collect annual revenue
data for DBS and, therefore, is unable to ascertain the number of small
DBS licensees that could be impacted by these proposed rules. DBS
service requires a great investment of capital for operation, and we
acknowledge, despite the absence of specific data on this point, that
there are entrants in this field that may not yet have generated \$11
million in annual receipts, and therefore may be categorized as a small
business, if independently owned and operated.

**Home Satellite Dish Service ("HSD").** Because HSD provides
subscription services, HSD falls within the SBA-recognized definition of
"Cable and Other Pay Television Services."[^291] This definition
provides that a small entity is one with \$11 million or less in annual
receipts.[^292] The market for HSD service is difficult to quantify.
Indeed, the service itself bears little resemblance to other MVPDs. HSD
owners have access to more than 265 channels of programming placed on
C‑band satellites by programmers for receipt and distribution by MVPDs,
of which 115 channels are scrambled and approximately 150 are
unscrambled.[^293] HSD owners can watch unscrambled channels without
paying a subscription fee. To receive scrambled channels, however, an
HSD owner must purchase an integrated receiver‑decoder from an equipment
dealer and pay a subscription fee to an HSD programming package. Thus,
HSD users include: (1) viewers who subscribe to a packaged programming
service, which affords them access to most of the same programming
provided to subscribers of other MVPDs; (2) viewers who receive only
non‑subscription programming; and (3) viewers who receive satellite
programming services illegally without subscribing. Because scrambled
packages of programming are most specifically intended for retail
consumers, these are the services most relevant to this
discussion.[^294]

According to the most recently available information, there are
approximately four program packagers nationwide offering packages of
scrambled programming to retail consumers.[^295] These program packagers
provide subscriptions to approximately 1,476,700 subscribers
nationwide.[^296] This is an average of about 370,000 subscribers per
program package. This is smaller than the 400,000 subscribers used in
the commission\'s definition of a small MSO. Furthermore, because this
is an average, it is likely that some program packagers may be
substantially smaller.

**Multipoint Distribution Service ("MDS"), Multichannel Multipoint
Distribution Service ("MMDS") and Local Multipoint Distribution Service
("LMDS").** MMDS systems, often referred to as "wireless cable,"
transmit video programming to subscribers using the microwave
frequencies of the Multipoint Distribution Service ("MDS") and
Instructional Television Fixed Service ("ITFS").[^297] LMDS is a fixed
broadband point-to-multipoint microwave service that provides for
two-way video telecommunications.[^298]

In connection with the 1996 MDS auction, the Commission defined small
businesses as entities that had annual average gross revenues of less
than \$40 million in the previous three calendar years.[^299] This
definition of a small entity in the context of MDS auctions has been
approved by the SBA.[^300] The MDS auctions resulted in 67 successful
bidders obtaining licensing opportunities for 493 Basic Trading Areas
("BTAs"). Of the 67 auction winners, 61 met the definition of a small
business. MDS also includes licensees of stations authorized prior to
the auction. As noted, the SBA has developed a definition of small
entities for pay television services, which includes all such companies
generating \$11 million or less in annual receipts.[^301] This
definition includes multipoint distribution services, and thus applies
to MDS licensees and wireless cable operators that did not participate
in the MDS auction. Information available to us indicates that there are
approximately 850 of these licensees and operators that do not generate
revenue in excess of \$11 million annually. Therefore, for purposes of
the IRFA, we find there are approximately 850 small MDS providers as
defined by the SBA and the Commission's auction rules.

The SBA definition of small entities for pay television services, which
includes such companies generating \$11 million in annual receipts,
seems reasonably applicable to ITFS.[^302] There are presently 2,032
ITFS licensees. All but 100 of these licenses are held by educational
institutions. Educational institutions are included in the definition of
a small business.[^303] However, we do not collect annual revenue data
for ITFS licensees, and are not able to ascertain how many of the 100
non-educational licensees would be categorized as small under the SBA
definition. Thus, we tentatively conclude that at least 1,932 licensees
are small businesses.

Additionally, the auction of the 1,030 LMDS licenses began on February
18, 1998 and closed on March 25, 1998. The Commission defined "small
entity" for LMDS licenses as an entity that has average gross revenues
of less than \$40 million in the three previous calendar years.[^304] An
additional classification for "very small business" was added and is
defined as an entity that, together with its affiliates, has average
gross revenues of not more than \$15 million for the preceding calendar
years.[^305] These regulations defining "small entity" in the context of
LMDS auctions have been approved by the SBA.[^306] There were 93 winning
bidders that qualified as small entities in the LMDS auctions. A total
of 93 small and very small business bidders won approximately 277 A
Block licenses and 387 B Block licenses. On March 27, 1999, the
Commission re-auctioned 161 licenses; there were 40 winning bidders.
Based on this information, we conclude that the number of small LMDS
licenses will include the 93 winning bidders in the first auction and
the 40 winning bidders in the re-auction, for a total of 133 small
entity LMDS providers as defined by the SBA and the Commission's auction
rules.

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

**Satellite Master Antenna Television (\"SMATV\") Systems***.* The SBA
definition of small entities for "Cable and Other Pay Television
Services" specifically includes SMATV services and, thus, small entities
are defined as all such companies generating \$11 million or less in
annual receipts.[^307] Industry sources estimate that approximately
5,200 SMATV operators were providing service as of December 1995.[^308]
Other estimates indicate that SMATV operators serve approximately 1.5
million residential subscribers as of June 2000.[^309] The best
available estimates indicate that the largest SMATV operators serve
between 15,000 and 55,000 subscribers each. Most SMATV operators serve
approximately 3,000-4,000 customers. Because these operators are not
rate regulated, they are not required to file financial data with the
Commission. Furthermore, we are not aware of any privately published
financial information regarding these operators. Based on the estimated
number of operators and the estimated number of units served by the
largest ten SMATVs, we believe that a substantial number of SMATV
operators qualify as small entities.

## D. Description of Projected Reporting, Recordkeeping and other Compliance Requirements {#d.-description-of-projected-reporting-recordkeeping-and-other-compliance-requirements .unnumbered}

In this *Report and Order* the Commission concludes that Section
628(c)(2)(D) of the Communications Act continues to be necessary to
preserve and protect competition and diversity in the video programming
marketplace. The *Report and Order* does not present any specific
reporting, recordkeeping or other compliance requirements adopted
herein, other than complying with the prohibition against engaging in
exclusive contracting between cable operators and vertically integrated
program suppliers. Thus, the classes of small entities that potentially
will be affected and required to comply with the continuing prohibition
includes entities conducting business in these areas.

## E. Steps Taken to Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered {#e.-steps-taken-to-minimize-significant-economic-impact-on-small-entities-and-significant-alternatives-considered .unnumbered}

The RFA requires an agency to describe any significant alternatives that
it has considered in proposing regulatory approaches, which may include
the following four alternatives: (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.

In the *Notice* the Commission sought comment on whether Section
628(c)(2)(D) should cease to be effective, pursuant to the sunset
provision in Section 628(c)(5), or whether Section 628(c)(2)(D) should
be retained. Thus, the *Notice* invited comments on a number of issues
that may significantly impact small entities.[^310] In this *Report and
Order,* the Commission discusses the effect that Section 628(c)(2)(D)
has had on the video programming marketplace and provides justification
for retention of the provision. In enacting the exclusivity prohibition
contained in Section 628(c)(2)(D), the underlying rationale was that
vertically integrated programming suppliers had the incentive and
ability to favor in an unfair manner, affiliated cable operators in
programming arrangements. Thus, the prohibition served to guard against
such a practice and helped to encourage competition and diversity. While
the provision has succeeded to a certain extent in achieving its
objectives, the video landscape has not changed markedly since the
inception of the exclusivity protection provision. Cable MSOs continue
to hold market power, and while DBS has increased its subscribership
levels in recent years, the levels do not compare to cable. Other
smaller video competitors, such as MMDS, OVS, SMATV and HDS, have not
fared as well and represent a small percentage of MVPD subscribership.
These competitive MVPDs argue that they continue to face hurdles in
seeking access to critical programming because cable MSOs continue to
control essential video programming services and are concerned about the
potential loss of such programming absent the Section 628(c)(2)(D)
prohibition. In its Initial Regulatory Flexibility Analysis Comments,
while it supports extending the exclusivity prohibition, ACA suggests
that an additional alternative that would achieve the objective of the
statute and minimize the impact on small entities is exemption from
coverage of the rule, or any part thereof, for small entities.[^311]

In this *Report and Order* we discuss the present state of competition
among MVPDs and the availability of vertically integrated programming in
the Section entitled Incentive and Ability. We conclude that while there
is a wide variety of programming services available from non-vertically
integrated providers in recent years, nevertheless the market dominance
of cable remains a concern because of the threat that cable MSOs will
engage in exclusive arrangements and deprive competitive MVPDs and their
subscribers of "must have", vertically integrated programming.

We considered the possibility of sunsetting Section 628(c)(2)(D).
However, we recognized that the marketplace had not progressed to the
point where there were assurances that there is significant enough
competition in the cable industry to forestall the domination by cable
of "must have" programming. Therefore, we retain Section 628(c)(2)(D)
because it prohibits, in areas served by a cable operator, exclusive
contracts for satellite cable programming or satellite broadcast
programming between vertically integrated programming vendors and cable
operators. The decision reached in this *Report and Order* to retain the
prohibition against engaging in exclusive contracts allows for greater
competition and diversity, which provides for increased participation by
various competitive MVPDs and programming suppliers, a number of which
are smaller entities. Therefore we conclude that our decision to retain
Section 628(c)(2)(D) benefits smaller entities as well as larger
entities.

