*Pages 1--86 from  Microsoft Word - 32622*
 Federal  Communications  Commission  FCC  03-  225 
 1 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of: 
 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996 


 Commercial  Availability  of  Navigation  Devices 
 Compatibility  Between  Cable  Systems  and  Consumer  Electronics  Equipment 


 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 


 CS  Docket  No.  97-  80 
 PP  Docket  No.  00-  67 
 SECOND  REPORT  AND  ORDER  AND  SECOND  FURTHER  NOTICE  OF  PROPOSED  RULEMAKING 
 Adopted:  September  10,  2003  Released:  October  9,  2003 
 Comment  Date:  January  14,  2004  Reply  Comment  Date:  February  13,  2004 


 By  the  Commission:  Chairman  Powell,  Commissioners  Abernathy,  Copps,  Martin,  and  Adelstein  issuing  separate  statements. 
 TABLE  OF  CONTENTS 
 Paragraph  Number 


 I.  INTRODUCTION..................................................................................................  1 
 II.  BACKGROUND  AND  SUMMARY.....................................................................  3 


 III.  DIGITAL  CABLE  SYSTEM  TRANSMISSION  STANDARDS  AND  SUPPORT  REQUIREMENTS.............................................................................  13 


 A.  Transmission  Standards...........................................................................  17  B.  PODs.......................................................................................................  19 
 C.  Tuning  and  Guide  Information................................................................  21  D.  High  Definition  Set-  Top  Boxes...............................................................  24 
 E.  Exemptions  from  Standards  and  Associated  Obligations  .......................  26  F.  Innovation  and  Changes  in  Standards  .....................................................  29 


 IV.  LABELING  AND  CONSUMER  DISCLOSURES  .............................................  30 
 A.  Basic  Requirements  to  be  Labeled  Digital  Cable  Ready  .....................  32  1.  Over-  the-  Air  Tuner  ...................................................................  34 
1
 Federal  Communications  Commission  FCC  03-  225 
 2 
 2.  Closed  Captioning  .....................................................................  35  3.  1394  Interface  ............................................................................  36 
 B.  Compliance  Certification  Process  ...........................................................  38  C.  Relation  to  Existing  Labeling  Requirements...........................................  40 


 V.  ENCODING  RULES  ...........................................................................................  42 
 A.  Commission  Authority  Under  Section  629  .............................................  45  B.  Selectable  Output  Control  .......................................................................  58 
 C.  Down-  resolution......................................................................................  62  D.  Limits  on  Copy  Protection  Encoding  ......................................................  65 


 VI.  DFAST  LICENSE................................................................................................  75 
 A.  Compliance  and  Robustness  Rules..........................................................  76  B.  Approval  of  New  Outputs  and  Associated  Content 
 Protection  Technologies..........................................................................  77 
 VII.  SECOND  FURTHER  NOTICE  OF  PROPOSED  RULEMAKING....................  80 
 VIII.  PROCEDURAL  MATTERS................................................................................  87 
 IX.  ORDERING  CLAUSES.......................................................................................  95 


 Appendix  A:  List  of  Commenters  and  Reply  Commenters  Appendix  B:  Final  Rules 
 Appendix  C:  Final  Regulatory  Flexibility  Analysis  Appendix  D:  Initial  Regulatory  Flexibility  Analysis 


 I.  INTRODUCTION 
 1.  In  this  proceeding  we  consider  regulations  to  facilitate  the  direct  connection  of  digital  navigation  devices  1  or  customer  premises  equipment  purchased  from  retail  outlets   


 including  television  receivers,  set-  top  boxes  and  digital  recorders    to  cable  television  and  other  multichannel  video  programming  distributor  (  MVPD)  systems.  Specifically,  we  consider  those 
 rules  set  forth  in  the  Further  Notice  of  Proposed  Rulemaking  (  Further  Notice)  issued  in  the  above-  captioned  proceedings  and  the  comments  filed  in  response  thereto.  2 


 2.  The  Further  Notice  sought  comment  on  rules  agreed  upon  and  submitted  to  the  Commission  as  part  of  a  Memorandum  of  Understanding  (  MOU)  reached  by  representatives  of 


 1  Navigation  devices  are  defined  for  purposes  of  this  proceeding  as  converter  boxes,  interactive 
 equipment,  and  other  equipment  used  by  consumers  within  their  premises  to  receive  multichannel  video  programming  and  other  services  offered  over  multichannel  video  programming  systems.  47  C.  F.  R.   


 76.  1201(  c).  2 
 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of  Navigation  Devices  and  Compatibility  Between  Cable  Systems  and  Consumer  Electronics  Equipment,  18 


 FCC  Rcd  518  (2003)  (  Further  Notice). 
2
 Federal  Communications  Commission  FCC  03-  225 
 3 
 the  cable  television  and  consumer  electronics  industries.  3  The  MOU  detailed  a  comprehensive  agreement  on  a  cable  compatibility  standard  for  integrated,  unidirectional  digital  cable  television 
 receivers,  as  well  as  other  unidirectional  digital  cable  products.  The  cable  and  consumer  electronics  industries  have  long  disagreed  over  the  specifics  of  a  so-  called  plug  and  play 
 standard  for  digital  cable  television,  as  evidenced  by  numerous  filings  in  the  above-  captioned  dockets.  4  By  establishing  a  standard  to  ensure  the  compatibility  of  cable  television  systems  with 
 digital  television  (  DTV)  receivers  and  related  consumer  electronics  equipment,  the  cable  and  consumer  electronics  industries  hope  to  build  products  and  develop  services  to  spur  the  digital 
 transition.  5  In  response  to  the  Further  Notice,  numerous  parties  filed  comments  and  reply  comments;  this  Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking 
 represents  the  Commissions  findings  based  upon  the  record  established  in  this  proceeding.  6 
 II.  BACKGROUND  AND  SUMMARY 
 3.  Section  629  of  the  Communications  Act,  which  is  titled  Competitive  Availability  of  Navigation  Devices,  requires  the  Commission  to: 


 adopt  regulations  to  assure  the  commercial  availability,  to  consumers  of  multichannel  video  programming  and  other  services  offered  over  multichannel 
 video  programming  systems,  of  converter  boxes,  interactive  communications  equipment,  and  other  equipment  used  by  consumers  to  access,  multichannel  video 
 programming  and  other  services  offered  over  multichannel  video  programming  systems,  from  manufacturers,  retailers,  and  other  vendors  not  affiliated  with  any 
 multichannel  video  programming  distributor.  7 
 The  purpose  of  Section  629  is  to  afford  consumers  the  opportunity  to  purchase  navigation  devices  from  sources  other  than  their  MVPD  service  provider.  In  addition,  the  statute  provides  that  the 
 Commission  "shall  not  prescribe  regulations  .  .  .  which  would  jeopardize  security  of  multichannel  video  programming  and  other  services  offered  over  multichannel  video 
 programming  systems,  or  impede  the  legal  rights  of  a  provider  of  such  services  to  prevent  theft  of 


 3  See  Letter  from  Carl  E.  Vogel,  President  and  CEO,  Charter  Communications,  et  al.,  to  Michael  K.  Powell, 
 Chairman,  FCC  (Dec.  19,  2002)  (  Cable/  CE  Letter);  Memorandum  of  Understanding  Among  Cable  MSOs  and  Consumer  Electronics  Manufacturers  (signed  by  Charter  Communications,  Inc.,  Comcast  Cable 


 Communications,  Inc.,  Cox  Communications,  Inc.,  Time  Warner  Cable,  CSC  Holdings,  Inc.,  Insight  Communications  Company,  L.  P.,  Cable  One,  Inc.,  Advance/  Newhouse  Communications,  Hitachi  America, 
 Ltd.,  JVC  Americas  Corp.,  Mitsubishi  Digital  Electronics  America,  Inc.,  Matsushita  Electric  Corp.  of  America  (Panasonic),  Philips  Consumer  Electronics  North  America,  Pioneer  North  America,  Inc.,  Runco 
 International,  Inc.,  Samsung  Electronics  Corporation,  Sharp  Electronics  Corporation,  Sony  Electronics,  Inc.,  Thomson,  Toshiba  America  Consumer  Electronics,  Inc.,  Yamaha  Electronics  Corporation,  USA,  and 
 Zenith  Electronics  Corporation)  (  MOU).  4 
 See  Comments  filed  in  response  to  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of  Navigation  Devices,  15  FCC  Rcd  18199  (2000)  (  FNPRM  and  Declaratory 


 Ruling);  Compatibility  Between  Cable  Systems  And  Consumer  Electronics  Equipment,  15  FCC  Rcd  17568  (2000)  (  Digital  Compatibility  Report  and  Order). 
 5  Cable/  CE  Letter  at  1. 
 6  A  list  of  parties  filing  comments  and  reply  comments  is  set  forth  in  Appendix  A. 
 7  47  U.  S.  C.    549(  a). 
3
 Federal  Communications  Commission  FCC  03-  225 
 4 
 service."  8 
 4.  In  order  to  permit  a  competitive  market  for  the  design,  manufacture  and  retail  sale  of  navigation  devices  to  develop,  a  number  of  practical  issues  must  be  addressed.  First, 


 because  one  of  the  primary  functions  of  these  devices  is  to  preclude  the  unauthorized  reception  or  use  of  service,  it  is  necessary  to  address  service  theft  in  situations  where  the  device  is  no  longer 
 entirely  within  the  service  providers  control.  This  issue  is  comprised  of  two  components,  unauthorized  access  to  service  (theft  of  service)  and  unauthorized  redistribution  or  copying  of 
 programming  content  legally  acquired  for  a  limited  use  (copy  protection/  digital  rights  management).  Other  practical  concerns  that  must  be  addressed  involve  engineering  and  technical 
 standards  issues.  Manufacturers  require  certain  technical  specifications  in  order  to  produce  a  device  compatible  with  a  particular  MVPDs  system.  Therefore,  if  portable  devices  that  can  be 
 marketed  nationally  are  to  be  created,  some  technical  standardization  among  MVPDs  is  needed. 
 5.  The  initial  decisions  and  rules  adopted  in  the  Navigation  Devices  proceeding  9  implementing  this  statutory  provision  included,  inter  alia,  the  following: 


 (1)  Section  629  covers  not  just  equipment  used  to  receive  video  programming,  but  also  equipment  used  to  access  other  services  offered  over  MVPD  systems,  including  televisions, 
 VCRs,  set-  top  boxes,  personal  computers,  program  guide  equipment,  and  cable  modems; 
 (2)  Subscribers  have  the  right  to  attach  any  compatible  navigation  device  to  an  MVPD  system; 


 (3)  MVPDs  must  separate  out  conditional  access  or  security  functions  from  other  functions  and  make  available  modular  security  components,  also  called  point  of 
 deployment  (  POD)  modules; 
 (4)  After  January  1,  2005,  MVPDs  shall  not  deploy  new  navigation  devices  for  lease  to  subscribers  that  have  security  and  non-  security  functions  combined; 


 (5)  MVPDs  must  provide  technical  information  concerning  interface  parameters  that  are  needed  to  permit  navigation  devices  to  operate  with  their  systems  in  a  timely  manner; 
 and 
 (6)  MVPDs  can  take  actions  necessary  to  protect  their  operations  from  technical  harm  and  theft  of  service.  10 


 On  reconsideration,  the  Commission  deferred  application  of  the  separate  security  requirement  for  analog-  only  equipment  and  reiterated  that  it  would  assess  the  state  of  the  market  once  separate 
 security  modules  were  available.  11  The  Commission  also  issued  a  Further  Notice  of  Proposed 


 8  47  U.  S.  C.    549(  b). 
 9  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of 
 Navigation  Devices,  13  FCC  Rcd  14775  (1998)  ("  Navigation  Devices  Order").  10 
 Id.  at  14778-  79.  11 
 Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996,  Commercial  Availability  of  Navigation  Devices:  14  FCC  Rcd  7596,  7599-  7606,  7613  (1999)  (  Reconsideration  Order);  see  also 


 Navigation  Devices  Order,  13  FCC  Rcd  at  14803.  The  Commissions  navigation  devices  rules  were  upheld 
4
 Federal  Communications  Commission  FCC  03-  225 
 5 
 Rulemaking  and  Declaratory  Ruling  seeking  comment  on  whether:  (i)  OpenCable,  the  cable  industrys  initiative  for  navigation  device  interconnection  specifications,  adequately  represents 
 the  full  range  of  interested  parties  and  delivered  specifications  that  permit  manufacturers  to  build  functional  devices  for  sale  at  retail;  (ii)  the  Commission  should  revise  the  2005  ban  on  cable 
 operators  deploying  navigation  devices  with  integrated  security  functions;  (iii)  any  obstacles  exist  that  might  inhibit  the  commercial  availability  of  host  devices;  and  (iv)  there  are  any  other  factors 
 impeding  or  affecting  achievement  of  the  goals  of  Section  629.  12  Due  to  ongoing  industry  negotiations  that  might  impact  the  development  of  technical  specifications  relating  to  host  devices 
 and  POD  modules,  the  Commission  recently  extended  the  deadline  concerning  the  prohibition  on  MVPD-  provided  integrated  devices  until  July  1,  2006,  and  committed  to  completing  a 
 reassessment  of  the  navigation  devices  market  before  January  1,  2005.  13 
 6.  In  addition  to  its  efforts  to  ensure  the  commercial  availability  of  navigation  devices  pursuant  to  Section  629,  the  Commission  has  focused  on  labeling  and  consumer 


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


 by  the  United  States  Court  of  Appeals  for  the  District  of  Columbia  Circuit.  See  General  Instrument  Corporation  v.  FCC,  213  F.  3d  724  (D.  C.  Cir.  2000)  (  General  Instrument). 
 12  FNPRM  and  Declaratory  Ruling,  15  FCC  Rcd  at  18202. 
 13  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996,  Commercial  Availability  of 
 Navigation  Devices,  18  FCC  Rcd  7924  (2003)  (  2005  Order  and  FNPRM).  14 
 47  U.  S.  C.    544A.  15 
 Id.    544A(  c)(  2)(  A);  see  Compatibility  Between  Cable  Systems  and  Consumer  Electronics  Equipment,  9  FCC  Rcd  1981  (1994)  (  Compatibility  Report  and  Order). 


 16  47  U.  S.  C.    544A(  d). 
 17  Digital  Compatibility  Report  and  Order,  15  FCC  Rcd  at  17568.  Petitions  for  reconsideration  of  the 
 Digital  Compatibility  Report  and  Order  filed  by  Time  Warner  Cable  and  the  National  Cable  and  Telecommunications  Association  (  NCTA)  are  currently  pending  before  the  Commission.  See  infra  n.  111 


 and  accompanying  text  (resolving  the  petitions  for  reconsideration).  18 
 Digital  Compatibility  Report  and  Order,  15  FCC  Rcd  at  17577.  19 
 Receivers  under  the  Digital  Cable  Ready  2  category  use  a  set-  top  box  that  connects  to  the  television  via  a  1394  connector  while  Digital  Cable  Ready  3  devices  support  interactive  services  without  a  set-  top  box. 


 Digital  Compatibility  Report  and  Order,  15  FCC  Rcd  at  17577. 
5
 Federal  Communications  Commission  FCC  03-  225 
 6 
 7.  Within  this  regulatory  framework,  the  cable  and  consumer  electronics  industries  attempted  to  privately  negotiate  a  cable  compatibility  standard  for  DTV  receivers  that  would  take 
 into  account  the  security  separation  requirement  of  Section  629  and  effectively  integrate  the  navigation  functionality  of  set-  top  boxes  into  television  receivers.  The  resulting  MOU  reflects  a 
 compromise  agreement  among  the  parties  on  a  specification  that  will  permit  the  manufacture  of  unidirectional  digital  cable  television  receivers  that  include  this  navigation  functionality. 
 Proponents  of  the  MOU  assert  that  unidirectional  digital  cable  television  receivers  manufactured  thereunder  would  be  capable  of  receiving  analog  basic,  digital  basic  and  digital  premium  cable 
 television  programming  by  direct  connection  to  a  cable  system  providing  digital  programming.  20  Due  to  the  unidirectional  nature  of  this  receiver  specification,  an  external  navigation  device 
 would  still  be  needed  to  receive  advanced  features  such  as  cable  operator-  enhanced  electronic  programming  guides  (  EPGs),  impulse  pay  per  view  (  IPPV)  or  video  on  demand  (  VOD).  21 
 Negotiations  are  ongoing  for  a  bidirectional  receiver  specification  which  would  eliminate  the  need  for  an  external  navigation  device  to  receive  advanced  services.  22  Due  to  the  level  of 
 technical  detail  involved  in  those  discussions,  however,  they  are  not  yet  ripe  for  consideration  at  this  time. 


 8.  The  MOU  as  proposed  to  the  Commission  requires  the  cable  and  consumer  electronics  industries  to  commit  to  certain  voluntary  acts  and  seeks  the  creation  or  revision  of 
 Commission  rules  in  the  following  general  areas: 
 (1)  Requiring  digital  cable  systems  with  an  activated  channel  capacity  of  750  MHz  or  greater  to  support  operation  of  unidirectional  digital  cable  products  and 


 to  ensure  that  navigation  devices  utilized  in  connection  with  such  systems  have  a  1394  interface  and  comply  with  specified  technical  standards; 


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


 (3)  Adopting  limits  on  encoding  rules  for  audiovisual  content  applicable  to  all  MVPDs,  including  prohibitions  on  the  use  of  selectable  output  controls  and 
 the  down-  resolution  of  broadcast  television  programming.  23 
 The  cable  and  consumer  electronics  industries  also  submitted,  along  with  the  proposed  rules,  a  draft  license  for  the  Dynamic  Feedback  Arrangement  Scrambling  Technique  (  DFAST) 


 20  MOU  at  4. 
 21  Id. 
 22  Id  at  10.  See  Letter  from  Neal  Goldberg,  General  Counsel,  NCTA,  and  Michael  Petricone,  Vice 
 President,  Technology  Policy,  CEA,  to  Marlene  Dortch,  Secretary,  FCC  (July  24,  2003)  (  Joint  Status  Report).  As  these  bidirectional  negotiations  progress,  we  encourage  the  cable  and  consumer  electronics 


 industries  to  consult  with  interested  parties  and  affected  industries.  23 
 Recommended  Regulations  to  Ensure  Compatibility  Between  Digital  Cable  Systems  and  Unidirectional  Digital  Cable  Products  and  to  Provide  for  Appropriate  Labeling  of  Such  Products  at  1-  6  (  Draft  Technical 


 Rules);  Encoding  Rules  As  Proposed  to  the  FCC  at  1-  10  (  Draft  Encoding  Rules). 
6
 Federal  Communications  Commission  FCC  03-  225 
 7 
 technology  for  which  they  did  not  seek  regulatory  approval.  24  On  January  7,  2003,  the  Commission  adopted  the  Further  Notice  seeking  public  comment  on  the  MOU  and  the  proposed 
 Commission  rules  contained  therein.  25 
 9.  At  the  outset,  we  recognize  that  certain  commenters  advocate  resolution  of  the  Further  Notice  in  tandem  with  related  issues  raised  in  our  Digital  Broadcast  Copy  Protection 


 proceeding.  26  We  anticipate  addressing  these  issues  in  the  near  future.  We  also  wish  to  clarify  the  intended  scope  and  effect  of  this  Second  Report  and  Order  and  Second  Further  Notice  of 
 Proposed  Rulemaking.  Our  decision  herein  is  not  intended  in  any  way  to  change  or  affect  existing  copyright  law.  The  encoding  rules  adopted  herein  are  directed  at  MVPDs  and  their 
 distribution  mechanisms.  As  a  result,  the  underlying  rights  and  remedies  available  to  copyright  holders  remain  unchanged.  In  the  same  manner,  this  decision  is  not  intended  to  alter  the  defenses 
 and  penalties  applicable  in  cases  of  copyright  infringement. 
 10.  In  this  Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking,  we  adopt  the  technical  rules  proposed  as  part  of  the  MOU,  with  certain 


 modifications  described  herein  and  set  forth  in  Appendix  B.  27  Specifically,  we  adopt  the  proposed  definition  of  a  unidirectional  digital  cable  product,  with  certain  clarifications  of  its 
 intended  scope.  In  order  to  ensure  that  televisions  manufactured  pursuant  to  this  definition  meet  its  specified  technical  parameters  and  functionalities,  we  adopt  certification  procedures  applicable 
 to  the  first  prototype  of  each  model,  and  self-  certification  procedures  for  subsequent  models.  We  also  adopt  a  voluntary  labeling  regime  and  required  consumer  information  disclosures  in  order  to 
 inform  consumers  of  the  features  and  functionalities  of  unidirectional  digital  cable  products. 
 11.  A  key  component  of  the  MOU  proposed  to  the  Commission  is  a  set  of  encoding  rules  that  would  set  caps  on  the  levels  of  copy  protection  applicable  to  content  distributed  by 


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


 24  DFAST  Technology  License  Agreement  for  Unidirectional  Digital  Cable  Products  at  1-  37  (  Draft 
 DFAST  License).  25 
 Further  Notice,  18  FCC  Rcd  at  518.  26 
 See  e.  g.,  Letter  from  Fritz  Attaway,  MPAA  to  Marlene  Dortch,  Secretary,  FCC  (Sept.  3,  2003);  see  also  Digital  Broadcast  Copy  Protection,  17  FCC  Rcd  16027  (2002)  (  Digital  Broadcast  NPRM). 


 27  As  a  result  of  the  incorporation  by  reference  of  certain  technical  standards  into  the  Commissions  rules, 
 other  rule  amendments  were  required  relating  to  earlier  incorporations  by  reference.  These  amendments,  as  reflected  in  Sections  15.  38  and  76.  602  of  the  Commissions  rules,  are  administrative  in  nature  and  relate  to 


 agency  procedure  and  practice.  Consequently,  the  notice  and  comment  procedures  of  the  Administrative  Procedure  Act,  contained  in  5  U.  S.  C.    553(  b),  are  inapplicable. 
7
 Federal  Communications  Commission  FCC  03-  225 
 8 
 under  the  Communications  Act. 
 12.  Finally,  to  ensure  design  innovation  and  promote  device  interconnectivity,  we  adopt  interim  procedures  by  which  new  outputs  and  associated  content  protection  technologies 


 can  be  authorized  for  implementation  in  unidirectional  digital  cable  products.  We  also  initiate  a  Second  Further  Notice  of  Proposed  Rulemaking  (  Second  FNPRM)  to  study,  inter  alia, 
 procedures  and  mechanisms  by  which  outputs  and  associated  content  protection  technologies  can  be  approved  on  a  permanent  basis  going  forward. 


 III.  DIGITAL  CABLE  SYSTEM  TRANSMISSION  STANDARDS  AND  SUPPORT  REQUIREMENTS 
 13.  The  first  part  of  the  proposed  technical  rules  involves  standards  governing  the  manner  in  which  video  programming  is  distributed  on  digital  cable  systems.  28  Subpart  K  of  Part 
 76  of  the  Commissions  rules  already  addresses  various  technical  requirements  for  cable  systems  which  ensure  that  cable  systems  operate  in  a  reliable  and  secure  manner.  29  The  proposed  rules 
 would  prescribe  additional  technical  standards  to  ensure  that  subscribers  are  able  to  fully  enjoy  the  functionalities  of  unidirectional  digital  cable  products  as  well  as  the  digital  services  offered  by 
 their  cable  operator. 
 14.  These  proposed  transmission  and  support  requirements  would  apply  to  digital  cable  systems,  a  term  left  undefined  by  the  draft  rules.  Some  commenters,  such  as  the  American 


 Cable  Association  (  ACA),  seek  clarification  as  to  whether  the  proposed  rules  would  affect  cable  systems  whose  only  digital  programming  comes  from  Comcast  Corporations  (  Comcast) 
 Headend-  in-  the-  Sky  (  HITS)  service.  30  In  response  to  Commission  inquiries,  members  of  the  cable  and  consumer  electronics  industries  indicated  their  belief  that  the  definition  of  a  digital 
 cable  system  includes  those  systems  contain[  ing]  one  or  more  channels  utilizing  Quadrature  Amplitude  Modulation  (  QAM)  for  transporting  programs  and  services  from  a  headend  to  a 
 receiving  device.  31  We  concur.  In  order  to  ensure  that  consumer  expectations  regarding  the  functionality  of  digital  cable  compatible  equipment  are  met,  we  believe  that  cable  systems 
 carrying  at  least  one  digital  QAM  channel,  including  programming  from  the  HITS  service,  must  be  considered  to  be  digital  cable  systems  subject  to  the  proposed  transmission  and  support 
 requirements.  We  do  not  believe,  however,  that  cable  systems  passing  through  only  8  VSB  digital  broadcast  signals  would  qualify  as  digital  cable  systems  since  they  are  only  passing 
 through  the  digital  signals  on  their  analog  systems. 
 15.  The  specific  transmission  and  other  technical  obligations  applicable  to  digital  cable  systems  would  relate  to  cable  operator  support  of  unidirectional  digital  cable  products.  32 


 As  discussed  below,  unidirectional  digital  cable  products  are  defined  in  the  draft  labeling  rules  as  one-  way  devices  which  include,  but  are  not  limited  to  televisions,  set-  top-  boxes  and  recording 


 28  Draft  Technical  Rules  at  1-  2. 
 29  47  C.  F.  R.    76.  601-  76.  630. 
 30  ACA  Comments  at  6. 
 31  See  Letter  from  Neal  M.  Goldberg,  General  Counsel,  NCTA,  to  John  Wong,  Chief,  Engineering 
 Division,  Media  Bureau,  FCC  at  3-  4  (July  10,  2003)  (  Cable/  CE  Response  to  Questions).  32 
 Draft  Technical  Rules  at  1. 
8
 Federal  Communications  Commission  FCC  03-  225 
 9 
 devices,  connected  to  digital  cable  systems.  33  While  the  draft  rules  do  not  specify  the  meaning  of  unidirectional  digital  cable  products  beyond  one-  way  devices,  the  model  DFAST  license 
 accompanying  the  MOU  excludes  from  its  definition  interactive  products  that  are  capable  of  obtaining  access  to  video-  on-  demand  or  impulse  pay-  per  view  services,  of  using  the  return  path 
 of  the  cable  system,  or  of  using  electronic  program  guide  services.  34  Several  commenters  express  concern  that  this  definition  is  too  narrow.  35  In  response,  representatives  of  the  cable  and 
 consumer  electronics  industries  indicate  that  they  are  in  the  midst  of  negotiations  for  a  similar  agreement  covering  two-  way  or  interactive  devices.  36  Manufacturers  have  pledged  to  future-proof 
 one-  way  digital  products  so  that  they  permit  consumer  access  to  two-  way  services  through  digital  connectors  and  thereby  allow  subscribers  to  benefit  from  all  digital  services  offered  by 
 their  service  provider.  37  While  we  anticipate  that  the  cable  and  consumer  electronics  industries  will  endeavor  to  complete  their  negotiations  for  a  bidirectional  agreement  in  due  course,  we 
 believe  that  the  adoption  of  standards  for  unidirectional  digital  cable  products  is  a  necessary  first  step  towards  ensuring  the  compatibility  of  digital  devices  with  cable  systems.  38 


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


 33  Id.  at  2.  See  Section  IV,  infra. 
 34  Draft  DFAST  License  at  3. 
 35  Public  interest  groups  and  information  technology  (  IT)  companies  question  the  DFAST  license 
 definition  in  so  far  as  it  appears  to  exclude  from  its  scope  personal  computers  (  PCs)  and  other  devices  with  Internet  connectivity  which  might  be  used  as  a  return  path.  See  ATI  Technolgies,  Dell,  Intel,  HP, 


 Microsoft  &  NEC  Comments  at  3-  4  (  IT  Coalition  Comments);  Intel  Corporation  Comments  at  3-  6,  11-12;  Public  Knowledge  &  Consumers  Union  Comments  at  12-  15  (  PK  &  CU  Comments);  TiVo  Inc. 
 Comments  at  5  (  TiVo  Comments);  and  Consumer  Federation  of  America  Reply  Comments  at  6  (  CFA  Reply  Comments).  NCTA  and  CEA/  CERC  clarify  in  their  Reply  Comments  that  neither  digital  cable 
 compatible  products  with  cable  modem  functionality,  nor  PCs  with  a  POD  slot  and  Internet  connectivity,  are  intended  to  be  excluded  from  the  terms  of  the  DFAST  license,  so  long  as  such  devices  otherwise  meet 
 the  licenses  compliance  and  robustness  rules.  NCTA  Reply  Comments  at  30-  31;  CEA/  CERC  Reply  Comments  at  7.  We  concur  with  NCTA  and  CEA/  CERCs  interpretation  of  the  DFAST  license  definition 
 and  believe  that  it  is  consistent  with  the  definition  of  unidirectional  digital  cable  products  that  we  are  adopting  in  Section  IV  infra.  In  addition,  we  expect  that  the  DFAST  license  and  its  associated  compliance 
 and  robustness  rules  will  be  designed  and  implemented  in  a  manner  that  does  not  per  se  exclude  PCs  and  other  devices  with  open  architesctures  from  qualifying  as  unidirectional  digital  cable  products. 
 Commenters  have  noted  that  digital  rights  management  technologies  developed  for  the  PC  environment,  using  robust  encryption  algorithms,  are  already  commonly  used  in  other  instances  where  content  must  be 
 protected.  See  Letter  from  Paula  Boyd,  Microsoft  Corporation,  et  al.,  to  Marlene  Dortch,  Secretary,  FCC  (Sept.  3,  2003).  We  encourage  CableLabs  to  work  with  interested  parties  in  this  regard. 
 36  Cable/  CE  Letter  at  1. 
 37  NCTA  Comments  at  11. 
 38  Pursuant  to  the  2005  Order  and  FNPRM  issued  in  our  Navigation  Devices  proceeding,  we  are 
 monitoring  the  progress  of  the  cable  and  consumer  electronics  industries  bidirectional  digital  cable  product  negotiations. 
9
 Federal  Communications  Commission  FCC  03-  225 
 10 
 A.  Transmission  Standards 
 17.  Under  the  proposed  transmission  standards,  digital  cable  systems  with  an  activated  channel  capacity  of  750  MHz  or  greater  would  be  required  to  adhere  to  certain  technical 


 standards  involving  the  digital  cable  network  interface  and  the  digital  video  service  multiplex  and  transport  system.  39  These  requirements  would  standardize  certain  attributes  of  digital  cable 
 system  transmissions,  thereby  facilitating  the  direct  connection  of  unidirectional  digital  cable  televisions  and  products  to  cable  systems  nationwide.  40  A  number  of  large  cable  systems  comply 
 with  these  standards  already;  other  operators  have  begun  implementation  at  their  headends  and  through  their  networks.  41  No  comments  were  received  objecting  to  these  requirements;  we 
 hereby  adopt  them  into  our  rules. 
 18.  The  Electronic  Frontier  Foundation  (  EFF)  seeks  clarification  from  the  Commission  that  all  analog  and  digital  basic  tier  services  would  remain  unencrypted  in  order  to 


 encourage  the  development  of  basic  tier  ready  devices.  42  EFF  envisions  that  basic  tier  ready  television  receivers  would  have  QAM  tuners  but  not  POD-  Host  interfaces,  and  would  only  be 
 able  to  access  digital  basic  tier  services.  In  reply,  NCTA  argues  that  the  issue  of  basic  tier  encryption  is  already  addressed  in  the  Commissions  rules  and  allows  for  waivers  where 
 needed.  43  In  addition,  NCTA  and  Comcast  assert  that  a  basic  tier  ready  designation  would  be  confusing  as  to  the  level  of  service  offered.  44  While  Section  76.630  generally  prohibits 
 encryption  of  the  basic  tier,  the  express  issue  of  digital  basic  tier  encryption  is  outside  the  scope  of  this  proceeding  and  appropriate  notice  has  not  been  given.  As  a  result,  we  decline  to  act  on 
 EFFs  request. 
 B.  PODs 
 19.  Section  76.1204  of  the  Commissions  rules  requires  cable  operators  to  provide  PODs  to  subscribers  at  their  request  for  use  with  non-  integrated  navigation  devices.  45  As  a 


 practical  matter,  however,  non-  integrated  navigation  devices  have  yet  to  gain  adoption  in  the  marketplace,  thereby  directly  affecting  subscriber  demand  for  PODs.  The  POD  provisioning 
 requirements  in  the  draft  rules  reflect  the  fact  that  unidirectional  digital  cable  televisions  and  products  would  represent  the  first  widespread  implementation  of  POD  and  POD-  Host  interface 


 39  Draft  Technical  Rules  at  1. 
 40  See  SCTE  40  2003,  Digital  Cable  Network  Interface  Standard  (SCTE  2003)  (  SCTE  40  2003); 
 ANSI/  SCTE  65  2003,  Service  Information  Delivered  Out-  of-  Band  for  Digital  Cable  Television  (  ANSI  65  2003);  ANSI/  SCTE  54  2003,  Digital  Video  Service  Multiplex  and  Transport  System  Standards  for  Cable 


 Television  (ANSI  2003)  (  ANSI/  SCTE  54  2003).  41 
 See  Joint  Status  Report  at  2.  To  ensure  that  consumer  expectations  regarding  the  functionality  of  unidirectional  digital  cable  televisions  and  products  are  met,  we  encourage  digital  cable  systems  with  an 


 activated  channel  capacity  of  550  MHz  or  greater  to  meet  these  technical  standards  where  it  is  financially  and  technically  feasible. 
 42  EFF  Reply  Comments  at  6-  7. 
 43  NCTA  Reply  Comments  at  45-  46;  see  47  C.  F.  R.    76.  630(  a). 
 44  NCTA  Reply  Comments  at  42-  43;  Comcast  Reply  Comments  at  17-  18. 
 45  According  to  NCTA,  PODs  will  now  be  referred  to  for  marketing  purposes  as  CableCARDs.  Joint 
 Status  Report  at  2.  Because  the  MOU  and  draft  technical  rules  refer  to  these  security  modules  as  PODs,  we  continue  to  use  this  term. 
10
 Federal  Communications  Commission  FCC  03-  225 
 11 
 technology  in  the  marketplace.  Under  these  rules,  all  digital  cable  systems  would  be  required  to  maintain  an  adequate  supply  of  PODs  and  ensure  convenient  access  to  such  PODs  for  their 
 subscribers  by  July  1,  2004.  46  In  addition,  all  digital  cable  systems  would  be  required  to  conform  to  technical  standards  governing  POD-  Host  interfaces  and  the  POD  copy  protection  system.  47 
 We  believe  that  these  new  requirements  will  further  the  Commissions  mandate  to  ensure  the  commercial  availability  of  navigation  devices  and  facilitate  the  adoption  and  implementation  of 
 both  unidirectional  digital  cable  products  and  the  POD-  Host  interface  platform.  On  this  basis,  we  hereby  adopt  these  POD  provisioning  and  support  requirements. 


