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Specifically, Congress directed the Commission to require that the  d!broadcast of any ancillary or supplementary services on frequencies designated for advanced  d!television services: (1) must be consistent with the advanced television technology designated  d!by the Commission (the DTV Standard); (2) must not derogate any advanced television  d!services (including HDTV) that the Commission may require; and (3) may be subject to  Y- d!ZCommission regulations applicable to analogous services.P` {O-ԍ 47 U.S.C.  336(b)(1). See alsoĠH.R. Conf. Rep. No. 458, 104th Cong., 2nd Sess. 160 (1996). Moreover, Congress directed the  d!Commission to establish a fee program for any ancillary or supplementary services for which  d!a licensee receives any compensation other than commercial advertisements used to support  Y( -nonsubscription broadcasting.( ` {O!-ԍ 47 U.S.C.  336(e). See alsoĠH.R. Conf. Rep. No. 458, 104th Cong., 2nd Sess. 160 (1996)  Y - k3.` ` In the Fourth Report and Order we adopted a technical standard that supports  d!the transmission of High Definition Television ("HDTV") as well as the transmission of" t,''-"  Y- d!Kmultiple programs of standard definition television ("SDTV") and nonvideo services.` {Oy-ԍ Fourth Report and Order in MM Docket No. 87268, 11 FCC Rcd 17771,  5 (1996) ("Fourth Report  {MC-and Order").ķ This  d!Lstandard permits the provision of other services including the transmission of CD quality  d!audio signals or large amounts of data. For example, a DTV licensee will be able to transmit  d!"telephone directories, stock market updates,...computer software distribution, interactive  Y - d!education materials or virtually any other type of information."2 "` {O-ԍ Id.2 The DTV standard "allows  d!ibroadcasters to send video, voice and data simultaneously and to provide a range of services  Y-dynamically, switching easily and quickly from one type of service to another."` {O -ԍ Id. Equipment designed to our technical standard requires an entire 6 MHz VHF or UHF broadcast channel for all modes of operation. The standard also defines a digital bitstream carried within the 6 MHz channel. This bitstream has a usable payload capacity of nearly twenty million bits per second (20 Mbps). It is this nearly 20 Mbps payload bitstream, rather than the 6 MHz spectrum channel, that is subdivided to provide a flexible array of services.   Y@- k4.` ` In the  Fifth Report and Order we established rules whereby broadcasters may  d!use their DTV capacity to provide ancillary and supplementary services which "do not  Y- d!interfere with the required free service."R f ` {O-ԍ Fifth Report and Order at  29.R We stated that the DTV licensees' ability to provide  d!xancillary or supplementary services will "allow the broadcasters flexibility to respond to the  Y` - d!demands of their audience" for such services.3 ` ` {O -ԍ Id.3 We also "recognize[d] the benefit of  d!,permitting broadcasters the opportunity to develop additional revenue streams from innovative  Y -digital services."3 ` {O+-ԍ Id.3  Y - k5.` ` The 1996 Act required DTV licensees receiving fees or certain other  d!compensation for ancillary or supplementary services provided on the DTV spectrum to  Y- d!Nreturn a portion of that revenue to the public.5 ` yO-ԍ 47 U.S.C.  336(e) FEES (1) SERVICES TO WHICH FEES APPLY If the regulations prescribed pursuant to subsection (a) permit a licensee to offer ancillary or supplementary services on a designated frequency X` hp x (#%'0*,.8135@8:second, a fee based upon the net revenues or incremental profits from the ancillary or  d!Ksupplementary use of a licensee's DTV capacity; third, a fee assessed as a percentage of the  d!gross revenues received for the ancillary or supplementary use of this capacity; and fourth, a fee based upon a hybrid of a flat rate and a percentage of revenues.  YP- kP 13.` ` Revenuebased fees can affect the mix of ancillary or supplementary services  d!provided, and also raise issues of accounting, auditing, and cost allocation. The choice of  d!a fee structure may affect the choices made by consumers of feeable ancillary and  d!isupplementary services. A fee based on gross revenues does not require any cost allocation,  d!Zbut does require auditing of revenues to ensure that licensees do not attribute revenues from  d!feeable ancillary or supplementary services to nonfeeable services in order to reduce their  d!fee liability. Because a fee based upon gross revenues ignores variations in the cost of  d!providing different feeable ancillary or supplementary services, it will affect consumer  d!=choices among feeable ancillary or supplementary services. The magnitude of this effect  d!depends on how much variation there is in the unit cost of different feeable ancillary or  d!@supplementary services. If the costs are quite similar, the effects will be minor.  d!Notwithstanding any differences in cost, a smaller fee on gross revenues will reduce the  d!iimpact on consumer choice. A variant on the gross revenue fee is a hybrid fee, consisting of  d!a flat fee combined with a percentage of gross revenues. This structure would not further  d!affect consumers' choices among feeable ancillary or supplementary services and would place  d![a fixed floor under the amount recovered in return for use of the public spectrum. A fee  d!based on net revenues or incremental profits presents additional accounting challenges,  d! because it requires assigning costs to each feeable ancillary or supplementary service.  d!KApportioning common costs among services may be quite difficult, but determining service d!specific incremental costs could be less difficult. A fee based on net revenues or incremental  d!yprofits could make consumers' choices among feeable ancillary or supplementary services more efficient. "%,''-"Ԍ  14. In the paragraphs below, we describe each of these options, and explain our  d!inclination to favor a formula that incorporates gross revenues as an element. We seek comment on the appropriateness and feasibility of each option.  YX- ` `  Y - k15. ` ` AuctionRelated Fee. The statute requires that the fee "to the extent feasible"  d!equal but not exceed, over the term of the license, the amount that would have been realized  d!