Video Competition Renders Cable Rate Regulation Ridiculous

On April 9, the FCC's Media Bureau released an order granting the City of Boston's petition to re-regulate cable rates. The Media Bureau ruled that its 2001 order granting Comcast relief from cable rate regulation was premised on prospective build-out plans by RCN that a decade later have not come to pass. This despite the fact that RCN covers about one-third of the territory in question, and that the FCC has in prior orders found effective competition to exist when a competitor's overlap with an incumbent cable operator is as little as 18%. But the Media Bureau ruled that Comcast also has the ability to file a petition seeking relief from rate regulation on the grounds that it faces "effective competition" in the City of Boston from two direct broadcast satellite (DBS) providers as well as from RCN.

The FCC's cable rate regulation apparatus dates back to the 1992 Cable Act. Under Section 623, the FCC has the power to set standards for and oversee local regulation of rates for "basic tier" service on cable systems. And under Section 76.906 of the FCC's rules, "[i]n the absence of a demonstration to the contrary, cable systems are presumed not to be subject to effective competition."

But the FCC's rules for imposing cable rate regulations are premised on early 1990s ideas about cable operators' so-called "bottleneck." Those premises do not correspond to today's reality. As we've written about previously, consumers now enjoy vibrant video competition, with choices including two nationwide DBS providers, telco entrants in the video market, and myriad online video delivery options. DBS now has one-third of the video subscriber market. These rapid market changes have rendered Section 76.906's presumption against effective competition completely unjustifiable. And those same developments in the video market make cable rate regulation nothing short of ridiculous.

Presumably, it will take an act of Congress to eliminate local cable rate regulating authority and the FCC's corresponding regulatory obligations. But the FCC still has options to make its rules a better match with reality.

Section 623(b)(2) provides that the FCC shall periodically revise its cable rate regulations and in so doing "shall seek to reduce the administrative burdens on subscribers, cable operators, franchising authorities, and the Commission." The FCC could certainly consider rule-changes that would better streamline rate regulation and relief petitions so that cable operators like Comcast don't have to jump through so many hoops in order to receive proper treatment. More importantly, abundant nationwide competition should lead the FCC to reverse Section 76.906's presumption to recognize "effective competition" in the video market unless would-be rate regulating local franchising authorities can demonstrate that a lack of competition exists.