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


 C.  Tuning  and  Guide  Information 
 21.  The  proposed  rules  would  also  require  digital  cable  systems  with  an  activated  channel  capacity  of  750  MHz  or  greater  to  comply  with  certain  Program  and  System  Information 


 Protocol  (  PSIP)  obligations,  including  the  February  2000  PSIP  Agreement  between  NCTA  and  the  Consumer  Electronics  Association  (  CEA)  (  PSIP  Agreement).  52  PSIP  is  the  standard 
 protocol  that  enables  receivers  to  identify,  locate  and  process  the  various  types  of  content  being  transmitted,  including  video,  audio,  closed  captions,  content  advisory  information  and  ancillary 
 data. 
 22.  Parties  have  suggested  modifications  to  the  proposed  requirements.  The  Association  of  Public  Television  Stations  (  APTS),  National  Association  of  Broadcasters 


 (  NAB)  and  Paxson  Communications  Corporation  (  Paxson)  advocate  that  profile  4  or  higher  out-  of-  band  PSIP  information  should  be  required  under  the  ANSI/  SCTE  65  2002  standard  in 


 46  Draft  Technical  Rules  at  1-  2. 
 47  See  ANSI/  SCTE  28  2003,  Host-  POD  Interface  Standard  (ANSI  2003)  (  ANSI/  SCTE  28  2003);  SCTE 
 41  2003,  POD  Copy  Protection  System  (SCTE  2003)  (  SCTE  41  2003).  48 
 TiVo  Comments  at  6-  7.  49 
 NCTA  Reply  Comments  at  41-  42;  see  also  Comcast  Reply  Comments  at  16.  50 
 TiVo  Comments  at  7.  51 
 NCTA  Reply  Comments  at  42.  52 
 Draft  Technical  Rules  at  1. 
11
 Federal  Communications  Commission  FCC  03-  225 
 12 
 order  to  make  that  standard  comport  with  the  PSIP  Agreement.  53  They  additionally  seek  a  requirement  that  the  out-  of-  band  PSIP  match  the  channel  number  in-  band,  and  reject  the 
 bandwidth  limitation  for  in-  band  PSIP  contained  in  the  PSIP  Agreement.  54  Comcast  and  CEA  counter  that  no  additional  PSIP  requirements  are  needed  at  this  time,  while  CFA  suggests  that 
 broadcasters  are  inappropriately  attempting  to  mandate  the  passage  of  PSIP  information  in  this  proceeding.  55  NCTA  specifically  challenges  the  broadcasters  views  by  arguing  that  mandated 
 carriage  of  profile  4  PSIP  information  is  not  needed  given  that  if  operators  agree  to  carry  Event  Information  Table  (  EIT)  data  out-  of-  band,  they  will  do  so  using  profile  4  or  higher.  56  NCTA 
 further  contends  that  bandwidth  caps  on  in-  band  PSIP  information  are  needed  and  that  two-  part  channel  numbering  would  not  be  backward  compatible  with  the  millions  of  legacy  digital  set-  top 
 boxes  in  the  marketplace.  57 
 23.  While  we  recognize  that  there  are  a  number  of  outstanding  PSIP  issues  relating  to  the  DTV  transition  and  cable  carriage,  we  believe  that  resolution  of  some  of  those  issues  are 


 properly  addressed  in  the  Commissions  digital  must  carry  and  DTV  periodic  review  dockets.  58  In  order  to  ensure  the  proper  functioning  of  unidirectional  digital  cable  products,  however,  we 
 find  it  necessary  here  to  incorporate  those  portions  of  the  PSIP  Agreement  applicable  to  cable  operators  into  the  Commissions  rules.  Rather  than  incorporating  by  reference  the  entire 
 document  as  proposed  in  the  draft  rules,  we  believe  that  a  direct  incorporation  of  specific  provisions  is  more  appropriate.  As  a  result,  we  hereby  adopt  those  PSIP  obligations  that  will 
 ensure  that  cable  operators  carry  PSIP  data  when  received  from  content  providers  in  conformity  with  the  ATSC  A/  65B  standard.  59  However,  we  decline  to  take  action  on  the  proposed  revisions 
 that  are  better  addressed  in  our  ongoing  digital  must  carry  and  DTV  periodic  review  proceedings. 
 D.  High  Definition  Set-  Top  Boxes 
 24.  Cable  subscribers  owning  unidirectional  digital  cable  televisions  or  DTV  monitors  that  wish  to  receive  advanced,  interactive  services  will  need  a  separate  set-  top  box  in 


 order  to  do  so.  As  a  means  of  ensuring  the  connectivity  of  these  devices,  the  proposed  rules  would  obligate  all  cable  operators,  effective  December  31,  2003,  to  replace  or  upgrade 
 subscriber-  leased  high  definition  set-  top  boxes  upon  subscriber  request  to  ensure  that  such  boxes  have  functional  1394  interfaces.  60  For  these  purposes,  a  functional  1394  means  a  1394 
 interface  with  appropriate  software  support.  61  Starting  July  1,  2005,  all  high  definition  set-  top 


 53  APTS  Reply  Comments  at  3;  NAB  Comments  at  9-  10;  Paxson  Reply  Comments  at  2-  5  n.  8. 
 54  APTS  Reply  Comments  at  3;  NAB  Comments  at  9-  10;  Paxson  Reply  Comments  at  2-  5  n.  8. 
 55  Comcast  Reply  Comments  at  3,  13-  15;  CEA  Reply  Comments  at  4-  5;  CFA  Reply  Comments  at  7. 
 56  NCTA  Reply  Comments  at  43-  45. 
 57  Id. 
 58  Carriage  of  the  Transmission  of  Digital  Television  Broadcast  Stations,  CS  Docket  Nos.  98-  120,  00-  96 
 and  00-  2;  Second  Periodic  Review  of  the  Commissions  Rules  and  Policies  Affecting  the  Transition  to  Digital  Television,  MB  Docket  No.  03-  15,  RM  9832,  MM  Docket  Nos.  99-  360,  00-  167  and  00-  168. 


 59  ATSC  A/  65B,  Program  and  System  Information  Protocol  for  Terrestrial  Broadcast  and  Cable  (ATSC 
 2003);  see  Appendix  B  at    76.640(  b)(  1)(  iv)-(  v).  60 
 Draft  Technical  Rules  at  2.  61 
 MOU  at  6.  The  MOU  signatories  clarified  that  the  use  of  the  term  functional  in  connection  with  the  [December  31,  2003]  deadline  reflected  an  acknowledgement    that  prior  to  the  MOU,  several  MSOs  had 
12
 Federal  Communications  Commission  FCC  03-  225 
 13 
 boxes  acquired  by  cable  operators  for  distribution  to  subscribers  would  need  to  include  a  1394  interface  and  either  a  Digital  Visual  Interface  (  DVI)  or  High  Definition  Multimedia  Interface 
 (  HDMI).  62  High  definition  set-  top  boxes  provided  to  subscribers  pursuant  to  these  deadlines  would  also  need  to  comply  with  certain  technical  standards.  63  No  comments  were  received 
 objecting  to  these  proposals.  We  believe  that  these  interface  and  technical  requirements  will  set  a  baseline  for  connectivity  ensuring  that  cable  subscribers  are  able  to  fully  enjoy  the  range  of 
 services  offered  by  their  cable  provider  in  a  secure,  digital  format.  As  such,  we  adopt  these  high  definition  set-  top  box  obligations  and  defer  the  December  31,  2003  obligation  to  April  1,  2004. 


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


 E.  Exemptions  from  Standards  and  Associated  Obligations 
 26.  Some  commenters  have  questioned  the  scope  of  the  digital  cable  system  transmission  standards  and  support  obligations  given  that  some  of  the  requirements  only  apply  to 


 systems  with  an  activated  channel  capacity  of  750  MHz  or  greater  while  other  requirements  apply  to  all  digital  cable  systems.  69  To  the  extent  that  certain  support  obligations  might  disparately 


 purchased  and,  in  some  cases,  deployed  high-  definition  digital  set-  top  boxes  which  contained  an  IEEE  1394  interface  which  do  not  have  software  embedded  in  the  [set-  top  box]  to  allow  the  1394  interface  to 
 function.  Cable/  CE  Response  to  Questions  at  4.  62 
 Draft  Technical  Rules  at  2.  The  use  of  the  term  functional  does  not  appear  in  connection  with  the  July  2005  deadline  for  DVI  or  HDMI  interfaces  since  the  MOU  signatories  anticipate  that  interfaces 


 associated  with  future  set-  top  product  purchases    would  be  made  functional  by  the  manufacturer  before  delivery  to  the  operator.  Cable/  CE  Response  to  Questions  at  5. 
 63  Draft  Technical  Rules  at  2.  See  ANCI/  SCTE  26  2001,  Home  Digital  Network  Interface  Specification 
 with  Copy  Protection  (ANSI  2001);  CEA-  931-  A,  Remote  Control  Command  Pass-  through  Standard  for  Home  Networking  (CEA  2003). 


 64  Genesis  Microchip  Reply  Comments  at  3-  5. 
 65  Id. 
 66  We  note,  however,  that  DVI,  HDMI  and  HDCP  have  been  included  as  normative  references  in  standards 
 that  have  undergone  the  ANSI  process.  See  e.  g.,  CEA-  861-  B,  A  DTV  Profile  for  Uncompressed  High  Speed  Digital  Interfaces  (2002). 


 67  See  e.  g.,  HDMI  Specification  Adopter  Agreement,  available  at  http://  www.  hdmi.  com. 
 68  Advanced  Television  Systems  and  Their  Impact  Upon  the  Existing  Television  Broadcast  Service,  6  FCC 
 Rcd  7024,  7034  (1991).  69 
 ACA  Comments  at  7-  8. 
13
 Federal  Communications  Commission  FCC  03-  225 
 14 
 impact  small  cable  systems,  ACA  asks  that  the  Commission  consider  either  a  small  system  exemption  or  waivers  for  affected  entities.  70  In  response  to  ACAs  concerns,  CEA,  NCTA  and 
 Comcast  agree  that  small  cable  systems  burdened  by  the  support  requirements  should  be  allowed  to  seek  waivers.  NCTA  and  Comcast  also  suggest  that  the  burden  may  not  be  as  significant  as 
 ACA  anticipates.  For  example,  the  only  technical  support  requirement  affecting  digital  cable  systems  below  750  MHz  involves  the  provisioning  of  PODs  to  subscribers,  something  cable 
 operators  are  already  required  to  do  upon  request.  71  In  addition,  NCTA  and  Comcast  clarify  that  the  July  1,  2005,  deadline  for  certain  digital  interfaces  on  high  definition  set-  top  boxes  only 
 applies  to  new  boxes  acquired  after  that  date,  with  no  resulting  need  to  replace  existing  set-  top  box  inventories.  72 


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


 unidirectional  digital  cable  products  and  find  them  incompatible  with  cable  systems  that  are  either  not  digital  or  are  subject  to  a  small  system  waiver  will  be  frustrated.  Consumer  education 
 regarding  the  ability  of  their  local  cable  operator  to  support  unidirectional  digital  cable  products  will  be  critical  to  ensuring  that  consumer  expectations  are  met.  We  recognize  that  the  MOU 
 contains  voluntary  commitments  by  cable  operators  to:  (1)  offer  to  educate  local  retailers  regarding  the  capability  of  the  local  cable  system  to  support  unidirectional  digital  cable  products, 
 and  (2)  update  the  cable  industrys  Go2Broadband  website  with  information  identifying  systems  that  support  such  products.  74  We  strongly  encourage  these  and  further  cable  industry  efforts  and 
 exhort  retailers  to  educate  consumers  about  the  compatibility  of  unidirectional  digital  cable  products  with  local  cable  systems. 


 70  Id.  at  4-  6. 
 71  NCTA  Reply  Comments  at  46;  Comcast  Reply  Comments  at  n.  32;  see  also  47  C.  F.  R.    76.  1204. 
 72  NCTA  Reply  Comments  at  46;  Comcast  Reply  Comments  at  n.  31. 
 73  See  47  C.  F.  R.    76.  1204. 
 74  MOU  at  9. 
14
 Federal  Communications  Commission  FCC  03-  225 
 15 
 F.  Innovation  and  Changes  in  Standards 
 29.  Several  commenters  express  concern  that  by  incorporating  specific  technical  standards  into  our  rules,  the  current  state  of  technology  will  be  frozen  and  innovation  harmed.  75 


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


 IV.  LABELING  AND  CONSUMER  DISCLOSURES 
 30.  As  indicated  above,  one  of  the  mechanisms  specified  in  the  Communications  Act  for  addressing  compatibility  is  an  equipment  labeling  regime.  Section  624A(  c)(  2)(  A)  authorizes 


 the  Commission  to  adopt  regulations  specifying  the  technical  requirements  for  television  receivers  and  related  equipment  to  be  sold  as    cable  compatible  or  cable  ready.    78  The 
 establishment  of  a  label  that  delineates  a  certain  level  of  technical  functionality  serves  two  purposes:  (1)  to  aid  consumers  in  making  purchasing  decisions;  and  (2)  to  identify  for  cable 
 operators  those  devices  that  can  be  attached  to  their  system  pursuant  to  certain  baseline  compatibility  requirements. 


 31.  The  labeling  regime  proposed  to  the  Commission  is  voluntary  in  nature;  consumer  electronics  manufacturers  are  not  obliged  to  physically  affix  a  label  to  their  products. 
 Rather,  the  proposed  regime  sets  forth  basic  requirements  that  unidirectional  digital  cable  televisions  and  products  must  meet  in  order  to  be  marketed  or  labeled  as  digital  cable  ready.  We 
 herein  adopt  the  proposed  definition  of  unidirectional  digital  cable  products,  discussed  above,  as  one-  way  devices  and  clarify  that  this  definition  excludes  interactive  two-  way  services.  79  Below 


 75  EchoStar  Communications  Corp.  Reply  Comments  at  2-  4;  NAB  Reply  Comments  at  6-  7;  PK  &  CU 
 Comments  at  4-  5;  PK  &  CU  Reply  Comments  at  2-  3,  8-  9;  TiVo  Comments  at  2.  76 
 Cable/  CE  Response  to  Questions  at  1-  2.  77 
 NCTA  Reply  Comments  at  10.  78 
 See  47  U.  S.  C.    544a(  c)(  2)(  A).  79 
 See  Draft  Technical  Rules  at  2;  Draft  DFAST  License  at  3;  see  also  Section  III,  supra.  We  believe  that  the  term  unidirectional  digital  cable  products  can  encompass  a  broad  range  of  devices.  It  is  for  this  reason 


 that  the  list  of  unidirectional  digital  cable  products  identified  in  the  draft  rules  include[  s],  but  is  not  limited  to  televisions,  set-  top  boxes  and  recording  devices.  Draft  Technical  Rules  at  2.  We  clarify  that  although 
 the  definition  of  unidirectional  digital  cable  products  we  are  adopting  excludes  interactive  two-  way  devices,  this  exclusion  would  not  apply  to  devices  with  cable  modem  functionality  or  Internet  connectivity, 
 such  as  personal  computers.  As  such,  devices  with  cable  modem  functionality  or  Internet  connectivity 
15
 Federal  Communications  Commission  FCC  03-  225 
 16 
 we  address  concerns  raised  by  certain  commenters  seeking  modification  of  the  basic  requirements  for  unidirectional  digital  cable  televisions  to  be  labeled  digital  cable  ready.  We  also  address  the 
 interrelation  of  this  labeling  regime  to  a  certification  compliance  process  and  to  the  Commissions  existing  Digital  Cable  Ready  1-  2-  3  labels  for  cable  compatible  DTV  receivers. 


 A.  Basic  Requirements  to  be  Labeled  Digital  Cable  Ready 
 32.  The  proposed  labeling  rules  prohibit  consumer  electronics  manufacturers  from  marketing  or  labeling  unidirectional  digital  cable  televisions  or  products  as  digital  cable  ready 


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


 33.  Many  of  the  comments  received  in  response  to  these  labeling  criteria  advocate  the  addition  of  supplemental  requirements  in  order  for  television  receivers  to  be  identified  as 
 digital  cable  ready.  For  the  reasons  set  forth  below,  we  add  an  over-  the-  air  tuner  requirement  to  the  labeling  criteria  proposed  to  the  Commission  but  otherwise  decline  to  adopt  the  suggested 
 modifications. 
 1.  Over-  the-  Air  Tuner 
 34.  Broadcasters  and  content  providers  advocate  that  EIA/  CEA-  818D  be  added  to  the  list  of  technical  compliance  standards  applicable  to  digital  cable  ready  televisions  in  order  to 


 would  not  be  foreclosed  from  being  labeled  or  marketed  as  digital  cable  ready  devices,  so  long  as  they  otherwise  complied  with  the  criteria  set  forth  herein. 
 80  See  generally,  Draft  Technical  Rules  at  2-  6.  EFF  suggests  that  the  Commission  also  create  a  basic  tier 
 ready  label  for  devices  meeting  the  digital  cable  ready  television  definition,  except  for  the  requirement  to  have  a  POD-  Host  interface.  EFF  Comments  at  5.  The  record  in  this  proceeding,  however,  does  not  reflect 


 sufficient  need  for  a  label  distinguishing  these  devices  from  digital  cable  ready  products.  Indeed,  a  basic  tier  ready  label  could  confuse  consumers  who  identify  cable  readiness  with  extended  basic  service,  which 
 includes  both  the  basic  and  cable  programming  services  tiers.  81 
 Draft  Technical  Rules  at  3-  4.  82 
 Cable/  CE  Response  to  Questions  at  6.  83 
 Draft  Technical  Rules  at  6.  The  relevant  language  states:  This  digital  television  is  capable  of  receiving  analog  basic,  digital  basic  and  digital  premium  cable  television  programming  by  direct  connection  to  a 


 cable  system  providing  such  programming.  A  security  card  provided  by  your  cable  operator  is  required  to  view  encrypted  digital  programming.  Certain  advanced  and  interactive  digital  cable  services  such  as  video-on- 
 demand,  a  cable  operators  enhanced  program  guide  and  data-  enhanced  television  services  may  require  the  use  of  a  set-  top  box.  For  more  information  call  your  local  cable  operator.  Id. 
16
 Federal  Communications  Commission  FCC  03-  225 
 17 
 ensure  that  these  devices  have  over-  the-  air  reception  capability.  84  Consumer  electronics  manufacturers  have  publicly  committed  to  include  off-  air  tuners  in  digital  cable  ready 
 televisions.  85  The  fact  that  the  proposed  phase-  in  of  digital  cable  ready  televisions  with  digital  interfaces  would  be  synchronous  with  the  implementation  roll-  out  of  our  tuner  mandate  suggests 
 that  consumer  electronics  manufacturers  intend  to  abide  by  this  commitment.  86  NCTA  suggests,  however,  that  an  over-  the-  air  tuner  requirement  in  this  context  would  be  redundant,  given  the 
 Commissions  existing  tuner  mandate.  87  As  we  held  in  our  Review  of  the  Commissions  Rules  and  Policies  Affecting  the  Conversion  to  Digital  Television  (  DTV  Tuner  Order),  all  television 
 receivers  must  include  a  digital  broadcast  tuner  on  a  phased-  in  basis.  88  We  therefore  believe  that  the  addition  of  a  DTV  off-  air  tuner  requirement  to  the  labeling  requirements  for  digital  cable 
 ready  televisions  is  appropriate.  89  In  the  analog  environment,  the  public  has  come  to  understand  that  television  receivers  labeled  or  marketed  as  cable  ready  universally  include  the  capability  of 
 receiving  over-  the-  air  broadcast  service.  We  believe  it  would  be  inconsistent  with  consumer  expectations  and  thus  affirmatively  misleading  for  digital  cable  ready  receivers  not  to  include 
 digital  over-  the-  air  reception  capability. 
 2.  Closed  Captioning 
 35.  Broadcasters  and  content  providers  seek  assurance  that  closed  captioning  display  functionality  will  be  built  into  digital  cable  ready  televisions.  90  In  reply,  NCTA  states  that  it 


 would  not  object  to  a  clarification  by  the  Commission  regarding  the  applicability  of  its  digital  closed  captioning  rules.  91  We  concur  with  NCTA  that  the  Commissions  rules  independently 
 mandate  that  digital  television  receivers  be  able  to  decode  and  display  closed  captioning.  92  As  a  result,  we  need  not  incorporate  a  separate  closed  captioning  mandate  into  the  labeling  criteria  for 
 digital  cable  ready  televisions. 
 3.  1394  Interface 
 36.  Broadcasters  question  why  the  proposed  rules  do  not  require  televisions  carrying  the  digital  cable  ready  label  to  have  a  1394  interface.  93  While  the  proposed  rules  call  for  the 


 inclusion  of  a  DVI  or  HDMI  interface  in  digital  cable  ready  televisions  by  specific  rollout  dates, 


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


 Compatibility  Requirements  (EIA  2002)  (  EIA/  CEA-  818D).  85 
 CEA/  CERC  Reply  Comments  at  5.  86 
 Draft  Technical  Rules  at  3-  4.  87 
 NCTA  Reply  Comments  at  43-  44;  see  47  C.  F.  R.    15.  117(  i).  88 
 17  FCC  Rcd  15978  (2002).  89 
 This  requirement  will  follow  the  same  phase-  in  schedule  established  in  DTV  Tuner  Order.  90 
 MPAA  Reply  Comments  at  2-  6;  NAB  Reply  Comments  at  6-  7.  91 
 NCTA  Reply  Comments  at  47.  92 
 See  47  C.  F.  R.    15.  122.  93 
 NAB  Comments  at  5  n.  6;  APTS  Reply  Comments  at  3  n.  6. 
17
 Federal  Communications  Commission  FCC  03-  225 
 18 
 1394  interfaces  would  only  be  required  on  cable  operator-  supplied  high  definition  set-  top  boxes.  94  NAB  expresses  its  concern  that  consumers  purchasing  digital  cable  ready  televisions  without 
 1394  interfaces  will  be  frustrated  in  their  attempts  to  connect  to  digital  VCRs  and  other  digital  devices.  95  In  response,  NCTA  states  that  1394  interfaces  should  not  be  required  and  instead 
 market  forces  should  determine  the  future  acceptance  of  1394  as  a  connector.  96  NCTA  further  clarifies  that  the  inclusion  of  1394  interfaces  on  high  definition  set-  top  boxes  is  intended  to 
 preserve  the  functionality  of  existing  digital  devices  that  use  the  interface.  97 
 37.  It  is  our  belief  that  the  requirement  for  digital  cable  ready  televisions  to  have  either  a  DVI  or  HDMI  interface  sets  a  floor  for  digital  cable  compatibility  without  unnecessarily 


 impeding  innovation.  It  should  be  noted  in  this  regard  that  the  labeling  regime  is  being  used  here  as  a  convenient  procedural  mechanism  for  phasing  in  a  set  of  connectors  that  are  needed  to 
 accomplish  the  equipment  compatibility  purposes  of  Section  624A.  We  recognize  that  the  DVI  or  HDMI  outputs  may  only  be  available  with  a  percentage  of  the  digital  cable  ready  devices 
 manufactured  and  do  not  intend  that,  prior  to  the  completion  of  the  phase-  in,  the  digital  cable  ready  label  be  interpreted  as  signifying  the  presence  of  these  outputs.  We  anticipate  that  the 
 marketplace  will  determine  which  additional  connectors  are  best  for  use  with  digital  cable  ready  televisions  and  associated  products  and  therefore  decline  to  mandate  a  1394  or  other  connector 
 interface.  98  As  discussed  below,  we  are  establishing  an  interim  mechanism  and  seeking  further  comment  on  a  permanent  mechanism  by  which  additional  connectors  can  be  approved  for  use  in 
 digital  cable  products,  subject  to  FCC  oversight  where  disputes  arise.  We  believe  that  this  approach  will  foster  competition  among  MVPDs  and  promote  interoperability.  99 


 B.  Compliance  Certification  Process 
 38.  A  prerequisite  for  the  use  of  the  digital  cable  ready  designation  under  the  draft  labeling  rules  is  certification  for  compliance  with  certain  normative  requirements.  The  proposed 


 rules  anticipate  that  a  manufacturer  must  submit  a  prototype  of  its  first  unidirectional  digital  cable  product  model  to  CableLabs  or  an  independent  qualified  test  facility  to  ensure  conformity  with 
 specific  technical  standards.  100  The  test  suite  to  be  applied  is  intended  to  demonstrate  that  the  subject  device:  (i)  can  tune  and  display  scrambled  digital  services  via  the  POD  conditional  access 
 system;  (ii)  will  not  technically  disrupt,  impede,  or  impair  delivery  of  services  to  cable  subscribers;  (iii)  will  not  cause  physical  harm  to  the  cable  network  or  the  POD  module;  (iv)  will 
 not  facilitate  theft  of  service  or  otherwise  interfere  with  reasonable  actions  taken  by  cable  operators  to  prevent  theft  of  service;  (v)  will  not  jeopardize  the  security  of  any  services  offered 
 over  the  cable  system;  (vi)  will  not  interfere  with  or  disable  the  ability  of  a  cable  operator  to 
 94  Draft  Technical  Rules  at  2-  4.  The  connector  interface  requirements  for  televisions  to  be  labeled  digital 
 cable  ready  include  either:  (1)  a  DVI  or  HDMI  interface,  or  (2)  a  Y,  Pb,  Pr  component  interface.  The  phase-in  schedule  would  range  from  July  1,  2004,  for  50%  of  480p  grade  television  models  with  screen  sizes  36 


 inches  and  above,  to  July  1,  2007,  for  100%  of  720p/  1080i  grade  television  models  with  screen  sizes  13  to  24  inches.  Id.  at  3-  4. 
 95  NAB  Comments  at  5  n.  6. 
 96  NCTA  Reply  Comments  at  35. 
 97  Id. 
 98  See  e.  g.,  PK  &  CU  Comments  at  3;  Intel  Comments  at  8-  12;  EchoStar  Reply  Comments  at  7. 
 99  See  EchoStar  Reply  Comments  at  4,  7;  NCTA  Reply  Comments  at  39-  40. 
 100  Draft  Technical  Rules  at  4-  6;  see  SCTE  40  2003;  ANSI/  SCTE  28  2003;  SCTE  41  2003. 
18
 Federal  Communications  Commission  FCC  03-  225 
 19 
 communicate  with  or  disable  a  POD  module  or  to  disable  services  being  transmitted  through  a  POD  module;  or  (vii)  will  not  impede  or  impair  control  of  content  protection.  101  The  specific 
 tests  comprising  the  test  suite  were  jointly  agreed  to  by  representatives  of  the  cable  and  consumer  electronics  industries.  102  The  test  suite  would  be  executed  by  CableLabs  or  an  independent 
 qualified  test  facility  for  the  first  unidirectional  digital  cable  product  model  developed  by  a  manufacturer.  Once  this  first  model  successfully  completed  the  applicable  test  suite,  self-certification 
 procedures  would  apply  for  subsequent  models.  103 
 39.  We  hereby  adopt  the  proposed  certification  procedures  with  certain  revisions  as  set  forth  in  Appendix  B.  In  so  doing,  we  recognize  that  the  scope  of  this  process  is  limited  in  so 


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


 C.  Relation  to  Existing  Labeling  Requirements 
 40.  We  are  adopting  the  proposed  labeling  and  consumer  disclosure  requirements  to  promote  consumer  awareness  and  education  about  the  DTV  transition  and  the  functionality  of 


 unidirectional  digital  cable  televisions  and  products  and  their  compatibility  with  digital  cable  systems.  104  We  recognize  that  the  Commission  previously  adopted  a  series  of  labels  for  digital 
 cable  compatible  receivers.  This  Digital  Cable  Ready  1-  2-  3  regime,  however,  has  not  yet  been  employed  in  the  marketplace  and  may  not  encompass  the  full  range  of  anticipated  unidirectional 
 digital  cable  devices.  105  In  an  effort  to  eliminate  any  confusion,  we  hereby  eliminate  the  existing  Digital  Cable  Ready  1-  2-  3  labels  and  grant  the  petitions  for  reconsideration  filed  by  NCTA  and 
 Time  Warner  Cable  in  response  to  our  earlier  Report  and  Order  in  our  Compatibility  Between 


 101  Draft  Technical  Rules  at  4. 
 102  See  Uni-  Dir-  PICS-  I01-  030903:  Uni-  Directional  Receiving  Device:  Conformance  Checklist:  PICS 
 Proforma  (2003)  103 
 Draft  Technical  Rules  at  5-  6.  104 
 Our  approval  of  the  proposed  labeling  and  consumer  disclosure  regime  is  not  intended  to  limit  or  foreclose  any  action  that  may  be  taken  pursuant  to  the  Notice  of  Proposed  Rulemaking  recently  issued  in 


 our  DTV  Second  Periodic  Review  Proceeding.  See  Second  Periodic  Review  of  the  Commissions  Rules  and  Policies  Affecting  the  Transition  to  Digital  Television,  18  FCC  Rcd  1279,  1314-  15  (2003)  (  DTV 
 Second  Periodic  Review  NPRM).  105 
 See  47  C.  F.  R.    15.  19(  d)(  2). 
19
 Federal  Communications  Commission  FCC  03-  225 
 20 
 Cable  Systems  and  Consumer  Electronics  Equipment  docket.  106 
 41.  We  anticipate  that  this  labeling  regime  and  consumer  disclosure  requirements  will  provide  consumers  with  basic  compatibility  information  about  digital  cable  ready  televisions 


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


 V.  ENCODING  RULES 
 42.  In  addition  to  the  draft  technical  and  labeling  rules,  the  cable  and  consumer  electronics  industries  submitted  draft  encoding  rules  to  the  Commission  that  propose:  (1)  a  ban  on 


 selectable  output  control,  (2)  a  prohibition  on  the  down-  resolution  of  broadcast  programming,  and  (3)  the  adoption  of  caps  on  copy  protection  encoding  for  different  categories  of  MVPD 
 programming.  Below  we  discuss  our  authority  to  adopt  such  encoding  rules,  and  address  each  of  the  three  proposals. 


