January 9, 2001

William E. Kennard
Chairman
Federal Communications Commission
445 12th St., S.W.
Room 8-B201
Washington, DC  20554

     RE:  Ex Parte Presentation in a Non-Restricted Proceeding
     Initial Regulatory Flexibility Analysis for Children's
     Television Obligations of Digital Television Broadcasters
     (MM Dkt. No. 00-167)

Dear Mr. Kennard:

As part of its statutory duty to monitor and report on the FCC's
compliance with the Regulatory Flexibility Act of 1980 ("RFA"),
as amended by the Small Business Regulatory enforcement Fairness
Act of 1996 ("SBREFA"),(1) the Office of Advocacy, U.S. Small
Business Administration ("Advocacy") has reviewed the Federal
Communications Commission's ("FCC" or "Commission") Initial
Regulatory Flexibility Analysis ("IRFA") for the Notice of
Proposed Rulemaking ("NRPM") in the above-captioned proceeding(2)
and found that it does not satisfy the requirements of the RFA.
(3)

Advocacy does not question the Commission's regulatory goal - to
provide better quality programming for children.  Rather, we ask
the Commission to undertake this rulemaking with its eyes wide
open to the costs and compliance requirements it will impose on
small businesses, and we ask the Commission to explore
alternatives that would minimize those costs.  The IRFA did not
sufficiently address either of these topics. We ask that the
Commission revise its IRFA to address the points identified in
this letter and issue a supplemental IRFA.
     
Background
     
Congress established the Office of Advocacy in 1976 by Pub. L.
No. 94-305(4) to represent the views and interests of small
business within the Federal government.  Advocacy's statutory
duties include serving as a focal point for concerns regarding
the government's policies as they affect small business,
developing proposals for changes in Federal agencies' policies,
and communicating these proposals to the agencies.(5) Advocacy
also has a statutory duty to monitor and report to Congress on
the Commission's compliance with the Regulatory Flexibility Act
of 1980,(6) as amended by the Small Business Regulatory
Enforcement Fairness Act of 1996, Subtitle II of the Contract
with America Advancement Act ("SBREFA").(7)

The RFA was designed to ensure that, while accomplishing their
intended purposes, regulations did not unduly inhibit the ability
of small entities to compete, innovate, or to comply with the
regulation.(8) The major objectives of the RFA are:  (1) to
increase agency awareness and understanding of the potential
disproportionate impact of regulations on small business; (2) to
require that agencies communicate and explain their findings to
the public and make these explanations transparent; and (3) to
encourage agencies to use flexibility and provide regulatory
relief to small entities where feasible and appropriate to its
public policy objectives.(9) The RFA does not seek preferential
treatment for small businesses.  Rather, it establishes an
analytical process for determining how public issues can best be
resolved without erecting barriers to competition.  To this end,
the RFA requires the FCC to analyze the economic impact of
proposed regulations on different-sized entities, estimate each
rule's effectiveness in addressing the agency's purpose for the
rule, and consider alternatives that will achieve the rule's
objectives while minimizing any disproportionate burden on small
entities.(10)

Discussion
     
Advocacy has found that the IRFA did not satisfy the requirements
of the RFA, as it did not describe a vast majority of the
compliance requirements contained in the NPRM and their impact on
small firms.  Nor did it discuss significant alternatives that
would accomplish the objectives while minimizing the significant
economic impact on small entities.  These two elements are
crucial to the RFA.  The IRFA lists a few of the major proposals
in the NPRM under (a) Need for and Objectives of the Proposal
Rules.(11) While this does enumerate the proposals, this does not
satisfy the need for the FCC to examine the regulatory burdens
under (c) Recording, Recordkeeping, and Other Compliance(12)
Requirements nor does it explore alternatives under (g) Any
Significant Alternatives Minimizing the Impact on Small Entities
and Consistent with the Stated Objectives.(13)

Advocacy emphasizes that its comments should not be construed to
question the Commission's goals.  Instead, we ask the Commission
to be mindful of the costs and regulatory and seek ways to
minimize the burdens on small businesses while still
accomplishing the Commission's goals burdens, as required by
Section 603(a) of the RFA. The RFA outlines a process, which, if
followed, will help agencies identify the impacts of their
regulation and find ways to achieve their goals without putting
unfair burdens on small businesses.
     
a.   The IRFA Did Not Describe the Compliance Burdens

The NPRM includes a series of proposals that are designed to
enhance children's programming.  While it is likely that many if
not all of these proposals would be beneficial to children's
programming, they impose compliance costs on small broadcasters.
The Commission does not describe the reporting, recordkeeping,
and other compliance requirements for most of these proposals.