## [Report to Congress]{.underline} {#report-to-congress .unnumbered}

The Commission will send a copy of the *Report and Order*, including
this RFA, in a report to be sent to Congress pursuant to the Small
Business Regulatory Enforcement Fairness Act of 1996.[^312] In addition,
the Commission will send a copy of the *Report and Order*, including
FRFA, to the Chief Counsel for Advocacy of the Small Business
Administration. A copy of the *Report and Order* and FRFA (or summaries
thereof) will also be published in the Federal Register.[^313]

**DISSENTING STATEMENT OF COMMISSONER KATHLEEN Q. ABERNATHY**

*Re: Implementation of the Cable Television Consumer Protection and
Competition Act of 1992, Development of Competition and Diversity in
Video Programming Distribution: Section 628(c)(5) of the Communications
Act, Sunset of Exclusive Contract Prohibition, CS Docket No. 01-290
(adopted June 13, 2002).*

I respectfully dissent from today's decision. The ban the majority
extends today is over-inclusive, inconsistent with today's marketplace,
and no longer "necessary" as defined by the statute. Congress enacted a
limited ban on exclusive programming agreements between affiliated
programmers and cable operators, providing that it would sunset October
5, 2002, unless the Commission determined that it "continues to be
necessary to preserve and protect competition and diversity in the
distribution of video programming."[^314] In enacting the 1992 Cable
Act, Congress stated that it was its policy to "rely on the marketplace,
to the maximum extent feasible to achieve" the "availability to the
public of a diversity of views and information through cable television
and other video distribution media."[^315] Thus, in order to survive our
review, the ban on exclusive agreements needs to be more than beneficial
or desirable; the record must demonstrate that the prohibition is needed
to preserve and protect competition. The burden falls on those
advocating retention of the ban to demonstrate that the restriction is,
in fact, necessary. The record in this case demonstrates that increased
competition in both the video distribution and programming markets
jointly render the ban on exclusive agreements no longer necessary. I
understand the majority's reluctance to trust in the market, since it is
necessarily less predictable and more volatile than regulatory mandates.
Nevertheless, time and again markets have been proven to deliver greater
innovation and choice to consumers and this is no exception. I believe
today's marketplace supports placing our trust in markets over mandates
and lifting the ban.

The video distribution marketplace has changed significantly since
enactment of the 1992 Cable Act both in terms of increased competition
and programming. When the ban on exclusivity was enacted, cable
operators served over 95% of the market and DBS operators were just at
the horizon of offering service.[^316] Today, the two largest DBS
competitors, DirecTV and Echostar, serve almost 11 million subscribers
and over 7 million subscribers, respectively \-- making DirecTV the
third largest multichannel video programming distributor ("MVPD") and
Echostar the seventh largest MVPD.[^317] Collectively, DBS now serves
over 18% of the market, while cable's market penetration has been
reduced to 78%.[^318] DBS penetration also has been growing at a rapid
pace. From June 2000 to June 2001, DBS's subscriber growth rate was 19
percent.[^319] Two new terrestrial-based competitors, RCN and WideOpen
West, rank among the nation's top 15 MVPDs.[^320] Overall non-cable
subscribership has grown nearly ten-fold from 2,330,000 in December 1992
to more than 20,876,000 in September 2001.[^321]

There are nearly three times as many cable programming networks as there
were since the first report on competition in 1994 (294 compared to
107), and a significantly lower percentage of those networks are
vertically integrated.[^322] In fact, the number of vertically
integrated programming networks has dropped from 53% to 35%,[^323] and
the underlying number of programming services offered nationally that
have no attributable cable ownership has increased from 50 to over
190.[^324] The programming market is highly competitive and access to
shelf space is limited. Thus, there are a substantial number of
programming choices available beyond those provided by networks that are
vertically integrated. And, with respect to the most popular
programming, the number of vertically integrated networks among the top
15 most watched cable programming services has been cut in half.[^325]
In 1994, 12 of top 15 satellite-delivered programming networks
(prime-time), or 80%, were vertically integrated with cable operators,
whereas in 2001 that number was reduced to 6 of the top 15, or
40%.[^326]

Based on the dramatic changes in the marketplace, I do not believe that
the ban on exclusive agreements continues to be *necessary* to preserve
and protect competition and diversity. Furthermore, the record does not
support a finding that affiliated cable programmers have both the
*ability* and the *incentive* to withdraw and withhold programming from
competing MVPDs. Moreover, I believe removing this artificial regulatory
constraint will foster more rigorous competition and diversity in the
programming and video delivery marketplace.

In the vast majority of cases, withholding programs through exclusive
arrangements is simply not rational. With respect to the *incentive* to
withhold programming, any attempt to use exclusivity to foreclose
competition by withdrawing or withholding services would entail a
sacrifice of existing or potential profits that were not existent in
1992. Programmers rely upon subscription fees and advertising sales.
Thus, the economic incentive for programmers is to reach as many
eyeballs as possible. As noted above, non-cable subscribership has grown
nearly ten-fold from 2,330,000 in December 1992 to more than 20,876,000
in September 2001. DBS operators alone account for approximately 18
million of those subscribers. Moreover, the existing programming that is
cited in the order as being the "must have," or "marquee," programming
is already being carried by competing providers to millions of
subscribers. There is nothing in the record to support a conclusion that
affiliated programmers have a rational economic reason to *withdraw*
this programming from competing providers and *lose* up to 20 million
subscribers along with the corresponding ratings and revenues. This is
particularly true, where the marginal gain from such conduct for any
individual MVPD is so limited. A cable provider would have to conclude
that the revenue reduction caused by cutting off an audience of 20
million viewers could somehow be trumped by the possible increased
revenues from prying away some viewers from competitive providers in
their own service areas. Such an incremental market gain is not only
highly speculative, but in many cases it is simply not mathematically
possible.[^327]

An essential element of the majority's analysis is that without
universal mandatory access to vertically integrated programming,
competition and diversity would be not be preserved or protected. With
respect to new programming, access to this programming by all MVPDs is
not vital or even obviously helpful to the twin statutory goals of
competition and diversity. A competitor that does not offer such
programming may arguably be disadvantaged if it does not provide
competing programming, but such is the nature of the marketplace. A
marketplace that pressures competitors to produce new original
programming fosters diversity and competition; it certainly does not
harm it. Aside from this market dynamic regarding new programming, there
are also substantially more choices of programming in the marketplace
today and increasingly popular non-affiliated programming available to
alternative MVPDs further undermining the notion that there is any harm
from permitting exclusive contracts for new vertically integrated
programming.

Furthermore, I do not believe that concern over access to regional
programming alone -- particularly, regional sports -- is sufficient to
find that this prohibition continues to be necessary. First, some
regional networks are terrestrial-delivered and, therefore, not subject
to the statute. In this regard, there is little comprehensive data in
the record analyzing the real world impact of exclusive contracts for
regional sports in those markets where such agreements are in place. I
believe such a showing would be essential to demonstrating the
"necessity" of the ban. Indeed, even if I was to concede that such harms
would accrue for this limited subset of programming in these discrete
geographic regions where such vertical integration exists, such isolated
cases cannot justify the prophylactic rule that the majority extends
today.[^328]

Similarly it is important to recognize that the Commission does not need
this over-inclusive prophylactic rule to address these issues because
Congress has provided the Commission with other tools to address
discriminatory conduct after the statutory sunset. Specifically, (i)
Section 628(c)(2)(B) prohibits non-price discrimination, which the
Commission has stated "could occur through a vendor's 'unreasonable
refusal to sell,' including refusing to sell programming to a class of
distributors, or refusing to initiate discussions with a particular
distributor when the vendor has sold its programming to that
distributor's competitor;"[^329] (ii) Section 628(c)(2)(A) prohibits a
cable operator that has an attributable interest in a satellite
programming vendor from "unduly or improperly influencing the decision
of such vendor to sell . . . to any unaffiliated multichannel video
programming distributor;"[^330] and (iii) Section 628(b) prohibits
"unfair methods of competition . . .the purpose or effect of which is to
hinder significantly or to prevent any multichannel video programming
distributor from providing satellite cable programming or satellite
broadcast programming to subscribers or consumers."[^331] Thus, in the
unlikely event that a provider discriminatorily withheld programming
from an in-region overbuilder, the Commission has other more precise
regulatory tools to address such conduct.

Overall, in light of the significant competitive changes in the
marketplace -- including the dramatic increase in both competition and
availability of programming -- and the existence of other provisions
that protect competing MVPDs from discriminatory treatment, including
"unreasonable refusals to sell," I cannot find that this provision
continues to be necessary to preserve and protect competition and
diversity in the delivery of video programming. In fact, I believe that
eliminating this prohibition likely would foster the development of new,
innovative services that allow competitors to distinguish themselves and
provide additional value and services to consumers. Mandating that
vertically integrated programmers share the rewards, but not the risks,
of their investment reduces the willingness of those programmers to
develop innovative new programming in the first place. Congress wanted
to rely on market forces to the extent feasible to achieve a diversity
of views and information through cable television and other video
distribution media. Allowing the prohibition on exclusive contracts to
sunset as envisioned by Congress would allow market forces to work to
provide such diversity to the benefit of all Americans.

STATEMENT OF

COMMISSIONER MICHAEL J. COPPS

*In the Matter of: Implementation of the Cable Television Consumer
Protection and Competition Act of 1992*

*Development of Competition and Diversity in Video Programming
Distribution:*

*Section 628(c)(5) of the Communications Act*

*Sunset of Exclusive Contract Prohibition*

I support the extension of the statutory prohibition on exclusive
contracts between a vertically integrated programmer and a cable
operator for another five years. This prohibition has been effective in
implementing Congress's goal of fostering competition to cable from DBS
and other new video providers. During the ten years since that statute
was adopted, cable\'s share of the market has dropped from 95% to 78%.

Much of the competition to cable has come from DBS services, however,
new competitors such as SMATV systems or other competitive providers
have provided other alternatives for some consumers. Just as the rules
at issue here have made it possible for DBS to grow as a competitor to
cable, the extension of this rule makes possible the growth of new
competitors, building and protecting increasing competition in the
market for video programming.