 43.  At  the  outset,  we  recognize  that  members  of  the  DBS  industry  assert  that  because  they  did  not  participate  in  the  MOU  negotiations,  they  should  not  be  made  subject  to  encoding 
 rules  that  do  not  adequately  address  their  interests.  109  We  disagree.  The  negotiations  between  cable  and  consumer  electronics  industries  sought  to  establish  a  specification  for  unidirectional 
 digital  cable  televisions  and  products    issues  specific  to  their  industries.  The  proposed  encoding  rules  were  developed  as  part  of  those  negotiations.  The  entire  MOU,  including  the  proposed 
 encoding  rules  and  other  draft  regulations  contained  therein,  were  incorporated  into  our  Further  Notice  and  put  out  for  public  notice  and  comment.  110  Indeed,  both  EchoStar  and  DIRECTV  (the 


 106  Digital  Compatibility  Report  and  Order,  15  FCC  Rcd  at  17568. 
 107  See  Section  III.  E,  supra;  see  also  MOU  at  9. 
 108  MOU  at  7. 
 109  DIRECTV  Comments  at  4-  6;  EchoStar  Reply  Comments  at  9. 
 110  Further  Notice,  18  FCC  Rcd  at  531-  609. 
20
 Federal  Communications  Commission  FCC  03-  225 
 21 
 DBS  providers)  filed  comments  in  response  to  the  Further  Notice  on  this  particular  issue.  As  discussed  in  greater  detail  below,  we  conclude  that  the  arguments  advanced  by  the  DBS  providers 
 are  insufficient  to  outweigh  the  need  for  competitive  parity  among  MVPDs. 
 44.  We  also  acknowledge  the  concerns  articulated  by  content  providers  that  the  proposed  encoding  rules  would  prevent  or  inhibit  the  use  of  other  content  protection 


 mechanisms.  111  We  do  not  interpret  the  draft  rules  in  this  fashion.  The  proposed  rules  specifically  prohibit  the  encoding  of  audiovisual  content  to  trigger  selectable  output  control,  the 
 down-  resolution  of  broadcast  programming,  or  to  prevent  or  limit  copying  except  as  permitted  for  the  applicable  programming  category.  112  As  such,  we  do  not  believe  that  these  proposed 
 requirements  necessarily  preclude  the  use  of  other  content  protection  measures. 
 A.  Commission  Authority  Under  Section  629 
 45.  The  Commission  has  authority  to  adopt  the  proposed  encoding  rules  under  the  explicit  authority  granted  in  Section  629  of  the  Communications  Act  as  well  as  our  ancillary 


 jurisdiction  thereunder.  113  We  also  conclude  that  our  ancillary  jurisdiction  would  extend  the  scope  of  Section  624A  of  the  Communications  Act  to  encompass  non-  cable  MVPDs.  114 


 46.  The  mandate  of  Section  629  is  broad.  As  discussed  above,  it  requires  the  Commission  to  assure  the  commercial  availability  of  navigation  devices    meaning  that  the 
 Commission  must  persist  in  its  efforts  until  commercial  availability  is  achieved.  115  Section  629  subjects  all  MVPDs  to  its  requirements,  including  cable  operators,  DBS  providers,  multichannel 
 multipoint  distribution  service  operators  and  satellite  master  antenna  television  providers.  116  Although  DBS  providers  were  exempted  from  the  separate  security  requirement  imposed  on  cable 
 in  our  Navigation  Devices  Order  because  DBS  equipment  is  already  available  at  retail  and  is  portable  nationwide,  the  Commission  expressly  found  that  it  did  not  have  the  authority  to  exclude 
 DBS  from  the  reach  of  Section  629  generally.  117  Section  629  also  applies  to  any  type  of  equipment  used  to  access  MVPD  programming  and  services,  including  televisions,  VCRs,  cable 


 111  MPAA  Reply  Comments  at  10;  National  Music  Publishers  Association,  et  al.  Comments  at  4-  6,  8-  9 
 (  NMPA  Comments);  NMPA  Reply  Comments  at  2.  112 
 Draft  Encoding  Rules  at  5.  113 
 47  U.  S.  C.    549(  a).  114 
 Id.    544A.  115 
 Section  629  directs  the  Commission  to  adopt  regulations  to  assure  the  commercial  availability,  to  consumers  of  multichannel  video  programming  and  other  services  offered  over  multichannel  video 


 programming  systems,  of  converter  boxes,  interactive  communications  equipment,  and  other  equipment  used  by  consumers  to  access  multichannel  video  programming  and  other  services  offered  over  multichannel 
 video  programming  systems.  Id.    549(  a).  116 
 Navigation  Devices  Order,  13  FCC  Rcd  at  14782-  84.  The  only  MVPDs  not  subject  to  the  requirements  of  Section  629  are  open  video  system  operators,  as  a  consequence  of  a  specific  exclusion  in  the 


 Communications  Act.  Id.  at  14783-  84.  117 
 See  id.  at  14800-  02,  14819  (finding  that  Congress  did  not  exclude  DBS  from  the  reach  of  Section  629,  and  that  the  sunset  criteria  of  Section  629(  e)  had  not  been  met  because  the  market  for  MVPD  services  is 


 not  fully  competitive);  Order  on  Reconsideration,  14  FCC  Rcd  at  7613-  14. 
21
 Federal  Communications  Commission  FCC  03-  225 
 22 
 set-  top  boxes,  personal  computers,  program  guide  equipment  and  cable  modems.  118  On  this  basis,  we  conclude  that  the  scope  of  Section  629  encompasses  all  MVPDs  and  authorizes  the 
 Commission  to  adopt  regulations  that  aim  to  ensure  the  commercial  availability  of  a  wide  range  of  consumer  electronics  equipment  used  in  conjunction  with  MVPD  systems. 


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


 [W]  e  do  not  intend  this  declaratory  ruling  to  signal  that  any  terms  or  technology  associated  with  such  licenses  and  designated  as  necessary  for  copy  protection  purposes 
 are  consistent  with  our  rules.  We  believe,  however,  that  such  issues  are  best  resolved  if  specific  concerns  involving  finalized  licenses  that  implicate  our  navigation  devices  rules 
 are  presented  to  the  Commission.  122 
 By  stating  that  some  amount  of  copy  protection  might  be  acceptable  but  not  necessarily  specifying  the  applicable  terms  or  technology,  the  Commission  indicated  its  willingness  to  assess 
 the  reasonableness  of  particular  copy  protection  proposals.  We  believe  that  the  draft  encoding  rules  proposed  to  the  Commission  are  an  essential  component  of  the  MOU  that  will  assure  the 
 commercial  availability  of  navigation  devices  and  strike  a  measured  balance  between  the  rights  of  content  owners  and  the  home  viewing  expectations  of  consumers.  Absent  adoption  of  these 
 encoding  rules,  the  cable  and  consumer  electronics  industries  have  indicated  that  the  compromise  agreement  reached  in  the  MOU  will  be  upset  and  their  efforts  to  produce  unidirectional  digital 
 cable  products  will  falter.  123  The  resulting  harm  would  directly  undermine  the  explicit  goal  of  Section  629,  to  assure  the  commercial  availability  of  navigation  devices.  We  therefore  conclude 
 that  adoption  of  the  proposed  encoding  rules  is  necessary  to  fulfill  our  mandate  under  Section  629. 


 48.  We  disagree  with  the  objections  raised  to  Commission  jurisdiction  under  Section  629.  MPAA,  which  opposes  FCC  jurisdiction  over  the  proposed  encoding  rules,  argued  prior  to 
 the  FNPRM  and  Declaratory  Ruling  that  copy  protection  is  integral  to  conditional  access  and  that  the  Commission  should  therefore  affirm  that  such  measures  can  be  required  in  host  devices.  124 


 118  Navigation  Devices  Order,  13  FCC  Rcd  at  14784-  86  ([  W]  e  believe  that  Section  629  is  intended  to 
 result  in  the  widest  possible  variety  of  navigation  devices  being  commercially  available  to  the  consumer.).  119 
 FNPRM  and  Declaratory  Ruling,  15  FCC  Rcd  at  18209.  120 
 Id.  at  18211.  121 
 Id.  at  18212.  122 
 Id.  at  18211  (footnote  omitted).  123 
 Cable/  CE  Letter  at  3;  MOU  at  1.  124 
 See  Letter  from  Fritz  Attaway,  Senior  Vice-  President,  Government  Relations,  MPAA,  to  Magalie  R.  Salas,  Secretary,  FCC  at  Attachment  (Sep.  6,  2000). 
22
 Federal  Communications  Commission  FCC  03-  225 
 23 
 MPAA  now  asserts  that  the  Commission  should  not  involve  itself  in  the  reasonableness  of  the  copy  protection  measures.  125  This  may  be  a  colorable  policy  argument,  but  it  does  not  bear  on  the 
 Commissions  statutory  authority. 
 49.  MPAA  also  contends  that  Section  629(  b)  prohibits  the  Commission  from  adopting  the  proposed  encoding  rules.  126  We  disagree.  Section  629(  b)  provides  that: 


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


 50.  We  interpret  the  statute  in  the  context  of  its  purpose.  We  believe  that  in  including  Section  629(  b)  s  Protection  of  System  Security  provision,  Congress  was  concerned  about 
 preventing  system  security  in  terms  of  theft  of  service,  that  is,  preventing  a  non-  subscriber  from  obtaining  unauthorized  access  to  multichannel  video  programming  or  other  services.  Section 
 629(  b)  is  expressly  directed  at  the  protection  of  system  security  and  the  prevention  of  theft  of  service.  128  The  legislative  history  likewise  indicates  Congress  focus  on  the  protection  of  system 
 security  and  theft  of  service.  129  There  is  nothing  in  either  the  statutory  language  or  the  legislative  history  to  suggest  that  Congress  intended  Section  629(  b)  to  extend  to  content  protection 
 technologies  for  programming  that  a  subscriber  properly  had  access  to. 
 51.  Unlike  the  copy  protection  technology  at  issue  in  the  FNPRM  and  Declaratory  Ruling,  which  was  directly  related  to  cable  operator  system  security  as  a  part  of  the  POD  and 


 POD-  Host  interface,  the  draft  encoding  rules  here  involve  the  encoding  of  content  to  activate  copy  protection  technologies  associated  with  device  outputs  and  connectors.  We  believe  that  to 
 the  extent  the  encoding  rules  relate  to  device  outputs  and  associated  content  protection  technologies,  they  do  not  implicate  theft  of  service  or  harm  to  network  concerns.  This  distinction 
 goes  to  the  heart  of  our  navigation  device  rules.  MVPDs  have  a  direct  interest  in  ensuring  that  a  consumers  right  to  attach  navigation  devices  to  their  system  does  not  result  in  theft  of  service  or 
 harm  to  the  MVPD  network.  130  Copy  protection,  however,  goes  to  the  question  of  what  end  users  may  do  with  content  legally  acquired  for  a  limited  use.  The  fact  that  device  outputs  and 
 associated  content  protection  technologies  do  not  implicate  theft  of  service  or  harm  to  network  concerns  permits  Commission  adoption  of  the  encoding  rules  and  would  not  run  afoul  of  Section 
 629(  b). 
 52.  Even  if  Section  629(  b)  applied  to  content  protection,  we  conclude  that  the  rules 


 125  MPAA  Comments  at  12-  13. 
 126  MPAA  Reply  Comments  at  9. 
 127  47  U.  S.  C.    549(  b). 
 128  Id.    549(  b). 
 129  See,  e.  g.,  H.  R.  Conf.  Rep.  No.  458,  104  th  Cong.,  2  nd  Sess.,  at  181  (1996)  (recognizing  that  cable   
 system  operators  have  a  valid  interest,  which  the  Commission  should  continue  to  protect,  in  system  or  signal  security  and  in  preventing  theft  of  service  and  therefore,  the  Commission  may  not  prescribe 


 regulations  which  would  jeopardize  signal  security  or  impede  the  legal  rights  of  a  provision  to  preempt  theft  of  service). 
 130  47  C.  F.  R.    76.1201. 
23
 Federal  Communications  Commission  FCC  03-  225 
 24 
 we  are  adopting  will  not  jeopardize  the  security  of  copyrighted  programming  or  impede  the  legal  rights  of  MVPDs  to  prevent  theft  of  programming.  As  discussed  above,  the  encoding  rules  are 
 not  directed  at  content  owners,  allowing  them  to  exercise  their  existing  statutory  rights  and  remedies  under  copyright  law.  MVPDs  retain  control  over  their  conditional  access  systems, 
 subject  to  the  separation  of  security  requirements  contained  in  our  navigation  device  rules.  In  interpreting  these  rules  in  the  General  Instrument  case,  the  D.  C.  Circuit  held  that  jeopardize 
 does  not  mean  that  any  increased  security  risk  is  barred  by  Section  629(  b);  rather,  a  petitioner  must  present  evidence  that  system  security  will  be  subject  to  serious  or  significant  danger.  131 
 The  record  lacks  any  substantive  evidence  that  would  meet  the  General  Instrument  standard.  Indeed,  because  the  encoding  rules  do  not  implicate  access  to  programming  or  services,  they  do 
 not  constitute  a  serious  or  significant  danger  within  the  meaning  of  Section  629(  b)  as  interpreted  by  General  Instruments. 


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


 54.  Although  some  commenters  argue  that  our  adoption  of  the  encoding  rules  would  impermissibly  involve  the  Commission  in  copyright  issues,  we  do  not  believe  this  to  be  the 
 case.  133  Communications  law  and  copyright  law  can  create  independent  rights    even  with  respect  to  the  distribution  of  the  same  content.  The  Commissions  syndicated  exclusivity  134 
 and  retransmission  consent  rules  each  create  sets  of  rights  and  limitations  that  exist  independent  of  the  underlying  copyrights.  135  In  the  instant  case,  the  encoding  rules  are  not  directed  at  the 
 copyright  owners,  but  rather  establish  certain  limits  on  the  technological  tools  used  by  MVPDs  to  distribute  content.  136  A  content  owners  rights  under  copyright  law,  as  well  as  determinations  of 
 what  constitutes  infringement  and  affirmative  defenses  such  as  fair  use,  are  set  by  statute  and  interpreted  on  a  fact-  specific  basis  by  the  courts.  137  We  nonetheless  recognize  that  the  line 


 131  General  Instrument,  213  F.  3d  at  731  (citing  definition  of  jeopardize  as  to  expose  to  danger  (as  of 
 imminent  loss,  defeat,  or  serious  harm):  IMPERIL).  132 
 See  47  U.  S.  C.    553.  133 
 See  MPAA  Comments  at  12-  13;  MPAA  Reply  Comments  at  8-  10;  NMPA  Reply  Comments  at  6  n.  9,  11-  17. 


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


 135  NCTA  Reply  Comments  at  48. 
 136  Id. 
 137  See,  e.  g.,  17  U.  S.  C.    107  (  fair  use);  Piracy  Prevention  and  the  Broadcast  Flag:  Before  the  House 
 Subcomm.  on  Courts,  the  Internet  and  Intellectual  Property,  Comm.  on  the  Judiciary,  4-  10  (Mar.  6,  2003)  (statement  of  Mary  Beth  Peters,  Register  of  Copyrights). 
24
 Federal  Communications  Commission  FCC  03-  225 
 25 
 separating  communications  law  and  copyright  law  is  not  always  a  clear  one.  As  the  United  Video  court  found  with  respect  to  cable  television,  the  1976  Congress  did  not  imagine  copyright  law 
 and  communications  law  to  be  two  islands,  separated  by  an  impassable  sea.  138  We  will  continue  to  be  sensitive  to  this  intricate  and  complex  issue  as  we  implement  Section  629. 


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


 138  United  Video,  890  F.  2d  at  1184. 
 139  47  U.  S.  C.    151,  152(  a),  154(  i),  303(  r).  Contrary  to  the  assertions  of  some  commenters,  the  recent 
 MPAA  v.  FCC  decision  does  not  restrict  our  ancillary  authority  here.  MPAA  v.  FCC,  309  F.  3d  796,  807  (D.  C.  Cir.  2002).  In  that  case,  the  court  found  that  the  Commission  lacked  authority  to  adopt  video 


 description  rules  because:  (1)  the  regulations  significantly  affected  program  content;  and  (2)  Congress  specifically  authorized  and  ordered  the  FCC  to  produce  a  report  on  video  description    nothing  more, 
 nothing  less.  Neither  of  these  conditions  applies  in  this  case.  Our  mandate  under  Section  629  specifically  requires  us  to  adopt  regulations  assuring  the  commercial  availability  of  navigation  devices.  Further,  the 
 encoding  rules  apply  to  the  distribution  of  content  rather  than  its  substance.  For  example,  the  caps  on  copy  protection  mechanisms  are  not  set  on  a  program-  by-  program  basis,  rather,  they  are  set  for  existing  and 
 future  business  models  which  represent  different  distribution  channels  by  which  programming  is  marketed.  This  structure  is  agnostic  as  to  the  content  of  programming    the  same  programming  could  be 
 distributed  by  various  business  models  and  in  each  instance  would  be  subject  to  a  different  copy  protection  cap  depending  on  the  applicable  distribution  model.  For  example,  a  movie  available  on  a  video-  on-  demand 
 service  could  be  encoded  copy  never,  but  the  same  movie  could  only  be  encoded  up  copy  one  generation  if  it  were  offered  on  a  non-  premium  subscription  service. 
 140  Id.    152(  a). 
 141  Id.    151. 
 142  See,  e.  g.,  United  States  v.  Southwestern  Cable  Co.,  392  U.  S.  157,  172  (1968)  ([  I]  t  was  precisely 
 because  Congress  wished  to  maintain,  through  appropriate  administrative  control,  a  grip  on  the  dynamic  aspects  of  radio  transmission  .  .  .  that  it  conferred  upon  the  Commission  a  unified  jurisdiction  and  broad 


 authority.)  (citations,  footnote  and  internal  quotations  omitted);  United  States  v.  Midwest  Video  Corp.,  406  U.  S.  649,  (1972)  (  Midwest  Video). 
 143  See,  e.  g.,  Midwest  Video,  406  U.  S.  at  667-  68  (  The  critical  question  .  .  .  is  whether  the  Commission  has 
 reasonably  determined  that  its  origination  rule  will  further  the  achievement  of  long-  established  regulatory  goals  in  the  field  of  television  broadcasting  .  .  .)  (citation  omitted). 
25
 Federal  Communications  Commission  FCC  03-  225 
 26 
 56.  In  addition  to  explicit  authority  under  Section  629  and  our  ancillary  jurisdiction  thereunder,  we  believe  that  adoption  of  the  encoding  rules  will  also  advance  the  policies 
 underlying  Section  624A  of  the  Communications  Act.  144  Section  624A  requires  the  Commission  to  issue  regulations  to  assure  the  compatibility  between  televisions  and  video  cassette  recorders 
 and  cable  systems  in  a  manner  consistent  with  the  need  to  prevent  theft  of  cable  service.  145  The  end  goal  is  to  ensure  that  cable  subscribers  will  be  able  to  enjoy  the  full  benefits  of  available 
 cable  programming  and  the  functionality  of  their  televisions  and  video  cassette  recorders.  146  To  accomplish  this  balancing  act,  Section  624A  directs  the  Commission  to  determine  whether  and, 
 if  so,  under  what  circumstances  to  permit  cable  systems  to  scramble  or  encrypt  signals  or  restrict  cable  systems  in  the  manner  in  which  they  encrypt  or  scramble  signals.  147 


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


 B.  Selectable  Output  Control 
 58.  As  proposed  to  the  Commission,  the  draft  rules  would  prohibit  MVPDs  from  encoding  or  otherwise  modifying  audiovisual  content  so  as  to  activate  selectable  output  control, 


 which  is  the  ability  to  remotely  shut  off  a  particular  output  or  connector  on  a  program-  by-program  basis,  thereby  funneling  content  through  other  authorized  outputs.  151  Advocates  of  this 
 technology  argue  that  it  is  a  useful  tool  to  address  potential  piracy  concerns  because  it:  (1)  allows  MVPDs  to  respond  in  cases  where  protected  digital  outputs  have  been  compromised;  and  (2) 
 permits  content  to  be  directed  away  from  unprotected  high-  resolution  analog  (  component 


 144  47  U.  S.  C.    544A. 
 145  See  id.  544A(  b)(  1). 
 146  See  id.  544A(  b)(  1). 
 147  Id.    544A(  b)(  2). 
 148  See  e.  g.,  EchoStar  Reply  Comments  at  5-  6. 
 149  DBS  service  was  launched  commercially  in  1994,  two  years  after  Section  624A  was  adopted.  See  In  the 
 Matter  of  Policies  and  Rules  for  the  Direct  Broadcast  Satellite  Service,  17  FCC  Rcd  11331,  11335  (2002).  See  also  In  the  Matter  of  Annual  Assessment  of  the  Status  of  Competition  in  the  Market  for  the  Delivery  of 


 Video  Programming,  17  FCC  Rcd  26901,  26975  (2002)  (DBS  serves  approximately  20%  of  MVPD  marketplace). 
 150  MCCA  v.  FCC,  77  F.  3d  1399,  1404-  07  (1996)  (upholding  Commission  authority  under  Section  4(  i)  to 
 require  pioneers  preference  holder  to  pay  discounted  price,  rather  than  no  payment,  in  order  to  preserve  market  fairness,  given  competitiors  would  be  required  to  buy  license  at  auction). 


 151  Draft  Encoding  Rules  at  5;  see  CEA/  CERC  Comments  at  18. 
26
 Federal  Communications  Commission  FCC  03-  225 
 27 
 analog)  outputs  152 
 59.  Critics  of  selectable  output  control,  including  consumer  electronics  interests,  contend  that  it  is  an  ad  hoc  imposition  on  consumers  that  must  be  prohibited  to  ensure  the 


 functionality  of  unidirectional  digital  cable  products.  153  Consumer  groups  agree  that  selectable  output  control  should  be  prohibited,  particularly  since  it  could  harm  the  marketability  of 
 recordable  digital  interfaces  in  favor  of  non-  recordable  ones.  154  The  cable  industry  further  advocates  that  the  proposed  ban  apply  to  all  MVPDs  in  order  to  ensure  a  level  playing  field  in 
 negotiations  for  premium  content  acquisition.  155 
 60.  The  issue  of  selectable  output  control    like  the  issue  of  down-  resolution  discussed  below    involves  a  difficult  balancing  of  interests.  On  one  hand,  we  recognize  content 


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


 61.  We  conclude  that  at  present  the  balance  tips  in  favor  of  prohibiting  the  use  of  selectable  output  control  by  MVPDs  and  hereby  adopt  the  prohibition  as  set  forth  in  Appendix  B. 
 We  also  believe  that  the  ban  on  selectable  output  control  logically  should  apply  uniformly  to  all 


 152  MPAA  Reply  Comments  at  13-  15.  MPAA  has  disclaimed  an  interest  in  using  selectable  output  control 
 to  choose  among  protected  digital  connectors  like  1394/  5C  and  DVI/  HDCP: 
 Although  the  concept  of  selectable  output  controls  was  discussed  a  few  years  back  in  the  5C  license  discussions,  MPAA  and  its  member  companies  are  not  seeking  in  the  5C  license  or  in  the 


 OpenCable  PHILA  context  the  ability  to  turn  off  the  1394/  5C  digital  interconnect  in  favor  of  a  DVI/  HDCP  interconnect  through  a  selectable  output  control  mechanism. 


 Letter  from  Fritz  E.  Attaway,  Senior  Vice  President  Government  Relations,  MPAA,  to  Chairman  W.  J.  Tauzin,  House  Committee  on  Energy  and  Commerce  and  Chairman  Fred  Upton,  House  Subcommittee  on 
 Telecommunications  and  the  Internet  (Mar.  20,  2002)  (emphasis  in  original).  153 
 See  CEA/  CERC  Reply  Comments  at  10.  154 
 EFF  Reply  Comments  at  10-  11;  HRRC  Comments  at  6-  10.  155 
 Comcast  Comments  at  13-  14;  Comcast  Reply  Comments  at  9;  NCTA  Reply  Comments  at  15.  156 
 CEA/  CERC  Reply  Comments  at  18.  157 
 See  Section  VII. 
27
 Federal  Communications  Commission  FCC  03-  225 
 28 
 MVPDs  in  order  to  ensure  that  consumer  expectations  are  not  unreasonably  frustrated  regardless  of  the  MVPD  platform  to  which  they  subscribe.  A  prohibition  is  also  necessary  to  ensure  the 
 DTV  transition  is  able  to  proceed  in  an  expeditious  manner  without  concerns  over  connectivity  and  functionality  forestalling  digital  equipment  acquisition.  We  nonetheless  recognize  that 
 selectable  output  control  functionality  might  have  future  applications  that  could  potentially  be  advantageous  to  consumers,  such  as  facilitating  new  business  models,  158  and  will  consider 
 waivers,  petitions  or  other  proposals  to  use  selectable  output  control  in  this  regard.  For  this  reason,  we  do  not  prohibit  the  inclusion  in  devices  of  the  capability  to  exercise  selectable  output 
 control,  only  the  current  use  of  such  capability  by  MVPDs.  159 
 C.  Down-  resolution 
 62.  The  ability  of  MVPDs  to  constrain  content  resolution  when  output  from  consumer  electronics  devices,  also  called  down-  resolution,  refers  to  the  ability  to  degrade  the 


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


 63.  As  a  result  of  their  negotiations  over  the  MOU,  the  consumer  electronics  and  cable  industries  reached  an  agreement  that  broadcast  programming  should  not  be  subject  to 
 down-  resolution,  but  made  no  recommendation  to  the  Commission  on  the  issue  of  how  other  MVPD  programming  should  be  treated.  165  The  cable  industry  expresses  its  concern  that  content 


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


 159  Parties  have  noted  that  this  may  involve  changes  in  the  model  DFAST  license. 
 160  CEA/  CERC  Comments  at  20. 
 161  Id. 
 162  CFA  Reply  Comments  at  5-  6;  EFF  Reply  Comments  at  10-  11;  HRRC  Comments  at  6-  10;  HRRC  Reply 
 Comments  at  9-  10,  17;  PK  &  CU  Comments  at  4-  5,  10,  16-  17.  163 
 NCTA  Reply  Comments  at  3.  164 
 DIRECTV  Comments  at  7;  MPAA  Reply  Comments  at  13-  15.  165 
 Draft  Encoding  Rules  at  5. 
28
 Federal  Communications  Commission  FCC  03-  225 
 29 
 providers  will  not  make  high  value  non-  broadcast  content  available  unless  MVPDs  can  lower  its  resolution  over  component  analog  outputs  and  suggests  that  the  Commission  should  evaluate  the 
 resulting  impact  upon  consumers  when  making  a  determination  on  this  issue.  166  To  the  extent  that  the  Commission  determines  that  permitting  the  down-  resolution  of  high  value  non-  broadcast 
 content  delivered  over  analog  outputs  is  the  only  means  of  assuring  that  such  content  will  be  made  available  to  MVPDs  and  consumers,  the  cable  industry  would  support  adoption  of  rules  to 
 that  effect.  167  In  contrast,  HRRC  and  CEA  join  consumer  groups  in  advocating  a  complete  ban  on  down-  resolution,  including  non-  broadcast  content,  to  ensure  that  consumers  are  able  to  fully 
 enjoy  the  high  definition  capabilities  of  their  consumer  electronics  equipment.  168 
 64.  The  issue  of  down-  resolution  involves  a  similar  balancing  of  interests  to  selectable  output  control,  although  in  this  instance  consumers  with  analog  outputs  on  their 


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


 D.  Limits  on  Copy  Protection  Encoding 
 65.  The  final  component  of  the  proposed  encoding  rules  is  comprised  of  caps  on  the 


 166  NCTA  Comments  at  26;  Comcast  Comments  at  6-  7,  n.  7. 
 167  NCTA  Comments  at  26-  27;  Comcast  Comments  at  6-  7,  n.  7. 
 168  CEA/  CERC  Comments  at  19-  20;  CEA/  CERC  Reply  Comments  at  22;  HRRC  Comments  at  6-  10; 
 HRRC  Reply  Comments  at  9-  10,  17;  CFA  Reply  Comments  at  5-  6;  EFF  Reply  Comments  at  10-  11;  PK  &  CU  Comments  at  4-  5,  10,  16-  17;  see  Letter  from  Robert  Schwartz,  Counsel  to  HRRC,  McDermott,  Will  & 


 Emery,  to  Marlene  Dortch,  Secretary,  FCC  (July  29,  2003).  169 
 MPAA  Comments  at  11-  12;  NCTA  Comments  at  26.  170 
 MVPD  down-  conversion  of  digital  programming  in  connection  with  mandatory  carriage  rules  is  outside  the  scope  of  this  proceeding.  The  relationship  between  the  encoding  and  the  must  carry  rules  will  be 


 addressed  as  needed  in  our  Carriage  of  the  Transmission  of  Digital  Television  Broadcast  Stations  proceeding  in  Docket  Nos.  CS  98-  120,  00-  96  and  00-  2. 
 171  Our  prohibition  on  the  down-  resolution  of  broadcast  programming  is  not  intended  to  prohibit  the 
 inclusion  of  this  functionality  in  devices.  Parties  have  noted  that  this  may  involve  changes  in  the  model  DFAST  license. 
29
 Federal  Communications  Commission  FCC  03-  225 
 30 
 level  of  copy  protection  that  may  apply  to  various  categories  of  MVPD  programming.  172  These  proposed  caps  do  not  obligate  the  encoding  of  programming  with  copy  restrictions,  nor  do  they 
 prescribe  a  specific  level  of  copy  protection  for  particular  programs.  MVPDs  would  remain  free  to  negotiate  with  content  providers  for  any  level  of  encoding  that  falls  below  or  is  equal  to  the 
 applicable  cap  for  the  relevant  programming  category,  which  is  referred  to  in  the  draft  rules  as  a  Defined  Business  Model.  173  The  defined  business  models  and  corresponding  copy  protection 
 caps  proposed  in  the  draft  rules  include: 
 (1)  Unencrypted  broadcast  television    no  copy  restrictions  may  be  imposed; 
 (2)  Pay  television,  non-  premium  subscription  television,  and  free  conditional  access  delivery  transmissions    one  generation  of  copies  is  the  most  stringent  restriction 


 that  may  be  imposed;  and 
 (3)  VOD,  PPV,  or  Subscription-  on-  Demand  transmissions    no  copies  is  the  most  stringent  restriction  that  may  be  imposed,  however,  even  when  no  copies  are 


 allowed,  such  content  may  be  paused  up  to  90  minutes  from  its  initial  transmission.  174 


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


 67.  The  proposed  rules  also  contemplate  a  process  by  which  MVPDs  could  seek  encoding  classification  for  new  program  offerings  that  do  not  fall  under  the  defined  business 
 models.  180  Concurrent  with  the  launch  of  such  an  offering,  which  is  referred  to  in  the  draft  rules  as  an  Undefined  Business  Model,  an  MVPD  would  provide  public  notice  of  the  new  offering  and  its 


 172  Draft  Encoding  Rules  at  1-  10. 
 173  Id.  at  2,  5. 
 174  Draft  Encoding  Rules  at  5. 
 175  Id.  at  6. 
 176  Id.  at  5-  7. 
 177  Id. 
 178  Id.  at  10. 
 179  Id.  at  7. 
 180  Id.  at  8-  10. 
30
 Federal  Communications  Commission  FCC  03-  225 
 31 
 proposed  encoding  terms  to  the  PR  Newswire.  181  Within  two  years  of  the  publication  of  this  notice  and  following  attempts  at  pre-  complaint  resolution,  another  MVPD  or  a  consumer  electronics 
 manufacturer  could  file  a  complaint  with  the  Commission  objecting  to  the  proposed  encoding  classification.  182  This  complaint  process  would  be  subject  to  public  notice  and  comment  and  place 
 the  burden  of  proof  on  the  undefined  business  model  proponent  to  establish  that  the  proposed  encoding  terms  are  in  the  public  interest.  183  In  making  its  determination  resolving  the  complaint, 
 the  Commission  would  be  required  to  consider  consumer  interests  among  other  factors.  184 
 68.  Critics  of  the  proposed  encoding  caps  express  concern  over:  (1)  the  effect  on  innovation  resulting  from  the  creation  of  FCC  rules  in  this  area;  185  (2)  their  applicability  to  non-cable 


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


 69.  The  proposed  encoding  caps  themselves  closely  track  those  adopted  by  Congress  in  the  analog  context  in  Section  1201(  k)  of  the  Digital  Millennium  Copyright  Act  (  DMCA),  with 
 certain  subsequent  industry-  negotiated  modifications  taken  from  the  5C  technology  license.  190  While  MPAA  challenges  the  use  of  Section  1201(  k)  and  the  private  5C  license  as  models  in  this 
 instance,  the  record  reflects  that  some  MPAA  member  studios  have  acceded  to  the  license  and  that  the  rules  contained  therein  reflect  a  marketplace-  developed  paradigm  for  approaching  copy 
 protection  in  the  digital  realm.  191  In  approving  the  proposed  encoding  caps,  however,  we  do  not  rely 


 181  Id.  at  8.  The  PR  Newswire  is  an  independent  organization  that  provides  news  targeting,  distribution  and 
 measurement  services  in  135  countries.  See  <www.  prnewswire.  com>.  182 
 Draft  Encoding  Rules  at  8.  183 
 Id.  at  9.  184 
 Id.  at  9-  10.  185 
 CFA  Reply  Comments  at  4-  5;  MPAA  Comments  at  3-  9;  MPAA  Reply  Comments  at  2-  5,  10;  NMPA  Comments  at  3-  9;  PK  &  CU  Comments  at  3-  8;  Veridian  Reply  Comments  at  2-  3. 