=at auction. There are significant obstacles, however, to basing the fee directly on such a  d!spectrumauction model. Were it possible to construct, an auction model would provide some  d!Zguidance in valuing the DTV spectrum. However, spectrum auctions that have been held to  d!date, such as those conducted for licenses to provide personal communications services, took  d!place in circumstances so different from those in which a fee is to be assessed for the  d!ancillary or supplementary use of DTV capacity that they are not necessarily applicable.  d!Depending upon a variety of technological and regulatory factors including what services are  d!authorized, auctioned spectrum may be usable either for more or fewer kinds of services than  d!xthose authorized on the DTV spectrum. Moreover, the process of assessing a fee for feeable  d!ancillary or supplementary use of DTV capacity involves setting a fee for the use of the  d!assigned spectrum for any number of services at different times. The relative market demand  d!zamong services may change monthtomonth, daytoday, or hourbyhour. In addition,  d!different types of services may require different amounts of capacity. For example, at any  d! given instant HDTV may require the entire 20 Mbps payload capacity while standard  d!definition television programming requires far less capacity. Moreover, a licensee providing  d!<free, advertisersupported programming on its DTV channel, whether in the form of HDTV  d!Zor multiple SDTV streams, is exempt from the statute's fee requirement. Thus, it is difficult  d!to identify market transactions that involve the transfer of spectrum usage rights equivalent  d!ito that capacity which DTV licensees may use to provide feeable ancillary or supplementary  d!services. A fee directly tied to the auctionmodel estimate of the value of the capacity used  d!=for particular feeable ancillary or supplementary services would necessarily be a moving  d!target, would involve innumerable unknown variables, and would be difficult if not impossible to assess.   Yp- k16.` ` Given these problems, we are initially disinclined to base the fees on a model  Y8- d!that would seek to simulate the revenue that would be generated from an auction. The  d!language of the 1996 Act gives us flexibility in this regard, stating that we should use the  d!auction value "to the extent feasible." We invite comment on our interpretation of the Act and on the feasibility of setting fees based directly on an auction model.  Y - k~17.` ` Relationship Between the Value of the DTV Spectrum and Revenues. We  d!-believe that we can construct a fee program that satisfies the statutory directive through the  d!imposition of a fee based upon revenues received from the feeable ancillary or supplementary  d!use of the DTV capacity. The relationship between the value of the DTV capacity used in the  d!<provision of feeable ancillary or supplementary services and the revenue produced from the  d!>provision of those services can be demonstrated using microeconomic theory. It may,  d!.therefore, be possible to establish a fee program as required by the 1996 Act based upon some measure of revenues received from these services.  Y(#- k18.` ` More specifically, where DTV capacity is viewed in economic terms as an  d!input of production used to produce a given ancillary or supplementary service, and the  d!capacity can be combined with other inputs of production, such as equipment, programming,  d!and labor in variable proportions to produce the service, it is possible to postulate a  d!relationship between variable quantities of DTV capacity and the quantity of the service"H&,''-"  Y- d!actually produced, holding constant all other inputs of production.X` yOy-ԍ The inputoutput relationship between the quantity of DTV spectrum and the quantity of feeable ancillary or supplementary services produced may be approximated using engineering or technical relationships or econometric methods.  Whatever the nature of  d!\the actual empirical inputoutput relationship, it will reflect the economic principle of  d!idiminishing returns to DTV capacity as a variable input of production, if the other inputs of  d!/production are held constant. In other words, all other things remaining the same, an  d!increase in the quantity of digital capacity used to produce a given feeable ancillary or  d!supplementary service will result in the production of increasing quantities of the ancillary  d!or supplementary service although the rate of increase will diminish as the increasing quantity  d!of capacity is forced to work with fixed quantities of all other inputs of production. The  d!Yrelationship between the quantity of DTV capacity used in production and the diminishing rate of increase in total output is called, in graphical terms, a marginal product curve.  Y-  k19.` ` Microeconomic theory demonstrates that the marginal product curve represents  d!=a firm's demand curve for a single variable input of production, or, here, a broadcaster's  d!demand for digital capacity for producing feeable ancillary or supplementary services.  d!iTheory also shows that a profitmaximizing firm will use an amount of the variable input of  d!Zproduction (DTV capacity) that equates the marginal product (or incremental change in total  d!output produced resulting from an incremental change in the amount of DTV capacity used  d!Kin production) of the variable input or DTV capacity, multiplied by the unit market price of  d! the specific ancillary or supplementary service, with the unit price of the input (DTV  d!capacity) itself. In the case of DTV capacity as a variable input of production, there is no  d!marketdetermined price established by auction which can be equated with the value of  d!marginal product ("VMP"), i.e., marginal product multiplied by the unit market price of a  d! specific ancillary or supplementary service. Within the range of efficient production  d![described by the empirical inputoutput relationship, the value of marginal product curve  Y- d!represents the implicit value to the broadcaster of DTV capacity used to produce feeable  Y- d!ancillary or supplementary services.6X` yO!