After almost six years of rulemaking and court litigation, the Federal Communications Commission has adopted rules imposing specific public service program obligations on direct broadcast satellite (DBS) providers. The rules implement Section 335 of the Communications Act of 1934, enacted as Section 25 of the Cable Television Consumer Protection and Competition Act of 1992.

Channel Set-Asides

   The statute directs the FCC to require DBS video providers to make available 4 percent to 7 percent of their channel capacity, at prices determined by the FCC, for noncommercial programming of an educational or informational nature. In its report and order (FCC 98-307) adopted Nov. 19, 1998, the Commission chose to require a 4-percent set-aside of channel capacity by each DBS provider.

   A divided Commission rejected proposals that outside parties (rather than the DBS providers) select the educational programming entities to use these channels. Instead, while not permitted to exercise "editorial control" of the programming, DBS providers will determine which qualified programming entities seeking access should be granted the channels.

   No educational programming entity may obtain more than one channel if another such applicant has not been granted access to a channel. The Commission stated that it believed this arrangement, which is at the less regulatory end of the scale of options permitted by Congress's statute, would provide DBS subscribers access to a greater diversity of noncommercial educational programming while giving flexibility to the DBS industry in its competition with cable television.

   This channel capacity must be made available to "national educational programming suppliers" (defined as qualified noncommercial educational television stations, other public telecommunications entities, and public or private educational institutions) upon "reasonable" prices, terms, and conditions determined by the FCC. The statute prescribes several criteria for the FCC to use in determining "reasonable prices," specifying that prices shall not exceed 50 percent of the total direct costs of making the channel available, and defining direct costs to exclude several normal overhead costs. The Commission defined "direct costs" to include only the costs of transmitting the signal to the uplink facility and the direct costs of uplinking the signal to the satellite.

Other Program Regulation

   The Commission also imposed the minimum additional program regulation required by the statute, adopting rules applying Sections 312(a)(7) and 315 of the Communications Act. The former provision requires "reasonable access" for the purchase of time by candidates for federal elective office and the latter provision requires "equal opportunities" and "lowest unit charge" in the use of broadcast time by federal, state, and local office candidates.

   The Commission declined to add a number of public interest requirements imposed on terrestrial broadcast or cable television, including children's program requirements, must-carry obligations, program access rules, channel occupancy limits, syndicated exclusivity, network non-duplication and sports blackout requirements, leased and PEG channel access requirements, cross-ownership prohibitions, and local taxes and other fees.

   The DBS rulemaking was also to examine the opportunities that DBS should provide for promoting the principle of localism through technological developments or further FCC regulation of DBS. The FCC concluded that no DBS provider has the technical capability to provide local service to all markets in the country, and thus no local programming requirements would be imposed. The agency said that it favored changes in the Satellite Home Viewer Act to remove any legal impediments to local signal retransmission by DBS licensees, and that it may consider requiring DBS providers to offer some amount of locally oriented programming if the legal and technical issues regarding localized programming are resolved.

   The FCC commenced the rulemaking on these subjects (MM Docket No. 93-25, 58 Fed. Reg. 12,917) in March 1993.

Constitutionality of Set-Aside

   The First-Amendment constitutionality of the statute was challenged in federal court. As a result of orders invalidating the channel-capacity set-aside in Daniels Cablevision v. United States, 835 F. Supp. 1 (D.D.C. 1993), the effectiveness of the entire statute was stayed and the rulemaking held in abeyance pending the appeal. The district court invalidated the channel-capacity set-aside because the government provided no evidence that regulation of DBS providers is necessary to serve any significant governmental interest.

   However, in Time Warner Entertainment Co. v. FCC, 93 F.3d 957 (1996), the U.S. Court of Appeals for the District of Columbia Circuit reversed the lower court and upheld the constitutionality of the set-asides. The court of appeals, while reviewing only the set-aside requirements (and not the public interest programming requirements to be directly imposed on DBS providers), adopted the scarcity rationale of Red Lion Broadcasting Co. v. FCC, 395 U.S. 367 (1969), in justifying application of a "less rigorous standard of First Amendment scrutiny" to DBS regulation. Time Warner Entertainment, 93 F.3d at 975.

   The court stated that the statute should be analyzed under "the same relaxed standard of scrutiny that the court has applied to the traditional broadcast media." Id. Although it recognized that Congress made no specific findings in support of the channel-capacity set-aside in the statute, the court stated that Congress was not obligated to make a record of the type that an administrative agency or court would compile to accommodate judicial review. Id. at 976. The court said that, because there was no DBS system in operation at the time the 1992 legislation was enacted, Congress had to base its decision to require set-asides on its long experience with the broadcast media.

   Taking note of the reservation of terrestrial radio and television station frequencies for educational use, the court said that the DBS set-aside "represents nothing more than a new application of a well-settled government policy of ensuring public access to noncommercial programming." Id. The court stated that the set-aside provisions do not dictate specific content and do not unduly impede use of channels by DBS providers.

   The court concluded that the statute is "a reasonable means of promoting the public interest in diversified mass communications" and "does not violate the First Amendment rights of DBS providers." Id. at 977.