 186  DIRECTV  Comments  at  4-  6;  EchoStar  Reply  Comments  at  5;  MPAA  Reply  Comments  at  11-  13. 
 187  Intel  Comments  at  12;  ATI  Technologies,  et  al.  Comments  at  7-  9  (  IT  Comments). 
 188  Starz  Encore  Comments  at  3-  20;  Starz  Encore  Reply  Comments  at  2-  6;  HBO  Reply  Comments  at  2-  8. 
 189  CEA/  CERC  Reply  Comments  at  8-  9;  NCTA  Reply  Comments  at  12-  14;  EFF  Reply  Comments  at  3-  4; 
 PK  &  CU  Reply  Comments  at  8.  190 
 See  17  U.  S.  C.    1201(  k);  CEA/  CERC  Comments  at  14-  18.  The  primary  difference  between  the  DMCA  and  proposed  encoding  caps  is  the  treatment  of  non-  premium  subscription  programming  (also  referred  to  in 


 the  cable  industry  as  the  extended  basic  tier)  which  may  carry  a  restriction  of  up  to  one  generation  of  copies  rather  than  no  copy  protection  encoding  as  required  by  the  DMCA.  Starz  Encore  Reply  Comments  at  4. 
 191  See  MPAA  Comments  at  9;  NCTA  Reply  Comments  at  15-  16. 
31
 Federal  Communications  Commission  FCC  03-  225 
 32 
 merely  on  the  DMCA  or  5C  for  precedent,  but  also  on  the  strength  of  the  underlying  record  in  this  proceeding.  As  discussed  below,  the  only  substantive  comments  received  with  respect  to  the 
 specific  caps  proposed  in  the  draft  rules  relates  to  the  treatment  of  SVOD  service.  192  The  lack  of  objection  in  our  record  to  the  proposed  defined  business  models  classifications,  when  combined 
 with  their  use  in  private  licensing  regimes  and  their  earlier  adoption  in  the  analog  context  by  Congress  in  the  DMCA,  militates  in  favor  of  their  adoption  here. 


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


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


 72.  Several  commenters  also  question  the  specific  petition  procedures  proposed  for  reclassification  of  new  services  within  defined  business  models  and  the  initial  classification  of 


 192  While  TiVo  does  not  object  to  a  particular  encoding  cap,  it  does  challenge  the  limitation  on  pausing  or 
 caching  content  for  90  minutes  under  the  copy  never  classification.  TiVo  Comments  at  7-  9.  In  a  similar  vein,  EchoStar  and  DIRECTV  question  whether  the  encoding  rules  would  limit  personal  video  recorder 


 (  PVR)  and  VOD  functionality  absent  an  exception  allowing  the  download  and  temporary  caching  of  content  for  these  services.  Letter  from  Eddy  Hartenstein,  DIRECTV,  and  Charles  Ergen,  EchoStar,  to 
 Michael  Powell,  Chairman,  FCC  (Sept.  3,  2003).  We  concur,  however,  with  HRRC  and  NCTA,  which  argue  that  a  90  minute  pause  functionality  is  a  reasonable  accommodation  that  preserves  both  PVR 
 functionality  and  copy  protection  effectiveness.  HRRC  Reply  Comments  at  5-  6;  NCTA  Reply  Comments  at  21.  We  also  note  that  the  draft  encoding  rules  specifically  permit  the  encoding,  storing  or  management 
 of  content  within  devices  under  an  MVPDs  control  so  long  as  the  intent  of  the  encoding  rules  is  not  undermined.  See  Draft  Encoding  Rules  at  10.  We  believe  that  this  exemption  provides  sufficient 
 flexibility  for  MVPDs  to  offer  services  such  as  PVR  and  VOD  where  the  downloading  or  temporary  caching  of  content  within  MVPD-  controlled  devices  is  needed. 
 193  CFA  Reply  Comments  at  4-  5;  MPAA  Comments  at  3-  9 
 194  Draft  Encoding  Rules  at  6-  10. 
 195  DIRECTV  Comments  at  4-  9;  EchoStar  Reply  Comments  at  5;  MPAA  Reply  Comments  at  11-  13. 
32
 Federal  Communications  Commission  FCC  03-  225 
 33 
 undefined  business  models,  including  the  bona  fide  trial  exception.  196  Absent  direction  from  Congress  on  the  appropriate  encoding  classification  of  new  services  within  defined  business  models 
 and  undefined  business  models,  we  believe  that  these  procedures  provide  an  appropriate  framework  to  make  such  determinations.  We  conclude  that  the  petition  procedures  outlined  in  the  draft  rules 
 are  preferable  to  rulemaking  procedures  as  they  will  promote  timely  decisions  while  preserving  the  opportunity  for  public  notice  and  comment  on  the  proposed  classifications.  197  We  will,  however, 
 modify  these  procedures  to  allow  any  party  to  file  a  complaint  regarding  the  initial  encoding  classification  by  an  MVPD  of  undefined  business  models.  In  addition,  we  believe  that  the  bona 
 fide  trial  exception  as  proposed  provides  an  appropriate  amount  of  flexibility  for  MVPDs  in  testing  new  services  and  preserves  their  ability  to  launch  such  services  without  advance  disclosure  to 
 competitors.  To  the  extent  that  a  particular  MVPD  abuses  the  trial  exception,  the  draft  rules  contemplate  a  complaint  process  by  which  competitors  could  object  to  the  Commission. 


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


 74.  We  concur  with  HBO  that  there  appear  to  be  differences  between  its  service  and 
 196  IT  Comments  at  7-  9;  DIRECTV  Comments  at  8-  9;  Intel  Comments  at  12. 
 197  See  SEC  v.  Chenery  Corp.,  332  U.  S.  194,  203  (1947)  (making  clear  that  choice  made  between 
 proceeding  by  rulemaking  or  by  adjudication  lies  primarily  in  the  informed  discretion  of  the  administrative  agency). 


 198  Starz  Encore  Comments  at  3-  20;  Starz  Encore  Reply  Comments  at  2-  6. 
 199  Starz  Encore  Comments  at  10. 
 200  Starz  Encore  Reply  Comments  at  2-  4. 
 201  HBO  Reply  Comments  at  2-  8. 
 202  Id.  at  5-  6. 
 203  Id.  at  7. 
 204  Id. 
 205  Id.  at  8. 
33
 Federal  Communications  Commission  FCC  03-  225 
 34 
 that  offered  by  Starz  Encore,  notwithstanding  the  fact  that  they  both  fall  within  the  SVOD  rubric.  Indeed,  SVOD  is  a  nascent  service  that  was  not  contemplated  by  Congress  when  it  adopted  Section 
 1201(  k)  of  the  DMCA.  206  We  anticipate  that  SVOD  will  grow  and  evolve  to  a  significant  degree  and  that  other  forms  of  this  service,  including  those  different  than  that  offered  by  Starz  Encore  and 
 HBO,  will  emerge  in  the  near  future.  For  this  reason,  we  decline  to  classify  SVOD  as  a  defined  business  model  and  will  allow  MVPDs  to  treat  both  existing  and  future  SVOD  program  offerings  as 
 undefined  business  models.  Under  the  encoding  classification  procedures  applicable  to  undefined  business  models,  MVPDs  will  have  discretion  to  determine  whether  specific  SVOD  offerings  merit 
 different  encoding  terms,  subject  to  any  complaints  raised  before  the  Commission.  We  conclude  that  this  treatment  allows  SVOD  to  more  fully  develop  as  a  program  offering  in  the  marketplace  and 
 will  afford  MVPDs  more  flexibility  in  the  encoding  of  different  forms  of  this  service. 
 VI.  DFAST  LICENSE 
 75.  In  addition  to  the  regulatory  proposals  accompanying  the  MOU,  the  cable  and  consumer  electronics  industries  provided  a  model  DFAST  license  to  the  Commission.  207  The 


 MOU  proponents  did  not  seek  regulatory  approval  for  the  license,  but  rather  supplied  it  to  the  Commission  for  informational  purposes.  This  document  governs  the  licensing  terms  for  the 
 DFAST  scrambling  technology  needed  to  manufacture  the  POD-  Host  interface  component  of  unidirectional  digital  cable  products.  This  license  differs  from  its  predecessor,  the  POD  Host 
 Interface  Licensing  Agreement  (  PHILA),  in  that  it  does  not  contain  certification  procedures  and  encoding  rules    elements  otherwise  encompassed  in  the  regulatory  proposals  made  to  the 
 Commission.  For  this  reason,  the  MOU  indicated  that  the  DFAST  license  is  contingent  upon  Commission  approval  of  the  draft  technical  and  encoding  rules  in  substantially  the  same  form  as 
 proposed  to  the  Commission.  208  Our  discussion  of  the  model  DFAST  license  herein  is  not  intended  to  reflect  a  review  or  an  approval  of  its  terms.  The  model  license  does,  however, 
 reference  FCC  oversight  in  two  key  regards:  (1)  changes  to  the  licenses  compliance  and  robustness  rules,  and  (2)  approvals  of  new  connectors  and  associated  content  protection 
 technologies.  209  Below  we  discuss  our  role  in  these  areas. 
 A.  Compliance  and  Robustness  Rules 
 76.  The  model  DFAST  license  sets  forth  procedures  by  which  CableLabs  may  change  its  compliance  and  robustness  rules,  including  notice  to  licensees  and  a  process  by  which 


 licensees  can  object  to  the  proposed  changes.  210  These  procedures  anticipate  that  a  licensee  may  seek  review  of  the  proposed  change  by  the  Commission  within  60  days  following  notice  of  the 
 change.  211  The  DFAST  license  calls  for  the  Commission  to  expeditiously  determine  whether  the  proposed  change  serves  the  public  interest,  taking  into  account  its  effect  on  consumers, 
 [l]  icensees  and  [c]  able  [o]  perators;  competition,  innovation,  developments  in  technology;  and  the  need  to  protect  [content].  212  We  hereby  clarify  that,  to  the  extent  a  DFAST  licensee  seeks 


 206  See  17  U.  S.  C.    1201(  k). 
 207  Draft  DFAST  License  at  1-  37. 
 208  MOU  at  1. 
 209  Draft  DFAST  License  at  8-  9,  21,  24. 
 210  Id.  at  8. 
 211  Id. 
 212  Id. 
34
 Federal  Communications  Commission  FCC  03-  225 
 35 
 Commission  review  of  proposed  changes  to  the  compliance  and  robustness  rules,  we  will  consider  such  petitions  on  a  case-  by-  case  basis  pursuant  to  our  normal  procedures  and  timing 
 under  Section  76.7  of  the  Commissions  rules.  213 
 B.  Approval  of  New  Outputs  and  Associated  Content  Protection  Technologies 
 77.  As  in  the  case  of  the  compliance  and  robustness  rules,  the  DFAST  license  reserves  for  the  Commission  an  appellate  role  in  overseeing  initial  determinations  by  CableLabs 


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


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


 79.  To  ensure  that  innovation  is  not  impeded  while  this  Second  FNPRM  is  pending  before  the  Commission,  we  are  adopting  an  interim  policy  by  which  CableLabs  may  make  initial 
 determinations  regarding  the  use  of  new  output  or  content  protection  technologies,  subject  to  Commission  review  when  disputes  arise.  Any  interested  party,  including  but  not  limited  to 
 consumer  electronics  manufacturers,  content  providers,  information  technology  companies  or  consumers,  may  appeal  an  initial  decision  by  CableLabs  to  the  Commission.  CableLabs  shall 
 bear  the  burden  of  proof  that  its  initial  determination,  whether  an  approval  or  disapproval,  was  justified.  In  any  responsive  pleading  to  an  appeal  before  the  Commission,  CableLabs  will  specify 
 each  of  the  objective  criteria  used  to  evaluate  the  proposed  output  and  copy  protection  technology  and  articulate  in  detail  how  such  proposed  output  and  copy  protection  technology  met  or  failed  to 
 meet  each  of  the  criteria.  Should  CableLabs  disapprove  a  particular  output  or  content  protection  technology,  we  expect  that  CableLabs  will  articulate  in  detail  the  reasons  for  its  disapproval.  The 
 Commission  will  review  de  novo  both  the  reasonableness  and  necessity  of  the  objective  criteria, 


 213  See  47  C.  F.  R.    76.7. 
 214  Draft  DFAST  License  at  21,  24. 
 215  Id.  at  21. 
 216  Id. 
35
 Federal  Communications  Commission  FCC  03-  225 
 36 
 as  well  as  CableLabs  application  thereof  to  the  proposal  under  consideration.  217  We  clarify  that  parties  seeking  Commission  review  may  file  a  petition  for  special  relief  pursuant  to  our  normal 
 procedures  under  Section  76.7  of  the  Commissions  rules.  218  The  Commission  will  address  such  petitions  on  an  expedited  basis.  In  the  event  that  the  security  of  a  connector  or  content  protection 
 technology  should  be  compromised  while  this  interim  policy  is  in  effect,  we  will  consider  petitions  for  revocation  pursuant  to  our  normal  Section  76.7  procedures.  219  Parties  seeking 
 revocation  should  articulate  in  detail  the  extent  to  which  the  connector  or  content  protection  technology  has  been  compromised  and  demonstrate  why  alternative  revocation  measures,  such  as 
 those  available  under  private  licenses,  are  insufficient  to  address  the  breach  in  security. 
 VII.  SECOND  FURTHER  NOTICE  OF  PROPOSED  RULEMAKING 
 80.  Although  we  believe  that  our  adoption  of  the  technical,  labeling  and  encoding  rules  set  forth  herein  will  further  the  digital  transition  and  facilitate  the  wider  availability  of 


 digital  cable  services  to  consumers,  further  comment  is  needed  on  several  issues.  As  an  initial  matter,  we  seek  comment  on  whether  the  transmission  standards  applicable  to  digital  cable 
 systems  with  an  activated  channel  capacity  of  750  MHz  or  greater  should  be  extended  to  digital  cable  systems  with  an  activated  channel  capacity  of  550  MHz  or  greater.  In  particular,  we  seek 
 comment  on  the  potential  cost  impact  on  such  cable  systems  and  whether  waivers  or  other  relief  mechanisms  are  appropriate  for  cable  systems  that  might  experience  economic  hardship  as  a 
 result  of  these  obligations. 
 81.  With  respect  to  the  issue  of  consumer  information  disclosures,  we  seek  comment  on  whether  the  Commission  should  require  consumer  electronics  manufacturers  to  provide 


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


 82.  Another  area  in  which  we  seek  additional  comment  relates  to  the  down-resolution  of  non-  broadcast  MVPD  programming.  As  discussed  above,  content  providers  assert 
 that  down-  resolution  is  a  necessary  tool  to  incite  the  retirement  of  component  analog  outputs.  220  Despite  this  assertion,  the  cable  and  consumer  electronics  industries  have  been  unable  to  reach 
 agreement  on  whether  down-  resolution  was  an  appropriate  content  protection  tool.  221  We  seek 
 217  Should  the  Commission  discover  evidence  of  anticompetitive  behavior  relating  to  the  approval  process 
 for  new  outputs  or  content  protection  technologies,  whether  it  involves  a  denial  or  a  failure  to  make  a  determination  by  the  decision-  making  entity,  we  will  refer  the  matter  to  the  appropriate  antitrust  authority 


 for  investigation  and  take  any  other  appropriate  action.  218 
 See  47  C.  F.  R.    76.7.  219 
 Id.  220 
 See  MPAA  Reply  Comments  at  13-  15.  221 
 See  Section  V.  C  supra. 
36
 Federal  Communications  Commission  FCC  03-  225 
 37 
 comment  on  whether  the  Commission  should  prohibit  the  activation  by  MVPDs  of  down-resolution  for  non-  broadcast  MVPD  programming  content.  If  so,  we  seek  comment  on  the 
 potential  impact  of  such  a  ban  on  the  availability  of  high  value  digital  content  to  consumers.  In  the  alternative,  if  the  Commission  were  to  permit  the  use  of  down-  resolution  in  this  manner,  we 
 seek  comment  on  the  potential  impact  on  consumers  with  DTV  equipment  that  only  has  component  analog  outputs.  In  particular,  we  seek  comment  on  the  number  of  consumers  that 
 might  be  affected  and  on  the  number  of  sets  to  be  produced  in  the  future  with  only  analog  outputs.  Finally,  we  seek  comment  on  the  potential  impact  of  down-  resolution  upon  consumers 
 who  own  DTV  equipment  with  both  digital  and  analog  outputs. 
 83.  As  discussed  above,  we  are  concerned  that  because  CableLabs  is  not  a  standards-setting  body,  its  proposed  role  as  the  sole  initial  arbiter  of  outputs  and  associated  content 


 protection  technologies  to  be  used  in  unidirectional  digital  cable  products  could  affect  innovation  and  interoperability.  This  Second  FNPRM  seeks  comment  on  whether  standards  and  procedures 
 should  be  adopted  for  the  approval  of  new  connectors  or  content  protection  technologies  to  be  used  with  unidirectional  digital  cable  televisions  and  products.  If  so,  we  seek  comment  on 
 whether  these  standards  and  procedures  should  encompass  other  related  consumer  electronics  equipment,  including  non-  cable  compatible  DTV  receivers.  222  We  also  seek  comment  on  the 
 various  types  of  content  protection  technologies  that  should  be  considered  as  a  part  of  this  process,  including  but  not  limited  to  digital  rights  management,  wireless  and  encryption-  based 
 technologies. 
 84.  With  respect  to  the  particular  standards  and  procedures  to  be  employed,  we  seek  comment  on  whether  objective  criteria  should  be  used  to  evaluate  new  connectors  and  content 


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


 85.  We  also  seek  comment  on  whether  CableLabs  is  the  appropriate  entity  to  make  initial  approval  determinations,  or  whether  another  entity  should  have  decision-  making  authority. 
 In  particular,  we  seek  comment  on  whether  the  Commission,  a  qualified  third  party,  or  an  independent  entity  representing  various  industry  and  consumer  interests  should  make  approval 
 determinations. 
 86.  As  to  the  issue  of  how  approved  connectors  or  content  protection  technologies  may  be  revoked  should  their  security  be  compromised,  we  seek  comment  on  the  appropriate 


 standard  for  revocation.  Specifically,  we  seek  comment  on  whether  revocation  is  appropriate 


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


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


 224  See  e.  g.,  Comments  of  Philips  Electronics  North  America  Corporation  and  Comments  of  the  IT 
 Coalition,  filed  in  MB  Docket  No.  02-  230. 
37
 Federal  Communications  Commission  FCC  03-  225 
 38 
 where  a  connector  or  content  protection  technology  is  perceived  to  be  insecure,  or  whether  the  appropriate  standard  is  where  security  has  been  compromised  in  a  significant,  widespread 
 manner.  Once  a  connector  or  content  protection  technology  has  been  revoked,  we  seek  comment  on  the  appropriate  mechanism  by  which  revocation  should  be  effectuated.  For  example,  should 
 revoked  connectors  or  content  protection  technologies  be  eliminated  on  a  going-  forward  basis,  while  preserving  their  functionality  for  existing  devices?  We  also  seek  comment  on  whether 
 there  are  technological  or  other  means  of  revoking  connectors  or  content  protection  technologies  while  preserving  the  functionality  of  consumer  electronics  devices. 


 VIII.  PROCEDURAL  MATTERS 
 87.  Authority.  This  Second  Further  Notice  of  Proposed  Rulemaking  is  issued  pursuant  to  authority  contained  in    Sections  1,  4(  i)  and  (j),  303,  403,  601,  624A  and  629  of  the 


 Communications  Act  of  1934,  as  amended. 
 88.  Ex  Parte  Rules    Non-  Restricted  Proceeding.  This  is  a  non-  restricted  notice  and  comment  rulemaking  proceeding.  Ex  parte  presentations  are  permitted,  except  during  the 


 Sunshine  Agenda  period,  provided  that  they  are  disclosed  as  provided  in  the  Commissions  Rules.  See  generally  47  C.  F.  R.    1.1202,  1.1203,  and  1.1206(  a). 


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


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


 91.  Comments  filed  through  the  ECFS  can  be  sent  as  an  electronic  file  via  the  Internet  to  <http://  www.  fcc.  gov/  e-  file/  ecfs.  html>.  Generally,  only  one  copy  of  an  electronic 
 submission  must  be  filed.  If  multiple  docket  or  rulemaking  numbers  appear  in  the  caption  of  this  proceeding,  however,  commenters  must  transmit  one  electronic  copy  of  the  comments  to  each 
 docket  or  rulemaking  number  referenced  in  the  caption.  In  completing  the  transmittal  screen,  commenters  should  include  their  full  name,  U.  S.  Postal  Service  mailing  address,  and  the 
 applicable  docket  or  rulemaking  number.  Parties  may  also  submit  an  electronic  comment  by  Internet  e-  mail.  To  get  filing  instructions  for  e-  mail  comments,  commenters  should  send  an  e-mail 
 to  ecfs@  fcc.  gov,  and  should  include  the  following  words  in  the  body  of  the  message,  "get  form  <your  e-  mail  address>."  A  sample  form  and  directions  will  be  sent  in  reply.  Parties  who 
 choose  to  file  by  paper  must  file  an  original  and  four  copies  of  each  filing.  If  more  than  one  docket  or  rulemaking  number  appear  in  the  caption  of  this  proceeding,  commenters  must  submit 
 two  additional  copies  for  each  additional  docket  or  rulemaking  number.  Filings  can  be  sent  by  hand  or  messenger  delivery,  by  commercial  overnight  courier,  or  by  first-  class  or  overnight  U.  S. 
 Postal  Service  mail  (although  we  continue  to  experience  delays  in  receiving  U.  S.  Postal  Service  mail).  The  Commission's  contractor,  Natek,  Inc.,  will  receive  hand-  delivered  or  messenger-delivered 
 paper  filings  for  the  Commission's  Secretary  at  236  Massachusetts  Avenue,  N.  E.,  Suite  110,  Washington,  D.  C.  20002.  The  filing  hours  at  this  location  are  8:  00  a.  m.  to  7:  00  p.  m.  All 
38
 Federal  Communications  Commission  FCC  03-  225 
 39 
 hand  deliveries  must  be  held  together  with  rubber  bands  or  fasteners.  Any  envelopes  must  be  disposed  of  before  entering  the  building.  Commercial  overnight  mail  (other  than  U.  S.  Postal 
 Service  Express  Mail  and  Priority  Mail)  must  be  sent  to  9300  East  Hampton  Drive,  Capitol  Heights,  MD  20743.  U.  S.  Postal  Service  first-  class  mail,  Express  Mail,  and  Priority  Mail  should 
 be  addressed  to  445  12th  Street,  SW,  Washington,  D.  C.  20554.  All  filings  must  be  addressed  to  the  Commission's  Secretary,  Office  of  the  Secretary,  Federal  Communications  Commission. 


 92.  Paperwork  Reduction  Act  of  1995  Analysis.  The  Second  Report  and  Order  portion  of  this  Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking 
 contains  new  or  modified  information  collection(  s)  subject  to  the  Paperwork  Reduction  Act  of  1995  (PRA),  Public  Law  104-  13.  It  will  be  submitted  to  the  Office  of  Management  and  Budget 
 (OMB)  for  review  under  Section  3507(  d)  of  the  PRA.  OMB,  the  general  public,  and  other  Federal  agencies  are  invited  to  comment  on  the  new  or  modified  information  collection(  s) 
 contained  in  this  proceeding. 
 93.  Written  comments  by  the  public  on  the  proposed  information  collection(  s)  are  due  60  days  from  date  of  publication  of  this  Second  Report  and  Order  in  the  Federal  Register. 


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


 94.  Regulatory  Flexibility  Act.  As  required  by  the  Regulatory  Flexibility  Act,  225  the  Commission  has  prepared  a  Final  Regulatory  Flexibility  Analysis  (  FRFA)  relating  to  the 
 Second  Report  and  Order  portion  of  this  Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking.  The  FRFA  is  set  forth  in  Appendix  C.  The  Commission  has  also  prepared 
 an  Initial  Regulatory  Flexibility  Analysis  (  IRFA)  of  the  possible  significant  economic  impact  on  a  substantial  number  of  small  entities  of  the  proposals  addressed  in  Second  Further  Notice 
 portion  of  this  Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking.  226  The  IRFA  is  set  forth  in  Appendix  D.  Written  public  comments  are  requested  on  the  IRFA. 
 These  comments  must  be  filed  in  accordance  with  the  same  filing  deadlines  for  comments  on  the  Second  Further  Notice,  and  they  should  have  a  separate  and  distinct  heading  designating  them  as 
 responses  to  the  IRFA. 
 IX.  ORDERING  CLAUSES 
 95.  IT  IS  ORDERED  that  pursuant  to  the  authority  contained  in  Sections  1,  4(  i)  and  (j),  303,  403,  601,  624A  and  629  of  the  Communications  Act  of  1934,  47  U.  S.  C    151,  154(  i) 


 and  (j),  303,  403,  521,  544a  and  549,  that  the  Commissions  rules  ARE  HEREBY  AMENDED  as  set  forth  in  Appendix  B,  and  shall  become  effective  30  days  after  publication  in  the  Federal 
 Register  except  that  rule  sections  15.123,  76.1905  and  76.1906  that  contain  information  collection  requirements  under  the  PRA  are  not  effective  until  approved  by  OMB.  The  FCC  will  publish  a 


 225  See  5  U.  S.  C.    604. 
 226  Id.    603. 
39
 Federal  Communications  Commission  FCC  03-  225 
 40 
 document  in  the  Federal  Register  announcing  the  effective  date  for  those  sections. 
 96.  IT  IS  FURTHER  ORDERED  that  the  Commissions  Consumer  and  Governmental  Affairs  Bureau,  Reference  Information  Center,  SHALL  SEND  a  copy  of  this 


 Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking,  including  the  Final  Regulatory  Flexibility  Analysis  and  Initial  Regulatory  Flexibility  Analysis,  to  the  Chief 
 Counsel  for  Advocacy  of  the  Small  Business  Administration. 