-ԍIf the ancillary or supplementary service is sold in markets where competition is not fully developed, then output price will tend to be variable rather than fixed and should be replaced by marginal revenue in constructing the value of marginal product curve.6 Moreover, it can be shown that VMP may be  d!interpreted as a measure of incremental revenue attributable to a one unit increase in the  d!Mquantity of DTV capacity used to produce a given ancillary or supplementary service.  d!,Multiplying the implicit unit value of DTV capacity by the corresponding quantity of capacity  d!actually used in providing a given service provides an estimate of the implicit market value  d!of that particular quantity of capacity for that particular broadcaster providing that specific  Y8- d!service. 8` yO -ԍA formal economic model that applies the notion of diminishing marginal productivity in estimating the implicit value of spectrum is provided in the early paper of James H. Alleman, "The Shadow Price of Electromagnetic Spectrum: A Theoretical Analysis," Office of Telecommunications, Paper #COM7510777, U.S. Department of Commerce, July, 1974. The ratio of this implicit value of DTV capacity to some measure of revenues  d!generated by the sale of the specific feeable ancillary or supplementary service provides a conceptual basis for relating the value of the capacity to service revenues. " ,'' "Ԍ 20. This conceptual approach can only approximate the implicit value of DTV  d!spectrum over a range of possible quantities of the DTV capacity actually used to produce  d!Lspecific ancillary or supplementary services, since marketdetermined unit prices of DTV  d!spectrum are unavailable. We believe, however, that the VMP curve provides some evidence  d!of the implicit value of DTV capacity used to provide each specific feeable ancillary or  d!supplementary service and, therefore, provides a conceptual basis for estimating the market  d!value of such spectrum within the range of efficient production of feeable ancillary or supplementary services. We seek comment the conceptual framework outlined here.  Y- k21.` ` Fee Based Upon Net Revenues. The value of the DTV capacity used for  d!<feeable ancillary or supplementary services may be estimated through the net revenues from  d!each such service provided. Net revenue is defined as revenue from a service less incremental  d!costs and a portion of joint and common costs. We believe that this revenue proxy for the  d!auction value is one means of satisfying the criteria of the 1996 Act. A fee could be  d!|computed as a percentage of net revenues derived from each feeable ancillary or  d!supplementary service. Such fee has the additional effect of allowing broadcasters to build  d!their feeable ancillary or supplementary services to the breakeven point without the  YH - d!iassessment of a fee, fostering the development of these new services.  Ascertaining the costs  d!xinvolved in calculation of net revenues may, however, be problematic. Such a determination  d!would necessitate the apportionment of common expenses between and among free television  d!services offered on a licensee's DTV capacity and each feeable ancillary or supplementary  d!use of its DTV capacity. We have concerns as to whether this information will be readily and  d!reliably available. We seek comment on the burden such a fee program would impose on broadcasters and on Commission staff in the audit and review process.  Y- k22.` ` Fee Based Upon Incremental Profits From Specific Services.  An alternative  d!to such a cost accounting approach that would avoid the problem of the allocation of costs  d!shared by multiple broadcasting and ancillary or supplementary services is assessing the fee  d!jon the difference between the incremental gross revenues for a given feeable ancillary or  d!Zsupplementary service and the incremental economic costs associated with the production of  d!Lthe service. The servicespecific incremental cost would include the costs of all directly d!attributable inputs of production, such as labor and equipment, and the economic depreciation  d!and rate of return on any specific capital assets that are used exclusively in the production  d!of a given feeable ancillary or supplementary service. Any costs, either variable or fixed,  d! that are shared in the production of the advertisersupported television service and an  d!kancillary or supplementary service would be omitted in the calculation of profit. This  d!approach has an advantage over the net revenue approach of reduced auditing requirements since joint and common costs do not have to be allocated.  Yx- k"23.` ` Nevertheless, due to the accounting and enforcement difficulties, especially the  d!;potential need to conduct audits, we remain concerned about the feasibility of the incremental  d!\profits fee. We seek comment on the costs to broadcasters and the Commission of the  d!specific proposal that DTV spectrum fees be based on the calculated profit for each feeable  d!ancillary or supplementary service. In particular, what type of studies or recordkeeping will  d!be required to estimate servicespecific incremental cost? Will the Commission need to  d!prescribe specific cost accounting rules to insure consistent and uniform calculations of  d!incremental cost for purposes of calculating servicespecific profit? Will the costs to  d!.broadcasters and the Commission of calculating and auditing the computation of service d!-specific profit exceed the benefit of avoiding whatever inefficiency in consumption may be induced by a fee based on gross revenues?"H& ,''-"Ԍ  Y- k24.` ` Fee Based Upon Gross Revenues. A fee assessed as a percentage of a  d!licensee's gross revenues from the provision of feeable ancillary or supplementary services  d!would be consistent with the 1996 Act and would avoid some of the infirmities of the fee  Y - d!based upon net revenues described above.