Below, Advocacy has listed the proposed rules from the NPRM that
were not included in the IRFA but have compliance and reporting
requirements.  The IRFA discussed two proposals under its
compliance requirement section:  (1) a possible change to the
definition of commercial matter and (2) a requirement to screen
promotions for other programs that are unsuitable for children to
watch.  Our list does not include these two issues since the
Commission has already addressed them.  Throughout our list,
Advocacy poses questions as to what the costs would be, because
Advocacy does not have this data.  As the expert agency, the FCC
has or should have the information to answer these questions.  If
not, it has the authority to solicit comment on them, explain why
it does not have the data, and offer a delayed implementation
option until data from the public is received, analyzed, and
published as a new IRFA

    Proportional Hours:  This proposal would require
  broadcasters to use 3 percent of their total air-time on
  children's programming.(14) This would require small broadcasters
  to increase the amount of children's programming they air for
  each new channel that they add. What are the costs of per hour of
  airing an hour of children's programming?  Is the cost to
  broadcasters inconsequential compared to the additional revenue
  gained from adding a new channel?  Since the budgets of smaller
  stations are limited, this proposal may discourage them from
  adding additional programming channels, which could undermine the
  Commission's efforts to promote digital broadcasting.

    Technical format:  This proposal would require broadcasters
  to provide children's educational programming in a certain
  technical format.(15) Will this restrict a broadcaster from using
  different technical formats to suit the needs of the program or
  the audience?  Do different technical formats have varying costs
  to produce?  Are there changeover costs if a broadcaster has to
  adopt a different technical format?  Will small broadcasters have
  to purchase new equipment or is existing equipment sufficient?

    Menu Approach:  This proposal would raise a broadcaster's
  children's television obligations above the three hours-per-week
  that is currently required but would allow the broadcaster to
  satisfy these obligations through a variety of community service
  actions.(16) Any increase in the children's programming
  requirement will impose substantial costs on small broadcasters,
  and may discourage small broadcasters from introducing new
  services.  What are the costs for the increased number of hours?
  Are there economies of scale or does to price escalate
  exponentially per addition hour?  What are the costs of the
  community service alternatives and how do they compare to the
  costs of airing the programming?

    Daily Core Programming Obligation:  This proposal would
  require a small broadcaster to air at least one hour of
  children's educational programming every day.  A daily one-hour
  obligation would be seven hours of programming weekly, more than
  twice the current requirement which is three hours per week.  If
  a broadcaster airs a two-hour program, will the second hour not
  count toward the broadcaster's obligation? If not, would such a
  limitation discourage broadcasters from setting aside blocks of
  time greater than one hour? Are there different costs to airing a
  program daily rather than weekly, even if the total number of
  hours are the same?

    Datacasting Explanations of Children's Programming: This
  proposal would require broadcasters to use digital datacasting
  facilities to explain why a program qualifies as a children's
  educational program.(17) What are the costs of this?  Will this
  be a major burden?  Will the constant simultaneous broadcasts of
  many explanations deplete the commercial usefulness of the
  spectrum in any measurable way?  In addition, the small
  broadcaster would have to set aside staff time to draft the
  explanations that are broadcast.  How much time would this take?
  What are the costs for paying a professional to draft these
  explanations?

    Independent Content Information: This proposal would require
  small broadcasters to provide independent third parties, such as
  reviewers, magazines, and family resource organizations, with
  information and ratings on core programs.(18) The proposal
  suggests that the information be posted on the broadcaster's Web
  page.  If adopted, small broadcasters would have to identify and
  obtain the third-party information, which will incur staff time
  costs and possible contract costs to use the third-party
  information.  Do all or even most small broadcasters have a Web
  page?  What are the costs to drafting and posting this
  information?  Will this cost continue to increase as these
  reports compile over the years and require more server space to
  store them?  Is this cost negligible?

    Rescheduling Preempted Programs:  This proposal would limit
  the number of times broadcasters could preempt a regularly
  scheduled children's educational program before the program no
  longer counted toward the broadcaster's children's television
  requirement.(19) In addition, it would require broadcasters to
  make efforts to reschedule the program.(20) This proposal would
  require small broadcasters to make efforts to rescheduled pre-
  empted which would in effect pre-empt other shows later in their
  schedule.  Since the broadcasters are limited in the commercial
  time available during children's program, this reschedule would
  force a small broadcaster to drop commercial slots, jeopardizing
  contracts with advertisers and resulting in lost revenue.  Are
  there any other costs to rescheduling?  Will the broadcaster have
  to run announcements stating when the rescheduled program will be
  broadcast?  How will these announcements be aired and what are
  the costs?   These questions are relevant as to how the FCC will
  evaluate whether a station has "made efforts" to re-schedule, as
  this becomes a de facto record keeping requirement.

    Commercial Tie-In Limitation:  This proposal would prohibit
  the broadcaster from using direct links to commercial Web sites
  during children's programming.(21) The proposal discusses the
  possibility of only restricting certain types of links to Web
  sites, such as links to Web pages that exclusively carry
  commercial product and do not carry educational information
  related to the program, links to Web pages that sell products
  associated with the program, or links to the program host Web
  pages that sells product.  If commercial links are allowed, the
  proposal also could limit the duration that they appear on the
  screen.  What costs would this impose on small broadcasters?
  Would small broadcasters have to follow every link to review the
  Web page to ensure they conform to FCC regulations?  If the
  Internet and broadcasting converge to the extent predicted, how
  many links is a broadcaster likely to use during a program?  Does
  this put the broadcaster in a position of determining whether the
  material on the Web page is educational as opposed to commercial
  and determining whether material is related to the children's
  educational program?

b.   The IRFA Did Not Describe  Possible Alternatives to Minimize
     Impact

The Commission does not explore possible alternatives in the IRFA
that would minimize the significant economic impact on small
businesses while still achieving the agency's goal of promoting
children's television.  Advocacy recommends that the Commission
consider the alternatives described below.
     