Because the statute expressly applies to "satellite cable programming,"
we do not appear to have the discretion to extend this provision to
non-satellite delivered programming. This language, however, has given
vertically integrated cable programmers the ability to enter into
exclusive contracts when the programming is terrestrially -- rather than
satellite -- delivered. Terrestrially delivered programming is often
local news and sports programming -- programming of particular concern
to the local community. It is not clear whether, in adopting the
language of this provision a decade ago, Congress anticipated the
distinction between satellite delivered programming and terrestrially
delivered programming, or that local programming would be exempt from
this prohibition.

Congress did, however, anticipate that the prohibition on exclusive
contracts created in 1992 would foster competition in the market for the
delivery of video programming, and also anticipated that this provision
might still be necessary to "preserve and protect competition and
diversity" ten years hence. With this Order, we find that the rules we
adopted pursuant to that provision continue to be necessary, and extend
them and their protections for another five years.

**SEPARATE STATEMENT OF COMMISSIONER KEVIN J. MARTIN**

**APPROVING IN PART, CONCURRING IN PART**

*Re: Implementation of the Cable Television Consumer Protection and
Competition Act of 1992; Development of Competition and Diversity in
Video Programming Distribution: Section 628(c)(5) of the Communications
Act; Sunset of Exclusive Contract Prohibition, Report and Order, CS
Docket No. 01-290 (adopted June 13, 2002).*

The Program Access rules, and in particular the prohibition against
exclusive contracts,[^332] have been instrumental to the growth of
viable competitors to the incumbent cable operators in the multichannel
video programming distribution market. When Congress enacted the program
access provisions in 1992, however, Congress placed a limit on the
prohibition against exclusive contracts. Section 628(c)(5) of the
Communications Act provides that the exclusivity ban would cease to be
effective in October of 2002 (ten years from the date of passage) unless
the Commission makes an affirmative finding that the prohibition
"continues to be necessary to preserve and protect competition and
diversity in the in the distribution of video programming."[^333]

Since adoption of this *Order*, the D.C. Circuit revisited the court's
previous ruling in *Fox Television Stations, Inc. v. FCC*.[^334] The
court concluded that the interpretation of the statutory term "necessary
in the public interest"[^335] was not necessary to the earlier opinion,
since whether the term meant "indispensable" or "merely useful," "it was
clear the Commission failed to justify the NTSO and the CBCO rules under
either standard."[^336] Because the term had not been fully briefed by
all the parties, the court determined that "\[i\]n these circumstances,
we think it better to leave unresolved precisely what § 202(h)
means."[^337] The court thus modified the earlier decision in order to
"leave this question open."[^338]

While the statutory interpretation of "necessary" in § 202(h) remains
unresolved, I continue to believe that the term (as used both in §
202(h) and § 628(c)(5)) means more than just "helpful" or "useful." I
believe "necessary" should mean something closer to "indispensable" or
"essential." Because the legal standard in the *Order* does not
articulate such a high burden, I concur in this aspect of the *Order*.

I believe the Commission must let the exclusivity ban sunset *unless* it
can determine based on specific evidence -- not solely the Commission's
"expert" or "predictive" judgement -- that the ban is essential to
preserving and protecting competition and diversity in the distribution
of video programming. Thus, I believe that a finding that the
exclusivity ban is "beneficial" to or "promotes" competition and
diversity would not be sufficient. I agree with parties that argue:

> Congress has clearly directed the restrictions on exclusive
> programming arrangements sunset absent solid proof of their necessity
> to preserve and protect competition and diversity. It is not
> sufficient to show that exclusivity restrictions are merely "helpful"
> or "beneficial" to some particular competing multichannel video
> programming distributors. The statutory language is clear and
> ambiguous -- the exclusivity restrictions can be retained only if
> "[necessary]{.underline} to preserve and protect competition and
> diversity in the distribution of video programming."[^339]

For me, whether the exclusivity ban continues to be necessary was a very
close call. On balance, I have concluded that the record does support
the *Order's* conclusion that the prohibition against exclusive
contracts continues to be necessary to preserve and protect competition
and diversity, and therefore I support the item in this regard.

[^1]: 47 U.S.C. § 548(c)(5).

[^2]: 47 U.S.C. § 548(c)(2)(D).

[^3]: *Implementation of the Cable Television Consumer Protection and
    Competition Act of 1992 - Development of Competition and Diversity
    in Video Programming Distribution: Section 628(c)(5) of the
    Communications Act: Sunset of Exclusive Contract Prohibition*, 16
    FCC Rcd 19074 (2001) ("*Notice*"). A list of commenters and reply
    commenters and the abbreviations by which they are identified herein
    is attached as Appendix A.

[^4]: Cable Television Consumer Protection and Competition Act of 1992,
    Pub. L. No. 102-385, 106 Stat. 1460 (1992).

[^5]: 1992 Cable Act § 2(a)(2).

[^6]: Congress absolutely prohibited exclusive contracts between
    vertically integrated programming vendors and cable operators in
    areas unserved by cable, and generally prohibited exclusive
    contracts within areas served by cable. 47 U.S.C. § 548(c)(2)(C); 47
    U.S.C. § 548(c)(2)(D). Specifically, the prohibition with regard to
    served areas, Section 628(c)(2)(D), states that:

    > with respect to distribution to persons in areas served by a cable
    > operator, \[the Commission shall\] prohibit exclusive contracts
    > for satellite cable programming or satellite broadcast programming
    > between a cable operator and a satellite cable programming vendor
    > in which a cable operator has an attributable interest or a
    > satellite broadcast programming vendor in which a cable operator
    > has an attributable interest, unless the Commission determines . .
    > . that such a contract is in the public interest.

    47 U.S.C. § 548(c)(2)(D); *see also* 47 C.F.R. § 76.1002(c)(2).
    Congress recognized that, in areas served by cable, some exclusive
    contracts may serve the public interest by providing offsetting
    benefits to the video programming market or may aid in the
    development of competition among MVPDs. Congress instructed the
    Commission to determine whether an exclusive contract is in the
    public interest by considering five factors in relation to the
    effect of such contract on the distribution of video programming in
    that area. 47 U.S.C. § 548(c)(4); *see also* 47 C.F.R. §
    76.1002(c)(4).

[^7]: The record before Congress, leading up to and including the 1992
    Cable Act, was replete with references to the importance of access
    to vertically integrated programming to competitive MVPDs. *See* S.
    Hrg. 101-357: Media Ownership: Diversity and Concentration, 101^st^
    Cong., 1^st^ Sess. 376 (1989) (statement of Gene Kimmelman,
    Legislative Director, Consumer Federation of America); S. Hrg.
    101-511: Competitive Problems in the Cable Television Industry,
    101^st^ Cong., 1^st^ Sess. 463 (1990) (statement of Robert L.
    Schmidt, President Wireless Cable Association); S. Hrg 101-702:
    Cable TV Consumer Protection Act of 1989, 101^st^ Cong., 2nd Sess.
    472-73 (1990) (statement of Harry P. Cushing, President, Telesat
    Cablevision, Inc.); Cable TV Consumer Protection Act of 1991,
    Hearings on S. 12 before the Subcomm. on Communications, Senate
    Commerce, Science, and Transp. Comm., 102^nd^ Cong., 1^st^ Sess.
    280, 283 (1991) (statement of Robert L. Schmidt, President, Wireless
    Cable Association); *see also* Nicholas W. Allard, The 1992 Cable
    Act: Just the Beginning, 15 Hastings Communications and
    Entertainment L. J. 305, 315-317 n. 43 (discussing prior versions
    and legislative history of the 1992 Cable Act).

[^8]: 1992 Cable Act § 2(a)(2).

[^9]: *Id.*

[^10]: *See* S. Rep. No. 102-92 at 28 (1992).

[^11]: *Id.; see also* 1992 Cable Act § 2(a)(5).

[^12]: *See* 47 U.S.C. § 548 (affording program access protection to
    "multichannel video programming distributors"); *see also* 47.
    U.S.C. § 522(13) ("multichannel video programming distributor" means
    "a person such as, but not limited to, a cable operator, a
    multichannel multipoint distribution service, a direct broadcast
    satellite service, or a television receive-only satellite program
    distributor, who makes available for purchase, by subscribers or
    customers, multiple channels of video programming").

[^13]: S. Rep. No. 102-92 at 28.

[^14]: 47 U.S.C. § 548(c)(5). Section 628(c)(5) of the Communications
    Act provides that:

    > The prohibition required by paragraph (2)(D) shall cease to be
    > effective 10 years after the date of enactment of this section,
    > unless the Commission finds, in a proceeding conducted during the
    > last year of such 10-year period, that such prohibition continues
    > to be necessary to preserve and protect competition and diversity
    > in the distribution of video programming.

    47 U.S.C. § 548(c)(5); *see also* 47 C.F.R. § 76.1002(c)(6).

[^15]: AT&T Comments at 1-6; NCTA Comments at 2-4; AOLTW Reply Comments
    at 2; Comcast Comments at 3.

[^16]: AT&T Comments at 5; NCTA Comments at 4.

[^17]: Comcast Comments at 3.

[^18]: *Id.* at 4*.*

[^19]: AOLTW Reply Comments at 2.

[^20]: 284 F.3d 148 (D.C. Cir. 2002).

[^21]: 280 F.3d 1027 (D.C. Cir. 2002).

[^22]: AOLTW Supplemental Comments at 3.

[^23]: *Id.*

[^24]: Wireless Communications Association International, Inc.
    ("WCA")/BellSouth Entertainment, LLC May 8, 2002 *ex parte* letter
    at 1-2.

[^25]: DIRECTV Reply Comments at 10; Joint Reply Comments at 11.

[^26]: EchoStar Reply Comments at 4, 6.

[^27]: Media Access Project, *et al.* Reply Comments at 8.

[^28]: RCN Reply Comments at 23.