^ ` yO-ԍ A predecessor to the 1996 Act, S. 1822, 103rd Cong., 2d Sess. (1994) contained language similar to that adopted in the 1996 Act regarding the assessment of fees for the ancillary or supplementary use of the DTV spectrum: "To the extent that the broadcast licensee provides commercial services using broadcast spectrum, the Commission shall be authorized to collect from each licensee an amount equivalent to the amount that would have been paid if the license to provide such service has been subjected to competitive bidding under section 309(j) of the Communications Act of 1934 (47 U.S.C. 309(j))." The legislative history of that Senate bill contemplates that the auction amount might be difficult to replicate and that revenues may be a more practicable basis of the fee. In particular, the Senate Report states that "[l]icensees will use only a portion of their assigned spectrum to provide ancillary and supplementary services, and for only limited times of the day, in contrast to providers of competing services that obtained license through competitive bidding under Section 309(j) of the 1934 Act. Nothing in subsection (b) is intended to preclude the FCC, in its determination of fees, from considering the annual revenues received by a television licensee for the provision of ancillary and supplementary services which are subject to fees. Nothing in this subsection (b) is intended to preclude the FCC from calculating a television licensee's annual fees on the basis of an appropriate percentage of such revenues." Sen. Rep. 367, 103rd Cong., 2d Sess. (1994).^ Moreover, we believe a fee based upon a  d!percentage of gross revenues could foster our goal of creating a fee structure which does not  d!dissuade broadcasters from offering feeable ancillary and supplementary services. Such a fee  d!would be straightforwardto assess and calculate; the licensee would be required to report its  d!Kgross revenues from feeable ancillary or supplementary services and to calculate a fee based  Y- d!upon a percentage of these revenues."zH ` {O-ԍ See Report and Order, In the Matter of Assessment and Collection of Regulatory Fees for Fiscal Year 1995, FCC 95-227, MD Docket No. 95-3, 10 FCC Rcd. 13512 at  134 (1995). ( "[W]e have decided to adopt a gross revenues methodology for assessing [fees].... Properly administered, a gross revenues methodology will ease administrative burdens of carriers in calculating fee payments, provide reliable and verifiable information upon which to calculate the fee and equitably distribute the fee requirement in a competitively neutral manner. A revenue based methodology avoids the calculation problems inherent in [other methodologies] and permits the assessment of fees without any need to rely upon assumptions and projections.") " In addition, a fee set at a percentage of gross  d!Krevenues provides broadcasters a more certain fee amount to use in their long term planning and decisions.   Y( - k25.` ` Hybrid Fees. Another possible fee structure is a twopart, tarifflike fee, in  d!which the fee is comprised of a combination of a flat dollar amount and a percentage of gross  d!revenues. Compared to a fee based purely on a percentage of gross revenues, a hybrid fee  d!would include an element the flat fee that would provide a uniform means of preventing  d!unjust enrichment and recover a portion of the value of the spectrum consistent with the  d!-statute. Moreover, a flat fee component would permit us to set the percentage rate of gross  d!revenues at a lower level, thus avoiding a fee program that dissuades broadcasters from  d!offering feeable ancillary and supplementary services. A flat amount, however, would be an  d!.upfront cost, which could serve as a disincentive to broadcasters to provide ancillary or  d!jsupplementary services. Given the statutory requirement that we impose a fee on feeable  d!yancillary and supplementary uses, a flat fee may be appropriate even if it does discourage  d!some such uses. The addition of a percentage of gross revenues to the flat rate could prevent" ,''"  d!Lthe unjust enrichment that might result from a flat fee, by recovering some percentage of  d!gross revenues in excess of the upfront payment. We invite comment on the twopart fee  d!proposal. We are especially interested in comments that recommend what the initial flat rate  d!should be and explain the basis of the recommendation. Would the initial flat rate discourage  d!broadcasters' institution of feeable ancillary or supplementary services or serve as an  d!incentive to broadcasters to further develop feeable ancillary or supplementary services once established?   Y@-  k_26.` ` Percentage Rate of Fee. If the fee is assessed as a percentage of revenues or  d!incremental profits, the percentage rate of the fee, more than the process by which it is  d!derived will determine the degree to which the fee affects broadcasters' decisions. We  d!recognize that the 1996 Act exempts free broadcasting services from any such fees, thus to  d!some extent creating an incentive for DTV licensees to use this capacity for free broadcasting  Y( - d!services in addition to the one FCCmandated free television service.bZ( ` yO -ԍ In particular, where the costs and revenues of an additional free television service and an ancillary or  {Oi -supplementary service are identical, a spectrum fee on a subscription service but not on the free service might weight the broadcaster's choice in favor of offering a free service.b This is consistent with  d!the Commission's previous statement that "the fundamental use of the 6 MHz DTV license  Y - d!will be for the provision of free overtheair television service"R ` {OS-ԍ Fifth Report and Order at  28.R The greater the fee, the  d!greater the incentive created by the fee for a broadcaster to use its assigned spectrum to  d!provide free, overtheair broadcast programming instead of subscription programming or  d!other feeable ancillary or supplementary services. The lower the fee, the more flexible the  d!broadcaster may be in serving audience demand for services and in choosing the mix of  d!Kservices it provides. We seek comment as to the types of services broadcasters may provide  d!using DTV capacity. We are particularly interested in DTV licensees' plans for the provision  d!-of feeable ancillary or supplementary services. To the extent that commenters can estimate  d!Zrevenues at this time, we seek information as to the revenues anticipated from the use of the DTV capacity for feeable ancillary or supplementary services.  YP- kn27.