 FEDERAL  COMMUNICATIONS  COMMISSION 


 Marlene  H.  Dortch  Secretary 
40
 Federal  Communications  Commission  FCC  03-  225 
 41 
 APPENDIX  A 
 List  of  Commenters 
 American  Cable  Association  ATI  Technologies,  Dell,  Intel,  HP,  Microsoft  &  NEC 
 Comcast  Corporation  Consumer  Electronics  Assoc./  Consumer  Electronics  Retailers  Coalition 
 DirecTV,  Inc.  Electronic  Frontier  Foundation 
 Home  Recording  Rights  Coalition  Intel  Corporation 
 Motion  Picture  Association  of  America  National  Assoc.  of  Broadcasters/  Assoc.  for  Maximum  Service  Television 
 National  Cable  &  Telecommunications  Assoc.  National  Music  Publishers  Association,  et  al. 
 Public  Knowledge  and  Consumers  Union  Satellite  Broadcasting  &  Communications  Assoc. 
 Sinclair  Broadcast  Group  Inc.  Starz  Encore  Group  LLC 
 Telecommunications  for  the  Deaf,  Inc.  TiVo  Inc. 
 Zenith  Electronics  Corporation 
 List  of  Reply  Commenters 
 APTS/  PBS/  CPB  Comcast  Corporation 
 Consumer  Electronics  Assoc./  Consumer  Electronics  Retailers  Coalition  Consumer  Federation  of  America 
 Echostar  Satellite  Corporation  Electronic  Frontier  Foundation 
 Genesis  Microchip,  Inc.  Gist  Communications 
 Home  Box  Office,  Inc.  Home  Recording  Rights  Coalition 
 Motion  Picture  Association  of  America  National  Assoc.  of  Broadcasters/  Assoc.  for  Maximum  Service  Television 
 National  Cable  &  Telecommunications  Assoc.  National  Music  Publishers  Association,  et  al. 
 Paxson  Communications  Corporation  Philips  Electronics  North  America  Corporation 
 Public  Knowledge  and  Consumers  Union  Starz  Encore  Group  LLC 
 Veridian  Corporation 
41
 Federal  Communications  Commission  FCC  03-  225 
 42 
 APPENDIX  B 
 Part  15  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 PART  15    RADIO  FREQUENCY  DEVICES 
 1.  The  authority  for  Part  15  continues  to  read  as  follows: 
 AUTHORITY:  47  U.  S.  C.  154,  302,  303,  304,  307,  336,  and  544a. 
 2.  Amend  15.19(  d)  by  removing  paragraphs  (d)(  1),  (d)(  2),  (d)(  2)(  i),  (d)(  2)(  ii),  (d)(  2)(  iii),  (d)(  3),  and  (d)(  4)  to  read  as  follows: 


 15.19  Labeling  requirements. 
 *****  (d)  Consumer  electronics  TV  receiving  devices,  including  TV  receivers, 
 videocassette  recorders,  and  similar  devices,  that  incorporate  features  intended  to  be  used  with  cable  television  service,  but  do  not  fully  comply 
 with  the  technical  standards  for  cable  ready  equipment  set  forth  in    15.118,  shall  not  be  marketed  with  terminology  that  describes  the  device 
 as  "cable  ready"  or  "cable  compatible,"  or  that  otherwise  conveys  the  impression  that  the  device  is  fully  compatible  with  cable  service.  Factual 
 statements  about  the  various  features  of  a  device  that  are  intended  for  use  with  cable  service  or  the  quality  of  such  features  are  acceptable  so  long 
 as  such  statements  do  not  imply  that  the  device  is  fully  compatible  with  cable  service.  Statements  relating  to  product  features  are  generally 
 acceptable  where  they  are  limited  to  one  or  more  specific  features  of  a  device,  rather  than  the  device  as  a  whole.  This  requirement  applies  to 
 consumer  TV  receivers,  videocassette  recorders  and  similar  devices  manufactured  or  imported  for  sale  in  this  country  on  or  after  October  31, 
 1994. 
 *****  3.  Add  15.  38  to  subpart  A  to  read  as  follows: 


 15.38  Incorporations  by  Reference. 
 (a)  The  materials  listed  in  this  section  are  incorporated  by  reference  in  this  part.  These  incorporations  by  reference  were  approved 
 by  the  Director  of  the  Federal  Register  in  accordance  with  5  U.  S.  C.  552(  a)  and  1  CFR  part  51.  These  materials  are  incorporated  as  they  exist 
 on  the  date  of  the  approval,  and  notice  of  any  change  in  these  materials  will  be  published  in  the  Federal  Register.  The  materials  are  available  for 
 purchase  at  the  corresponding  addresses  noted  below,  and  all  are  available  for  inspection  at  the  Office  of  the  Federal  Register,  800  North 
 Capitol  Street,  NW,  suite  700,  Washington,  DC,  at  the  Reference  Information  Center,  Federal  Communications  Commission,  445  12th.  St., 
 SW,  Room  CY-  A257,  Washington,  DC  20554. 
42
 Federal  Communications  Commission  FCC  03-  225 
 43 
 (b)  The  following  materials  are  available  for  purchase  from  at  least  one  of  the  following  addresses:  Global  Engineering  Documents,  15 
 Inverness  Way  East,  Englewood,  CO  80112  or  at  http://  global.  ihs.  com;  or  American  National  Standards  Institute,  25  West  43rd  Street,  4th  Floor, 
 New  York,  NY  10036  or  at  http://  webstore.  ansi.  org/  ansidocstore/  default.  asp;  or  Society  of  Cable 
 Telecommunications  Engineers  at  http://  www.  scte.  org/  standards/  index.  cfm. 


 (1)  SCTE  28  2003  (formerly  DVS  295):  Host-  POD  Interface  Standard,  2003,  IBR  approved  for    15.  123. 
 (2)  SCTE  41  2003  (formerly  DVS  301):  POD  Copy  Protection  System,  2003,  IBR  approved  for  15.123. 
 (3)  ANSI/  SCTE  54  2003  (formerly  DVS  241):  Digital  Video  Service  Multiplex  and  Transport  System  Standard  for  Cable  Television, 
 2003,  IBR  approved  for  15.123. 
 (4)  ANSI/  SCTE  65  2002  (formerly  DVS  234):  Service  Information  Delivered  Out-  of-  Band  for  Digital  Cable  Television,  2002, 
 IBR  approved  for  15.123. 
 (5)  SCTE  40  2003  (formerly  DVS  313):  Digital  Cable  Network  Interface  Standard,  2003,  IBR  approved  for  15.123. 


 (6)  ANSI  C63.4-  1992:  Methods  of  Measurement  of  Radio-Noise  Emissions  from  Low-  Voltage  Electrical  and  Electronic  Equipment 
 in  the  Range  of  9  kHz  to  40  GHz,  1992,  IBR  approved  for  15.31,  except  for  sections  5.7,  9  and  14. 


 (7)  EIA  IS-  132:  Cable  Television  Channel  Identification  Plan,  1994,  IBR  approved  for  15.118. 
 (8)  EIA-  608:  Recommended  Practice  for  Line  21  Data  Service,  1994,  IBR  approved  for  15.120. 
 (9)  EIA-  744:  Transport  of  Content  Advisory  Information  Using  Extended  Data  Service  (XDS),  1997,  IBR  approved  for  15.  120. 
 (10)  EIA-  708-  B:  Digital  Television  (DTV)  Closed  Captioning,  1999,  IBR  approved  for  15.122. 
 (11)  Third  Edition  of  the  International  Special  Committee  on  Radio  Interference  (CISPR),  Pub.  22,  Information  Technology 
 Equipment    Radio  Disturbance  Characteristics    Limits  and  Methods  of  Measurement,  1997,  IBR  approved  for  15.109. 


 (c)  The  following  materials  are  freely  available  from  at  least  one  of  the  following  addresses:  Consumer  Electronics  Association,  2500 
43
 Federal  Communications  Commission  FCC  03-  225 
 44 
 Wilson  Blvd.,  Arlington,  VA  22201  or  at  http://  www.  ce.  org/  public  policy. 
 (1)  Uni-  Dir-  PICS-  I01-  030903:  Uni-  Directional  Receiving  Device:  Conformance  Checklist:  PICS  Proforma,  2003,  IBR  approved 
 for  15.123. 
 *  *  *  *  * 
 4.  Add  15.  123  to  subpart  B  to  read  as  follows: 
 15.123  Labeling  of  Digital  Cable  Ready  Products. 
 (a)  The  requirements  of  this  section  shall  apply  to  unidirectional  digital  cable  products.  Unidirectional  digital  cable  products  are  one-way 
 devices  that  accept  a  Point  of  Deployment  module  (POD)  and  which  include,  but  are  not  limited  to  televisions,  set-  top-  boxes  and 
 recording  devices  connected  to  digital  cable  systems.  Unidirectional  digital  cable  products  do  not  include  interactive  two-  way  digital 
 television  products. 
 (b)  A  unidirectional  digital  cable  product  may  not  be  labeled  with  or  marketed  using  the  term  digital  cable  ready,  or  other 
 terminology  that  describes  the  device  as  cable  ready  or  cable  compatible,  or  otherwise  indicates  that  the  device  accepts  a  POD  or 
 conveys  the  impression  that  the  device  is  compatible  with  digital  cable  service  unless  it  implements  at  a  minimum  the  following 
 features: 
 (1)  Tunes  NTSC  analog  channels  transmitted  in-  the-  clear. 
 (2)  Tunes  digital  channels  that  are  transmitted  in  compliance  with  SCTE  40  2003  (formerly  DVS  313):  Digital  Cable  Network 
 Interface  Standard  (incorporated  by  reference,  see    15.38),  provided,  however,  that  with  respect  to  Table  B.  11  of  that  standard,  the  phase  noise 
 requirement  shall  be  -86  dB/  Hz  including  both  in-  the-  clear  channels  and  channels  that  are  subject  to  conditional  access. 


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


 (4)  Includes  the  POD-  Host  Interface  specified  in  SCTE  28  2003  (formerly  DVS  295):  Host-  POD  Interface  Standard  (incorporated  by 
 reference,  see    15.  38),  and  SCTE  41  2003  (formerly  DVS  301):  POD 
44
 Federal  Communications  Commission  FCC  03-  225 
 45 
 Copy  Protection  System  (incorporated  by  reference,  see    15.38),  or  implementation  of  a  more  advanced  POD-  Host  Interface  based  on 
 successor  standards.  Support  for  Internet  protocol  flows  is  not  required. 
 (5)  Responds  to  emergency  alerts  that  are  transmitted  in  compliance  with  ANSI/  SCTE  54  2003  (formerly  DVS  241):  Digital 
 Video  Service  Multiplex  and  Transport  System  Standard  for  Cable  Television  (incorporated  by  reference,  see    15.38). 


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


 (i)  For  480p  grade  unidirectional  digital  cable  televisions,  either  a  DVI/  HDCP,  HDMI/  HDCP,  or  480p  Y,  Pb,  Pr  interface: 
 (A)  Models  with  screen  sizes  36  inches  and  above:  50%  of  a  manufacturer's  or  importers  models  manufactured  or  imported  after  July 
 1,  2004;  100%  of  such  models  manufactured  or  imported  after  July  1,  2005. 


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


 (ii)  For  720p/  1080i  grade  unidirectional  digital  cable  televisions,  either  a  DVI/  HDCP  or  HDMI/  HDCP  interface: 
 (A)  Models  with  screen  sizes  36  inches  and  above:  50%  of  a  manufacturer's  or  importers  models  manufactured  or  imported  after  July 
 1,  2004;  100%  of  such  models  manufactured  or  imported  after  July  1,  2005. 


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


 (C)  Models  with  screen  sizes  13  to  24  inches:  100%  of  a  manufacturer's  or  importers  models  manufactured  or  imported  after  July 
 1,  2007. 
 (c)  Before  a  manufacturers  or  importers  first  unidirectional  digital  cable  product  may  be  labeled  or  marketed  as  digital  cable  ready  or 
 with  other  terminology  as  described  in  paragraph  (b)  of  this  section,  the  manufacturer  or  importer  shall  verify  the  device  as  follows: 
45
 Federal  Communications  Commission  FCC  03-  225 
 46 
 (1)  The  manufacturer  or  importer  shall  have  a  sample  of  its  first  model  of  a  unidirectional  digital  cable  product  tested  to  show  compliance 
 with  the  procedures  set  forth  in  Uni-  Dir-  PICS-  I01-  030903:  Uni-Directional  Receiving  Device:  Conformance  Checklist:  PICS  Proforma 
 (incorporated  by  reference,  see    15.38)  at  a  qualified  test  facility.  The  manufacturer  or  importer  shall  have  any  modifications  to  the  product  to 
 correct  failures  of  the  procedures  in  Uni-  Dir-  PICS-  I01-  030903:  Uni-Directional  Receiving  Device:  Conformance  Checklist:  PICS  Proforma 
 (incorporated  by  reference,  see    15.38)  retested  at  a  qualified  test  facility. 


 (2)  A  qualified  test  facility  is  a  facility  representing  cable  television  system  operators  serving  a  majority  of  the  cable  television 
 subscribers  in  the  United  States  or  an  independent  laboratory  with  personnel  knowledgeable  with  respect  to  the  standards  referenced  in 
 paragraph  (b)  of  this  section  concerning  the  procedures  set  forth  in  Uni-Dir-  PICS-  I01-  030903:  Uni-  Directional  Receiving  Device:  Conformance 
 Checklist:  PICS  Proforma  (incorporated  by  reference,  see    15.38). 
 (3)  Subsequent  to  the  testing  of  its  initial  unidirectional  digital  cable  product  model,  a  manufacturer  or  importer  is  not  required  to  have 
 other  models  of  unidirectional  digital  cable  products  tested  at  a  qualified  test  facility  for  compliance  with  the  procedures  of  Uni-  Dir-  PICS-  I01- 
 030903:  Uni-  Directional  Receiving  Device:  Conformance  Checklist:  PICS  Proforma  (incorporated  by  reference,  see    15.38).  However,  the 
 manufacturer  or  importer  shall  ensure  that  all  subsequent  models  of  unidirectional  digital  cable  products  comply  with  the  procedures  in  the 
 Uni-  Dir-  PICS-  I01-  030903:  Uni-  Directional  Receiving  Device:  Conformance  Checklist:  PICS  Proforma  (incorporated  by  reference,  see 
   15.38)  and  all  other  applicable  rules  and  standards.  The  manufacturer  or  importer  shall  maintain  records  indicating  such  compliance  in 
 accordance  with  the  verification  procedure  requirements  in  part  2,  subpart  J  of  this  chapter.  The  manufacturer  or  importer  shall  further 
 submit  documentation  verifying  compliance  with  the  procedures  in  the  Uni-  Dir-  PICS-  I01-  030903:  Uni-  Directional  Receiving  Device: 
 Conformance  Checklist:  PICS  Proforma  (incorporated  by  reference,  see    15.38)  to  a  facility  representing  cable  television  system  operators 
 serving  a  majority  of  the  cable  television  subscribers  in  the  United  States. 
 (d)  Manufacturers  and  importers  shall  provide  in  appropriate  post-  sale  material  that  describes  the  features  and  functionality  of  the 
 product,  such  as  the  owner's  guide,  the  following  language:  This  digital  television  is  capable  of  receiving  analog  basic,  digital  basic  and  digital 
 premium  cable  television  programming  by  direct  connection  to  a  cable  system  providing  such  programming.  A  security  card  provided  by  your 
 cable  operator  is  required  to  view  encrypted  digital  programming.  Certain  advanced  and  interactive  digital  cable  services  such  as  video-  on-demand, 
 a  cable  operator's  enhanced  program  guide  and  data-  enhanced  television  services  may  require  the  use  of  a  set-  top  box.  For  more 
46
 Federal  Communications  Commission  FCC  03-  225 
 47 
 information  call  your  local  cable  operator. 
 *  *  *  *  * 
 Part  76  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 PART  76    MULTICHANNEL  VIDEO  AND  CABLE  TELEVISION  SERVICE 
 5.  The  authority  for  Part  76  continues  to  read  as  follows: 
 AUTHORITY:  47  U.  S.  C.  151,  152,  153,  154,  301,  302,  303,  303a,  307,  308,  309,  312,  317,  325,  338,  339,  503,  521,  522,  531,  532,  533,  534, 
 535,  536,  537,  543,  544,  544a,  545,  548,  549,  552,  554,  556,  558,  560,  531,  571,  572,  and  573. 


 6.  Add  76.  602  to  subpart  K  to  read  as  follows: 
 76.602  Incorporations  by  Reference. 
 (a)  The  materials  listed  in  this  section  are  incorporated  by  reference  in  this  part.  These  incorporations  by  reference  were  approved 
 by  the  Director  of  the  Federal  Register  in  accordance  with  5  U.  S.  C.  552(  a)  and  1  CFR  part  51.  These  materials  are  incorporated  as  they  exist 
 on  the  date  of  the  approval,  and  notice  of  any  change  in  these  materials  will  be  published  in  the  Federal  Register.  The  materials  are  available  for 
 purchase  at  the  corresponding  addresses  noted  below,  and  all  are  available  for  inspection  at  the  Office  of  the  Federal  Register,  800  North 
 Capitol  Street,  NW,  suite  700,  Washington,  DC,  at  the  Reference  Information  Center,  Federal  Communications  Commission,  445  12th.  St., 
 SW,  Room  CY-  A257,  Washington,  DC  20554. 
 (b)  The  following  materials  are  available  for  purchase  from  at  least  one  of  the  following  addresses:  Global  Engineering  Documents,  15 
 Inverness  Way  East,  Englewood,  CO  80112  or  at  http://  global.  ihs.  com;  or  American  National  Standards  Institute,  25  West  43rd  Street,  4th  Floor, 
 New  York,  NY  10036  or  at  http://  webstore.  ansi.  org/  ansidocstore/  default.  asp;  or  Society  of  Cable 
 Telecommunications  Engineers  at  http://  www.  scte.  org/  standards/  index.  cfm  ;  or  Advanced  Television 
 Systems  Committee,  1750  K  Street,  NW,  Suite  1200,  Washington,  DC  20006  or  at  http://  www.  atsc.  org/  standards. 


 (1)  ANSI/  SCTE  26  2001  (formerly  DVS  194):  Home  Digital  Network  Interface  Specification  with  Copy  Protection,  2001,  IBR 
 approved  for  76.640. 
 (2)  SCTE  28  2003  (formerly  DVS  295):  Host-  POD  Interface  Standard,  2003,  IBR  approved  for    76.  640. 
47
 Federal  Communications  Commission  FCC  03-  225 
 48 
 (3)  SCTE  41  2003  (formerly  DVS  301):  POD  Copy  Protection  System,  2003,  IBR  approved  for  76.640. 
 (4)  ANSI/  SCTE  54  2003  (formerly  DVS  241):  Digital  Video  Service  Multiplex  and  Transport  System  Standard  for  Cable  Television, 
 2003,  IBR  approved  for  76.640. 
 (5)  ANSI/  SCTE  65  2002  (formerly  DVS  234):  Service  Information  Delivered  Out-  of-  Band  for  Digital  Cable  Television,  2002, 
 IBR  approved  for  76.640. 
 (6)  CEA-  931-  A:  Remote  Control  Command  Pass-  through  Standard  for  Home  Networking,  2003,  IBR  approved  for  76.640. 


 (7)  SCTE  40  2003  (formerly  DVS  313):  Digital  Cable  Network  Interface  Standard,  2003,  IBR  approved  for  76.640. 
 (8)  ATSC  Document  A/  65B:  ATSC  Standard:  Program  and  System  Information  Protocol  for  Terrestrial  Broadcast  and  Cable 
 (Revision  B),  2003,  IBR  approved  for  76.640. 
 (9)  EIA  IS-  132:  Cable  Television  Channel  Identification  Plan,  1994,  IBR  approved  for  76.605. 


 *  *  *  *  * 
 7.  Add  76.  640  to  subpart  B  to  read  as  follows: 
 76.640  Support  for  Unidirectional  Digital  Cable  Products  on  Digital  Cable  Systems. 


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


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


 (1)  Digital  cable  systems  with  an  activated  channel  capacity  of  750  MHz  or  greater  shall  comply  with  the  following  technical  standards 
 and  requirements: 
 (i)  SCTE  40  2003  (formerly  DVS  313):  Digital  Cable  Network  Interface  Standard  (incorporated  by  reference,  see    76.602),  provided 
 however  that  with  respect  to  Table  B.  11,  the  Phase  Noise  requirement 
48
 Federal  Communications  Commission  FCC  03-  225 
 49 
 shall  be  -86  dB/  Hz,  and  also  provided  that  the  "transit  delay  for  most  distant  customer"  requirement  in  Table  B.  3  is  not  mandatory. 
 (ii)  ANSI/  SCTE  65  2002  (formerly  DVS  234):  Service  Information  Delivered  Out-  of-  Band  for  Digital  Cable  Television 
 (incorporated  by  reference,  see    76.602),  provided  however  that  the  referenced  Source  Name  Subtable  shall  be  provided  for  Profiles  1,  2,  and 
 3. 
 (iii)  ANSI/  SCTE  54  2003  (formerly  DVS  241):  Digital  Video  Service  Multiplex  and  Transport  System  Standard  for  Cable  Television 
 (incorporated  by  reference,  see    76.602). 
 (iv)  For  each  digital  transport  stream  that  includes  one  or  more  services  carried  in-  the-  clear,  such  transport  stream  shall  include  virtual 
 channel  data  in-  band  in  the  form  of  ATSC  Document  A/  65B:  ATSC  Standard:  Program  and  System  Information  Protocol  for  Terrestrial 
 Broadcast  and  Cable  (Revision  B)  (incorporated  by  reference,  see    76.602),  when  available  from  the  content  provider.  With  respect  to  in-band 
 transport: 
 (A)  The  data  shall,  at  minimum,  describe  services  carried  within  the  transport  stream  carrying  the  PSIP  data  itself; 


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


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


 (D)  Each  channel  shall  be  identified  by  a  one-  or  two-  part  channel  number  and  a  textual  channel  name;  and 
 (E)  The  total  bandwidth  for  PSIP  data  may  be  limited  by  the  cable  system  to  80  kbps  for  a  27  Mbits  multiplex  and  115  kbps  for  a  38.8  Mbits 
 multiplex. 
 (v)  When  service  information  tables  are  transmitted  out-  of-  band  for  scrambled  services: 


 (A)  The  data  shall,  at  minimum,  describe  services  carried  within  the  transport  stream  carrying  the  PSIP  data  itself; 
 (B)  A  virtual  channel  table  shall  be  provided  via  the  extended  channel  interface  from  the  POD  module.  Tables  to  be  included  shall 
 conform  to  ANSI/  SCTE  65  2002  (formerly  DVS  234):  Service 
49
 Federal  Communications  Commission  FCC  03-  225 
 50 
 Information  Delivered  Out-  of-  Band  for  Digital  Cable  Television  (incorporated  by  reference,  see    76.602). 
 (C)  Event  information  data  when  present  shall  conform  to  ANSI/  SCTE  65  2002  (formerly  DVS  234):  Service  Information 
 Delivered  Out-  of-  Band  for  Digital  Cable  Television  (incorporated  by  reference,  see    76.602)  (profiles  4  or  higher). 


 (D)  Each  channel  shall  be  identified  by  a  one-  or  two-  part  channel  number  and  a  textual  channel  name;  and 
 (E)  The  channel  number  identified  with  out-  of-  band  signaling  information  data  should  match  the  channel  identified  with  in-  band  PSIP 
 data  for  all  unscrambled  in-  the-  clear  services. 
 (2)  All  digital  cable  systems  shall  comply  with: 
 (i)  SCTE  28  2003  (formerly  DVS  295):  Host-  POD  Interface  Standard  (incorporated  by  reference,  see    76.602). 


 (ii)  SCTE  41  2003  (formerly  DVS  301):  POD  Copy  Protection  System  (incorporated  by  reference,  see    76.602). 
 (3)  Cable  operators  shall  ensure,  as  to  all  digital  cable  systems,  an  adequate  supply  of  PODs  that  comply  with  the  standards  specified  in 
 paragraph  (b)(  2)  of  this  section  to  ensure  convenient  access  to  such  PODS  by  customers.  Without  limiting  the  foregoing,  cable  operators  may  provide 
 more  advanced  PODs  (i.  e.,  PODs  that  are  based  on  successor  standards  to  those  specified  in  paragraph  (b)(  2)  of  this  section)  to 
 customers  whose  unidirectional  digital  cable  products  are  compatible  with  the  more  advanced  PODs. 


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


 (ii)  Effective  July  1,  2005,  include  both  a  DVI  or  HDMI  interface  and  an  IEEE  1394  interface  on  all  high  definition  set-  top 
 boxes  acquired  by  a  cable  operator  for  distribution  to  customers. 
 (iii)  Ensure  that  these  cable  operator-  provided  high  definition  set-  top  boxes  shall  comply  with  ANSI/  SCTE  26  2001 
 (formerly  DVS  194):  Home  Digital  Network  Interface  Specification  with  Copy  Protection  (incorporated  by  reference,  see    76.  602),  with 
 transmission  of  bit-  mapped  graphics  optional,  and  shall  support  the 
50
 Federal  Communications  Commission  FCC  03-  225 
 51 
 CEA-  931-  A:  Remote  Control  Command  Pass-  through  Standard  for  Home  Networking  (incorporated  by  reference,  see    76.  602),  pass 
 through  control  commands:  tune  function,  mute  function,  and  restore  volume  function.  In  addition  these  boxes  shall  support  the  power 
 control  commands  (power  on,  power  off,  and  status  inquiry)  defined  in  A/  VC  Digital  Interface  Command  Set  General  Specification 
 Version  4.0  (as  referenced  in  ANSI/  SCTE  26  2001  (formerly  DVS  194):  Home  Digital  Network  Interface  Specification  with  Copy 
 Protection  (incorporated  by  reference,  see    76.602)). 
 *  *  *  *  * 
 8.  Add  subpart  W  to  read  as  follows: 
 Subpart  W    Encoding  Rules 
 Sec.  76.1901  Applicability. 
 76.1902  Definitions.  76.1903  Interfaces. 
 76.1904  Encoding  Rules  for  Defined  Business  Models.  76.1905  Petitions  to  Modify  Encoding  Rules  for  New  Services  Within 
 Defined  Business  Models  76.1906  Encoding  Rules  for  Undefined  Business  Models. 
 76.1907  Temporary  Bona  Fide  Trials.  76.1908  Certain  Practices  Not  Prohibited. 


 76.1901  Applicability 
 (a)  Each  multi-  channel  video  programming  distributor  shall  comply  with  the  requirements  of  this  subpart. 


 (b)  This  subpart  shall  not  apply  to  distribution  of  any  content  over  the  Internet,  nor  to  a  multichannel  video  programming  distributor's 
 operations  via  cable  modem  or  DSL. 
 (c)  With  respect  to  cable  system  operators,  this  subpart  shall  apply  only  to  cable  services.  This  subpart  shall  not  apply  to  cable  modem 
 services,  whether  or  not  provided  by  a  cable  system  operator  or  affiliate. 
 76.1902  Definitions 
 (a)  Commercial  Advertising  Messages  shall  mean,  with  respect  to  any  service,  Program,  or  schedule  or  group  of  Programs,  commercial 
 advertising  messages  other  than:  (1)  advertising  relating  to  such  service  itself  or  the  programming  contained  therein,  (2)  interstitial  programming 
 relating  to  such  service  itself  or  the  programming  contained  therein,  or  (3)  any  advertising  which  is  displayed  concurrently  with  the  display  of 
 any  part  of  such  Program(  s),  including  but  not  limited  to  bugs,  frames  and  banners. 
51
 Federal  Communications  Commission  FCC  03-  225 
 52 
 (b)  Commercial  Audiovisual  Content  shall  mean  works  that  consist  of  a  series  of  related  images  which  are  intrinsically  intended  to  be 
 shown  by  the  use  of  machines,  or  devices  such  as  projectors,  viewers,  or  electronic  equipment,  together  with  accompanying  sounds,  if  any, 
 regardless  of  the  nature  of  the  material  objects,  such  as  films  or  tapes,  in  which  the  works  are  embodied,  transmitted  by  a  Covered  Entity  and  that 
 are:  (1)  not  created  by  the  user  of  a  Covered  Product,  and  (2)  offered  for  transmission,  either  generally  or  on  demand,  to  subscribers  or  purchasers 
 or  the  public  at  large  or  otherwise  for  commercial  purposes,  not  uniquely  to  an  individual  or  a  small,  private  group. 


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


 (d)  Copy  Never  shall  mean,  with  respect  to  Commercial  Audiovisual  Content,  the  Encoding  of  such  content  so  as  to  signal  that 
 such  content  may  not  to  be  copied  by  a  Covered  Product. 
 (e)  Copy  One  Generation  shall  mean,  with  respect  to  Commercial  Audiovisual  Content,  the  Encoding  of  such  content  so  as  to 
 permit  a  first  generation  of  copies  to  be  made  by  a  Covered  Product  but  not  copies  of  such  first  generation  of  copies. 


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


 (g)  Covered  Product  shall  mean  a  device  used  by  consumers  to  access  Commercial  Audiovisual  Content  offered  by  a  Covered  Entity 
 (excluding  delivery  via  cable  modem  or  the  Internet);  and  any  device  to  which  Commercial  Audiovisual  Content  so  delivered  from  such  Covered 
 Product  may  be  passed,  directly  or  indirectly. 
 (h)  Covered  Entity  shall  mean  any  entity  that  is  subject  to  this  subpart. 


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


 (j)  Encode  shall  mean,  in  the  transmission  of  Commercial  Audiovisual  Content,  to  pass,  attach,  embed,  or  otherwise  apply  to, 
 associate  with,  or  allow  to  persist  in  or  remain  associated  with  such  content,  data  or  information  which  when  read  or  responded  to  in  a 
 Covered  Device  has  the  effect  of  preventing,  pausing,  or  limiting 
52
 Federal  Communications  Commission  FCC  03-  225 
 53 
 copying,  or  constraining  the  resolution  of  a  Program  when  output  from  the  Covered  Device. 
 (k)  Encoding  Rules  shall  mean  the  requirements  or  prohibitions  describing  or  limiting  Encoding  of  audiovisual  content  as  set  forth  in  this 
 Rule. 
 (l)  Free  Conditional  Access  Delivery  shall  mean  a  delivery  of  a  service,  Program,  or  schedule  or  group  of  Programs  via  a  Commercially-Adopted 
 Access  Control  Method,  where  viewers  are  not  charged  any  fee  (other  than  government-  mandated  fees)  for  the  reception  or  viewing  of 
 the  programming  contained  therein,  other  than  Unencrypted  Broadcast  Television. 


 (m)  Non-  Premium  Subscription  Television  shall  mean  a  service,  or  schedule  or  group  of  Programs  (which  may  be  offered  for  sale 
 together  with  other  services,  or  schedule  or  group  of  Programs),  for  which  subscribers  are  charged  a  subscription  fee  for  the  reception  or 
 viewing  of  the  programming  contained  therein,  other  than  Pay  Television,  Subscription-  on-  Demand  and  Unencrypted  Broadcast 
 Television.  By  way  of  example,  basic  cable  service  and  extended  basic  cable  service  (other  than  Unencrypted  Broadcast  Television)  are 
 Non-  Premium  Subscription  Television. 
 (n)  Pay-  Per-  View  shall  mean  a  delivery  of  a  single  Program  or  a  specified  group  of  Programs,  as  to  which  each  such  single  Program  is 
 generally  uninterrupted  by  Commercial  Advertising  Messages  and  for  which  recipients  are  charged  a  separate  fee  for  each  Program  or  specified 
 group  of  Programs.  The  term  Pay-  Per-  View  shall  also  include  delivery  of  a  single  Program  as  described  above  for  which  multiple  start  times  are 
 made  available  at  time  intervals  which  are  less  than  the  running  time  of  such  Program  as  a  whole.  If  a  given  delivery  qualifies  both  as  Pay-  Per-View 
 and  a  Pay  Television  Transmission,  then,  for  purposes  of  this  Rule,  such  delivery  shall  be  deemed  Pay-  Per-  View  rather  than  a  Pay 
 Television  Transmission. 
 (o)  Pay  Television  Transmission  shall  mean  a  transmission  of  a  service  or  schedule  of  Programs,  as  to  which  each  individual  Program  is 
 generally  uninterrupted  by  Commercial  Advertising  Messages  and  for  which  service  or  schedule  of  Programs  subscribing  viewers  are  charged  a 
 periodic  subscription  fee,  such  as  on  a  monthly  basis,  for  the  reception  of  such  programming  delivered  by  such  service  whether  separately  or 
 together  with  other  services  or  programming,  during  the  specified  viewing  period  covered  by  such  fee.  If  a  given  delivery  qualifies  both  as 
 a  Pay  Television  Transmission  and  Pay-  Per-  View,  Video-  on-  Demand,  or  Subscription-  on-  Demand  then,  for  purposes  of  this  Rule,  such  delivery 
 shall  be  deemed  Pay-  Per-  View,  Video-  on-  Demand  or  Subscription-  on-Demand  rather  than  a  Pay  Television  Transmission. 