[^29]: *Id.*

[^30]: *See e.g., Morgan v. Commonwealth of Virginia*, 328 U.S. 373,
    377-78 (1946) (state legislation "invalid if it unduly burdens
    commerce in matters where uniformity is necessary in the
    constitutional sense of useful in accomplishing a permitted
    purpose"); *Armour & Co. v. Wantouk*, 323 U.S. 126, 129-30 (1944)
    (term "necessary" in the Fair Labor Standards Act, in context, means
    reasonably necessary to production, and not "indispensable,"
    "essential," or "vital"); *McCulloch v. Maryland*, 17 U.S. (4
    Wheat.) 316, 413 (1819) (term "necessary" in the "necessary and
    proper" clause of the U.S. Constitution means "convenient, or
    useful," and does not limit congressional power to the "most direct
    and simple" means available). *See also, Independent Insurance
    Agents of America, Inc. v. Hawke*, 211 F.3d 638 (D.C. Cir. 2000)
    (term "necessary" in the National Bank Act means "convenient" or
    "useful").

[^31]: *See, e.g., Kirschbaum v. Arsenal Building Corp.*, 316 U.S. 517,
    525-26 (1942) (term "necessary" in the Fair Labor Standards Act
    means "indispensable" and "essential"). The parties cite the recent
    *Fox* decision, 280 F.3d at 1049, for the proposition that the
    statutory phrase "necessary in the public interest" does not mean
    "merely consonant with \[the public interest\]". The Commission has
    filed a Petition for Rehearing or Rehearing *En Banc* with the
    District of Columbia Circuit seeking rehearing of the *Fox* Court's
    interpretation of the term "necessary" in the context of Section
    202(h). *See Fox Television Stations, Inc., et al. v. FCC*, Nos.
    00-1222, *et al.* (Petition for Rehearing or Rehearing *En Banc* of
    the Federal Communications Commission).

[^32]: ^^ Subsequent to the adoption of this *Order* but prior to its
    release, the D.C. Circuit granted the Commission\'s rehearing
    petition in *Fox* to the extent of deleting a paragraph in the
    opinion discussing the \"necessary in the public interest\" standard
    as used in Section 202(h) of the Telecommunications Act. The D.C.
    Circuit deleted the paragraph that had held the Commission, in
    interpreting the phrase \"necessary in the public interest\" under
    Section 202(h), \"appears to have applied too low a standard.\"
    *Fox*, 280 F.3d at 1050. In modifying the opinion, the Court
    concluded that where the statutory interpretation was \"unnecessary
    to the outcome of the case\" and \"might have had ill-considered
    implications for future cases\" it is better to leave unresolved
    precisely what is meant by the \"necessary in the public interest\"
    phrase as used in Section 202(h). *Fox Television Stations, Inc. v.
    FCC*, Nos. 00-1222 (D.C. Cir. June 21, 2002), slip opin. at 5.

[^33]: *See, e.g.,* *Conroy v. Aniskoff*, 507 U.S. 511, 515 (1993)
    (statute must be read as a whole, since the meaning of statutory
    language, plain or not, depends on context).

[^34]: Under conventional dictionary definitions, the terms "preserve"
    and "protect" mean "to keep safe from injury, harm, or destruction;"
    "to keep alive, intact, or free from decay;" "maintain;" "guard."
    *See, e.g.,* American Heritage Dictionary, Third Edition (1994);
    Webster's Ninth New Collegiate Dictionary (1987); Webster's Third
    New International Dictionary (1963).

[^35]: *See* 1992 Cable Act § 2(a)(5); *see also supra* n. 7 (discussing
    importance of vertically integrated programming to competitive
    MVPDs). For purposes of this analysis, we believe the ability to
    favor affiliated cable operators includes both having programming to
    which subscribers give high priority and the legal means of
    restricting distribution of that programming.

[^36]: *See FCC v. National Citizens Committee for Broadcasting*, 436
    U.S. 775, 796-97 (1978).

[^37]: *Annual Status of Competition in the Market for the Delivery of
    Video Programming*, 17 FCC Rcd 1244, 1309 (2002) ("*Eighth Annual
    Report*").

[^38]: *Id.* The percentage of vertically integrated networks has
    remained the same in the years 2000 and 2001.

[^39]: *Implementation of Section 19 of the Cable Television Consumer
    Protection and Competition Act of 1992: Annual Assessment of the
    Status of Competition in the Market for the Delivery of Video
    Programming,* 9 FCC Rcd 7442, 7589-92 (1994) ("*First Report on
    Competition*").

[^40]: *Id.* at 7596-98.

[^41]: *Id.* at 7587 (calculated taking into account 1994 mergers in the
    cable television industry).

[^42]: *Id.* at 7596-98.

[^43]: *Eighth Annual Report*, 17 FCC Rcd at 1310. On August 10, 2001,
    Liberty Media split off from AT&T Corporation and is now an
    independent company. However, through its ownership of Cablevision
    of Puerto Rico, it remains a small cable system owner. If Liberty
    Media were not considered as being vertically integrated, the ratio
    of vertically integrated channels would decrease from 35 percent in
    2000 to 31 percent in 2001. *Id.* n. 511.

[^44]: *Id.* Liberty Media has the sole cable ownership interest in the
    remaining 52 vertically integrated satellite delivered national
    programming services.

[^45]: *Id.* at 1363. At the time of the *First Report on Competition*,
    10 of the top 25 satellite delivered national programming services
    (ranked by subscribership) were vertically integrated with a cable
    MSO. *First Report on Competition*, 9 FCC Rcd at 7599.

[^46]: *Eighth Annual Report*, 17 FCC Rcd at 1364. At the time of the
    *First Report on Competition*, 12 of the top 15 satellite delivered
    national programming services (ranked by prime time ratings) were
    vertically integrated with a cable MSO. *First Report on
    Competition*, 9 FCC Rcd at 7600.

[^47]: *See Annual Assessment of the Status of Competition in the Market
    for the Delivery of Video Programming*, 13 FCC Rcd 24284 (1998)
    ("*Fifth Annual Report*").

[^48]: *Id.* at 24439-41.

[^49]: *Id.*

[^50]: *Eighth Annual Report*, 17 FCC Rcd at 1354-56.

[^51]: *See* NCTA, *Cable Television Developments 2001* at 174-200 (at
    least 23 of 39 vertically integrated regional programming services
    are satellite delivered).

[^52]: *Eighth Annual Report,* 17 FCC Rcd at 1354-56.

[^53]: *See* NCTA, *Cable Television Developments 2001* at 174-200 (at
    least 21 of 24 vertically integrated regional sports programming
    services are satellite delivered).

[^54]: *Eighth Annual Report,* 17 FCC Rcd at 1357-58.

[^55]: *See* *Notice*, 16 FCC Rcd at 19078.

[^56]: *Eighth Annual Report*, 17 FCC Rcd at 1247.

[^57]: *Id.*; *see First Report on Competition*, 9 FCC Rcd at 7566.

[^58]: *Eighth Annual Report,* 17 FCC Rcd at 1247.

[^59]: *Id.* at 1341.

[^60]: *First Report on Competition,* 9 FCC Rcd at 7586.

[^61]: *Eighth Annual Report*, 17 FCC Rcd at 1341.

[^62]: *Id.* at 1252.

[^63]: *First Report on Competition*, 9 FCC Rcd at 7586.

[^64]: *Eighth Annual Report*, 17 FCC Rcd at 1304.

[^65]: *See e.g.*, Applications and Public Interest Statement in MM
    Docket No. 02-70 (AT&T Corp. and Comcast Corp. Transfer of Control
    Application) at 42 (filed February 28, 2002).

[^66]: Paul Kagen Assocs., Inc., *MSOs Swapping Their Way to ADI
    Dominance*, Cable TV Investor at 4 (Sept. 18, 1995).

[^67]: *See Annual Assessment of the Status of Competition in the Market
    for the Delivery of Video Programming*, 11 FCC Rcd 2060, 2129 (1995)
    ("*Second Annual Report*"); *Eighth Annual Report*, 17 FCC Rcd at
    1340.

[^68]: *See* *Eighth Annual Report*, 17 FCC Rcd at 1340.

[^69]: *Id.* at 1252.

[^70]: *Id.*

[^71]: See Kagen World Media, *Major Cable TV Systems/Clusters*,
    Broadband Cable Financial Databook 2001 at 36.

[^72]: *Eighth Annual Report,* 17 FCC Rcd at 1305.

[^73]: *See* Kagen Assoc., Inc., Cable TV Financial Databook at 14 38
    (1995).

[^74]: *See* Kagen World Media, Broadband Cable Financial Databook at 19
    36 (2000).

[^75]: *Eighth Annual Report*, 17 FCC Rcd at 1338.

[^76]: *First Report on Competition*, 9 FCC Rcd at 7475.

[^77]: *Eighth Annual Report*, 17 FCC Rcd at 1341.

[^78]: *Id*. at 1338.

[^79]: *First Report on Competition*, 9 FCC Rcd at 7480, 7482, 7488-89.

[^80]: *Eighth Annual Report*, 17 FCC Rcd at 1338.

[^81]: *See* 47 U.S.C. §§ 571 & 573; 47 C.F.R. §§ 76.1500-76.1514.

[^82]: *Eighth Annual Report*, 17 FCC Rcd at 1338.

[^83]: 1992 Cable Act § 2(a)(5). Congress also stated its policy "to
    ensure that cable television operators do not have undue market
    power vis-à-vis video programmers and consumers." 1992 Cable Act §
    2(b)(5).

[^84]: *See* *FCC v. National Citizens Committee for Broadcasting*, 436
    U.S. at 796-97.

[^85]: *See New England Cable News*, 9 FCC Rcd 3231 (1994) (granting
    petition for exclusivity); *Newschannel*, 10 FCC Rcd 691 (1994)
    (granting petition for exclusivity).