` ` The percentage rate of the fee must reflect the statutory requirements that the  d!fee recover a portion of the value of the spectrum used for these services, avoid unjust  d!enrichment, and approximate the revenue that would have been achieved had these services  d!been licensed through an auction. We ask commenters to take the statutory requirements and  d!policy goals into account in proposing particular percentage rates. We also seek comment  d!on how we should factor in our goal of permitting broadcasters flexibility to provide feeable  d!ancillary or supplementary services in establishing an appropriate percentage rate for the fee.  d!-We are reluctant to set the percentage rate so high that it would dissuade broadcasters from  d!providing feeable ancillary or supplementary services. We ask commenters to explain how  d!\the percentages they propose implicate this consideration. We seek comment on what  d!percentage would be appropriate for the fee, taking into account the various proposals for  d!\assessing a fee. Clearly, a fee that is based upon gross revenues will be set at a lower  d!=percentage rate than a fee based upon net revenues or incremental profits. Similarly, the  d!;percentage rate of a fee incorporated into a hybrid approach will be lower than the percentage  d!=rate of a fee that is not additional to an upfront payment. We encourage commenters to  d!xmake specific recommendations as to the level of the fee and type of fee assessment program  d!to which the fee is to be tied and to provide evidence to build a record supporting those" |,''~'"  d!recommendations. For example, should we set the fee at one percent or less of gross  d!revenues generated from feeable ancillary and supplementary services, or up to a more substantial ten percent of gross revenues?   Y -  k28.` ` An additional consideration is whether different feeable ancillary or  d!xsupplementary services should be subject to fees set at different percentage rates. A varying  d!kpercentage rate could have a number of disparate effects. Different rates for different  d!services might create incentives for broadcasters to offer services with lower fees over  d!services with higher fees and could affect broadcasters' choice from among alternative feeable  d!ancillary or supplementary uses. On the other hand, a varying percentage rate fee could be  d!used to adjust the costs to broadcasters of providing feeable ancillary or supplementary  d!Zservices to reflect the different costs to competitors offering analogous services on spectrum  d!xpurchased at auction or on spectrum not obtained at auction or through technologies that are  d!<not spectrumbased. Another consideration is whether the percentage rate of the fee should  d!vary based upon the time of day during which the service is being provided or other factors. We seek comment on the imposition of a varying percentage rate fee.   YH - k_29.` ` The statute provides for the periodic adjustment of the fee, requiring that the  d!-fee "be adjusted by the Commission from time to time in order to continue to comply" with  Y- d!the 1996 Act.F` yOQ-ԍ 47 U.S.C.  336(e)(2)(c).F While this provision generally gives us the authority to recalculate the fee  d!once DTV is established and feeable ancillary or supplementary services are being offered,  d!it also raises the possibility that we set a lower percentage rate for the fee at the outset. The  d!assessment of a lower initial percentage rate would allow broadcasters a greater percentage  d!0of gross revenues during the buildout of DTV service and would also provide the  d!=Commission the opportunity to adjust the percentage rate after gaining more information  d!concerning the nature of the services offered by licensees. The periodic adjustment of the  d!fee allows the Commission to ensure that the fee program continues to meet the requirements  d!of the statute, including the prevention of unjust enrichment and the recovery of a portion  d!yof the value of the spectrum. For example, the fee program could be adjusted where it is  d!shown that it has given DTV licensees an unfair advantage in the provision of their feeable  d!ancillary or supplementary services as compared with their nonbroadcast competitors providing analogous services on spectrum licensed through a competitive bidding process.   Y- k30. ` ` Noncommercial Television Licensees. In their Petition for Reconsideration of  Y- d!Kthe Fifth Report and Order, the Association of America's Public Television Stations and the  d!=Public Broadcasting Service ("APTS/PBS") requested that the Commission exempt public  d!television licensees from any obligation to pay fees when they offer feeable ancillary or  d!supplementary services on their DTV capacity as a source of funding for their public  Y- d!television operation.X` yO!-ԍ Petition for Reconsideration and Clarification of Association of America's Public Television Stations and Public Broadcasting Service in MM Docket No. 87268 filed June 13, 1997, p. 28, n. 29. APTS/PBS argue that the revenues from the remunerative provision  d!xof feeable ancillary or supplementary services on their DTV capacity may provide a revenue stream to support their noncommercial broadcasting activities.  Y - k31.` ` To the extent public television licensees ultimately offer feeable ancillary and  d!supplementary services, we must determine whether and in what circumstances they are"! ,''n("  d!subject to fees for these services. We seek comment on the argument that noncommercial  d!television licensees should be exempt from fees or subject to lower fees. Is such relief  d!iconsistent with the 1996 Act's requirement that we collect a fee where the DTV spectrum is  d!<used for feeable ancillary or supplementary services for which a subscription fee is charged  d!or compensation is received other than advertising revenues? If so, what form should such  d!jan exemption take? Should noncommercial DTV licensees be exempt from the fee where  d!they offer revenue producing feeable ancillary or supplementary services as a source of  d!ifunding for public television? If noncommercial licensees are subject to a fee for the feeable  Y@- d!ancillary or supplementary use of the DTV capacity, should the fee be assessed at the same  d!percentage as the fee for commercial licensees or at a lower rate? If noncommercial  d!Kbroadcasters are exempt from the fee, or assessed a reduced fee what effect would this have  d!on competing providers of these services? We ask commenters to address these questions.  