    Delayed Enforcement:  Switching to digital broadcasting will
  be difficult for small broadcasters as it involves sizable
  expenses which the FCC needs to analyze.  If additional
  children's television requirements were delayed for a year or
  more after a small broadcaster starts using the digital
  broadcasting, it would give small broadcasters an opportunity to
  absorb the cost of changing to a digital system and make the
  transition before the additional compliance requirements were
  initiated.
     
    Reduced Requirements:  Smaller broadcasters tend to serve
  smaller markets and some are not affiliated with a network, which
  puts them at a great disadvantage not just in business resources,
  but community resources from which they can draw to select
  programming.  In the interest of promoting competition and
  encouraging the growth of small stations, the Commission should
  consider reducing the requirements for the smaller broadcasters,
  such as broadcasting fewer hours per week or being exempt from
  the various reporting requirements proposed.  The Commission can
  encourage all small broadcasters to voluntary promote children's
  programming which could be considered to go toward satisfying
  their public interest duty.  This in combination with delayed
  implementation would do much to promote the stability of small
  broadcasters and their continued service to less populated
  communities.

    Pay of Play:  The Commission should explore the pay or play
  approach proposed in the NPRM as a possible alternative. The
  proposal would allow broadcasters the choice of either airing
  their own programming, paying other stations to air these hours
  for them, or a combination of the two.(22) Advocacy sees two ways
  that this proposal may minimize the economic burden of the
  regulations to small broadcasters:  (1) larger broadcasters may
  pay smaller broadcasters to carry their children's educational
  programming, and (2) small broadcasters may find it more
  economically efficient to pay another station to carry the
  programming for them.

    Menu Approach: As discussed above, this proposal would
  impose additional children's educational television obligations
  but also would allow the broadcaster a variety of means to
  satisfy those obligations. Even if the Commission does not adopt
  the additional children's educational television obligation, the
  FCC should explore the possibility of allowing small broadcasters
  meet their children's television obligations in a variety of
  ways, such as those recommended in this proposal.  By allowing
  small broadcasters flexibility in the means of meeting their
  children's television obligations, the Commission will minimize
  the impact on small broadcasters.

Conclusion

The current IRFA does not satisfy the requirements of the RFA.
It fails to describe many of the compliance burdens that the
proposed regulations would impose on small businesses.
Furthermore, the IRFA does not describe alternatives that are
available to the Commission that would lessen the impact on small
entities while still achieving the FCC's regulatory goals.  These
deficiencies can be cured, if the Commission issues a
supplemental IRFA that explores the costs of and alternatives to
the proposed regulations.

Sincerely,

Jere W. Glover
Chief Counsel for Advocacy

Eric E. Menge
Assistant Chief Counsel for Telecommunications

cc:
Commissioner Susan Ness
Commissioner Michael Powell
Commissioner Harold Furchtgott-Roth
Commissioner Gloria Tristani
Roy Stewart, Chief, Mass Media Bureau
Anthony Bush, Director, Office of Communications Business
Opportunities

ENDNOTES

1.  Pub. L. No. 96-354, 94 Stat. 1164 (1980) (codified at 5
U.S.C.  601 et seq.) amended by Subtitle II of the Contract with
America Advancement Act, Pub. L. No. 104-121, 110 Stat. 857
(1996). 5 U.S.C.  612(a).
2.  In the Matter of Children's Television Obligations of Digital
Television Broadcasters, Notice of Proposed Rulemaking, MM Docket
No. 00-167, FCC 00-344 (rel. Oct. 5, 2000).
3.  Because this communication is a result of Advocacy's
statutory duty, it is exempt from the Commission's rules on ex
parte presentations.  See 47 CFR  1.1204(a)(5)(1997).
4.  Id.
5. 15 U.S.C.  634c(1)-(4).
 6.  Pub. L. No. 96-354, 94 Stat. 1164 (1980)(codified at 5
U.S.C.  601 et seq.).
7.  Pub. L. No. 104-121, 110 Stat. 857 (1996)(codified at 5
U.S.C.  612(a)).
8.  5 U.S.C.  601(4)-(5).
9.  See generally, Office of Advocacy, U.S. Small Business
Administration, The Regulatory Flexibility Act: An Implementation
Guide for Federal Agencies, 1998 ("Advocacy 1998 RFA
Implementation Guide").
10. 5 U.S.C.  604.
11. NPRM Appendix B section a, which addresses the requirements
of 5 U.S.C.  603(b)(4).
12. NPRM Appendix B section c, which addresses the requirements
of 5 U.S.C.  603(c).
13. NPRM Appendix B section g.
14. NPRM para. 17.
15. Id. para. 18.
16. Id. para 21.
17. Id. para 24.
18. Id.
19. Id. para 28.
20. Id.
21. Id. para. 32.
22. Id. para. 20.