[^86]: Section 628(c)(4) sets forth five factors pursuant to which the
    Commission is to evaluate a petition for finding that a particular
    exclusive arrangement would serve the public interest. 47 U.S.C. §
    548(c)(4). These factors are: (i) the effect of such exclusive
    contract on the development of competition in the local and national
    multichannel video programming distribution markets; (ii) the effect
    of such exclusive contract on competition from multichannel video
    programming distribution technologies other than cable; (iii) the
    effect of such exclusive contract on the attraction of capital
    investment in the production and distribution of new satellite cable
    programming; (iv) the effect of such exclusive contract on diversity
    of programming in the multichannel video programming distribution
    market; and (v) the duration of the exclusive contract. *Id.*; *see
    also* 47 C.F.R. § 76.1002(c)(4).

[^87]: BSPA Comments at 8; IMMC Comments at 5-6; ACA Reply Comments at
    3.

[^88]: BSPA Comments at 8; NRTC Comments at 5, each citing *Annual
    Assessment of the Status of Competition in the Market for the
    Delivery of Video Programming*, 16 FCC Rcd 6005, 6078 (2001)
    ("*Seventh Annual Report*"). In referring to current marketplace
    conditions, competitive MVPDs generally cite to the *Seventh Annual
    Report*.

[^89]: BSPA Comments at 8; NRTC Comments at 5, each citing *Seventh
    Annual Report*, 16 FCC Rcd at 6079, 6134.

[^90]: BSPA Comments at 8; IMCC Comments at 5; NRTC Comments at 5. These
    commenters note that these vertically integrated "marquee" networks
    include the USA Network (AT&T), TBS (AOLTW), TNT (AOLTW), the
    Cartoon Network (AOLTW), TLC (AT&T, Cox), the Sci Fi Channel (AT&T),
    Comedy Central (AOLTW) Court TV (AT&T, AOLTW), CNN (AOLTW), E!
    (Comcast, AT&T) and APL (AT&T, Cox); *see also Seventh Annual
    Report*, 16 FCC Rcd at 6079, 6139.

[^91]: BSPA Comments at 11; Carolina Broadband Comments at 4; Joint
    Comments at 4.

[^92]: IMCC Comments at 5; EchoStar Comments at 9; ACA Reply Comments at
    3; CNI Wireless Reply Comments at 1.

[^93]: APPA Comments at 4.

[^94]: Joint Comments at 16.

[^95]: ACA Reply Comments at 3.

[^96]: EchoStar Reply Comments at 20.

[^97]: *Id.*

[^98]: Joint Comments at 11; BSPA Comments at 11; RCN Comments at 14;
    Gemini Comments at 5; Seren Comments at 10; IMCC Comments at 4.

[^99]: Joint Comments at 11; BSPA Comments at 11; RCN Comments at 14;
    Gemini Comments at 5; Seren Comments at 10; IMCC Comments at 4.

[^100]: Seren Comments at 11; RCN Comments at 14.

[^101]: RCN Comments at 14.

[^102]: RCN Comments at 13; Gemini Comments at 13; Seren Comments at 11.

[^103]: AOLTW Comments at 18; Cablevision Comments at 35; Comcast
    Comments at 8.

[^104]: AOLTW Comments at 18.

[^105]: Cablevision Comments at 36.

[^106]: NCTA Comments at 11.

[^107]: *Id.* at 12.

[^108]: DIRECTV and EchoStar assert that their significantly lower
    subscribership in Philadelphia as compared to other large cities is
    directly attributable to their inability to access Comcast
    SportsNet. *Economic Assessment* at 24. DBS subscribership in
    Philadelphia is 3.9 percent, or less than half the 9.3 percent
    weighted average of the top 20 largest cities (excluding
    Philadelphia). *Id.* at 22-24. We note that, in other contexts,
    parties have challenged EchoStar's DBS penetration figures for the
    Philadelphia market (asserting that it ranges from 5.3 percent to
    8.5 percent) using different reference sources than the *Economic
    Assessment*. *See Applications for Consent to the Transfer of
    Control of Licenses*, MB Docket No. 02-70 (AT&T Corp/Comcast
    Corporation Reply to Comments and Petitions to Deny Applications for
    Consent to Transfer Control at 104). Using either figure, it is
    apparent that DBS penetration in Philadelphia is well below the 18
    percent national penetration rate.

[^109]: Notice that a cable operator may gain by weakening a current or
    potential rival even in markets that the cable operator itself does
    not serve, particularly when the rival distributor's operations
    exhibit substantial scale economies. Reducing the rival's customer
    base in other markets would raise the rival's average cost of
    serving customers in the cable operator\'s own market(s), and
    thereby reduce the rival's competitive strength. DBS distributors
    have high fixed costs and a national infrastructure. If a vertically
    integrated cable programmer could, by withholding programming from
    the DBS operator, reduce the scale of DBS operations across the
    country, the DBS operator might become a less formidable competitor
    in the operator\'s own markets.

[^110]: If a program service is owned by more than one cable operator,
    then the magnitude of benefits captured by owners and, hence, the
    likelihood of withholding, generally increases with the total number
    of subscribers controlled by the owners.

[^111]: 1992 Cable Act § (2)(a)(3) ("cable television has become a
    dominant nationwide video medium").

[^112]: AOLTW Comments at 7; AT&T Comments at 16; Cablevision Comments
    at 22; Comcast Comments at 4; NCTA Comments at 4.

[^113]: NCTA Comments at 5, citing *First Report on Competition*, 9 FCC
    Rcd. At 7540 (1994).

[^114]: *Id.*

[^115]: *Id.* In referring to current marketplace conditions, NCTA and
    cable MSOs generally cite to the *Seventh Annual Report*, 16 FCC Rcd
    6005 (2001).

[^116]: *Id*. at 6.

[^117]: Cablevision Comments at 22; AOLTW Reply Comments at 7.

[^118]: AT&T Comments at 19; Cablevision Comments at 22; AOLTW Reply
    Comments at 4.

[^119]: Comcast Comments at 4; NCTA Comments at 6-7; Cablevision Reply
    Comments at 2.

[^120]: NCTA Comments at 7; AOLTW Comments at 7; AT&T Comments at 18;
    Cablevision Comments at 22; Comcast Comments at 5.

[^121]: NCTA Comments at 7*.*

[^122]: AT&T Comments at 18; NCTA Comments at 7; AOLTW Comments at 7.

[^123]: AT&T Comments at 18; Comcast Comments at 6; NCTA Comments at 7.

[^124]: AOLTW Comments at 8; Cablevision Comments at 22.

[^125]: NCTA Comments at 7.

[^126]: AOLTW Comments at 9; NCTA Comments at 8.

[^127]: CBC Reply Comments at 3; Media Access Project *et al*. Reply
    Comments at 5.

[^128]: Joint Comments at 21.

[^129]: ACA Comments at 2.

[^130]: APPA Comments at 4-5; WSNet Comments at 3; BSPA Reply Comments
    at 2.

[^131]: CBC Comments at 6.

[^132]: *Id.* at 6; RCN Comments at 19; Joint Comments at 6; EchoStar
    Reply Comments at 7.

[^133]: Joint Comments at 6; WSNet Comments at 3; IMCC Comments at 3;
    *see also Seventh Annual Report*, 16 FCC Rcd at 6013, 6074.

[^134]: *Notice*, 16 FCC Rcd at 19078. In *Time Warner Entertainment Co.
    v. FCC*, 240 F.3d 1126 (D.C. Cir. 2001), the United States Court of
    Appeals for the D.C. Circuit reviewed the Commission's cable
    television horizontal and vertical ownership limits and attribution
    benchmarks, and reversed and remanded the rules. The Commission's
    horizontal limit bars a cable operator from having an attributable
    interest in more than 30 percent of nationwide subscribership of
    multichannel video programming, and the vertical limit bars a cable
    operator from carrying attributable programming on more than 40
    percent of channels up to 75 channels of capacity. The Commission
    has undertaken a proceeding to respond to the D.C. Circuit's
    concerns regarding the cable ownership rules. *See Implementation of
    Section 11* *of the Cable Television Consumer Protection and
    Competition Act of 1992: The Commission's Cable Horizontal and
    Vertical Ownership Limits and Rules*, 16 FCC Rcd 17312 (2001).

[^135]: Carolina Broadband Comments at 2; Gemini Networks Comments at 3;
    RICA Comments at 4.

[^136]: IMCC Comments at 3; Carolina Broadband Comments at 3; DIRECTV
    Reply Comments at 8.

[^137]: WSNet Comments at 4.

[^138]: Joint Comments at 6. WSNet also contends that while clustering
    purportedly is more efficient, these efficiencies have not been
    passed on to cable customers who typically pay more in clustered
    areas. WSNet Comments at 4. RCN observes that while it may prove
    difficult to measure market power, certainly one crucial indicator
    of market power is the ability to raise rates and that the cable
    industry has, and continues to, raise rates faster than inflation.
    RCN Comments at 20-21.

[^139]: Further, we reject AOLTW's argument that First Amendment
    concerns mandate sunset of the exclusivity prohibition. AOLTW Reply,
    at 3. The exclusivity prohibition was previously upheld in the face
    of a First Amendment challenge. *Time Warner Entertainment Co. L.P.
    v. FCC*, 93 F.3d 957 (D.C. Cir. 1996). Moreover, we do not find
    persuasive AOLTW's contention that commenters favoring retention
    fail to provide "substantial evidence" that sunset of the
    prohibition would significantly hamper competition and/or diversity,
    as required under the intermediate scrutiny test. *Id.*, *citing
    Time Warner Entertainment Co. L.P.*, 93 F.3d at 979 (upholding
    section 628's prohibition on exclusive contracts using intermediate
    scrutiny test). To the contrary, as described herein, we believe the
    record fully supports our finding that vertically integrated
    programming continues to be necessary in order for competitive MVPDs
    to remain viable in the marketplace and diversity in the
    distribution of video programming preserved and protected. Likewise,
    we reject AOLTW's argument that existing antitrust laws provide a
    remedial approach that is "less restrictive" than the exclusivity
    prohibition and therefore retention of the prohibition cannot meet
    the intermediate scrutiny test's "narrowly tailoring" requirement.
    By passing Section 628, Congress already determined that antitrust
    laws were not a viable alternative for achieving the government's
    goals in this instance.

