Evoca, a new pay-TV service from Edge Networks that will be delivered via next-gen ATSC 3.0 broadcast signals, will be heading to market this summer saddled with an underlying business challenge – maintaining a sizable profit even as a chunk of its gross revenues goes to the US government.

Thanks to an ancient FCC rule adopted in November 1998 when William Kennard was serving as the agency's chairman, Edge Networks will be required to pay the US government a fee totaling 5% of gross revenues for Evoca, a pay-TV service that will feature more than 80 channels (including some at 4K quality) and sell for less than $50 per month.

Edge Networks has not set an exact price or announced its initial channel lineup for Evoca, but the current plan is to launch the service in Boise, Idaho, sometime this summer and to expand the offering to additional tier 2 and 3 US markets next year.

Per that FCC rule, broadcasters are required to pay that 5% fee from "ancillary or supplementary uses of the digital television (DTV) spectrum for which they charge subscription fees or other specified compensation."

The FCC rule on subscription services used by broadcasters for new digital TV channels implemented a Congressional mandate in the Telecommunications Act of 1996 that the FCC establish a program to "assess and collect fees from broadcast licensees" for ancillary uses of digital television spectrum. Notably, no such fees are required for commercial advertising revenues from free, over-the-air broadcasting services. Informercials and home shopping programs are likewise not subject to the fee because the FCC did not deem them to be "new" services.

The US government justified the 5% fee in part to "avoid unjust enrichment" and to recover for the public an amount that does not exceed the amount that would have been recovered had such fee services been licensed in an auction. The 5% fee on gross revenues was designed to minimize accounting and paperwork and other "compliance burdens" on licensees.

The FCC rules on ancillary services delivered over digital TV spectrum were established as the US broadcast TV industry pushed ahead with the early stages of the digital transition and the eventual deliver of HDTV signals using the ATSC 1.0 standard. The new Evoca service will be powered by ATSC 3.0, a new IP-based broadcast signaling standard that supports 4K, enhanced audio, advanced/targeting advertising and the potential to reach a wider range of devices, including smartphones and tablets.

Will the old rule be challenged in the ATSC 3.0 era?
ATSC 3.0 adds new wrinkles and capabilities to the broadcast TV platform and could tempt broadcasters to challenge whether the old FCC rule is applicable to the new signaling standard or if the regulatory framework should be changed or adjusted to accommodate what ATSC 3.0 brings to the table. In that light, the FCC might be asked to review whether rule might hinder the ability of new pay-TV entrants like Evoca to compete with cable operators and other multichannel video programming distributors (MVPDs).

Update: Responding to this story on Twitter, FCC Commissioner Mike O'Rielly noted Tuesday that these specific rules are "certainly worth a deep review and likely in need of updating" given the widespread changes in the pay-TV market since the mid-1990s:

Meanwhile, Edge Networks confirmed that its new Evoca service will fully comply with FCC rules, including the 5% fee provision.

Fees to the government aside, Boise could prove to be a smart entry point for Evoca, which will compete in that market against Cable One/Sparklight and CenturyLink. Cable One has already de-emphasized pay-TV in favor of higher-margin broadband services. CenturyLink, meanwhile, has halted the expansion of Prism TV, its managed IPTV service, and has ramped down sales of that product.

"We're developing a competitive pay-TV service with a particular focus on second and third tier markets," Todd Achilles, Edge Networks' founder and CEO, said in a recent interview. "These are chronically underserved markets."

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— Jeff Baumgartner, Senior Editor, Light Reading