 (p)  Program  shall  mean  any  work  of  Commercial  Audiovisual 
53
 Federal  Communications  Commission  FCC  03-  225 
 54 
 Content. 
 (q)  Subscription-  on-  Demand  shall  mean  the  delivery  of  a  single  Program  or  a  specified  group  of  Programs  for  which:  (1)  a  subscriber  is 
 able,  at  his  or  her  discretion,  to  select  the  time  for  commencement  of  exhibition  thereof,  (2)  where  each  such  single  Program  is  generally 
 uninterrupted  by  Commercial  Advertising  Messages;  and  (3)  for  which  Program  or  specified  group  of  Programs  subscribing  viewers  are  charged 
 a  periodic  subscription  fee  for  the  reception  of  programming  delivered  by  such  service  during  the  specified  viewing  period  covered  by  the  fee.  In 
 the  event  a  given  delivery  of  a  Program  qualifies  both  as  a  Pay  Television  Transmission  and  Subscription-  on-  Demand,  then  for  purposes 
 of  this  Rule,  such  delivery  shall  be  deemed  Subscription-  on-  Demand  rather  than  a  Pay  Television  Transmission. 


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


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


 76.1903  Interfaces 
 A  Covered  Entity  shall  not  attach  or  embed  data  or  information  with  Commercial  Audiovisual  Content,  or  otherwise  apply  to,  associate 
 with,  or  allow  such  data  to  persist  in  or  remain  associated  with  such  content,  so  as  to  prevent  its  output  through  any  analog  or  digital  output 
 authorized  or  permitted  under  license,  law  or  regulation  governing  such  Covered  Product. 
54
 Federal  Communications  Commission  FCC  03-  225 
 55 
 76.1904  Encoding  Rules  for  Defined  Business  Models 
 (a)  Commercial  Audiovisual  Content  delivered  as  Unencrypted  Broadcast  Television  shall  not  be  Encoded  so  as  to  prevent  or  limit 
 copying  thereof  by  Covered  Products  or,  to  constrain  the  resolution  of  the  image  when  output  from  a  Covered  Product. 


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


 (1)  Commercial  Audiovisual  Content  shall  not  be  Encoded  so  as  to  prevent  or  limit  copying  thereof  except  as  follows: 
 (i)  to  prevent  or  limit  copying  of  Video-  on-  Demand  or  Pay-  Per-View  transmissions,  subject  to  the  requirements  of  paragraph  (b)(  2)  of 
 this  section;  and 
 (ii)  to  prevent  or  limit  copying,  other  than  first  generation  of  copies,  of  Pay  Television  Transmissions,  Non-  Premium  Subscription 
 Television,  and  Free  Conditional  Access  Delivery  transmissions;  and 
 (2)  With  respect  to  any  Commercial  Audiovisual  Content  delivered  or  transmitted  in  form  of  a  Video-  on-  Demand  or  Pay-  Per-  View 
 transmission,  a  Covered  Entity  shall  not  Encode  such  content  so  as  to  prevent  a  Covered  Product,  without  further  authorization,  from  pausing 
 such  content  up  to  90  minutes  from  initial  transmission  by  the  Covered  Entity  (e.  g.,  frame-  by-  frame,  minute-  by-  minute,  megabyte  by  megabyte). 


 76.1905  Petitions  to  Modify  Encoding  Rules  for  New  Services  Within  Defined  Business  Models 
 (a)  The  Encoding  Rules  for  Defined  Business  Models  in  76.1904  reflect  the  conventional  methods  for  packaging  programs  in  the 
 MVPD  market  as  of  December  31,  2002,  and  are  presumed  to  be  the  appropriate  rules  for  Defined  Business  Models.  A  Covered  Entity  may 
 petition  the  Commission  for  approval  to  allow  within  a  Defined  Business  Model,  other  than  Unencrypted  Broadcast  Television,  the  Encoding  of  a 
 new  service  in  a  manner  different  from  the  Encoding  Rules  set  forth  in  76.1904(  b)(  1)-(  2).  No  such  petition  will  be  approved  under  the  public 
 interest  test  set  forth  below  unless  the  new  service  differs  from  existing  services  provided  by  any  Covered  Entity  under  the  applicable  Defined 
 Business  Model  prior  to  December  31,  2002. 
 (b)  Petitions.  A  petition  to  Encode  a  new  service  within  a  Defined  Business  Model  other  than  as  permitted  by  the  Encoding  Rules 
 set  forth  in  76.1904(  b)(  1)-(  2)  shall  describe: 
55
 Federal  Communications  Commission  FCC  03-  225 
 56 
 (1)  The  Defined  Business  Model,  the  new  service,  and  the  proposed  Encoding  terms,  including  the  use  of  Copy  Never  and  Copy 
 One  Generation  Encoding,  and  the  Encoding  of  content  with  respect  to  "pause"  set  forth  in  76.  1904(  b)(  2). 


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


 (3)  The  ways  in  which  the  new  service  differs  from  existing  services  offered  by  any  Covered  Entity  within  the  applicable  Defined 
 Business  Model  prior  to  December  31,  2002; 
 (4)  All  other  pertinent  facts  and  considerations  relied  on  to  support  a  determination  that  grant  of  the  Petition  would  serve  the  public 
 interest. 
 (5)  Factual  allegations  shall  be  supported  by  affidavit  or  declaration  of  a  person  or  persons  with  actual  knowledge  of  the  facts, 
 and  exhibits  shall  be  verified  by  the  person  who  prepares  them. 
 (c)  Petition  Process. 
 (1)  Public  Notice.  The  Commission  shall  give  public  notice  of  any  such  Petition. 


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


 (3)  Replies.  The  petitioner  may  file  a  reply  to  the  comments  or  oppositions  within  ten  (10)  days  after  their  submission,  which  shall  be 
 served  on  all  persons  who  have  filed  pleadings  and  shall  also  contain  a  detailed  full  showing,  supported  by  affidavit  or  declaration,  of  any 
 additional  facts  or  considerations  relied  on.  There  shall  be  no  further  pleadings  filed  after  petitioner's  reply,  unless  authorized  by  the 
 Commission. 
 (4)  Commission  Determination  as  to  Encoding  Rules  for  a  new  service  within  a  Defined  Business  Model. 


 (i)  Proceedings  initiated  by  petitions  pursuant  to  this  section  shall  be  permit-  but-  disclose  proceedings,  unless  otherwise  specified  by 
 the  Commission.  The  Covered  Entity  shall  have  the  burden  of  proof  to 
56
 Federal  Communications  Commission  FCC  03-  225 
 57 
 establish  that  the  proposed  change  in  Encoding  Rules  for  a  new  service  is  in  the  public  interest.  In  making  its  determination,  the  Commission  shall 
 take  into  account  the  following  factors: 
 (A)  Whether  the  benefit  to  consumers  of  the  new  service,  including  but  not  limited  to  earlier  release  windows,  more  favorable 
 terms,  innovation  or  original  programming,  outweighs  the  limitation  on  the  consumers  control  over  the  new  service; 


 (B)  Ways  in  which  the  new  service  differs  from  existing  services  offered  by  any  Covered  Entity  within  the  applicable  Defined  Business 
 Model  prior  to  December  31,  2002;  and 
 (ii)  The  Commission  may  specify  other  procedures,  such  as  oral  argument,  evidentiary  hearing,  or  further  written  submissions  directed  to 
 particular  aspects,  as  it  deems  appropriate. 
 (iii)  A  petition  may,  upon  request  of  the  petitioner,  be  dismissed  without  prejudice  as  a  matter  of  right  prior  to  the  adoption  date  of  any 
 final  action  taken  by  the  Commission  with  respect  to  the  petition.  A  petitioner's  request  for  the  return  of  a  petition  will  be  regarded  as  a 
 request  for  dismissal. 
 (d)  Complaint  Regarding  a  New  Service  Not  Subject  to  Petition.  In  an  instance  in  which  an  interested  party  has  a  substantial  basis  to 
 believe  and  does  believe  in  good  faith  that  a  new  service  within  a  Defined  Business  Model  has  been  launched  without  a  petition  as  required 
 by  this  Rule,  such  party  may  file  a  complaint  pursuant  to  section  76.7  of  the  Commission's  rules. 


 76.1906  Encoding  Rules  for  Undefined  Business  Models 
 (a)  Upon  public  notice  and  subject  to  requirements  as  set  forth  herein,  a  Covered  Entity  may  launch  a  program  service  pursuant  to  an 
 Undefined  Business  Model.  Subject  to  Commission  review  upon  Complaint,  the  Covered  Entity  may  initially  Encode  programs  pursuant 
 to  such  Undefined  Business  Model  without  regard  to  limitations  set  forth  in  76.1904(  b). 


 (1)  Notice.  Concurrent  with  the  launch  of  an  Undefined  Business  Model  by  a  Covered  Entity,  the  Covered  Entity  shall  issue  a  press  release 
 to  the  PR  Newswire  so  as  to  provide  public  notice  of  the  Undefined  Business  Model,  and  the  proposed  Encoding  terms.  The  notice  shall 
 provide  a  concise  summary  of  the  Commercial  Audiovisual  Content  to  be  provided  pursuant  to  the  Undefined  Business  Model,  and  of  the  terms 
 on  which  such  content  is  to  be  available  to  consumers.  Immediately  upon  request  from  a  party  entitled  to  be  a  Complainant,  the  Covered  Entity 
 shall  make  available  information  that  indicates  the  proposed  Encoding  terms,  including  the  use  of  Copy  Never  or  Copy  One  Generation 
 Encoding,  and  the  Encoding  of  content  with  respect  to  pause  as 
57
 Federal  Communications  Commission  FCC  03-  225 
 58 
 defined  in  76.  1904(  b)(  2). 
 (2)  Complaint  Process.  Any  interested  party  ("  Complainant")  may  file  a  complaint  with  the  Commission  objecting  to  application  of 
 Encoding  as  set  forth  in  the  notice. 
 (i)  Pre-  complaint  resolution.  Prior  to  initiating  a  complaint  with  the  Commission  under  this  subsection,  the  Complainant  shall  notify  the 
 Covered  Entity  that  it  may  file  a  complaint  under  this  subsection.  The  notice  must  be  sufficiently  detailed  so  that  the  Covered  Entity  can 
 determine  the  specific  nature  of  the  potential  complaint.  The  potential  Complainant  must  allow  a  minimum  of  thirty  (30)  days  from  such  notice 
 before  filing  such  complaint  with  the  Commission.  During  this  period  the  parties  shall  endeavor  in  good  faith  to  resolve  the  issue(  s)  in  dispute.  If 
 the  parties  fail  to  reach  agreement  within  this  30  day  period,  Complainant  may  initiate  a  complaint  in  accordance  with  the  procedures 
 set  forth  herein. 
 (ii)  Complaint.  Within  two  years  of  publication  of  a  notice  under  paragraph  (a)(  1)  of  this  section,  a  Complainant  may  file  a  complaint  with 
 the  Commission  objecting  to  application  of  the  Encoding  terms  to  the  service  at  issue.  Such  complaint  shall  state  with  particularity  the  basis  for 
 objection  to  the  Encoding  terms. 
 (A)  The  complaint  shall  contain  the  name  and  address  of  the  complainant  and  the  name  and  address  of  the  Covered  Entity. 


 (B)  The  complaint  shall  be  accompanied  by  a  certification  of  service  on  the  named  Covered  Entity. 
 (C)  The  complaint  shall  set  forth  with  specificity  all  information  and  arguments  relied  upon.  Specific  factual  allegations  shall  be 
 supported  by  a  declaration  of  a  person  or  persons  with  actual  knowledge  of  the  facts,  and  exhibits  shall  be  verified  by  the  person  who  prepares 
 them. 
 (D)  The  complaint  shall  set  forth  attempts  made  by  the  Complainant  to  resolve  its  complaint  pursuant  to  paragraph  (a)(  2)(  i)  of 
 this  section. 
 (iii)  Public  Notice.  The  Commission  shall  give  public  notice  of  the  filing  of  the  complaint.  Once  the  Commission  has  issued  such  public 
 notice,  any  person  otherwise  entitled  to  be  a  Complainant  shall  instead  have  the  status  of  a  person  submitting  comments  under  paragraph 
 (a)(  2)(  iv)  of  this  section  rather  than  a  Complainant. 
 (iv)  Comments  and  Reply. 
 (A)  Any  person  may  submit  comments  regarding  the  complaint  within  thirty  (30)  days  after  the  date  of  public  notice  by  the  Commission. 
58
 Federal  Communications  Commission  FCC  03-  225 
 59 
 Comments  shall  be  served  on  the  Complainant  and  the  Covered  Entity  and  on  any  persons  listed  in  relevant  certificates  of  service,  and  shall 
 contain  a  detailed  full  statement  of  any  facts  or  considerations  relied  on.  Specific  factual  allegations  shall  be  supported  by  a  declaration  of  a 
 person  or  persons  with  actual  knowledge  of  the  facts,  and  exhibits  shall  be  verified  by  the  person  who  prepares  them. 


 (B)  The  Covered  Entity  may  file  a  Response  to  the  Complaint  and  comments  within  twenty  (20)  days  after  the  date  that  comments  are 
 due.  Such  Response  shall  be  served  on  all  persons  who  have  filed  complaints  or  comments  and  shall  also  contain  a  detailed  full  showing, 
 supported  by  affidavit  or  declaration,  of  any  additional  facts  or  considerations  relied  on.  Replies  shall  be  due  ten  (10)  days  from  the  date 
 for  filing  a  Response. 
 (v)  Basis  for  Commission  determination  as  to  encoding  terms  for  an  Undefined  Business  Model.  In  a  permit-  but-  disclose  proceeding, 
 unless  otherwise  specified  by  the  Commission,  to  determine  whether  Encoding  terms  as  noticed  may  be  applied  to  an  Undefined  Business 
 Model,  the  Covered  Entity  shall  have  the  burden  of  proof  to  establish  that  application  of  the  Encoding  terms  in  the  Undefined  Business  Model 
 is  in  the  public  interest.  In  making  any  such  determination,  the  Commission  shall  take  into  account  the  following  factors: 


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


 (B)  Ways  in  which  the  new  service  differs  from  services  offered  by  any  Covered  Entity  prior  to  December  31,  2002; 
 (vi)  Determination  Procedures.  The  Commission  may  specify  other  procedures,  such  as  oral  argument,  evidentiary  hearing,  or  further 
 written  submissions  directed  to  particular  aspects,  as  it  deems  appropriate. 


 (b)  Complaint  Regarding  a  Service  Not  Subject  to  Notice.  In  an  instance  in  which  an  interested  party  has  a  substantial  basis  to  believe 
 and  believes  in  good  faith  that  a  service  pursuant  to  an  Undefined  Business  Model  has  been  launched  without  requisite  notice,  such  party 
 may  file  a  complaint  pursuant  to  section  76.7  of  the  Commission's  rules. 
 76.1907  Temporary  Bona  Fide  Trials 
 The  obligations  and  procedures  as  to  Encoding  Rules  set  forth  in    76.1904(  b)-(  c)  and    76.  1905(  a)-(  b)  do  not  apply  in  the  case  of  a 
 temporary  bona  fide  trial  of  a  service. 
 76.1908  Certain  Practices  Not  Prohibited 
59
 Federal  Communications  Commission  FCC  03-  225 
 60 
 Nothing  in  this  subpart  shall  be  construed  as  prohibiting  a  Covered  Entity  from: 
 (a)  encoding,  storing  or  managing  Commercial  Audiovisual  Content  within  its  distribution  system  or  within  a  Covered  Product  under 
 the  control  of  a  Covered  Entity's  Commercially  Adopted  Access  Control  Method,  provided  that  the  outcome  for  the  consumer  from  the 
 application  of  the  Encoding  Rules  set  out  in    76.1904(  a)-(  b)  is  unchanged  thereby  when  such  Commercial  Audiovisual  Content  is 
 released  to  consumer  control,  or 
 (b)  causing,  with  respect  to  a  specific  Covered  Product,  the  output  of  content  from  such  product  in  a  format  as  necessary  to  match 
 the  display  format  of  another  device  connected  to  such  product,  including  but  not  limited  to  providing  for  content  conversion  between 
 widely-  used  formats  for  the  transport,  processing  and  display  of  audiovisual  signals  or  data,  such  as  between  analog  and  digital  formats 
 and  between  PAL  and  NTSC  or  RGB  and  Y,  Pb,  Pr. 
 *  *  *  *  * 
60
 Federal  Communications  Commission  FCC  03-  225 
 61 
 APPENDIX  C  FINAL  REGULATORY  FLEXIBILITY  ANALYSIS 
 As  required  by  the  Regulatory  Flexibility  Act  of  1980,  as  amended  ("  RFA")  1  an  Initial  Regulatory  Flexibility  Analysis  ("  IRFA")  was  incorporated  in  the  Further  Notice  of  Proposed 
 Rulemaking  (  FNPRM).  2  The  Commission  sought  written  public  comment  on  the  proposals  in  the  FNPRM,  including  comment  on  the  IRFA.  Comments  were  received  on  the  IRFA.  This 
 present  Final  Regulatory  Flexibility  Analysis  (  FRFA)  conforms  to  the  RFA.  3 
 A.  Need  for,  and  Objectives  of,  the  Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking.  The  need  for  FCC  regulation  in  this  area  derives  from 
 the  lack  of  a  so-  called  cable  compatibility  plug  and  play  standard  for  a  digital  cable  television  receiver  and  related  digital  cable  television  consumer  electronics  equipment.  The  absence  of  such 
 a  standard  has  been  identified  as  a  key  impediment  to  the  anticipated  rate  and  scope  of  the  transition  to  digital  television  (  DTV).  Such  a  standard  would  allow  consumers  to  directly 
 attach  their  DTV  receivers  to  cable  systems  and  receive  certain  cable  television  services  without  the  need  for  an  external  navigation  device.  Since  more  than  sixty  percent  of  television 
 households  subscribe  to  cable  programming  services,  the  availability  of  digital  cable  television  receivers  and  products  would  encourage  more  consumers  to  convert  to  DTV,  thereby  furthering 
 the  transition.  Private  industry  negotiations  between  cable  operators  and  consumer  electronics  manufacturers  resulted  in  a  Memorandum  of  Understanding  (  MOU)  on  a  cable  compatibility 
 standard  for  an  integrated,  unidirectional  digital  cable  television  receiver,  as  well  as  for  other  unidirectional  digital  cable  products.  The  MOU  requires  the  consumer  electronics  and  cable 
 television  industries  to  each  commit  to  certain  voluntary  acts  and  sought  the  creation  or  revision  of  certain  relevant  Commission  rules.  The  objective  of  the  final  rules,  as  set  forth  in  the  Second 
 Report  and  Order  portion  of  the  Second  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking  (  Second  Report  and  Order),  is  to  facilitate  the  DTV  transition. 


 B.  Summary  of  Significant  Issues  Raised  by  Public  Comments  in  Response  to  the  IRFA.  The  Commission  received  comments  from  the  American  Cable  Association  (  ACA) 
 in  response  to  the  IRFA  accompanying  the  FNPRM.  In  these  comments,  ACA  expresses  its  support  for  the  Commissions  efforts  to  advance  the  DTV  transition,  but  asks  that  the 
 Commission  take  into  account  the  special  circumstances  of  smaller  cable  companies  in  this  proceeding.  Specifically,  ACA  asks  that  the  Commission  consider:  (1)  the  costs  of  compliance 
 for  smaller  cable  systems,  (2)  how  plug-  and-  play  requirements  might  affect  smaller  cable  systems  that  use  Comcasts  Headend-  in-  the-  Sky  (  HITS)  programming,  and  (3)  why  some  of  the  plug-and- 
 play  requirements  are  limited  to  systems  having  750  MHz  activated  channel  capacity  or  higher,  while  other  requirements  apply  to  all  digital  cable  systems.  4  To  the  extent  that  the 
 Commission  determines  that  there  would  be  a  disparate  cost  impact  upon  small  cable  systems,  ACA  asks  that  the  Commission  consider  waivers  and  an  extended  phase-  in  for  small  system 


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


 2  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996:  Commercial  Availability  of 
 Navigation  Devices,  18  FCC  Rcd  518  (2003)  (  FNPRM).  3 
 See  5  U.  S.  C.    604.  4 
 ACA  IRFA  Comments  at  2. 
61
 Federal  Communications  Commission  FCC  03-  225 
 62 
 compliance.  5  We  have  discussed  compliance  impacts  in  this  FRFA  in  Sections  D  and  E,  infra. 
 C.  Description  and  Estimate  of  the  Number  of  Small  Entities  to  Which  the  Proposed  Rules  Will  Apply  .  The  RFA  directs  the  Commission  to  provide  a  description  of  and, 


 where  feasible,  an  estimate  of  the  number  of  small  entities  that  will  be  affected  by  the  proposed  rules.  6  The  RFA  generally  defines  the  term  "small  entity"  as  encompassing  the  terms  "small 
 business,"  "small  organization,"  and  "small  governmental  entity.  "7  In  addition,  the  term  small  Business  has  the  same  meaning  as  the  term  small  business  concern  under  the  Small  Business 
 Act.  8  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").  9 
 Television  Broadcasting.  The  Small  Business  Administration  defines  a  television  broadcasting  station  that  has  no  more  than  $12  million  in  annual  receipts  as  a  small  business.  10  Business 


 concerns  included  in  this  industry  are  those  primarily  engaged  in  broadcasting  images  together  with  sound.  11  According  to  Commission  staff  review  of  the  BIA  Publications,  Inc.  Master 
 Access  Television  Analyzer  Database  as  of  May  16,  2003,  about  814  of  the  1,220  commercial  television  stations  in  the  United  States  have  revenues  of  $12  million  or  less.  We  note,  however, 
 that,  in  assessing  whether  a  business  concern  qualifies  as  small  under  the  above  definition,  business  (control)  affiliations  12  must  be  included.  Our  estimate,  therefore,  likely  overstates  the 
 number  of  small  entities  that  might  be  affected  by  our  action,  because  the  revenue  figure  on  which  it  is  based  does  not  include  or  aggregate  revenues  from  affiliated  companies.  There  are 


 5  ACA  IRFA  Comments  at  3. 
 6  5  U.  S.  C.    603(  b)(  3). 
 7  5  U.  S.  C.    601(  6). 
 8  5  U.  S.  C.    601(  3)  (incorporating  by  reference  the  definition  of  small  business  concern  in  the  Small 
 Business  Act,  15  U.  S.  C.    632).  Pursuant  to  5  U.  S.  C.    601(  3),  the  statutory  definition  of  a  small  business  applies  unless  an  agency,  after  consultation  with  the  Office  of  Advocacy  of  the  Small  Business 


 Administration  and  after  opportunity  for  public  comment,  establishes  one  or  more  definitions  of  such  term  which  are  appropriate  to  the  activities  of  the  agency  and  publishes  such  definition(  s)  in  the  Federal 
 Register.  9 
 15  U.  S.  C.    632.  10 
 See  OMB,  North  American  Industry  Classification  System:  United  States,  1997  at  509  (1997)  (NAICS  code  513120,  which  was  changed  to  code  515120  in  October  2002) 


 11  OMB,  North  American  Industry  Classification  System:  United  States,  1997,  at  509  (1997)  (NAICS  code 
 513120,  which  was  changed  to  code  51520  in  October  2002).  This  category  description  continues,  These  establishments  operate  television  broadcasting  studios  and  facilities  for  the  programming  and  transmission 


 of  programs  to  the  public.  These  establishments  also  produce  or  transmit  visual  programming  to  affiliated  broadcast  television  stations,  which  in  turn  broadcast  the  programs  to  the  public  on  a  predetermined 
 schedule.  Programming  may  originate  in  their  own  studios,  from  an  affiliated  network,  or  from  external  sources.  Separate  census  categories  pertain  to  businesses  primarily  engaged  in  producing  programming. 
 See  id.  at  502-  05,  NAICS  code  51210.  Motion  Picture  and  Video  Production:  code  512120,  Motion  Picture  and  Video  Distribution,  code  512191,  Teleproduction  and  Other  Post-  Production  Services,  and  code 
 512199,  Other  Motion  Picture  and  Video  Industries.  12 
 Concerns  are  affiliates  of  each  other  when  one  concern  controls  or  has  the  power  to  control  the  other  or  a  third  party  or  parties  controls  or  has  to  power  to  control  both.  13  C.  F.  R.    121.103(  a)(  1). 
62
 Federal  Communications  Commission  FCC  03-  225 
 63 
 also  2,127  low  power  television  stations  (LPTV).  13  Given  the  nature  of  this  service,  we  will  presume  that  all  LPTV  licensees  qualify  as  small  entities  under  the  SBA  definition. 
 In  addition,  an  element  of  the  definition  of  small  business  is  that  the  entity  not  be  dominant  in  its  field  of  operation.  We  are  unable  at  this  time  to  define  or  quantify  the  criteria  that 
 would  establish  whether  a  specific  television  station  is  dominant  in  its  field  of  operation.  Accordingly,  the  estimate  of  small  businesses  to  which  rules  may  apply  do  not  exclude  any 
 television  station  from  the  definition  of  a  small  business  on  this  basis  and  are  therefore  over-inclusive  to  that  extent.  Also  as  noted,  an  additional  element  of  the  definition  of  small  business 
 is  that  the  entity  must  be  independently  owned  and  operated.  We  note  that  it  is  difficult  at  times  to  assess  these  criteria  in  the  context  of  media  entities  and  our  estimates  of  small  businesses  to 
 which  they  apply  may  be  over-  inclusive  to  this  extent. 
 Cable  and  Other  Program  Distribution.  The  SBA  has  developed  a  small  business  size  standard  for  cable  and  other  program  distribution  services,  which  includes  all  such  companies 


 generating  $12.5  million  or  less  in  revenue  annually.  14  This  category  includes,  among  others,  cable  operators,  direct  broadcast  satellite  (  DBS)  services,  home  satellite  dish  (  HSD)  services, 
 multipoint  distribution  services  (  MDS),  multichannel  multipoint  distribution  service  (  MMDS),  Instructional  Television  Fixed  Service  (  ITFS),  local  multipoint  distribution  service 
 (  LMDS),  satellite  master  antenna  television  (  SMATV)  systems,  and  open  video  systems  (  OVS).  According  to  the  Census  Bureau  data,  there  are  1,311  total  cable  and  other  pay 
 television  service  firms  that  operate  throughout  the  year  of  which  1,180  have  less  than  $10  million  in  revenue.  15  We  address  below  each  service  individually  to  provide  a  more  precise 
 estimate  of  small  entities. 
 Cable  Operators.  The  Commission  has  developed,  with  SBA's  approval,  our  own  definition  of  a  small  cable  system  operator  for  the  purposes  of  rate  regulation.  Under  the 


 Commission's  rules,  a  "small  cable  company"  is  one  serving  fewer  than  400,000  subscribers  nationwide.  16  We  last  estimated  that  there  were  1,439  cable  operators  that  qualified  as  small 
 cable  companies.  17  Since  then,  some  of  those  companies  may  have  grown  to  serve  over  400,000  subscribers,  and  others  may  have  been  involved  in  transactions  that  caused  them  to  be  combined 
 with  other  cable  operators.  Consequently,  we  estimate  that  there  are  fewer  than  1,439  small  entity  cable  system  operators  that  may  be  affected  by  the  decisions  and  rules  proposed  in  this 
 Further  Notice. 


 13  FCC  News  Release,  Broadcast  Station  Totals  as  of  September  30,  2002. 
 14  13  C.  F.  R.    121.201,  NAICS  code  517510  (formerly  513220).  This  NAICS  code  applies  to  all  services 
 listed  in  this  paragraph.  15 
 Economics  and  Statistics  Administration,  Bureau  of  Census,  U.  S.  Department  of  Commerce,  1997  Economic  Census,  Subject  Series    Establishment  and  Firm  Size,  Information  Sector  51,  Table  4  at  50 


 (2000).  The  amount  of  $10  million  was  used  to  estimate  the  number  of  small  business  firms  because  the  relevant  Census  categories  stopped  at  $9,  999,999  and  began  at  $10,000,  000.  No  category  for  $12.  5  million 
 existed.  Thus,  the  number  is  as  accurate  as  it  is  possible  to  calculate  with  the  available  information.  16 
 47  C.  F.  R.    76.  901(  e).  The  Commission  developed  this  definition  based  on  its  determinations  that  a  small  cable  system  operator  is  one  with  annual  revenues  of  $100  million  or  less.  Sixth  Report  and  Order 


 and  Eleventh  Order  on  Reconsideration,  10  FCC  Rcd.  7393  (1995).  17 
 Paul  Kagan  Associates,  Inc.,  Cable  TV  Investor,  Feb.  29,  1996  (based  on  figures  for  Dec.  30,  1995). 
63
 Federal  Communications  Commission  FCC  03-  225 
 64 
 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."  18  The 
 Commission  has  determined  that  there  are  68,500,000  subscribers  in  the  United  States.  Therefore,  an  operator  serving  fewer  than  685,000  subscribers  shall  be  deemed  a  small  operator  if 
 its  annual  revenues,  when  combined  with  the  total  annual  revenues  of  all  of  its  affiliates,  do  not  exceed  $250  million  in  the  aggregate.  19  Based  on  available  data,  we  find  that  the  number  of  cable 
 operators  serving  685,000  subscribers  or  less  totals  approximately  1,450.  20  Although  it  seems  certain  that  some  of  these  cable  system  operators  are  affiliated  with  entities  whose  gross  annual 
 revenues  exceed  $250,000,  000,  we  are  unable  at  this  time  to  estimate  with  greater  precision  the  number  of  cable  system  operators  that  would  qualify  as  small  cable  operators  under  the  definition 
 in  the  Communications  Act. 
 Direct  Broadcast  Satellite  (  DBS)  Service.  Because  DBS  provides  subscription  services,  DBS  falls  within  the  SBA-  recognized  definition  of  cable  and  other  program  distribution 
 services.  21  This  definition  provides  that  a  small  entity  is  one  with  $12.5  million  or  less  in  annual  receipts.  22  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.  23  The  Commission, 
 however,  does  not  collect  annual  revenue  data  for  DBS  and,  therefore,  is  unable  to  ascertain  the  number  of  small  DBS  licensees  that  could  be  impacted  by  these  proposed  rules.  DBS  service 
 requires  a  great  investment  of  capital  for  operation,  and  we  acknowledge,  despite  the  absence  of  specific  data  on  this  point,  that  there  are  entrants  in  this  field  that  may  not  yet  have  generated 
 $12.5  million  in  annual  receipts,  and  therefore  may  be  categorized  as  a  small  business,  if  independently  owned  and  operated. 