Y( -   X - Implementation  Y -  Y - k32. ` ` The Commission proposes to employ similar procedures to those it currently  YH - d!uses for the administration of its filing fees, regulatory fees, and auction revenue programs.H ` {O-ԍ See 47 U.S.C.  158, 159. See also 47 CFR 1.1101 et seq., and 1.1151 et seq.ě  d!zFurther, we propose to generally follow the same reporting and filing requirements as  d!Ocurrently exist for other programs. We seek comment on the proposed means of  d!implementing and collecting the fee. We seek comment on any special circumstances that merit an exception to our current processes.  Y-  k 33.` ` If we assess a fee based in some way upon revenues, what source will reliably  d!Zprovide an accurate statement of the appropriate revenues? How can or should such figures  d!be independently verified? What reporting and filing requirements will be required of broadcasters in connection with such collection?  Y- k!34.` ` The statute does not impose specific requirements on the collection of the fee,  Y- d!=requiring only "an annual fee or other schedule or method of payment."IZ` {O-ԍ Id. at  336(e)(1)(B).I How does the  d!collection of the fee affect its neutrality? Does a one time fee create a greater disincentive  d!to offer feeable ancillary or supplementary services than a fee paid in installments? Should  d!a revenuebased fee be assessed annually? Should a certain fee liability level entitle the  d!licensee to pay in installments? Is there another payment schedule that might be more  Y-effective? Should a fee be paid upon license renewal? ` `  X->IV. CONCLUSION |V|V  Yx- k|V\ "35.` ` The 1996 Act required the Commission to assess fees on the provision of  Y@- d!feeable ancillary or supplementary services over the DTV spectrum. We issue this Notice  Y -of Proposed Rule Making to seek comment on the fee assessment programs proposed herein.  X - |V |V  X`"-|V  V. ADMINISTRATIVE MATTERS "`" ,''^)"Ԍ Y- kn|V\ԙ#36. DATES ` ` Comments and Reply Comments. Pursuant to applicable procedures set forth  d!\in Sections 1.415 and 1.419 of the Commission's Rules, 47 C.F.R. Sections 1.415 and  Y- d!1.419, interested parties may file comments on or before March 3, 1998 and reply comments  YX- d!on or before April 2, 1998. To file formally in this proceeding, you must file an original plus  d!jsix copies of all comments, reply comments, and supporting comments. If you want each  d!Commissioner to receive a personal copy of your comments, you must file an original plus  d!eleven copies. You should send comments and reply comments to Office of the Secretary,  d!Federal Communications Commission, 1919 M Street, N.W., Washington, D.C. 20554.  d!Comments and reply comments will be available for public inspection during regular business  d!hours in the FCC Reference Center (Room 239), 1919 M Street, N.W., Washington, D.C. 20554.  Y` - k$37.` ` Initial Paperwork Reduction Act of 1995. This Notice proposes a new fee  d!assessment program which may contain an information collection requirement. As part of  d!=our continuing effort to reduce paperwork burdens, we invite the general public and the  d!Office of Management and Budget ("OMB") to take this opportunity to comment on the  Y - d!information collection contained in this Notice, as required by the Paperwork Reduction Act  d!of 1995, Pub. L. No. 10413. Public and agency comments are due at the same time as  Y- d!other comments on this Notice; OMB comments are due 60 days from the date of publication  Y- d!of this Notice in the Federal Register. Comments should address: (a) whether the proposed  d!.collection of information is necessary for the proper performance of the functions of the  d!KCommission, including whether the information shall have practical utility; (b) the accuracy  d!of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity  d!Mof the information collected; and (d) ways to minimize the burden of the collection of  d!information on the respondents, including the use of automated collection techniques or other  d!Zforms of information technology. In addition to filing comments with the Secretary, a copy  d!of any comments on the information collections contained herein should be submitted to Judy  d!Boley, Federal Communications Commission, Room 234, 1919 M Street, N.W., Washington,  d!KDC 20554, or via the Internet to jboley@fcc.gov and to Timothy Fain, OMB Desk Officer,  d!M10236 NEOB, 725 17th Street, N.W., Washington, DC 20503 or via the Internet to fain_t@al.eop.gov.  Y- ko%38.` ` Ex parte Rules. This proceeding will be treated as a "permit-but-disclose"  d!-proceeding subject to the "permit-but-disclose" requirements under Section 1.1206(b) of the  Y- d!irules. 47 C.F.R.  1.1206(b), as revised. Ex parte presentations are permissible if disclosed  d!in accordance with Commission rules, except during the Sunshine Agenda period when  Y - d!ipresentations, ex parte or otherwise, are generally prohibited. Persons making oral ex parte  d!presentations are reminded that a memorandum summarizing a presentation must contain a  d!summary of the substance of the presentation and not merely a listing of the subjects  d!discussed. More than a one or two sentence description of the views and arguments  Y@- d!presented is generally required. See 47 C.F.R.  1.1206(b)(2), as revised. Additional rules pertaining to oral and written presentations are set forth in Section 1.1206(b).  Y!- k&39.` ` Initial Regulatory Flexibility Analysis. With respect to this Notice, an Initial  d!Regulatory Flexibility Analysis ("IRFA") is contained in Appendix A. As required by the  Y(#- d!Regulatory Flexibility Act(#` {O%-ԍ Pub. L. No. 96354, 94 Stat. 1164, 5 U.S.C.  601 et seq. (1981), as amended., the Commission has prepared an IRFA of the expected  d!significant economic impact on small entities by the policies and rules proposed in this"#Z,''/+"  Y- d!Notice. Written public comments are requested on the IRFA. In order to fulfill the mandate  d!of the Contract with America Advancement Act of 1996 regarding the Final Regulatory  d!ZFlexibility Analysis, we ask a number of questions in our IRFA regarding the prevalence of  YX- d!small businesses in the industries covered by this Notice. Comments on the IRFA must be  Y - d!Zfiled in accordance with the same filing deadlines as comments on the Notice, but they must have a distinct heading designating them as responses to the IRFA.  