[^140]: *Eighth Annual Report,* 17 FCC Rcd at 1298.

[^141]: *Id.*

[^142]: *Id.*

[^143]: *Id.* We note that although DBS services are presumed to be
    technically available nationwide, they may not actually be available
    to many subscribers in multiple dwelling units or in households that
    are not within the line-of-sight of a DBS signal. *Id.* at 1299.

[^144]: *Id.*

[^145]: *See* *Notice*, 16 FCC Rcd at 19078.

[^146]: *Eighth Annual Report*, 17 FCC Rcd at 1247.

[^147]: *See id.* at 1273-74.

[^148]: *Id*. at 1338.

[^149]: *Id.* at 1252 & 1255.

[^150]: *Id.* at 1304-05.

[^151]: *See supra* ¶¶ 18-19 (35 percent of national programming
    services are vertically integrated while 49 percent regional
    programming services are vertically integrated).

[^152]: *See supra* ¶ 19.

[^153]: NCTA Comments at 14; AT&T Comments at 24; Cablevision Comments
    at 29.

[^154]: AT&T Comments at 24.

[^155]: NCTA Comments at 14; Cablevision Comments at 29.

[^156]: NCTA Comments at 15.

[^157]: AT&T Comments at 24.

[^158]: Cablevision Comments at 2; AT&T Comments at 9.

[^159]: ACA Reply Comments at 4.

[^160]: *Id.*

[^161]: BELD Broadband Reply Comments at 2; *see also In the Matter of
    New England Cable News*, 9 FCC Rcd 3231 (1994).

[^162]: BELD Broadband Reply Comments at 2.

[^163]: RCN Reply Comments at 10; Northpoint Reply Comments at 13;
    DIRECTV Reply Comments at 5.

[^164]: Northpoint Reply Comments at 13.

[^165]: *Id.*

[^166]: IMCC Comments at 10.

[^167]: DIRECTV Reply Comments at 8; BSPA Reply Comments at 16; Verizon
    Reply Comments at 1.

[^168]: BSPA Reply Comments at 16; Verizon Reply Comments at 1.

[^169]: EchoStar Comments at 17.

[^170]: *See* "*An Economic Assessment of the Exclusive Contract
    Prohibition Between Vertically Integrated Cable Operators and
    Programmers*" at 18 (Jonathan M. Orszag, Peter R. Orszag and John M.
    Gale) filed in conjunction with Reply Comments of EchoStar and
    DIRECTV ("*Economic Assessment*").

[^171]: *Id.*

[^172]: *Id.* at 7-13. This analysis is essentially the same as that
    described in paragraphs 36-39 above.

[^173]: *Eighth Annual Report,* 17 FCC Rcd at 1338. We note that if
    sunset of the exclusivity prohibition occurred and vertically
    integrated programmers entered into exclusive arrangements with only
    the top ten MVPDs (excluding DBS providers), those programmers would
    still retain access to over 66 percent of all MVPD subscribers.
    *Id.* at 1341. This figure has increased three percent from the
    period of the *First Report on Competition* at which time a
    vertically integrated programmer would have been able to retain
    access to approximately 63 percent of all MVPD subscribers. *First
    Report on Competition*, 9 FCC Rcd at 7586.

[^174]: *See* Michael H. Riordan and Steven Salop, *Evaluating Vertical
    Mergers: A Post-Chicago Approach*, 63 Antitrust Law Journal 519
    (1995). Under certain conditions a vertically integrated firm can
    harm competition and raise prices for consumers. For example, a
    downstream firm (affiliated cable operator) can use vertical
    integration with an upstream firm (vertically integrated programmer)
    in order to deny upstream supply to downstream rivals (nonaffiliated
    MVPDs). *See* Janusz Ordover, Garth Saloner, and Steven Salop,
    *Equilibrium Vertical Foreclosure*, American Economic Review, pp.
    127-142 (Mar. 1990). By eliminating an upstream supplier to
    nonaffiliated MVPDs, the downstream firm can reduce competition in
    the upstream market, and therefore cause higher prices for
    nonintegrated upstream supply, thus harming those MVPDs. Additional
    research indicates that vertical integration coupled with
    exclusivity can lead to a decline in output and social welfare, as
    well as a drop in profits and output for the nonintegrated
    downstream firm. *See* Oliver Hart and Jean Tirole, *Vertical
    Integration and Market Foreclosure*, Brookings Papers:
    Microeconomics, pp. 205-286 (1990).

[^175]: *See supra* ¶ 19.

[^176]: *See supra* nn. 37, 49 & 51 and accompanying text (discussing
    vertical integration penetration of national and regional
    programming services).

[^177]: *Eighth Annual Report*, 17 FCC Rcd at 1341.

[^178]: *See* Economic Assessment at 24; *but see supra* n. 107
    (challenging DBS penetration figure for Philadelphia). These city
    level penetration data do not correspond exactly to cable MSO
    cluster boundaries, and there are likely factors, such as
    line-of-sight, in addition to cable competition that affect city DBS
    penetration. Nevertheless, we believe that the city penetration data
    provide support for the position that DBS penetration is lower in
    certain cable cluster areas than nationwide.

[^179]: *Competition, Rate Deregulation and the Commission's Policies
    Relating to the Provision of Cable Television Service*, 5 FCC Rcd
    4962, 5021 (1990).

[^180]: *See* S. Rep. No. 102-92 at 24.

[^181]: *See e.g., Corporate Media Partners d/b/a Americast and
    Ameritech New Media v. Continental Cablevision, Inc. and Home Box
    Office*, 12 FCC Rcd 3455 (1997); *Cellularvision of New York, LP v.
    SportsChannel Associates*, 11 FCC Rcd 3001 (1996); *Bell Atlantic
    Video Services Co. v. Rainbow Programming Holdings, Inc. and
    Cablevision Systems Corp.*, 12 FCC Rcd 9892 (1997); *Electric Plant
    Board City of Glasgow, KY v. Turner Network Cable Sales, Inc.*, 9
    FCC Rcd 4855 (1994).

[^182]: *See e.g., Outdoor Life Network and Speedvision Network*, 13 FCC
    Rcd 12226 (1998); *Cablevision Industries Corp. and Sci-Fi Channel*,
    10 FCC Rcd 9786 (1995); *Time Warner Cable*, 9 FCC Rcd 3221 (1994);
    *Time Warner Cable*, 9 FCC Rcd 4029 (1994); *New England Cable
    News*, 9 FCC Rcd 3231 (1994); *Newschannel*, 10 FCC Rcd 691 (1994).

[^183]: *See* *DIRECTV, Inc. v. Comcast Corporation*, 15 FCC Rcd 22802,
    22807 (2000), *aff'g*, *EchoStar Communications Corporation v.
    Comcast Corporation*, 14 FCC Rcd 2089 (1999), *DIRECTV, Inc. v.
    Comcast Corporation*, 13 FCC Rcd 21822 (1998), *aff'd sub nom.
    EchoStar Communications Corporation v. FCC*, No. 01-1032 (D.C. Cir.
    June 11, 2002); *RCN Telecom Services of New York, Inc. v.
    Cablevision Systems Corp.*, 16 FCC Rcd 12048 (2001).

[^184]: *See e.g.*, AOLTW Comments at 13-18; AOLTW Reply Comments at 11;
    Cablevision Comments at 18; AT&T Comments at 10; Comcast Comments at
    13; NCTA Comments at 15; BELD Comments at 1; Joint Comments at 13.

[^185]: *Notice,* 16 FCC Rcd at 19080.

[^186]: *Eighth Annual Report*, 17 FCC Rcd at 1341.

[^187]: For example, we understand that CNN has been available to all
    MVPDs since its inception.

[^188]: *Eighth Annual Report*, 17 FCC Rcd at 1335.

[^189]: *See supra* ¶¶ 21-22 & 47 (discussing clustering and
    consolidation with the cable industry).

[^190]: *See supra* n. 182 and accompanying text (discussing vertically
    integrated programmers foreclosure of terrestrially distributed
    programming to MVPDs both large and small).

[^191]: *See* *DIRECTV, Inc. v. Comcast Corporation*, 15 FCC Rcd at
    22807.

[^192]: *See supra* ¶ 47 (discussing the importance of vertically
    integrated regional programming).

[^193]: *See supra* ¶¶ 32-33 (discussing importance of vertically
    integrated programming to competitive MVPDs).

[^194]: 47 U.S.C. § 548(c)(5). We note that, even were we to partially
    sunset the prohibition as to one or more DBS operators, the
    prohibition on exclusive arrangements would continue to apply to
    vertically integrated cable operators in areas the were unserved by
    cable as of the enactment of the 1992 Cable Act (October 5, 1992).
    *See infra* ¶¶ 75-76 (discussing Section 628(c)(2)(C) of the
    Communications Act).

[^195]: AT&T Comments at 11; Cablevision Comments at 13.

[^196]: Cablevision Comments at 16; Comcast Comments at 14. These
    commenters argue that the one new program offering which has been
    developed by a DBS operator \-- NFL Sunday Ticket \-- is only
    available on a DBS-exclusive basis. Cablevision Comments at 16; AT&T
    Comments at 9.

[^197]: EchoStar Reply Comments at 21; CBC Reply Comments at 5.

[^198]: EchoStar Reply Comments at 21; CBC Reply Comments at 5.

[^199]: BSPA Reply Comments at 10; ACA Reply Comments at 5.

[^200]: ACA Reply Comments at 5.

[^201]: 47 U.S.C. § 548(c)(5) (emphasis added).

[^202]: 1992 Cable Act § 2(a)(6).

[^203]: In terms of developing new programming, DBS providers point to
    EchoStar's agreement with Vivendi Universal as an indication of how
    a DBS provider is facilitating the entry of new programming on a
    non-exclusive basis. *See* EchoStar Reply Comments at 22; *Economic
    Assessment* at 26.

