The Federal Communications Commission (FCC) on Tuesday voted in favor of rules that will force most U.S. cable operators to deliver "must carry" television broadcast channels in both analog and digital format after the February 17, 2009, digital television transition.

But the agency, acceding to a plan conceived of and proposed by the cable industry, agreed to sunset the mandate three years after the transition. Although that portion of the order is set to expire in 2012, the FCC plans to conduct a formal review of the matter during its final year.

FCC Chairman Kevin Martin was seeking a dual must-carry plan, absent a temporary compromise.

Following a lengthy delay to a meeting originally scheduled to get underway Tuesday at 9:30 a.m. ET, the FCC voted 5-0 in favor of the Order at about 10:04 p.m.

Under the FCC's Third Report and Order and Third Further Notice of Proposed Rulemaking, cable operators will be required to carry a broadcaster's digital signal in analog format, or carry the signal only in digital format, provided that all subscribers have the "necessary equipment" (digital set-tops) to view the broadcast content. The rules are intended so that all cable subscribers can continue to get local TV stations following the February 2009 cutoff. (See FCC Adopts Cable DTV Rules.)

The FCC also reaffirmed that operators must also carry the high-definition signal of broadcasters in hi-def format.

MSOs and their lobbying arms had complained that a permanent dual must-carry mandate was unconstitutional, and would require operators to deliver programming in three formats, eating up valuable plant capacity unnecessarily. The National Cable & Telecommunications Association (NCTA) has also argued that the digital-only option is in reality no option at all because supplying the necessary set-tops would cost the industry about $6.3 billion. (See Cable's All-Upset Over All-Digital.)

Tuesday's action also offered some relief to smaller operators that would find themselves cash- and capacity-constrained in complying with the dual must-carry rules in time for the DTV transition. The FCC is allowing MSOs with activated capacity of 552 MHz or less the option to request a waiver on the requirements. By comparison, most cable plant considered upgraded generally have capacity of 750 MHz, 860 MHz, or more.

Although he voted in favor of the measure, FCC Commissioner Jonathan Adelstein dissented, in part because he believes the ruling does not provide enough relief for smaller operators.

"While I am pleased that the Order provides for waivers, it is not fair to ask these tiny rural systems to engage lawyers in Washington when a simple exemption would have sufficed," he said.

The American Cable Association (ACA) , a pressure group representing small and independent cable operators, wasn't thrilled with the must-carry ruling. ACA President and CEO Matthew Polka, in a statement, said the equipment and labor costs required to carry signals in multiple formats could exceed $150,000, making "it more difficult for operators of small systems to stay in business."

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Although MSOs are still prevented from degrading the broadcaster's hi-def signal in a "perceptible way," the FCC ruling also does not require cable systems to deliver "all content bits" of the broadcaster's digital TV signal. It marks both a technical and political win for the cable industry, because the ruling does not prevent operators from conserving valuable bandwidth through the use of more efficient compression technologies.

The original "carry-all-bit" proposal by Martin "could have required operators to carry not only an analog and digital version, but a third version in uncompressed high-definition (or, alternatively, a hodge-podge of other digital programming, if that's what a given broadcaster [chooses])," wrote Sanford C. Bernstein & Co. Inc. senior analyst Craig Moffett in a note issued Wednesday morning.

"We are pleased that the FCC's action today adopts cable's carriage plan. And we are pleased that the FCC dropped an ill-considered mandate that would have turned back the clock on decades of digital technology innovation," said NCTA President and CEO Kyle McSlarrow in a statement released Wednesday. "We continue to urge the FCC to act quickly to take into account the special circumstances of very small systems, and to make clear that those systems have the flexibility to serve all their customers without a one-size-fits-all mandate."

Last week, the NCTA announced a $200 million consumer digital TV education campaign. It's expected to run through the February 2009 transition. (See NCTA Vids Spotlight DTV Transition.)

In a separate, also unanimous, 5-0 vote, the FCC agreed to a five-year extension of an exclusivity ban that requires cable MSOs to offer their satellite-delivered programming services and networks to competitors such as DirecTV Group Inc. (NYSE: DTV), EchoStar Satellite LLC , and telcos that market video services. (See FCC Extends Exclusivity Ban.)

The ban, now good through 2012, was set to expire on Oct. 5, 2007. The rule originally was implemented in the 1992 Cable Act.

The FCC said an extension was necessary to ensure "viable competition in the video distribution market."

"The program access rules are one of the true success stories of the 1992 Cable Act," said FCC commissioner Michael J. Copps. "It is no exaggeration to say that without these rules, the DBS industry as we know it would not exist."

The agency said it will also seek comment on so-called "programming tying arrangements," whereby content owners and studios require cable operators to carry a suite of channels in order to receive the networks the MSO really wants to offer to subscribers. This Notice of Proposed Rulemaking will seek arguments on whether it makes sense to ban such tying arrangements and instead require video services to be offered on a standalone basis to all multichannel video programming distributors (MVPDs).

"I believe that if a cable operator only wants one channel, it should not have to take 10 or 20 channels in order to get that one," Martin said. "This is a particularly important issue for small and rural MVPDs and can be a significant obstacle to becoming a viable competitor in the MVPD market."

— Jeff Baumgartner, Site Editor, Cable Digital News