Thursday, June 25, 2020

Maine Cannot Require Cable Operators to Prorate Last-Month Bills

Consumers shopping for video today are faced with an overabundance of choice: traditional cable, direct broadcast satellite (DBS), telco TV, virtual multichannel video programming distributor (vMVPD) offerings, streaming services. Fierce competition between these providers leads to lower costs, differentiated products, and rapid innovation. When free markets operate with such efficiency, there is no need for onerous regulation.

Nevertheless, from time to time a state will adopt a law that ignores the current reality of the marketplace. Maine, in particular, has demonstrated an eagerness to do just that.

The latest example: on March 17, 2020, the Maine legislature passed Public Law Ch. 657, "An Act To Require a Cable System Operator To Provide a Pro Rata Credit When Service Is Cancelled by a Subscriber" (the Act). The governor signed it into law the following day.

As its name implies, the Act uniquely requires locally franchised cable operators to "grant a subscriber a pro rata credit or rebate for the days of the monthly billing period after the cancellation of service if that subscriber requests cancellation of service 3 or more working days before the end of the monthly billing period."

Charter Communications, Inc. (Charter) provides cable service in Maine. On May 11, it filed a Complaint for Permanent Injunctive Relief and Declaratory Relief with the United States District Court for the District of Maine. The state filed a motion to dismiss, to which Charter responded earlier this week. In its pleadings, Charter objects to the Act's interference in how it prices its offerings. With good reason.

As it happens, it is common industry practice to offer video subscriptions on a complete-month basis. The two DBS operators that provide effective competition to Charter in Maine (and elsewhere), DIRECTV and DISH, do not offer pro-rated credits upon mid-month cancellation. Nor do a number of Internet-based providers, including Netflix. Given the amount of competition that exists, however, should consumers prefer such an option, rivals would be expected to appeal to potential customers by satisfying that demand.

Nevertheless, Maine has chosen to meddle with the well-functioning marketplace by regulating the rate structure of cable operators — and ONLY cable operators.

The Act without question triggers the preemption provision in Section 636 of the Communications Act: "any provision of law of any State ... which is inconsistent with this chapter shall be deemed to be preempted and suspended." That is because Section 623(a)(2) plainly states that "if 'the [FCC] finds that a cable system is subject to effective competition" – as it has done with respect to cable systems in Maine 
 then "the rates for the provision of cable service by such system shall not be subject to regulation by … a State.."

In its Motion to Dismiss, the state valiantly tries to characterize the Act's requirement that cable operators price their offerings in a specific way 
 that is, per day  as something other than preempted rate regulation, but those arguments run counter to common understanding. In addition, the relevant case law is unambiguous: rate regulation encompasses the regulation of rate structure, of which this proration obligation is a prime example.

More to the point, the Act will not succeed on its own terms: consumers will not benefit. Cable operator costs will increase. So, too, may prices. And, notably, those who obtain video from non-cable sources 
 a substantial and steadily increasing number  fall outside of the Act's scope.

The District Court should grant Charter's request for relief.