Yx- kB'40.` ` Accordingly, IT IS ORDERED that pursuant to the authority contained in  d!Sections 4(i), 303, 336 and 403 of the Communications Act of 1934, as amended, 47  Y-U.S.C.154(i), 303, 336 and 403, this Notice of Proposed Rule Making IS ADOPTED.  Y- kP(41.` ` IT IS FURTHER ORDERED that the Commission's Office of Public Affairs,  Y` - d!Reference Operations Division, SHALL SEND a copy of this Notice, including the Initial  d!Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.  Y -|V\  Y -)42.` ` Additional Information. For additional information on this proceeding, please contact Jerry Duvall, Chief Economist, Mass Media Bureau (202) 4182600 or Susanna Zwerling, Policy and Rules Division, Mass Media Bureau (202) 4182140 or Jonathan Levy, Office of Plans and Policy (202) 4182030. ` `  hhC FEDERAL COMMUNICATIONS COMMISSION ` `  hhCMagalie Roman Salas ` `  hhCSecretary Y-|V |V",''@"  X-N APPENDIX A |V  X- Initial Regulatory Flexibility Analysis Đ|V! !\  Y- As required by the Regulatory Flexibility Act (RFA),X Z` {Oa-ԍ See 5 U.S.C.  603. The RFA, see 5 U.S.C.  601 et. seq., has been amended by the Contract With America Advancement Act of 1996, Pub. L. No. 104121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA is the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).X the Commission has prepared  d!this present Initial Regulatory Flexibility Analysis (IRFA) of the expected significant  Yx- d!Keconomic impact on small entities by the policies and rules proposed in this Notice. Written  d!public comments are requested on this IRFA. Comments must be identified as responses to  Y- d!the IRFA and must be filed by the deadlines for comments on the Notice provided above in  Y- d!paragraph  DATES36 . The Commission will send a copy of the Notice, including this IRFA, to the  Y- d!Chief Counsel for Advocacy of the Small Business Administration.P!` {O3-ԍ See 5 U.S.C.  603(a). P  In addition, the Notice  Y` -and IRFA (or summaries thereof) will be published in the Federal Register.:"` |` {O-ԍ Id. :  Y - d! Reasons Why Agency Action is Being Considered: The 1996 Act directed the  d!Commission to adopt regulations allowing licensees to use a portion of the DTV spectrum to  d!<provide feeable ancillary or supplementary services and to establish a program to assess and  YH - d!collect a fee for these services. In the Fifth Report and Order we established rules permitting  d!broadcasters to offer feeable ancillary or supplementary services on the DTV spectrum. As  d!directed by Congress, in this proceeding we propose a means of assessing and collecting a fee for the feeable ancillary or supplementary use of the DTV spectrum.   Y0- d!  Need For and Objectives of the Proposed Rule Changes: The 1996 Act specified that the  d!Commission shall establish a program to assess and collect fees for the feeable ancillary or  d!supplementary use of the DTV capacity. Congress set forth the following objectives to be  d!xachieved by the assessment of the fee: first, that the fee recover a portion of the value of the  d!DTV capacity; second, that the fee prevent the unjust enrichment of broadcast licensees using  d!the DTV capacity to provide services for which they receive revenues other than advertising  d!revenues; third, that the fee recover "for the public an amount that, to the extent feasible,  d!equals but does not exceed (over the term of the license) the amount that would have been  d!recovered" in an auction of the spectrum; and finally, that any free broadcasting service  d!]which relies upon commercial advertisements rather than subscription fees or other  Y- d!compensation for its revenues be exempt from the fee requirement. In the Fifth Report and  Y- d!=OrderĠ we expressed our objective that broadcasters develop innovative uses of the DTV  d!yspectrum and be free to respond to market demand for feeable ancillary or supplementary  d!services provided over this spectrum. This proceeding should achieve the objectives set forth  Y -in the 1996 Act and in the Fifth Report and Order.   Y- d!Y Legal Basis: Authority for the actions proposed in this Notice may be found in Sections 4(i),  d!303(r), 336 and 403 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 303(r), 336 and 403."@",''%"Ԍ Y- d!I ԙ Recording, Recordkeeping, and Other Compliance Requirements: The Notice proposes  d!xa new fee assessment program which may contain an information collection requirement. In  d!general, the proposed fee assessment programs which would assess a fee for feeable ancillary  d!or supplementary services based upon revenues derived from these services would require  d!=broadcasters to report their revenues derived from these services. Certain alternative fee  d!assessment proposals may require more information from broadcasters than would other  Y- d!-proposals. In the Notice, the Commission has proposed a fee assessment program that seeks  Yx-to minimize the administrative and reporting burdens on broadcast licensees.    X- d!! Description and Estimate of the Number of Small Entities to Which the Proposed Rules  Y- d!Will Apply: Under the RFA, small entities may include small organizations, small  Y- d!businesses, and small governmental jurisdictions.@#` yO -ԍ 5 U.S.C.  601(6). @ The RFA?$X` yO -ԍ 5 U.S.C.  601(4).? generally defines the term  d!,"small organization" to mean "any notforprofit enterprise which is independently owned and  Y( - d!operated and is not dominant in its field." In addition, the RFA,B%( ` {O-ԍ Id. at  601(3)Bgenerally defines the term  d!<"small business" as having the same meaning as the term "small business concern" under the  d!Small Business Act, 15 U.S.C.  632. A small business concern is one which: (1) is  d!independently owned and operated; (2) is not dominant in its field of operation; and (3)  d!ysatisfies any additional criteria established by the Small Business Administration ("SBA").  