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ACA: Small Ops Need HD Exemption For 'Must Carry' Broadcasters

The American Cable Association is calling on the Federal Communications Commission to retain a consumer-friendly rule that allows eligible small cable operators to distribute in analog format so-called must carry TV signals received at their headend facilities in digital high-definition (HD), to avoid imposing new costly and bandwidth-intensive demands on these providers.

"The record makes plain that in order to avoid harm to small cable systems and consumers, the FCC must extend the HD carriage exemption, and also permanently exempt analog-only systems from the HD must-carry mandate," ACA President and CEO Matthew M. Polka said.

ACA set forth its views in reply comments filed March 22 with the FCC.  Building on its previous filing, ACA said evidence in the record suggests that the total number of systems utilizing the HD carriage exemption decreased since 2008, but the need for the exemption among small cable systems still relying on it has increased.  ACA stressed that the evidence in the record, which includes the results of an ACA Member survey, supported the FCC's tentative conclusion that extending the exemption would avoid imposing a significant economic burden on small cable systems and serve the public interest.

In 2008, the FCC adopted the HD exemption ahead of broadcasters' 2009 transition to digital-only transmission mandated by Congress. Under the FCC exemption, cable systems with less than 553 MHz of capacity or cable systems with fewer than 2,501 subscribers (not including systems affiliated with two largest cable operators) would be allowed to provide HD signals of must carry TV stations in analog or digital standard definition (SD).  The HD exemption applies to TV stations that invoke their right to uncompensated cable carriage - thus, the "must carry" moniker.

In the reply comments, ACA also urged rejection of a recommendation from the National Association of Broadcasters that the FCC should withhold the HD exemption from small systems transmitting some signals in HD.  ACA said the NAB failed to show that small cable systems that currently utilize the HD carriage exemption but carry HD programming would not be significantly burdened by carrying the HD must-carry signals of broadcasters, or that they would be any less significantly burdened than systems that offer no HD programming.

ACA argued that the burdens on small systems of transmitting must-carry signals in HD are as great now, or perhaps even greater, than they were in 2008 when the FCC first adopted the HD carriage exemption. ACA's Member survey provided both top-level and granular data showing the burdens placed on small systems without the HD exemption, which expires on June 12, 2012.  At a minimum, 52 ACA operator members representing 385 systems across the country are still relying on the HD carriage exemption, according to the survey.

Many cable operators with less than 553 MHz that are utilizing the HD carriage exemption are channel locked.  If forced to distribute must carry signals in HD, these operators would be required to move other channels - including ones more desired than the must-carry channels -- to less subscribed digital-only tiers that require customers to lease, purchase, or already own equipment capable of receiving digital signals. Not maintaining the exemption would, in other cases, compel dropping channels entirely.

For systems with fewer than 2,501 subscribers that currently rely on the exemption, the financial situation has not improved, and in many cases has become worse over the past three years, ACA explained. Costs for these systems keep rising precipitously, especially for programming, shrinking net income related to video. FCC rules requiring such small systems to transmit HD must-carry signals would require additional equipment purchases and make these systems less economical to operate. Putting more financial stress on marginal small systems would force them to pass through costs that are very high on a per-subscriber basis or simply cease operations.

In cases where small system operators decide to shut down, customer choice is restricted and price discipline enforced by competition is reduced. This harms consumers, even those not currently subscribing to the small systems affected by the HD carriage exemption, by allowing the remaining service provider to raise rates without any corresponding increase in service quality or other consumer benefits. It also harms consumers in those markets where DBS providers do not offer local-into-local services by potentially eliminating their access to local broadcast television offerings.

ACA said that all consumers in these markets are better off where they have access to viable terrestrial alternatives to DBS providers and that the harm that all consumers face from the loss of this competition outweighs the benefits they and broadcasters realize by receiving must-carry stations in HD. Avoiding these potential harms - increased consumer rates, decreases in service offerings, the complete loss of cable service, and the reduction in competition  -- warrants an extension of the HD carriage exemption, ACA said.

"The record in this proceeding clearly demonstrates the need for the FCC to continue the HD carriage exemption for small cable systems," Polka said. "The need for the exemption among small cable systems that currently rely upon it, whether they are offering HD programming or not, has not only failed to diminish but has increased."

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