 Home  Satellite  Dish  (  HSD)  Service.  Because  HSD  provides  subscription  services,  HSD  falls  within  the  SBA-  recognized  definition  of  cable  and  other  program  distribution 
 services.  24  This  definition  provides  that  a  small  entity  is  one  with  $12.5  million  or  less  in  annual  receipts.  25  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.  26  HSD  owners  can  watch  unscrambled  channels  without  paying  a  subscription  fee.  To  receive  scrambled 


 18  47  U.  S.  C.    543(  m)(  2). 
 19  47  C.  F.  R.    76.1403(  b). 
 20  Paul  Kagan  Associates,  Inc.,  Cable  TV  Investor,  Feb.  29,  1996  (based  on  figures  for  Dec.  30,  1995). 
 21  13  C.  F.  R.    121.  201,  NAICS  code  517510  (formerly  513220). 
 22  Id. 
 23  Id. 
 24  13  C.  F.  F.    121.  201,  NAICS  code  517510  (formerly  513220). 
 25  Id. 
 26  Annual  Assessment  of  the  Status  of  Competition  in  Markets  for  the  Delivery  of  Video  Programming,  12 
 FCC  Rcd  4358,  4385  (1996)  (  Third  Annual  Report). 
64
 Federal  Communications  Commission  FCC  03-  225 
 65 
 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.  27 


 Multipoint  Distribution  Service  (  MDS),  Multichannel  Multipoint  Distribution  Service  (  MMDS)  Instructional  Television  Fixed  Service  (  ITFS)  and  Local  Multipoint 
 Distribution  Service  (  LMDS).  MMDS  systems,  often  referred  to  as  wireless  cable,  transmit  video  programming  to  subscribers  using  the  microwave  frequencies  of  the  MDS  and  ITFS.  28 
 LMDS  is  a  fixed  broadband  point-  to-  multipoint  microwave  service  that  provides  for  two-  way  video  telecommunications.  29 


 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.  30  This  definition  of  a  small  entity  in  the  context  of  MDS  auctions  has  been  approved  by  the  SBA.  31  The  MDS  auctions  resulted  in  67  successful  bidders  obtaining  licensing 
 opportunities  for  493  Basic  Trading  Areas  (  BTAs).  Of  the  67  auction  winners,  61  met  the  definition  of  a  small  business.  MDS  also  includes  licensees  of  stations  authorized  prior  to  the 
 auction.  As  noted,  the  SBA  has  developed  a  definition  of  small  entities  for  pay  television  services,  which  includes  all  such  companies  generating  $12.5  million  or  less  in  annual  receipts.  32 
 This  definition  includes  multipoint  distribution  services,  and  thus  applies  to  MDS  licensees  and  wireless  cable  operators  that  did  not  participate  in  the  MDS  auction.  Information  available  to  us 
 indicates  that  there  are  approximately  850  of  these  licensees  and  operators  that  do  not  generate  revenue  in  excess  of  $12.5  million  annually.  Therefore,  for  purposes  of  the  IRFA,  we  find  there 
 are  approximately  850  small  MDS  providers  as  defined  by  the  SBA  and  the  Commissions  auction  rules. 


 The  SBA  definition  of  small  entities  for  cable  and  other  program  distribution  services,  which  includes  such  companies  generating  $12.5  million  in  annual  receipts,  seems  reasonably 
 applicable  to  ITFS.  33  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 


 27  Id.  at  4385. 
 28  Amendment  of  Parts  21  and  74  of  the  Commissions  Rules  with  Regard  to  Filing  Procedures  in  the 
 Multipoint  Distribution  Service  and  in  the  Instructional  Television  Fixed  Service  and  Implementation  of  Section  309(  j)  of  the  Communications  Act    Competitive  Bidding,  10  FCC  Rcd  at  9589,  9593  (1995)  (  ITFS 


 Order).  29 
 See  Local  Multipoint  Distribution  Service,  12  FCC  Rcd  12545  (1997)  (  LMDS  Order).  30 
 47  C.  F.  R.    21.961(  b)(  1).  31 
 See  ITFS  Order,  10  FCC  Rcd  at  9589.  32 
 13  C.  F.  R.    121.  201,  NAICS  code  517510  (formerly  513220).  33 
 Id. 
65
 Federal  Communications  Commission  FCC  03-  225 
 66 
 business.  34  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.  35  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.  36  These  regulations  defining  small  entity  in  the  context  of 
 LMDS  auctions  have  been  approved  by  the  SBA.  37  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  Commissions  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  Commissions  auction  rules. 


 Satellite  Master  Antenna  Television  ("  SMATV")  Systems.  The  SBA  definition  of  small  entities  for  cable  and  other  program  distribution  services  includes  SMATV  services  and, 
 thus,  small  entities  are  defined  as  all  such  companies  generating  $12.5  million  or  less  in  annual  receipts.  38  Industry  sources  estimate  that  approximately  5,200  SMATV  operators  were  providing 
 service  as  of  December  1995.  39  Other  estimates  indicate  that  SMATV  operators  serve  approximately  1.5  million  residential  subscribers  as  of  July  2001.  40  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 


 34  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). 


 35  See  LMDS  Order,  12  FCC  Rcd  at  12545. 
 36  Id. 
 37  See  Letter  to  Daniel  Phythyon,  Chief,  Wireless  Telecommunications  Bureau  (FCC)  from  A.  Alvarez, 
 Administrator,  SBA  (January  6,  1998).  38 
 13  C.  F.  R.    121.  201,  NAICS  code  517510  (formerly  513220).  39 
 See  Third  Annual  Report,  12  FCC  Rcd  at  4403-  4.  40 
 See  Annual  Assessment  of  the  Status  of  Competition  in  Markets  for  the  Delivery  of  Video  Programming,  17  FCC  Rcd  1244,  1281  (2001)  (  Eighth  Annual  Report). 
66
 Federal  Communications  Commission  FCC  03-  225 
 67 
 small  entities 
 Open  Video  Systems  (  OVS).  Because  OVS  operators  provide  subscription  services,  41  OVS  falls  within  the  SBA-  recognized  definition  of  cable  and  other  program  distribution 


 services.  42  This  definition  provides  that  a  small  entity  is  one  with  $  12.5  million  or  less  in  annual  receipts.  43  The  Commission  has  certified  25  OVS  operators  with  some  now  providing  service. 
 Affiliates  of  Residential  Communications  Network,  Inc.  ("  RCN")  received  approval  to  operate  OVS  systems  in  New  York  City,  Boston,  Washington,  D.  C.  and  other  areas.  RCN  has  sufficient 
 revenues  to  assure  us  that  they  do  not  qualify  as  small  business  entities.  Little  financial  information  is  available  for  the  other  entities  authorized  to  provide  OVS  that  are  not  yet 
 operational.  Given  that  other  entities  have  been  authorized  to  provide  OVS  service  but  have  not  yet  begun  to  generate  revenues,  we  conclude  that  at  least  some  of  the  OVS  operators  qualify  as 
 small  entities. 
 Electronics  Equipment  Manufacturers.  Rules  adopted  in  this  proceeding  could  apply  to  manufacturers  of  DTV  receiving  equipment  and  other  types  of  consumer  electronics 


 equipment.  The  SBA  has  developed  definitions  of  small  entity  for  manufacturers  of  audio  and  video  equipment  44  as  well  as  radio  and  television  broadcasting  and  wireless  communications 
 equipment.  45  These  categories  both  include  all  such  companies  employing  750  or  fewer  employees.  The  Commission  has  not  developed  a  definition  of  small  entities  applicable  to 
 manufacturers  of  electronic  equipment  used  by  consumers,  as  compared  to  industrial  use  by  television  licensees  and  related  businesses.  Therefore,  we  will  utilize  the  SBA  definitions 
 applicable  to  manufacturers  of  audio  and  visual  equipment  and  radio  and  television  broadcasting  and  wireless  communications  equipment,  since  these  are  the  two  closest  NAICS  Codes  applicable 
 to  the  consumer  electronics  equipment  manufacturing  industry.  However,  these  NAICS  categories  are  broad  and  specific  figures  are  not  available  as  to  how  many  of  these  establishments 
 manufacture  consumer  equipment.  According  to  the  SBAs  regulations,  an  audio  and  visual  equipment  manufacturer  must  have  750  or  fewer  employees  in  order  to  qualify  as  a  small 
 business  concern.  46  Census  Bureau  data  indicates  that  there  are  554  U.  S.  establishments  that  manufacture  audio  and  visual  equipment,  and  that  542  of  these  establishments  have  fewer  than 
 500  employees  and  would  be  classified  as  small  entities.  47  The  remaining  12  establishments  have  500  or  more  employees;  however,  we  are  unable  to  determine  how  many  of  those  have  fewer  than 
 750  employees  and  therefore,  also  qualify  as  small  entities  under  the  SBA  definition.  Under  the  SBAs  regulations,  a  radio  and  television  broadcasting  and  wireless  communications  equipment 
 manufacturer  must  also  have  750  or  fewer  employees  in  order  to  qualify  as  a  small  business 
 41  See  47  U.  S.  C.    573. 
 42  13  C.  F.  R.    121.  201,  NAICS  code  517510  (formerly  513220). 
 43  Id. 
 44  13  CFR    121.201,  NAICS  code  334310. 
 45  13  CFR    121.201,  NAICS  code  334220. 
 46  13  CFR    121.201,  NAICS  code  334310. 
 47  Economics  and  Statistics  Administration,  Bureau  of  Census,  U.  S.  Department  of  Commerce,  1997 
 Economic  Census,  Industry  Series    Manufacturing,  Audio  and  Video  Equipment  Manufacturing,  Table  4  at  9  (1999).  The  amount  of  500  employees  was  used  to  estimate  the  number  of  small  business  firms 


 because  the  relevant  Census  categories  stopped  at  499  employees  and  began  at  500  employees.  No  category  for  750  employees  existed.  Thus,  the  number  is  as  accurate  as  it  is  possible  to  calculate  with  the 
 available  information. 
67
 Federal  Communications  Commission  FCC  03-  225 
 68 
 concern.  48  Census  Bureau  data  indicates  that  there  1,215  U.  S.  establishments  that  manufacture  radio  and  television  broadcasting  and  wireless  communications  equipment,  and  that  1,150  of 
 these  establishments  have  fewer  than  500  employees  and  would  be  classified  as  small  entities.  49  The  remaining  65  establishments  have  500  or  more  employees;  however,  we  are  unable  to 
 determine  how  many  of  those  have  fewer  than  750  employees  and  therefore,  also  qualify  as  small  entities  under  the  SBA  definition.  We  therefore  conclude  that  there  are  no  more  than  542  small 
 manufacturers  of  audio  and  visual  electronics  equipment  and  no  more  than  1,150  small  manufacturers  of  radio  and  television  broadcasting  and  wireless  communications  equipment  for 
 consumer/  household  use. 
 Computer  Manufacturers.  The  Commission  has  not  developed  a  definition  of  small  entities  applicable  to  computer  manufacturers.  Therefore,  we  will  utilize  the  SBA  definition  of 


 electronic  computers  manufacturing.  According  to  SBA  regulations,  a  computer  manufacturer  must  have  1,000  or  fewer  employees  in  order  to  qualify  as  a  small  entity.  50  Census  Bureau  data  indicates 
 that  there  are  563  firms  that  manufacture  electronic  computers  and  of  those,  544  have  fewer  than  1,000  employees  and  qualify  as  small  entities.  51  The  remaining  19  firms  have  1,000  or  more 
 employees.  We  conclude  that  there  are  approximately  544  small  computer  manufacturers. 


 48  13  C.  F.  R.    121.  201,  NAICS  code  334220. 
 49  Economics  and  Statistics  Administration,  Bureau  of  Census,  U.  S.  Department  of  Commerce,  1997 
 Economic  Census,  Industry  Series    Manufacturing,  Radio  and  Television  Broadcasting  and  Wireless  Communications  Equipment  Manufacturing,  Table  4  at  9  (1999).  The  amount  of  500  employees  was  used 


 to  estimate  the  number  of  small  business  firms  because  the  relevant  Census  categories  stopped  at  499  employees  and  began  at  500  employees.  No  category  for  750  employees  existed.  Thus,  the  number  is  as 
 accurate  as  it  is  possible  to  calculate  with  the  available  information.  50 
 13  C.  F.  R.    121.  201,  NAICS  code  334111.  51 
 Economics  and  Statistics  Administration,  Bureau  of  Census,  U.  S.  Department  of  Commerce,  1997  Economic  Census,  Industry  Series    Manufacturing,  Electronic  Computer  Manufacturing,  Table  4  at  9 


 (1999). 
68
 Federal  Communications  Commission  FCC  03-  225 
 69 
 D.  Description  of  Projected  Reporting,  Recordkeeping  and  other  Compliance  Requirements.  The  final  rules  set  technical  and  other  criteria  that  manufacturers  would  have  to 
 meet  in  order  to  label  or  market  unidirectional  digital  cable  televisions  and  other  unidirectional  digital  cable  products  as  digital  cable  ready.  This  regime  includes  testing  and  self-  certification 
 standards.  The  final  rules  also  require  consumer  information  disclosures  to  purchasers  of  unidirectional  digital  cable  televisions  receivers  in  appropriate  post-  sale  materials  that  describe 
 the  functionality  of  these  devices  and  the  need  to  obtain  a  security  module  from  their  cable  operator.  Cable  operators  with  digital  systems  of  750  MHz  or  greater  activated  channel  capacity 
 will  be  required  to  support  operation  of  unidirectional  digital  cable  products  on  digital  cable  systems.  Certain  other  technical  support  requirements  apply  to  all  digital  cable  systems, 
 regardless  of  channel  capacity,  including  those  systems  whose  only  digital  programming  comes  from  HITS.  In  addition,  all  cable  operators  will  be  required  to  supply  digital  subscribers  with 
 point-  of-  deployment  modules  (  PODs)  and  high  definition  set-  top  boxes  that  comply  with  certain  technical  standards  by  April  1,  2004  and  July  1,  2005  deadlines.  52  Finally,  all  MVPDs 
 would  be  prohibited  from  encoding  content  to  activate  selectable  output  controls  on  consumer  premises  equipment,  or  the  down-  resolution  of  unencrypted  broadcast  television  programming. 
 MVPDs  would  also  be  limited  in  the  levels  of  copy  protection  that  could  be  applied  to  various  categories  of  programming. 


 E.  Steps  Taken  to  Minimize  Significant  Impact  on  Small  Entities,  and  Significant  Alternatives  Considered.  The  RFA  requires  an  agency  to  describe  any  significant 
 alternatives  that  it  has  considered  in  reaching  its  proposed  approach,  which  may  include  the  following  four  alternatives  (among  others):  (1)  the  establishment  of  differing  compliance  or 
 reporting  requirements  or  timetables  that  take  into  account  the  resources  available  to  small  entities;  (2)  the  clarification,  consolidation,  or  simplification  of  compliance  or  reporting 
 requirements  under  the  rule  for  small  entities;  (3)  the  use  of  performance,  rather  than  design,  standards;  and  (4)  an  exemption  from  coverage  of  the  rule,  or  any  part  thereof,  for  small  entities.  53 


 Because  the  digital  cable  ready  labeling  regime  does  not  require  manufacturers  to  affix  a  label  to  devices,  we  do  not  anticipate  that  small  manufacturers  will  be  significantly  affected. 
 Although  the  consumer  information  disclosure  in  post-  sale  is  mandatory,  we  do  not  believe  that  it  will  adversely  affect  small  manufacturers  since  they  already  include  owners  manuals  and  other 
 documentation  inside  equipment  packaging. 
 The  record  in  this  proceeding  did  not  provide  the  Commission  with  detailed  cost  information  on  the  digital  cable  system  support  requirements.  In  an  effort  to  take  into  account  the 


 concerns  of  small  cable  systems,  the  Commission  has  indicated  that  it  will  consider  waiver  requests  for  these  requirements  on  a  case-  by-  case  basis.  As  to  the  POD-  provisioning  mandate, 
 cable  operators  are  already  required  to  provide  PODs  to  subscribers  by  request.  We  therefore  do  not  believe  that  the  new  provisioning  requirements  will  have  a  significant  impact  on  small  cable 
 systems.  Likewise,  we  anticipate  that  the  upcoming  high  definition  set-  top  box  deadlines  will  not  negatively  impact  small  operators  since  the  2004  deadline  only  applies  to  output  upgrades  upon 
 subscriber  request,  and  the  2005  deadline  will  only  apply  to  inventory  acquired  after  that  date. 
 Finally,  we  anticipate  that  the  encoding  prohibitions  on  selectable  output  controls  and  the  down-  resolution  of  unencrypted  broadcast  programming  will  largely  impact  upon  the  DBS 


 52  Proposed  Technical  Rules  at  1-  6. 
 53  5  U.  S.  C.    603(  b). 
69
 Federal  Communications  Commission  FCC  03-  225 
 70 
 industry,  which  is  primarily  composed  of  large  entities.  While  the  caps  on  copy  protection  will  affect  all  MVPDs,  we  do  not  believe  they  will  negatively  impact  small  entities. 
 F.  Federal  Rules  Which  Duplicate,  Overlap,  or  Conflict  with  the  Commission's  Proposals.  None. 
 Report  to  Congress:  The  Commission  will  send  a  copy  of  the  Second  Report  and  Order,  including  this  FRFA,  in  a  report  to  be  sent  to  Congress  pursuant  to  the  Congressional  Review 
 Act.  54  In  addition,  the  Commission  will  send  a  copy  of  the  Second  Report  and  Order,  including  this  FRFA,  to  the  Chief  Counsel  for  Advocacy  of  the  SBA.  A  copy  of  the  Second  Report  and 
 Order  and  FRFA  (or  summaries  thereof)  will  also  be  published  in  the  Federal  Register.  55 


 54  See  5  U.  S.  C.    801(  a)(  1)(  A). 
 55  See  5  U.  S.  C.    604(  b). 
70
 Federal  Communications  Commission  FCC  03-  225 
 71 
 APPENDIX  D  INITIAL  REGULATORY  FLEXIBILITY  ANALYSIS 
 As  required  by  the  Regulatory  Flexibility  Act  of  1980,  as  amended  ("  RFA")  1  the  Commission  has  prepared  this  present  Initial  Regulatory  Flexibility  Analysis  ("  IRFA")  of  the 
 possible  significant  economic  impact  on  a  substantial  number  of  small  entities  by  the  policies  and  rules  proposed  in  the  Second  Further  Notice  of  Proposed  Rulemaking  portion  of  this  item. 
 Written  public  comments  are  requested  on  this  IRFA.  Comments  must  be  identified  as  responses  to  the  IRFA  and  must  be  filed  by  the  deadlines  for  comments  on  the  Second  Further  Notice  of 
 Proposed  Rulemaking  portion  of  this  item  provided  in  paragraph  91.  The  Commission  will  send  a  copy  of  this  entire  Second  Order  and  Second  Further  Notice  of  Proposed  Rulemaking  (  Second 
 Report  and  Order  and  Second  Further  Notice),  including  this  IRFA,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration  (  SBA).  2  In  addition,  the  Second  Further 
 Notice  of  Proposed  Rulemaking  portion  of  this  item  and  the  IRFA  (or  summaries  thereof)  will  be  published  in  the  Federal  Register.  3 


 A.  Need  for,  and  Objectives  of,  the  Proposed  Rules.  In  connection  with  the  Commissions  efforts  to  ensure  the  commercial  availability  of  navigation  devices  pursuant  to 
 Section  629  of  the  Communications  Act,  4  the  Second  Report  and  Order  part  of  the  Second  Report  and  Order  and  Second  Further  Notice  adopts  technical,  labeling  and  encoding  rules  which 
 will  set  a  one-  way  specification  for  digital  cable  plug  and  play  compatibility  for  DTV  equipment.  The  negotiations  between  the  consumer  electronics  and  cable  television  industries 
 which  led  to  the  agreement  underlying  these  rules  call  for  the  cable  television  industry  to  make  initial  determinations  about  which  new  device  connectors  and  associated  content  protection 
 technologies  may  be  used  in  connection  with  unidirectional  digital  cable  products  produced  under  this  specification.  Commenters  have  indicated  that  the  cable  industry  should  not  be  the  sole 
 arbiter  of  such  decisions,  however,  the  record  currently  before  the  Commission  is  insufficient  on  this  matter.  In  order  to  ensure  the  connectivity  and  interoperability  of  unidirectional  digital  cable 
 products,  and  to  fulfill  the  Commissions  commercial  availability  mandate  under  Section  629,  we  are  initiating  the  Second  Further  Notice  to  seek  comment  on  the  mechanisms  and  standards  by 
 which  new  connectors  and  associated  content  protection  technologies  can  be  approved  for  use  in  this  context.  The  Second  Further  Notice  also  seeks  comment  on:  (1)  the  potential  extension  of 
 the  transmission  requirements  applicable  to  digital  cable  systems  with  an  activated  channel  capacity  of  750  MHz  or  higher  to  digital  cable  systems  with  an  activated  channel  capacity  of  550 
 MHz  or  higher;  (2)  whether  it  is  necessary  to  require  consumer  electronics  manufacturers  to  provide  pre-  sale  information  to  consumers  regarding  the  functionalities  of  unidirectional  digital 
 cable  televisions;  and  (3)  whether  the  Commission  should  ban  or  permit  the  down-  resolution  of  non-  broadcast  MVPD  programming. 


 B.  Legal  Basis.  The  authority  for  this  proposed  rulemaking  is  contained  in  Sections  1,  4(  i)  and  (j),  303,  403,  601,  624A  and  629  of  the  Communications  Act  of  1934,  47  U.  S.  C   
 1  See  5  U.  S.  C.    603.  The  RFA,  see  5  U.  S.  C.    601-  612,  has  been  amended  by  the  Small  Business 
 Regulatory  Enforcement  Fairness  Act  of  1996  (SBREFA),  Pub.  L.  No.  104-  121,  Title  II,  110  Stat.  857  (1996). 


 2  See  5  U.  S.  C.    603(  a). 
 3  See  5  U.  S.  C.    603(  a). 
 4  See  47  U.  S.  C.    629. 
71
 Federal  Communications  Commission  FCC  03-  225 
 72 
 151,  154(  i)  and  (j),  303,  403,  521,  544a  and  549. 
 C.  Description  and  Estimate  of  the  Number  of  Small  Entities  to  Which  the  Proposed  Rules  Will  Apply  .  The  RFA  directs  the  Commission  to  provide  a  description  of  and, 


 where  feasible,  an  estimate  of  the  number  of  small  entities  that  will  be  affected  by  the  proposed  rules.  5  The  RFA  generally  defines  the  term  "small  entity"  as  encompassing  the  terms  "small 
 business,"  "small  organization,"  and  "small  governmental  entity.  "6  In  addition,  the  term  small  Business  has  the  same  meaning  as  the  term  small  business  concern  under  the  Small  Business 
 Act.  7  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").  8 
 Television  Broadcasting.  The  Small  Business  Administration  defines  a  television  broadcasting  station  that  has  no  more  than  $12  million  in  annual  receipts  as  a  small  business.  9 


 Business  concerns  included  in  this  industry  are  those  primarily  engaged  in  broadcasting  images  together  with  sound.  10  According  to  Commission  staff  review  of  the  BIA  Publications,  Inc. 
 Master  Access  Television  Analyzer  Database  as  of  May  16,  2003,  about  814  of  the  1,220  commercial  television  stations  in  the  United  States  have  revenues  of  $12  million  or  less.  We 
 note,  however,  that,  in  assessing  whether  a  business  concern  qualifies  as  small  under  the  above  definition,  business  (control)  affiliations  11  must  be  included.  Our  estimate,  therefore,  likely 
 overstates  the  number  of  small  entities  that  might  be  affected  by  our  action,  because  the  revenue  figure  on  which  it  is  based  does  not  include  or  aggregate  revenues  from  affiliated  companies. 
 There  are  also  2,127  low  power  television  stations  (LPTV).  12  Given  the  nature  of  this  service,  we 
 5  5  U.  S.  C.    603(  b)(  3). 
 6  5  U.  S.  C.    601(  6). 
 7  5  U.  S.  C.    601(  3)  (incorporating  by  reference  the  definition  of  small  business  concern  in  the  Small 
 Business  Act,  15  U.  S.  C.    632).  Pursuant  to  5  U.  S.  C.    601(  3),  the  statutory  definition  of  a  small  business  applies  unless  an  agency,  after  consultation  with  the  Office  of  Advocacy  of  the  Small  Business 


 Administration  and  after  opportunity  for  public  comment,  establishes  one  or  more  definitions  of  such  term  which  are  appropriate  to  the  activities  of  the  agency  and  publishes  such  definition(  s)  in  the  Federal 
 Register.  8 
 15  U.  S.  C.    632.  9 
 See  OMB,  North  American  Industry  Classification  System:  United  States,  1997  at  509  (1997)  (NAICS  code  513120,  which  was  changed  to  code  515120  in  October  2002) 


 10  OMB,  North  American  Industry  Classification  System:  United  States,  1997,  at  509  (1997)  (NAICS  code 
 513120,  which  was  changed  to  code  51520  in  October  2002).  This  category  description  continues,  These  establishments  operate  television  broadcasting  studios  and  facilities  for  the  programming  and  transmission 


 of  programs  to  the  public.  These  establishments  also  produce  or  transmit  visual  programming  to  affiliated  broadcast  television  stations,  which  in  turn  broadcast  the  programs  to  the  public  on  a  predetermined 
 schedule.  Programming  may  originate  in  their  own  studios,  from  an  affiliated  network,  or  from  external  sources.  Separate  census  categories  pertain  to  businesses  primarily  engaged  in  producing  programming. 
 See  id.  at  502-  05,  NAICS  code  51210.  Motion  Picture  and  Video  Production:  code  512120,  Motion  Picture  and  Video  Distribution,  code  512191,  Teleproduction  and  Other  Post-  Production  Services,  and  code 
 512199,  Other  Motion  Picture  and  Video  Industries.  11 
 Concerns  are  affiliates  of  each  other  when  one  concern  controls  or  has  the  power  to  control  the  other  or  a  third  party  or  parties  controls  or  has  to  power  to  control  both.  13  C.  F.  R.    121.103(  a)(  1). 


 12  FCC  News  Release,  Broadcast  Station  Totals  as  of  September  30,  2002. 
72
 Federal  Communications  Commission  FCC  03-  225 
 73 
 will  presume  that  all  LPTV  licensees  qualify  as  small  entities  under  the  SBA  definition. 
 In  addition,  an  element  of  the  definition  of  small  business  is  that  the  entity  not  be  dominant  in  its  field  of  operation.  We  are  unable  at  this  time  to  define  or  quantify  the  criteria  that 


 would  establish  whether  a  specific  television  station  is  dominant  in  its  field  of  operation.  Accordingly,  the  estimate  of  small  businesses  to  which  rules  may  apply  do  not  exclude  any 
 television  station  from  the  definition  of  a  small  business  on  this  basis  and  are  therefore  over-inclusive  to  that  extent.  Also  as  noted,  an  additional  element  of  the  definition  of  small  business 
 is  that  the  entity  must  be  independently  owned  and  operated.  We  note  that  it  is  difficult  at  times  to  assess  these  criteria  in  the  context  of  media  entities  and  our  estimates  of  small  businesses  to 
 which  they  apply  may  be  over-  inclusive  to  this  extent. 
 Cable  and  Other  Program  Distribution.  The  SBA  has  developed  a  small  business  size  standard  for  cable  and  other  program  distribution  services,  which  includes  all  such  companies 


 generating  $12.5  million  or  less  in  revenue  annually.  13  This  category  includes,  among  others,  cable  operators,  direct  broadcast  satellite  (  DBS)  services,  home  satellite  dish  (  HSD)  services, 
 multipoint  distribution  services  (  MDS),  multichannel  multipoint  distribution  service  (  MMDS),  Instructional  Television  Fixed  Service  (  ITFS),  local  multipoint  distribution  service 
 (  LMDS),  satellite  master  antenna  television  (  SMATV)  systems,  and  open  video  systems  (  OVS).  According  to  the  Census  Bureau  data,  there  are  1,311  total  cable  and  other  pay 
 television  service  firms  that  operate  throughout  the  year  of  which  1,180  have  less  than  $10  million  in  revenue.  14  We  address  below  each  service  individually  to  provide  a  more  precise 
 estimate  of  small  entities. 
 Cable  Operators.  The  Commission  has  developed,  with  SBA's  approval,  our  own  definition  of  a  small  cable  system  operator  for  the  purposes  of  rate  regulation.  Under  the 


 Commission's  rules,  a  "small  cable  company"  is  one  serving  fewer  than  400,000  subscribers  nationwide.  15  We  last  estimated  that  there  were  1,439  cable  operators  that  qualified  as  small 
 cable  companies.  16  Since  then,  some  of  those  companies  may  have  grown  to  serve  over  400,000  subscribers,  and  others  may  have  been  involved  in  transactions  that  caused  them  to  be  combined 
 with  other  cable  operators.  Consequently,  we  estimate  that  there  are  fewer  than  1,439  small  entity  cable  system  operators  that  may  be  affected  by  the  decisions  and  rules  proposed  in  this 
 Further  Notice. 
 The  Communications  Act,  as  amended,  also  contains  a  size  standard  for  a  small  cable  system  operator,  which  is  "a  cable  operator  that,  directly  or  through  an  affiliate,  serves  in  the 
 aggregate  fewer  than  1%  of  all  subscribers  in  the  United  States  and  is  not  affiliated  with  any 
 13  13  C.  F.  R.    121.201,  NAICS  code  517510  (formerly  513220).  This  NAICS  code  applies  to  all  services 
 listed  in  this  paragraph.  14 
 Economics  and  Statistics  Administration,  Bureau  of  Census,  U.  S.  Department  of  Commerce,  1997  Economic  Census,  Subject  Series    Establishment  and  Firm  Size,  Information  Sector  51,  Table  4  at  50 


 (2000).  The  amount  of  $10  million  was  used  to  estimate  the  number  of  small  business  firms  because  the  relevant  Census  categories  stopped  at  $9,  999,999  and  began  at  $10,000,  000.  No  category  for  $12.  5  million 
 existed.  Thus,  the  number  is  as  accurate  as  it  is  possible  to  calculate  with  the  available  information.  15 
 47  C.  F.  R.    76.  901(  e).  The  Commission  developed  this  definition  based  on  its  determinations  that  a  small  cable  system  operator  is  one  with  annual  revenues  of  $100  million  or  less.  Sixth  Report  and  Order 


 and  Eleventh  Order  on  Reconsideration,  10  FCC  Rcd.  7393  (1995).  16 
 Paul  Kagan  Associates,  Inc.,  Cable  TV  Investor,  Feb.  29,  1996  (based  on  figures  for  Dec.  30,  1995). 
73
 Federal  Communications  Commission  FCC  03-  225 
 74 
 entity  or  entities  whose  gross  annual  revenues  in  the  aggregate  exceed  $250,000,000."  17  The  Commission  has  determined  that  there  are  68,500,000  subscribers  in  the  United  States. 
 Therefore,  an  operator  serving  fewer  than  685,000  subscribers  shall  be  deemed  a  small  operator  if  its  annual  revenues,  when  combined  with  the  total  annual  revenues  of  all  of  its  affiliates,  do  not 
 exceed  $250  million  in  the  aggregate.  18  Based  on  available  data,  we  find  that  the  number  of  cable  operators  serving  685,000  subscribers  or  less  totals  approximately  1,450.  19  Although  it  seems 
 certain  that  some  of  these  cable  system  operators  are  affiliated  with  entities  whose  gross  annual  revenues  exceed  $250,000,  000,  we  are  unable  at  this  time  to  estimate  with  greater  precision  the 
 number  of  cable  system  operators  that  would  qualify  as  small  cable  operators  under  the  definition  in  the  Communications  Act. 