[^204]: NCTA Comments at 12; *Eighth Annual Report*, 17 FCC Rcd at 1249.

[^205]: *See First Report on Competition*, 9 FCC Rcd at 7589-90 (56
    vertically integrated programming services); *Eighth Annual Report*,
    17 FCC Rcd at 1309 (104 vertically integrated programming services).

[^206]: In fact, DBS competitors credit the exclusivity prohibition in
    making DBS a competitive option to cable thereby spurring program
    diversity. DBS competitors claim that their ability to offer more
    channels digitally has pressured cable firms to invest in increased
    channel capacity, thus providing new opportunities to programmers.
    EchoStar Reply Comments at 22; *Economic Assessment* at 26.

[^207]: We do not believe other provisions in the statute -- namely,
    Sections 628(b), 628(c)(2)(A), and 628(c)(2)(B) -- are adequate
    substitutes for the particularized protection afforded under Section
    628(c)(2)(D). Section 628(c)(2)(D) provides a limited, targeted and
    temporary means for ensuring that effective competition develops in
    the MVPD marketplace. This provision temporarily favors competitive
    development over exclusive rights for the period necessary to
    preserve and protect competition. While Section 628(c)(2)(D) remains
    in effect, exclusive contracts generally are prohibited unless the
    Commission finds that exclusivity is in the public interest. The
    burden is placed on the party seeking exclusivity to show that a
    specific exclusive contract meets the statutory public interest
    standard before any such contract can be enforced. *First Report and
    Order*, 8 FCC Rcd at 3384, 3386. No other program access provision
    provides this protection.

    We initially note that these provisions were all enacted as part of
    the 1992 Cable Act. Thus, despite the existence of these other
    program access provisions, Congress found the exclusivity
    prohibition of Section 628(c)(2)(D) to be necessary to preserve and
    protect competition and diversity. Moreover, as compared to Section
    628(c)(2)(D), Section 628(b) addresses "unfair or deceptive acts or
    practices" generally and carries with it an added burden "to
    demonstrate that the purpose or effect of the conduct complained of
    was to 'hinder significantly or to prevent' an MVPD from providing
    programming to subscribers or customers." *Id.* at 3377-78;
    *Memorandum Opinion and Order on Reconsideration of the First Report
    and Order*, 10 FCC Rcd 1902, 1930 (1994). We have recognized that
    Section 628(c)(2)(A)'s safeguard against undue influence will "play
    a supporting role" to Sections 628(c)(2)(B), (C) and (D), "where
    information is available (such as might come from an internal
    'whistleblower') that evidences 'undue influence' between affiliated
    firms to initiate or maintain anticompetitive discriminatory
    pricing, contracting, or product withholding." *Id.* at 3424
    (conduct of undue influence necessary to establish a violation of
    section 628(c)(2)(A) "may be difficult for the Commission or
    complainants to establish"). Finally, while we recognize that
    Section 628(c)(2)(B) prohibits "non-price discrimination," a
    628(c)(2)(B) complainant must demonstrate the conduct was
    "unreasonable" which again may be difficult to establish given the
    widespread use of exclusive contracts in the commercial marketplace.
    Given these limitations, we believe the exclusivity prohibition in
    Section 628(c)(2)(D) "continues to be necessary to preserve and
    protect competition and diversity in the distribution of video
    programming."

[^208]: *Notice*, 16 FCC Rcd at 19080.

[^209]: *Id.*

[^210]: *Id.*

[^211]: *Id.*

[^212]: *Id.*

[^213]: DIRECTV Comments at 9; Everest Comments at 7; EchoStar Comments
    at 19-20.

[^214]: DIRECTV Comments at 9; Everest Comments at 7.

[^215]: EchoStar Comments at 19-20.

[^216]: Cablevision Reply Comments at 21.

[^217]: RCN Comments at 38.

[^218]: *Id.*

[^219]: Cablevision Reply Comments at 20-21.

[^220]: Pay-per-view programming is video programming such as movies and
    events (sporting events and concerts) that an MVPD makes available
    to its customers for a per-movie or per-event fee, or in the case of
    sports packages, a flat package price, at predetermined start times.
    The customer can order particular movies or events either using a
    remote control and set-top box or by calling a telephone number to
    have the cable operator authorize the customer's set-top box. In
    Demand Comments at 1-2.

[^221]: In Demand Comments at 3.

[^222]: *Id.* at 4,12. According to In Demand, DIRECTV devotes
    approximately 60 channels to PPV and sport packages and EchoStar has
    over 20 channels of PPV. *Id.* at 9.

[^223]: *Id.* at 4.

[^224]: *Id.* at 15.

[^225]: *Id.* at 8.

[^226]: *See Competition, Rate Deregulation and the Commission's
    Policies Relating to the Provision of Cable Television Service,* 5
    FCC Rcd 4962, 5027 (1990).

[^227]: The term "satellite cable programming" means video programming
    which is transmitted via satellite and which is primarily intended
    for the direct receipt by cable operators for their retransmission
    to cable subscribers. 47 U.S.C. §605(d)(1); *see also* 47 U.S.C. §
    548(i)(1). The term satellite broadcast programming means broadcast
    video programming when such programming is retransmitted by
    satellite and the entity retransmitting such programming is not the
    broadcaster or an entity performing such retransmission on behalf of
    and with the specific consent of the broadcaster. 47 U.S.C. §
    548(i)(3).

[^228]: *Id.*

[^229]: Everest Comments at 7.

[^230]: DIRECTV Comments at 9.

[^231]: 47 U.S.C. § 548(a).

[^232]: NCTA Reply Comments at 16; AOLTW Reply Comments at 13-14;
    Cablevision Reply Comments at 17.

[^233]: RICA Comments at 5.

[^234]: Viacom Reply Comments at 3.

[^235]: *Id.* at 7.

[^236]: *Id.* at 5. Viacom points to its TV Land Programming as an
    example of how exclusivity has helped to assist an independent,
    unproven programming service. Viacom notes that it entered into
    short-term exclusive distribution arrangements after the launch of
    TV Land in an effort to attain the level of distribution necessary
    for the service to become economically viable and once that was
    accomplished the programming then became widely available to
    multiple MVPDs on a non exclusive basis. *Id.*

[^237]: DIRECTV Comments at 7. DIRECTV notes that the National Football
    League is a non-vertically integrated program provider with whom
    DIRECTV has an agreement to be the exclusive DBS distributor of NFL
    Sunday Ticket and that this exclusive offering has been an important
    way for DIRECTV to distinguish itself in the MVPD market. *Id.*

[^238]: NCTA Reply Comments at 18-19, citing *Dakota Telecom, Inc. v.
    CBS Broadcasting, Inc.*, 14 FCC Rcd 10500, 10506 (1999).

[^239]: *See Implementation of the Cable Television Consumer Protection
    and Competition Act of 1992, Petition for Rulemaking of Ameritech
    New Media, Inc. Regarding Development of Competition and Diversity
    in Video Programming Distribution and Carriage,* 13 FCC Rcd 15822,
    15856 (1998).

[^240]: *See DIRECTV, Inc. v. Comcast Corp. et al.,* 15 FCC Rcd 22802
    (2000).

[^241]: *See* H.R. Conf. Rep. 102-862, 102^nd^ Cong., 2^nd^ Sess. 91
    (1992).

[^242]: *Id.* at 92.

[^243]: *Id.* at 93. The Conference agreement amended the House version
    to apply also to "satellite broadcast programming vendors." *Id.*

[^244]: The Commission has previously rejected attempts to expand the
    program access rules to include non-vertically integrated
    programmers. *See Annual Assessment of the Status of Competition in
    Markets for the Delivery of Video Programming,* 15 FCC Rcd 978, 1066
    (2000).

[^245]: 47 U.S.C. § 548(c)(2)(C) (emphasis added); *see also* 47 C.F.R.
    § 76.1002(c)(1).

[^246]: *Notice,* 16 FCC Rcd at 19079-80.

[^247]: DIRECTV Comments at 4.

[^248]: *Id.* at 5 (emphasis original).

[^249]: NRTC Comments at 7.

[^250]: *Notice,* 16 FCC Rcd at 19079.

[^251]: 47 U.S.C. § 548(c)(2)(C) (emphasis added).

[^252]: *First Report and Order,* 8 FCC Rcd at 3383.

[^253]: *Notice,* 16 FCC Rcd at 19080.

[^254]: RCN Comments at 28.

[^255]: *Id.*

[^256]: Everest Comments at 8.

[^257]: *Id.*

[^258]: Joint Reply Comments at 20.

[^259]: *See supra* nn. 84-85 and accompanying text (discussing
    petitions for exclusivity under the public interest factors of
    Section 628(c)(4)).

[^260]: *See* 5 U.S.C. § 603. The RFA has been amended by the *Contract
    With America Advancement Act of 1996*, Pub. L. No. 104-121, 110
    Stat. 847 (1996) ("CWAAA"). *See* 5 U.S.C. § 601 et. seq. Title II
    of the CWAAA is the *Small Business Regulatory Enforcement Fairness
    Act of 1996* ("SBREFA").

[^261]: *Implementation of the Cable Television Consumer Protection and
    Competition Act of 1992 -- Development of Competition and Diversity
    in Video Programming Distribution: Section 628(c)(5) of the
    Communications Act: Sunset of Exclusive Contract Prohibition,* 16
    FCC Rcd 19074 (2001).

[^262]: *See* 5 U.S.C. § 604*.* We note that, because our action retains
    the status quo in this context, we could have certified our action
    under the RFA . *See generally* 5 U.S.C. § 605.

[^263]: *See Report and Order* at n. 6.

[^264]: *See Report and Order* at ¶¶ 45-46.

[^265]: ACA Initial Regulatory Flexibility Analysis Comments at 2.

[^266]: *Id.*

[^267]: *See* ACA Comments at 2, CBC Reply Comments at 3; Joint Comments
    at 21.

[^268]: 5 U.S.C. § 604(b).

