FCC Acts on Digital Fees, DBS

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Washington -- The Federal Communications Commission last
week imposed new regulations that will cost TV stations money and direct-broadcast
satellite operators exclusive use of their channel capacity.

In the first item, the FCC said stations that use their
digital-TV licenses for an array of subscription services will have to pay fees equaling 5
percent of gross revenues derived from such services.

In the second, the FCC imposed a 4 percent channel
set-aside on DBS operators for use by nonprofit educational programmers.

On the fee issue, FCC officials were ambiguous on one
question that could be central to digital-carriage negotiations between cable operators
and the broadcast industry.

Under a plan advocated by Tele-Communications Inc. chairman
and CEO John Malone, digital-TV signals would be bundled with digital-cable networks in
premium-programming tiers, and cable and broadcasters would divide revenues from those
tiers.

FCC officials were divided on whether TV stations' cuts
from those tiers would be subject to the new fees. One source said they would likely be
considered retransmission payments.

"We would have to take a look at it," said Mania
Baghdadi, the FCC's assistant chief of policy and rules in the Mass Media Bureau.

FCC officials stressed that basing the 5 percent fee on
gross revenue was both fair and easy to administer.

"It avoids the notorious Hollywood accounting problem
of figuring out the net, net, net profits," FCC commissioner Susan Ness said.

Since broadcasters received the spectrum free-of-charge,
Congress insisted that TV stations should compensate the government when they make money
by using the spectrum to provide pay services in addition to their free, over-the-air
video services.

The National Association of Broadcasters said it was
disappointed with the 5 percent ruling: It had asked for 2 percent and a two-year delay in
the payments.

"We believe that a lower fee would have provided
greater incentive to broadcasters to provide competition to cable and other
multichannel-data providers," NAB spokesman Dennis Wharton said.

FCC sources said advertising revenue collected from
subscription services would be included in the definition of gross revenue. The FCC will
collect the fees annually.

In the DBS decision, the FCC said DBS operators are now
required to set aside 4 percent of their video-channel capacity for noncommercial
programming of an educational and informational nature.

Congress passed the mandate as part of the 1992 Cable Act,
which allows the FCC to require between a 4 percent and 7 percent set-aside. It took six
years to fashion rules because a federal court, in a decision later that was later
overturned, ruled the law unconstitutional.

DBS services can pick any network from a pool of national,
nonprofit programmers that are considered educational.

The FCC, in a ruling that divided the commission, ruled
that DBS services retain the authority to pick the eligible networks, but that they must
take all of the programming offered by their hand-picked services.

FCC chairman William Kennard said he was disappointed that
the agency left the choice up to the DBS services, saying that such a selection process
could hurt the goal of programming diversity.

FCC commissioner Gloria Tristani agreed, saying that the
law banned DBS operators from exercising "any editorial control" over the
programming.

"We think that they misstated the law, which said that
selection of the programmer is a form of editorial control," said Andrew Jay
Schwartzman of the Media Access Project, a Washington, D.C.-based public-interest law
firm.

The FCC ruled that eligible programmers will be allotted
one channel each unless there is unused channel capacity.

A DBS trade group praised the FCC's action.

The Satellite Broadcasting & Communications Association
said it was "very pleased with the decision by the FCC to allow the DBS platforms
editorial control over the selection of public-service programmers," said Andy Paul,
vice president of government affairs for the SBCA.

Regina Keeney, chief of the FCC's International Bureau,
said DBS providers are barred from charging extra for the noncommercial programming.

DBS operators are also required to charge programmers no
more than 50 percent of the direct cost to carry their signals.

Keeney indicated that C-SPAN would qualify for carriage
under the DBS rules, but that other cable networks that some DBS operators said should
qualify -- such as Discovery Channel and The Learning Channel -- won't be eligible because
they are for-profit entities.

"They would have to demonstrate that they are
noncommercial and that they have an educational mission," Keeney said.

In other action, the FCC voted:

• To solicit comment on a proposal by Northpoint
Technology L.P. to share DBS spectrum in order to provide a terrestrial service that would
deliver local-TV signals to DBS subscribers;

• To seek comment on proposals to allow
public-television stations to use their digital-TV spectrum; and

• To seek comment on proposed equal-employment rules
designed to ensure that TV stations and cable-system operators are hiring minorities and
women, but not under a system that utilizes racial and gender preferences. A federal court
has invalidated the FCC's existing equal-employment rules.

Monica Hogan contributed to this story.

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