 Direct  Broadcast  Satellite  (  DBS)  Service.  Because  DBS  provides  subscription  services,  DBS  falls  within  the  SBA-  recognized  definition  of  cable  and  other  program  distribution 
 services.  20  This  definition  provides  that  a  small  entity  is  one  with  $12.5  million  or  less  in  annual  receipts.  21  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.  22  The  Commission, 
 however,  does  not  collect  annual  revenue  data  for  DBS  and,  therefore,  is  unable  to  ascertain  the  number  of  small  DBS  licensees  that  could  be  impacted  by  these  proposed  rules.  DBS  service 
 requires  a  great  investment  of  capital  for  operation,  and  we  acknowledge,  despite  the  absence  of  specific  data  on  this  point,  that  there  are  entrants  in  this  field  that  may  not  yet  have  generated 
 $12.5  million  in  annual  receipts,  and  therefore  may  be  categorized  as  a  small  business,  if  independently  owned  and  operated. 


 Home  Satellite  Dish  (  HSD)  Service.  Because  HSD  provides  subscription  services,  HSD  falls  within  the  SBA-  recognized  definition  of  cable  and  other  program  distribution 
 services.  23  This  definition  provides  that  a  small  entity  is  one  with  $12.5  million  or  less  in  annual  receipts.  24  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.  25  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 


 17  47  U.  S.  C.    543(  m)(  2). 
 18  47  C.  F.  R.    76.1403(  b). 
 19  Paul  Kagan  Associates,  Inc.,  Cable  TV  Investor,  Feb.  29,  1996  (based  on  figures  for  Dec.  30,  1995). 
 20  13  C.  F.  R.    121.  201,  NAICS  code  517510  (formerly  513220). 
 21  Id. 
 22  Id. 
 23  13  C.  F.  F.    121.  201,  NAICS  code  517510  (formerly  513220). 
 24  Id. 
 25  Annual  Assessment  of  the  Status  of  Competition  in  Markets  for  the  Delivery  of  Video  Programming,  12 
 FCC  Rcd  4358,  4385  (1996)  (  Third  Annual  Report). 
74
 Federal  Communications  Commission  FCC  03-  225 
 75 
 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.  26 
 Multipoint  Distribution  Service  (  MDS),  Multichannel  Multipoint  Distribution  Service  (  MMDS)  Instructional  Television  Fixed  Service  (  ITFS)  and  Local  Multipoint 


 Distribution  Service  (  LMDS).  MMDS  systems,  often  referred  to  as  wireless  cable,  transmit  video  programming  to  subscribers  using  the  microwave  frequencies  of  the  MDS  and  ITFS.  27 
 LMDS  is  a  fixed  broadband  point-  to-  multipoint  microwave  service  that  provides  for  two-  way  video  telecommunications.  28 


 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.  29  This  definition  of  a  small  entity  in  the  context  of  MDS  auctions  has  been  approved  by  the  SBA.  30  The  MDS  auctions  resulted  in  67  successful  bidders  obtaining  licensing 
 opportunities  for  493  Basic  Trading  Areas  (  BTAs).  Of  the  67  auction  winners,  61  met  the  definition  of  a  small  business.  MDS  also  includes  licensees  of  stations  authorized  prior  to  the 
 auction.  As  noted,  the  SBA  has  developed  a  definition  of  small  entities  for  pay  television  services,  which  includes  all  such  companies  generating  $12.5  million  or  less  in  annual  receipts.  31 
 This  definition  includes  multipoint  distribution  services,  and  thus  applies  to  MDS  licensees  and  wireless  cable  operators  that  did  not  participate  in  the  MDS  auction.  Information  available  to  us 
 indicates  that  there  are  approximately  850  of  these  licensees  and  operators  that  do  not  generate  revenue  in  excess  of  $12.5  million  annually.  Therefore,  for  purposes  of  the  IRFA,  we  find  there 
 are  approximately  850  small  MDS  providers  as  defined  by  the  SBA  and  the  Commissions  auction  rules. 


 The  SBA  definition  of  small  entities  for  cable  and  other  program  distribution  services,  which  includes  such  companies  generating  $12.5  million  in  annual  receipts,  seems  reasonably 
 applicable  to  ITFS.  32  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.  33  However,  we  do  not  collect  annual  revenue  data  for  ITFS  licensees,  and  are  not  able 


 26  Id.  at  4385. 
 27  Amendment  of  Parts  21  and  74  of  the  Commissions  Rules  with  Regard  to  Filing  Procedures  in  the 
 Multipoint  Distribution  Service  and  in  the  Instructional  Television  Fixed  Service  and  Implementation  of  Section  309(  j)  of  the  Communications  Act    Competitive  Bidding,  10  FCC  Rcd  at  9589,  9593  (1995)  (  ITFS 


 Order).  28 
 See  Local  Multipoint  Distribution  Service,  12  FCC  Rcd  12545  (1997)  (  LMDS  Order).  29 
 47  C.  F.  R.    21.961(  b)(  1).  30 
 See  ITFS  Order,  10  FCC  Rcd  at  9589.  31 
 13  C.  F.  R.    121.  201,  NAICS  code  517510  (formerly  513220).  32 
 Id.  33 
 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). 
75
 Federal  Communications  Commission  FCC  03-  225 
 76 
 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.  34  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.  35  These  regulations  defining  small  entity  in  the  context  of 
 LMDS  auctions  have  been  approved  by  the  SBA.  36  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  Commissions  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  Commissions  auction  rules. 


 Satellite  Master  Antenna  Television  ("  SMATV")  Systems.  The  SBA  definition  of  small  entities  for  cable  and  other  program  distribution  services  includes  SMATV  services  and, 
 thus,  small  entities  are  defined  as  all  such  companies  generating  $12.5  million  or  less  in  annual  receipts.  37  Industry  sources  estimate  that  approximately  5,200  SMATV  operators  were  providing 
 service  as  of  December  1995.  38  Other  estimates  indicate  that  SMATV  operators  serve  approximately  1.5  million  residential  subscribers  as  of  July  2001.  39  The  best  available  estimates 
 indicate  that  the  largest  SMATV  operators  serve  between  15,000  and  55,000  subscribers  each.  Most  SMATV  operators  serve  approximately  3,000-  4,000  customers.  Because  these  operators 
 are  not  rate  regulated,  they  are  not  required  to  file  financial  data  with  the  Commission.  Furthermore,  we  are  not  aware  of  any  privately  published  financial  information  regarding  these 
 operators.  Based  on  the  estimated  number  of  operators  and  the  estimated  number  of  units  served  by  the  largest  ten  SMATVs,  we  believe  that  a  substantial  number  of  SMATV  operators  qualify  as 
 small  entities 
 Open  Video  Systems  (  OVS).  Because  OVS  operators  provide  subscription  services,  40 
 34  See  LMDS  Order,  12  FCC  Rcd  at  12545. 
 35  Id. 
 36  See  Letter  to  Daniel  Phythyon,  Chief,  Wireless  Telecommunications  Bureau  (FCC)  from  A.  Alvarez, 
 Administrator,  SBA  (January  6,  1998).  37 
 13  C.  F.  R.    121.  201,  NAICS  code  517510  (formerly  513220).  38 
 See  Third  Annual  Report,  12  FCC  Rcd  at  4403-  4.  39 
 See  Annual  Assessment  of  the  Status  of  Competition  in  Markets  for  the  Delivery  of  Video  Programming,  17  FCC  Rcd  1244,  1281  (2001)  (  Eighth  Annual  Report). 


 40  See  47  U.  S.  C.    573. 
76
 Federal  Communications  Commission  FCC  03-  225 
 77 
 OVS  falls  within  the  SBA-  recognized  definition  of  cable  and  other  program  distribution  services.  41  This  definition  provides  that  a  small  entity  is  one  with  $  12.5  million  or  less  in  annual 
 receipts.  42  The  Commission  has  certified  25  OVS  operators  with  some  now  providing  service.  Affiliates  of  Residential  Communications  Network,  Inc.  ("  RCN")  received  approval  to  operate 
 OVS  systems  in  New  York  City,  Boston,  Washington,  D.  C.  and  other  areas.  RCN  has  sufficient  revenues  to  assure  us  that  they  do  not  qualify  as  small  business  entities.  Little  financial 
 information  is  available  for  the  other  entities  authorized  to  provide  OVS  that  are  not  yet  operational.  Given  that  other  entities  have  been  authorized  to  provide  OVS  service  but  have  not 
 yet  begun  to  generate  revenues,  we  conclude  that  at  least  some  of  the  OVS  operators  qualify  as  small  entities. 


 Electronics  Equipment  Manufacturers.  Rules  adopted  in  this  proceeding  could  apply  to  manufacturers  of  DTV  receiving  equipment  and  other  types  of  consumer  electronics 
 equipment.  The  SBA  has  developed  definitions  of  small  entity  for  manufacturers  of  audio  and  video  equipment  43  as  well  as  radio  and  television  broadcasting  and  wireless  communications 
 equipment.  44  These  categories  both  include  all  such  companies  employing  750  or  fewer  employees.  The  Commission  has  not  developed  a  definition  of  small  entities  applicable  to 
 manufacturers  of  electronic  equipment  used  by  consumers,  as  compared  to  industrial  use  by  television  licensees  and  related  businesses.  Therefore,  we  will  utilize  the  SBA  definitions 
 applicable  to  manufacturers  of  audio  and  visual  equipment  and  radio  and  television  broadcasting  and  wireless  communications  equipment,  since  these  are  the  two  closest  NAICS  Codes  applicable 
 to  the  consumer  electronics  equipment  manufacturing  industry.  However,  these  NAICS  categories  are  broad  and  specific  figures  are  not  available  as  to  how  many  of  these  establishments 
 manufacture  consumer  equipment.  According  to  the  SBAs  regulations,  an  audio  and  visual  equipment  manufacturer  must  have  750  or  fewer  employees  in  order  to  qualify  as  a  small 
 business  concern.  45  Census  Bureau  data  indicates  that  there  are  554  U.  S.  establishments  that  manufacture  audio  and  visual  equipment,  and  that  542  of  these  establishments  have  fewer  than 
 500  employees  and  would  be  classified  as  small  entities.  46  The  remaining  12  establishments  have  500  or  more  employees;  however,  we  are  unable  to  determine  how  many  of  those  have  fewer  than 
 750  employees  and  therefore,  also  qualify  as  small  entities  under  the  SBA  definition.  Under  the  SBAs  regulations,  a  radio  and  television  broadcasting  and  wireless  communications  equipment 
 manufacturer  must  also  have  750  or  fewer  employees  in  order  to  qualify  as  a  small  business  concern.  47  Census  Bureau  data  indicates  that  there  1,215  U.  S.  establishments  that  manufacture 
 radio  and  television  broadcasting  and  wireless  communications  equipment,  and  that  1,150  of 


 41  13  C.  F.  R.    121.  201,  NAICS  code  517510  (formerly  513220). 
 42  Id. 
 43  13  CFR    121.201,  NAICS  code  334310. 
 44  13  CFR    121.201,  NAICS  code  334220. 
 45  13  CFR    121.201,  NAICS  code  334310. 
 46  Economics  and  Statistics  Administration,  Bureau  of  Census,  U.  S.  Department  of  Commerce,  1997 
 Economic  Census,  Industry  Series    Manufacturing,  Audio  and  Video  Equipment  Manufacturing,  Table  4  at  9  (1999).  The  amount  of  500  employees  was  used  to  estimate  the  number  of  small  business  firms 


 because  the  relevant  Census  categories  stopped  at  499  employees  and  began  at  500  employees.  No  category  for  750  employees  existed.  Thus,  the  number  is  as  accurate  as  it  is  possible  to  calculate  with  the 
 available  information.  47 
 13  C.  F.  R.    121.  201,  NAICS  code  334220. 
77
 Federal  Communications  Commission  FCC  03-  225 
 78 
 these  establishments  have  fewer  than  500  employees  and  would  be  classified  as  small  entities.  48  The  remaining  65  establishments  have  500  or  more  employees;  however,  we  are  unable  to 
 determine  how  many  of  those  have  fewer  than  750  employees  and  therefore,  also  qualify  as  small  entities  under  the  SBA  definition.  We  therefore  conclude  that  there  are  no  more  than  542  small 
 manufacturers  of  audio  and  visual  electronics  equipment  and  no  more  than  1,150  small  manufacturers  of  radio  and  television  broadcasting  and  wireless  communications  equipment  for 
 consumer/  household  use. 
 Computer  Manufacturers.  The  Commission  has  not  developed  a  definition  of  small  entities  applicable  to  computer  manufacturers.  Therefore,  we  will  utilize  the  SBA  definition  of 


 electronic  computers  manufacturing.  According  to  SBA  regulations,  a  computer  manufacturer  must  have  1,000  or  fewer  employees  in  order  to  qualify  as  a  small  entity.  49  Census  Bureau  data  indicates 
 that  there  are  563  firms  that  manufacture  electronic  computers  and  of  those,  544  have  fewer  than  1,000  employees  and  qualify  as  small  entities.  50  The  remaining  19  firms  have  1,000  or  more 
 employees.  We  conclude  that  there  are  approximately  544  small  computer  manufacturers. 
 D.  Description  of  Projected  Reporting,  Recordkeeping  and  other  Compliance  Requirements.  At  this  time,  we  do  not  expect  that  the  proposed  rules  would  impose  any 


 additional  reporting  or  recordkeeping  requirements.  However,  compliance  with  the  rules,  if  they  are  adopted,  may  require  consumer  electronics  manufacturers  to  seek  approval  for  new  device 
 connectors  and  associated  content  protection  technologies  to  be  used  in  conjunction  with  unidirectional  digital  cable  products.  51  These  requirements  could  have  an  impact  on  consumer 
 electronics  manufacturers,  including  small  entities.  We  seek  comment  on  the  possible  burden  these  requirements  would  place  on  small  entities.  Also,  we  seek  comment  on  whether  a  special 
 approach  toward  any  possible  compliance  burdens  on  small  entities  might  be  appropriate. 
 E.  Steps  Taken  to  Minimize  Significant  Impact  on  Small  Entities,  and  Significant  Alternatives  Considered.  The  RFA  requires  an  agency  to  describe  any  significant 


 alternatives  that  it  has  considered  in  reaching  its  proposed  approach,  which  may  include  the  following  four  alternatives  (among  others):  (1)  the  establishment  of  differing  compliance  or 
 reporting  requirements  or  timetables  that  take  into  account  the  resources  available  to  small  entities;  (2)  the  clarification,  consolidation,  or  simplification  of  compliance  or  reporting 
 requirements  under  the  rule  for  small  entities;  (3)  the  use  of  performance,  rather  than  design,  standards;  and  (4)  an  exemption  from  coverage  of  the  rule,  or  any  part  thereof,  for  small  entities.  52 


 As  indicated  above,  the  Second  Further  Notice  seeks  comment  on  whether  the 
 48  Economics  and  Statistics  Administration,  Bureau  of  Census,  U.  S.  Department  of  Commerce,  1997 
 Economic  Census,  Industry  Series    Manufacturing,  Radio  and  Television  Broadcasting  and  Wireless  Communications  Equipment  Manufacturing,  Table  4  at  9  (1999).  The  amount  of  500  employees  was  used 


 to  estimate  the  number  of  small  business  firms  because  the  relevant  Census  categories  stopped  at  499  employees  and  began  at  500  employees.  No  category  for  750  employees  existed.  Thus,  the  number  is  as 
 accurate  as  it  is  possible  to  calculate  with  the  available  information.  49 
 13  C.  F.  R.    121.  201,  NAICS  code  334111.  50 
 Economics  and  Statistics  Administration,  Bureau  of  Census,  U.  S.  Department  of  Commerce,  1997  Economic  Census,  Industry  Series    Manufacturing,  Electronic  Computer  Manufacturing,  Table  4  at  9 


 (1999).  51 
 See  Second  Further  Notice  at    83-  86.  52 
 5  U.  S.  C.    603(  b). 
78
 Federal  Communications  Commission  FCC  03-  225 
 79 
 Commission  should  adopt  rules  establishing  an  approval  mechanism  for  new  connectors  and  associated  content  protection  technologies  to  be  used  with  unidirectional  digital  cable  products. 
 Consumer  electronics  manufacturers  may  be  required  to  seek  such  approval  prior  to  implementing  new  connectors  and  associated  content  protection  technologies  in  unidirectional 
 digital  cable  products.  We  welcome  comment  on  modifications  of  this  proposal  to  lessen  any  potential  impact  on  small  entities,  while  still  remaining  consistent  with  our  policy  goals. 


 The  Second  Further  Notice  also  seeks  comment  on  the  potential  applicablity  of  certain  transmission  standards  for  digital  cable  systems  to  systems  with  an  activated  channel  capacity  of 
 550  MHz  or  greater.  Since  such  cable  systems  are  often  owned  by  small  cable  operators,  we  seek  comment  on  the  potential  impact  of  this  proposed  rule  upon  small  cable  operators  and  whether 
 some  relief  mechanism,  such  as  waivers,  would  help  alleviate  any  potential  impact  on  small  entities.  53 


 With  respect  to  the  proposed  requirement  for  consumer  electronics  manufacturers  to  provide  consumers  with  pre-  sale  information  regarding  the  functionalities  of  unidirectional  digital 
 cable  televisions,  we  seek  comment  on  how  this  might  affect  small  manufacturers.  We  also  seek  comment  on  whether  the  potential  economic  burden  on  small  entities  might  be  lessened,  while 
 still  generally  retaining  the  requirement  or  the  intended  effect  of  the  requirements. 
 Finally,  the  Second  Further  Notice  seeks  comment  on  whether  to  permit  or  ban  the  down-resolution  by  MVPDs  of  non-  broadcast  MVPD  programming.  We  believe  this  requirement 


 would  largely  impact  the  DBS  industry,  which  is  primarily  composed  of  large  entities.  To  the  extent  that  small  entities  might  be  adversely  affected  by  this  potential  requirement,  we  welcome 
 comments  on  possible  small  entity-  related  alternatives. 
 Federal  Rules  Which  Duplicate,  Overlap,  or  Conflict  with  the  Commission's  Proposals.  None. 


 53  See  Second  Further  Notice  at    80. 
79
 Federal  Communications  Commission  FCC  03-  225 
 80 
 STATEMENT  OF  CHAIRMAN  MICHAEL  K.  POWELL 
 Re:  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996,  Commercial  Availability  of  Navigation  Devices;  and  Compatibility  Between  Cable  Systems  and  Consumer 
 Electronics  Equipment. 


 Todays  decision  by  a  unanimous  Commission  is  a  victory  for  consumers  and  a  major  step  in  the  digital  television  transition.  Consumers  who  want  digital  television  sets  will  have  an 
 easier  time  connecting  them  to  their  cable  service  and  having  them  work  with  high  definition  and  other  digital  programming.  I  am  more  convinced  than  ever  that  high  definition  programming  is 
 becoming  a  competitive  differentiator  among  television  programmers. 
 But  programmers  who  want  to  roll  out  new  high  definition  programming  need  people  to  be  able  to  see  the  programming.  Until  now,  many  consumers  have  been  reluctant  to  invest  in  the 
 newest  televisions  because  of  uncertainties  about  compatibility  with  cable  systems  and  set  top  boxes.  The  FCCs  actions  today  are  a  major  step  toward  alleviating  those  problems. 


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


 Of  course,  at  core  of  the  digital  television  transition  is  programming.  It  is  important  to  me  that  we  preserve  incentives  for  program  producers  to  invest  in  high  value  content.  Todays 
 decision  facilitates  protection  of  high  value  content  on  cable  systems  by  providing  incentives  for  cable  and  consumer  electronics  manufacturers  to  work  together  to  include  various  content 
 protection  technologies  in  consumer  devices. 
 Now  that  we  have  taken  this  step  in  the  cable  world,  we  must  immediately  turn  our  attention  to  broadcasting.  Over  35  million  Americans  continue  to  receive  television 
 programming  exclusively  from  over-  the-  air  broadcasters.  And  over  30%  of  all  television  sets  in  this  country  are  not  connected  to  cable  or  satellite  service.  The  viability  of  our  free  broadcasting 
 system  is  a  high  priority  for  me,  and  the  government  needs  to  ensure  that  broadcast  television  is  not  disadvantaged  as  a  delivery  platform  for  high  value  content. 


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


 Finally,  I  wish  to  be  clear  that  our  encoding  rules  included  in  todays  Plug  &  Play  decision  are  not  intended  to  modify  existing  copyright  law.  Consumers  and  content  owners  retain 
 all  of  their  existing  rights  and  remedies  under  copyright  law.  In  this  proceeding,  the  FCC  simply  looks  to  copyright  law  for  guidance  on  policies  that  will  promote  the  DTV  transition. 
80
 Federal  Communications  Commission  FCC  03-  225 
 82 
 oversight,  the  Commission  can  assure  that  PCs  and  other  devices  with  open  architectures  and  alternative  copy-  protection  schemes  are  included  in  the  DTV  transition.  It  is  also  important  for 
 the  Commission  to  establish  this  initial  framework  for  one-  way  digital  television  receivers,  after  which  a  broader  array  of  interests  can  participate  in  the  development  of  a  two-  way  standard.  I 
 look  forward  to  that  second  phase  and  stand  ready  to  take  other  steps  to  promote  competition  in  the  market  for  navigation  devices  and  to  continue  furthering  the  DTV  transition. 
82
 Federal  Communications  Commission  FCC  03-  225 
 83 
 STATEMENT  OF  COMMISSIONER  MICHAEL  J.  COPPS 
 Re:  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996;  Commercial  Availability  of  Navigation  Devices;  Compatibility  Between  Cable 
 Systems  and  Consumer  Electronics  Equipment 
 This  item  demonstrates  once  again  the  commitment  of  this  Commission  and  our  Chairman  to  move  forward  to  resolve  important  issues  in  order  to  expedite  the  digital  transition. 
 With  some  70  percent  of  U.  S.  households  subscribing  to  cable  television  services,  issues  like  cable  compatibility  and  other  technical  matters  that  have  been  holding  up  the  digital  transition 
 need  to  be  decided. 
 Todays  decision  is  not  an  ideal  solution,  but  it  is  a  step  forward  and  far  preferable  to  a  status  quo  in  which  consumers  are  unable  to  access  digital  cable  services  without  a  set-  top  box 
 and  in  which  innovators  face  continued  uncertainty.  By  establishing  a  standard  to  ensure  the  compatibility  of  cable  systems  with  DTV  devices  and  providing  a  process  for  approval  of  new 
 products  and  technologies  with  the  Commission  as  neutral  arbiter,  this  decision  should  speed  the  commercial  availability  of  digital  cable  ready  products  with  greater  functionality,  thereby 
 providing  consumers  with  more  choices  and  ultimately  reducing  the  costs  of  DTV  technology. 
 We  will,  however,  only  succeed  in  accelerating  the  digital  transition  when  we  confront  head-  on  the  significant  consumer  confusion  that  exists  in  this  area.  Consumer  education  and 
 outreach  are  indispensable  in  gaining  consumer  acceptance.  Todays  Order  requires  manufacturers  to  include  post-  sales  material  describing  the  features  and  limitations  of 
 unidirectional  cable  televisions.  I  would  prefer  to  see  information  provided  to  consumers  up-front.  I  believe  we  need  a  greater  commitment  from  the  industry  and  from  the  Commission  for 
 consumer  outreach  and  education  if  we  are  to  succeed  in  this  transition.  What  we  can  require,  we  should  require.  Where  we  cant  require,  we  should  exhort,  bring  parties  together,  and  encourage 
 the  development  of  such  practices  that  will  bring  needed  consumer  information  to  buyers  before  they  become  owners. 


 I  vote  for  todays  Order  with  the  understanding  that  it  will  not  affect  any  of  the  rights  or  remedies  available  under  our  nations  copyright  laws  and  cognizant  that  it  is  Congress  that 
 ultimately  sets  national  policy  in  this  critical  and  sensitive  area.  As  we  implement  this  decision,  I  for  one,  and  I  trust  my  colleagues,  will  remain  sensitive  to  this  and  not  venture  into  content 
 matters  beyond  our  authority. 
 I  commend  the  cable  and  consumer  electronics  industries  for  their  efforts  to  reach  agreement.  It  is,  however,  not  the  end  of  the  process.  There  are  still  many  miles  to  walk  here.  I 
 expect  this  decision  will  provide  added  impetus  to  work  out  the  remaining  details  on  bi-directional  cable  compatibility.  As  this  process  moves  forward,  I  hope  that  the  cable  and 
 consumer  electronics  industries  will  reach  out  and  work  more  closely  with  other  interested  parties  to  reach  consensus.  Many  individuals  and  groups  have  an  interest  in  the  outcomes  here,  and  in 
 the  next  round  I  will  be  looking  to  see  if  they  are  more  fully  consulted  as  we  struggle  toward  resolution  of  these  often-  thorny  issues.  So  when  I  say  that  I  look  forward  to  working  with  my 
 colleagues,  the  industry,  and  all  interested  stakeholders  to  resolve  those  issues  together,  I  say  it  with  more  than  passing  interest.  The  bi-  directional  agreement  will  need  to  be  more  than  a  bi-polar 
 discussion.  We  live  in  a  multi-  polar  world. 
83
 Federal  Communications  Commission  FCC  03-  225 
 84 
 The  issues  attending  this  item  were  many,  complicated  and  often  highly  technical.  Our  Bureau  and  personal  staffs  did  yeoman  work  in  developing  and  plowing  through  an  item  that, 
 while  it  may  not  answer  everyones  fondest  hopes  and  dreams,  keeps  the  digital  television  transition  on  track  and  provides  processes  to  monitor  and  resolve  issues  as  they  develop.  I  want 
 to  salute  my  colleagues,  too,  for  their  immersion  in  all  this  and  for  the  constructive  cooperation  that  brought  the  item  to  us  this  morning. 
84
 Federal  Communications  Commission  FCC  03-  225 
 85 
 STATEMENT  OF  COMMISSIONER  KEVIN  J.  MARTIN 
 Re:  Implementation  of  Section  304  of  the  Telecommunications  Act  of  1996;  Commercial  Availability  of  Navigation  Devices;  Compatibility  Between  Cable  Systems  and  Consumer 
 Electronics  Equipment,  Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking,  CS  Docket  No.  97-  80;  PP  Docket  No.  00-  67 


 I  support  todays  decision  on  compatibility  between  cable  systems  and  consumer  electronics  equipment.  I  believe  it  is  extremely  important  for  the  Commission  to  resolve  outstanding  DTV-related 
 issues  quickly  so  that  affected  industries  and  consumers  know  the  rules  of  the  road.  As  I  wrote  a  year  ago,  resolving  issues  surrounding  digital  cable  compatibility  would  benefit 
 consumers  significantly  by  allowing  the  majority  of  consumers    about  70  percent  of  consumers  who  access  their  programming  via  cable    to  more  easily  view  digital  programming.  I  am  glad 
 that  we  are  taking  action  on  this  and  hope  that  manufacturers  can  now  incorporate  digital  broadcast  and  cable  reception  capabilities  for  approximately  the  same  cost  as  the  digital  broadcast 
 tuner  alone.  By  ensuring  equipment  functionality  and  interoperability  for  digital  cable  systems,  our  action  allows  manufacturers  to  build  fully  integrated  digital  cable  ready  sets  that  also 
 incorporate  broadcast  tuners. 
 I  am  disappointed  that  we  were  not  able  to  resolve  the  Broadcast  Flag  proceeding  at  the  same  time.  Acting  on  the  content  protection  rules  in  both  the  Plug  &  Play  proceeding  and  the 
 Broadcast  Flag  proceeding  at  the  same  time  would  have  clarified  the  rules  of  the  road  for  all  participants  in  the  DTV  transition.  Still,  I  am  pleased  that  the  Commission  has  committed  in  this 
 item  to  resolving  the  Broadcast  Flag  proceeding  in  the  near  future,  and  I  look  forward  to  working  with  my  colleagues  on  this  difficult  and  important  issue. 


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


 In  all,  I  believe  that  todays  decision  is  a  good  step  forward  for  the  transition  to  digital  television. 
85
 Federal  Communications  Commission  FCC  03-  225 
 86 
 STATEMENT  OF  COMMISSIONER  JONATHAN  S.  ADELSTEIN 
 Re:  Second  Report  and  Order  and  Second  Further  Notice  of  Proposed  Rulemaking  (CS  Docket  No.  97-  80;  PP  Docket  No.  00-  67) 
 Today,  the  Commission  responds  to  the  public  readiness  for  Digital  Cable  Ready  devices.  The  agreement  between  the  cable  television  and  consumer  electronics  industries  giving 
 consumers  the  ability  to  get  beyond  the  set-  top  box  and  plug  their  televisions  and  other  devices  directly  into  the  digital  cable  system  was  a  positive  step  in  the  resolution  of  long-  pending  and 
 complex  issues.  Today  we  take  the  first  step  toward  this  reality.  Although  not  perfect,  todays  action  gives  us  reason  for  optimism  that  we  can  embark  on  a  world  of  innovation  and  growth  in 
 one-  way  digital  devices  and  digital  content  delivery  systems.  This  decision,  along  with  anticipated  resolution  of  these  issues  and  more  for  two-  way  interactive  devices,  should  result  in 
 more  choice  of  new  products  and  services  using  the  cable  infrastructure  which  will  entice  consumers  to  embrace  the  digital  transition. 


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


 Todays  decision  is  fundamentally  about  innovation  in  the  delivery  of  high  value  content  into  peoples  homes,  and  in  the  products  that  will  receive  such  content.  We  are  taking  steps  to 
 ensure  that  all  technologies  will  be  evaluated  objectively  and  that  testing  and  certification  of  devices  can  be  administered  by  neutral  parties.  These  new  devices  and  technologies  will  be 
 central  to  the  consumers  experience  with  digital  content  as  it  is  integrated  into  the  home  network. 
 We  are  mindful  today  of  the  needs  of  copyright  owners  to  protect  high  value  content.  Our  action  does  not  affect  any  rights  or  limitations  of  copyright  holders  under  the  copyright  law. 
 We  preserve  flexibility  for  the  later  use  of  certain  methods  of  protecting  premium  content  if  it  is  shown  that  such  uses  are  necessary  and  consumer-  friendly. 


 I  look  forward  to  the  outcome  of  the  ongoing  discussions  to  devise  standards  and  rules  for  interactive,  two-  way  devices,  and  encourage  the  industries  to  consult  with  other  interested 
 parties  as  those  discussions  progress.  I  also  encourage  manufacturers  and  cable  operators  to  work  with  retailers  in  a  broad  outreach  campaign  to  the  public.  As  the  public  begins  to  enjoy  the  new 
 choices  available  to  them,  I  suspect  they  will  quickly  become  Interactive  Digital  Cable  Ready  and  demand  even  more  innovative  interactive  devices  which  can  be  brought  to  market  right  away. 
86