[^269]: 5 U.S.C. § 601(6).

[^270]: 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 definitions(s) in the Federal
    Register."

[^271]: 15 U.S.C. § 632.

[^272]: 13 C.F.R. § 121.201, North American Industry Classification
    System ("NAICS") code 513220.

[^273]: *See U.S. Department of Commerce, Bureau of the Census, Industry
    and Enterprise Receipts Size Report,* Table 2D, SIC 4841 (Bureau of
    the Census data under contract to the Office of Advocacy of the U.S.
    Small Business Administration).

[^274]: 47 C.F.R. § 76.901(e). The Commission developed this definition
    based on its determinations that a small cable system operator is
    one with annual revenues of \$100 million or less. *Sixth Report and
    Order and Eleventh Order on Reconsideration*, MM Dkt. Nos. 92-266
    and 93-215, 10 FCC Rcd. 7393 (1995).

[^275]: Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^276]: 47 U.S.C. § 543(m)(2).

[^277]: 47 C.F.R. § 76.1403(b).

[^278]: Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^279]: *See* 47 U.S.C. § 573.

[^280]: 13 C.F.R. § 121.201, NAICS Codes 51321 and 51322.

[^281]: *Id.*

[^282]: Establishments primarily engaged in the production of theatrical
    and nontheatrical motion pictures and video tapes for exhibition or
    sale, including educational, industrial, and religious films.
    Included in the industry are establishments engaged in both
    production and distribution. Such producers of live radio and
    television programs are classified in NAICS Code 51211.

[^283]: Such establishments primarily engaged in the distribution
    (rental or sale) of theatrical and nontheatrical motion picture
    films or in the distribution of video tapes and disks, except to the
    general public. Motion pictures and video tape distribution are
    classified in NAICS Codes 42199 and 51212.

[^284]: Such establishments primarily engaged in providing live
    theatrical presentations, such as road companies and summer
    theaters, including producers of live television programs. Such
    producers of live theatrical presentation are classified in NAICS
    Codes 56131, 71111, 71141, 561599, 71151, 71112, 71131, 51229, and
    53249.

[^285]: 13 C.F.R. § 121.201.

[^286]: U.S. Small Business Administration 1992 Economic Census Industry
    and Enterprise Report, Table 2D, SIC 7812, (U.S. Bureau of the
    Census data adapted by the Office of Advocacy of the U.S. Small
    Business Administration) (\"SBA 1992 Census Report\"). Because the
    Census data do not include a category for \$21.5 million, we have
    reported the closest increment below and above the \$21.5 million
    threshold. There is a difference of 15 firms between the \$16,999
    and \$24,999 million annual receipt categories. It is possible that
    these 15 firms could have annual receipts of \$21.5 million or less
    and would therefore be classified as small businesses.

[^287]: NAICS Codes 56131, 71111, 71141, 561599, 71151, 71121, 51229,
    and 53249.

[^288]: 13 C.F.R. § 121.201, NAICS Codes 51321 and 51322.

[^289]: *Id.*

[^290]: *Id*.

[^291]: 13 C.F.F. § 121.201, NAICS Codes 51321 and 51322.

[^292]: *Id.*

[^293]: Annual Assessment of the Status of Competition in Markets for
    the Delivery of Video Programming, Third Annual Report, CS Docket
    No. 96-133, 12 FCC Rcd 4358, 4385 (1996) ("*Third Annual Report").*

[^294]: *Id.* at 4385.

[^295]: *Id.*

[^296]: *See Seventh Annual Report,* 16 FCC Rcd at 6110 Table C-1
    (2001).

[^297]: *Amendment of Parts 21 and 74 of the Commission's Rules with
    Regard to Filing Procedures in the Multipoint Distribution Service
    and in the Instructional Television Fixed Service and Implementation
    of Section 309(j) of the Communications Act -- Competitive Bidding*,
    MM Docket No. 94-131 and PP Docket No. 93-253, Report and Order, 10
    FCC Rcd at 9589, 9593 ¶ 7 (1995).

[^298]: *See Local Multipoint Distribution Service,* Second Report and
    Order, 12 FCC Rcd 12545 (1997).

[^299]: 47 C.F.R. § 21.961(b)(1).

[^300]: *See Amendment of Parts 21 and 74 of the Commission's Rules With
    Regard to Filing Procedures in the Multipoint Distribution Service
    and in the Instructional Television fixed Service and Implementation
    of Section 309(j) of the Communications Act -- Competitive Bidding*,
    MM Docket No. 94-131 and PP Docket No. 93-253, Report and Order, 10
    FCC Rcd 9589 (1995).

[^301]: 13 C.F.R. § 121.201, NAICS Codes 52321 and 52322.

[^302]: 13 C.F.R. § 121.201.

[^303]: SBREFA also applies to nonprofit organizations and governmental
    organizations such as cities, counties, towns, townships, villages,
    school districts, or special districts, with populations of less
    than 50,000. 5 U.S.C. § 601(5).

[^304]: *See Local Multipoint Distribution Service,* Second Report and
    Order, 12 FCC Rcd 12545 (1997).

[^305]: *Id.*

[^306]: *See* Letter to Daniel Phythyon, Chief, Wireless
    Telecommunications Bureau (FCC) from A. Alvarez, Administrator, SBA
    (January 6, 1998).

[^307]: 13 C.F.R. § 121.201.

[^308]: *See Third Annual Report*, 12 FCC Rcd at 4403-4.

[^309]: *See Seventh Annual Report*, 16 FCC Rcd at 6048.

[^310]: 5 U.S.C. § 603(c)(1)-(a)(4).

[^311]: ACA Initial Regulatory Flexibility Analysis Comments at 3.

[^312]: *See* 5 U.S.C. §801(a)(1)(A).

[^313]: *See* 5 U.S.C. §604(b).

[^314]: 47 U.S.C. § 548(c)(2)(D).

[^315]: 1992 Cable Act §2(b)(2), (1).

[^316]: *Implementation of the Cable Television Consumer Protection and
    Competition Act of 1992 -- Development of Competition and Diversity
    in Video programming Distribution: Section 628(c)(5) of the
    Communications Act: Sunset of Exclusive Contract Prohibition*, 16
    FCC Rcd 19074, 19078 (2001).

[^317]: *Annual Status of Competition in the Market for the Delivery of
    Video Programming*, 17 FCC Rcd 1244, 1341 (2002) ("*Eighth Annual
    Report*").

[^318]: *Eighth Annual Report*, 17 FCC Rcd at 1272.

[^319]: *Id*.

[^320]: Reply Comments of Cablevision Systems Corp., January 7, 2002, at
    10. As of the last annual report on competition, RCN had 443,011
    subscribers and WideOpen West had approximately 300,000 subscribers.
    *Eighth Annual Report*, 17 FCC Rcd at 1295.

[^321]: Comments of the National Cable & Telecommunications Association,
    December 3, 2001, at 6 (Source: 1992-June 2000 FCC Competition
    Report, Sept. 2001: NCTA Research).

[^322]: *Eighth Annual Report*, 17 FCC Rcd 1309*; Annual Assessment of
    the Status of Competition in the Market for the delivery of Video
    Programming*, 9 FCC Rcd 7442, 7589-92 (1994) ("*First Report on
    Competition*").

[^323]: *Id*.

[^324]: *Eighth Annual Report*, 17 FCC Rcd at 1309; *First Report on
    Competition*, 9 FCC Rcd at 7522.

[^325]: *Eighth Annual Report*, 17 FCC Rcd at 1364; *First Report on
    Competition*, 9 FCC Rcd at 7522.

[^326]: *Eighth Annual Report*, 17 FCC Rcd at 1364; *First Report on
    Competition*, 9 FCC Rcd at 7600.

[^327]: Moreover, any incentive to sacrifice programming revenue for a
    potential long-term gain of increased subscribership to the cable
    distribution system is proportionally weakened where the affiliated
    cable operator does not wholly own the programming entity. In other
    words, a cable operation with a 10% interest in a programmer has
    only 10% of the incentive that a wholly owned programmer would have.
    Once again, this demonstrates the over-inclusiveness of the current
    ban that sweeps in cable operators who have a 5% ownership stake in
    the programmer.

[^328]: *See, e.g., United States Telecom Ass'n v. FCC*, No. 00-1012
    (D.C. Cir., May 24, 2002) (reversing Commission order based on
    failure to justify sweeping national rules).

[^329]: 47 U.S.C. § 548(c)(2)(B); 47 C.F.R. § 76.1002(b); *In the Matter
    of Implementation of Sections 12 and 19 of the Cable Television
    Consumer Protection and Competition Act of 1992, Development of
    Competition and Diversity in Video Programming Distribution and
    Carriage*, 8 FCC Rcd 3359, 3412 (1993); *recon*. 10 FCC Rcd 1902
    (1994), *further recon*. 10 FCC Rcd 3105 (1994).

[^330]: 47 U.S.C. § 548(c)(2)(A); 47 C.F.R. § 76.1002(a).

[^331]: 47 U.S.C. § 548(b); 47 C.F.R. § 76.1001.

[^332]: Section 628(c)(2)(D) generally prohibits, in areas served by a
    cable operator, exclusive contracts for satellite cable programming
    or satellite broadcast programming between vertically integrated
    programming vendors and cable operators. 47 U.S.C. § 548(c)(2)(D).

[^333]: 47 U.S.C. § 548(c)(5).

[^334]: *See Fox Television Stations, Inc. v. FCC*, 280 F.3d 1027 (D.C.
    Cir. 2002).

[^335]: *See* Section 202(h) of the Telecommunications Act of 1996.

[^336]: *See Fox Television Stations, Inc. v. FCC*, No. 00-12222 (D.C.
    Cir. June 21, 2002), slip. op. at 2, 4.

[^337]: *Id.* at 4.

[^338]: *Id.* at 5.

[^339]: Reply Comments of AOL Time Warner at *i* (describing statements
    made by "several commenters" in the initial round of comment)
    (emphasis in original).