Y- d!ZPursuant to 5 U.S.C.  601(3), the statutory definition of a small business applies "unless an  d!iagency after consultation with the Office of Advocacy of the SBA and after opportunity for  d!public comment, establishes one or more definitions of such term which are appropriate to  Yh-the activities of the agency and publishes such definition(s) in the Federal Register."5&hz` yO-ԍ While we tentatively believe that the SBA's definition of "small business" greatly overstates the number of television broadcast stations that are small businesses and is not suitable for purposes of determining the  {O#-impact of the proposals on small television stations, for purposes of this Notice, we utilize the SBA's definition in determining the number of small businesses to which the proposed rules would apply, but we reserve the right to adopt a more suitable definition of "small business" as applied to television broadcast stations or other  {O}-entities subject to the proposed rules in this Notice and to consider further the issue of the number of small  {OG-entities that are television broadcasters or other small media entities in the future. See Report and Order in MM  {O-Docket No. 93-48 (Children's Television Programming), 11 FCC Rcd 10660, 1073738 (1996), citing 5 U.S.C.  601(3).5  The proposed rules and policies will apply to television broadcasting licensees. The  d!Small Business Administration defines a television broadcasting station that has no more than  Y- d!$10.5 million in annual receipts as a small business.m'R ` yO"-ԍ 13 C.F.R.  121.201, Standard Industrial Code (SIC) 4833 (1996).m Television broadcasting stations consist  d!of establishments primarily engaged in broadcasting visual programs by television to the  Y- d!public, except cable and other pay television services.?(` yO%-ԍ Economics and Statistics Administration, Bureau of Census, U.S. Department of Commerce, 1992 CENSUS  yOs&-OF TRANSPORTATION, COMMUNICATIONS AND UTILITIES, ESTABLISHMENT AND FIRM SIZE, Series UC92S1, Appendix A9 (1995).? Included in this industry are":(,''"  Y- d!commercial, religious, educational, and other television stations.)B` {Oy-ԍ Id. See Executive Office of the President, Office of Management and Budget, Standard Industrial Classification Manual (1987), at 283, which describes "Television Broadcasting Stations (SIC Code 4833) as: XEstablishments primarily engaged in broadcasting visual programs by television to the public, except cable and other pay television services. Included in this industry are commercial, religious, educational and other television stations. Also included here are establishments primarily engaged in television broadcasting and which produce taped television program materials. ƒ Also included are  d! establishments primarily engaged in television broadcasting and which produce taped  Y- d!-television program materials.x*` yO -ԍ Economics and Statistics Administration, Bureau of Census, U.S. Department of Commerce, 1992 CENSUS  yO -OF TRANSPORTATION, COMMUNICATIONS AND UTILITIES, ESTABLISHMENT AND FIRM SIZE, Series UC92S1, Appendix A9 (1995). Separate establishments primarily engaged in producing taped television program materials are classified under another SIC number. SIC 7812 (Motion Picture and Video Tape Production); SIC 7922 (Theatrical Producers and Miscellaneous Theatrical Services (producers of live radio and television programs). x There were 1,509 television stations operating in the nation  YX- d!in 1992.+X ` yO-ԍ FCC News Release No. 31327, Jan. 13, 1993; Economics and Statistics Administration, Bureau of  {OS-Census, U.S. Department of Commerce, supra note 78, Appendix A9. That number has remained fairly constant as indicated by the approximately 1,563  Y - d!operating television broadcasting stations in the nation as of October 31, 1997., ` yO-ԍ FCC News Release "Broadcast Station Totals as of October 31, 1997," issued November 26, 1997. For 1992w- l` {O=-ԍ Census for Communications' establishments are performed every five years ending with a "2" or "7". See  zP-Economics and Statistics Administration, Bureau of Census, U.S. Department of Commerce, #c P7P#supra#c P7P# note 78, III.w  d!the number of television stations that produced less than $10.0 million in revenue was 1,155  Y-establishments.c.X` yO)-ԍ The amount of $10 million was used to estimate the number of small business establishments because the relevant Census categories stopped at $9,999,999 and began at $10,000,000. No category for $10.5 million existed. Thus, the number is as accurate as it is possible to calculate with the available information.c  ^Thus, the proposed rules will affect many of the approximately 1,563 television  Y- d!stations; approximately 1,200 of those stations are considered small businesses./` yO-ԍ We use the 77 percent figure of TV stations operating at less than $10 million for 1992 and apply it to the 1997 total of 1563 TV stations to arrive at 1,200 stations categorized as small businesses. These  d!xestimates may overstate the number of small entities since the revenue figures on which they  d!are based do not include or aggregate revenues from nontelevision or nonradio affiliated companies.  >In addition to owners of operating television stations, any entity who seeks or desires  d!yto obtain a television broadcast license may be affected by the proposals contained in this  d!item. The number of entities that may seek to obtain a television broadcast license is unknown. "@/,'':"Ԍ We seek comment on these estimates and data regarding the number of small entities  Y-affected by the proposals in this Notice.  YX- ; Federal Rules that Overlap, Duplicate, or Conflict with the Proposed Rules: The  d!-initiatives and proposed rules raised in this proceeding do not overlap, duplicate or conflict with any other rules.  Xx-  Any Significant Alternatives Minimizing the Impact on Small Entities and  Y@- d!Consistent with the Stated Objectives : This Notice solicits comment on a variety of  d!alternatives discussed herein. Any significant alternatives presented in the comments will be  d!.considered. The proposed rules and policies are required to implement provisions of the  d!<1996 Act. These proposed rules and policies may affect broadcast television licensees, some  d!iof which are small businesses. The Commission believes that the proposed rules and policies  d!may be necessary to the recovery of a portion of the value of the public spectrum and to  d!<promote the development of innovative uses of the DTV capacity. We seek comment on the  Y - d!alternatives proposed in the Notice and on whether there is a significant economic impact on any class of small licensee or permittee as a result of any of our proposed approaches.   Y-