Cable Industry Lobbies FCC to Allow "Reasonable" Billing Practices

During a recent conversation with Commission staff, representatives from NCTA – The Internet & Television Association, Charter, and Comcast (collectively, the cable advocates) asked the agency to reconsider its rash proposals to prohibit traditional Multichannel Video Programming Distributors (MVPDs) – cable operators and Direct Broadcast Satellite (DBS) providers – from employing common billing practices that their larger and still-growing Internet-based competitors also use. At a minimum, they urged that "reasonable" Early Termination Fees (ETFs) be allowed.

As the Free State Foundation's recent comments in the State of the Communications Marketplace proceeding plainly point out, ascendant streaming services – Netflix, Hulu, YouTube, Amazon Prime, and the like – increasingly overshadow cable operators and DBS providers, which have been suffering significant subscriber losses for years.

However, the Commission's ability to regulate is limited by statute to traditional MVPDs, and – willfully ignoring clear competitive trends as well as its own complicit part in accelerating those trends – it has chosen to exercise that authority on numerous recent occasions.

For example, the FCC proposed late last year to ban traditional MVPDs – and traditional MVPDs alone – from (1) utilizing ETFs as a means of enforcing long-term, consumer-benefiting contracts, and (2) marketing their services in standard monthly increments.

As described in their ex parte letter, the cable advocates urged senior staff from Chairwoman Rosenworcel's office and the Media Bureau to reject outright the proposal to require that traditional MVPDs provide service in daily increments, a clear form of impermissible rate regulation. On the topic of ETFs, they similarly championed regulatory restraint – but suggested that, if the Commission is to intervene, it should limit its focus to "unjust or unreasonable" ETFs.

Of course, asking an administrative agency to determine what is and is not "reasonable" creates a separate set of subjective concerns. Accordingly, the cable advocates proposed a series of factual considerations upon which the FCC might base its decisions, including whether consumers:

• Have a choice between options with and without ETFs,
• Are informed clearly about the existence of ETFs before they sign up for service,
• Are afforded an initial window during which they may cancel service without having to pay an ETF,
• Are not subject to ETFs that are "excessive relative to the value received," and
• Face ETFs that decrease over the term of the contract.

In comments and reply comments, FSF President Randolph May and I strongly opposed any agency action in this proceeding. Specifically, we argued that ETFs and monthly billing increments are pro-consumer common practices that lead to lower costs and greater choice; that the Commission's misguided proposals clearly constitute impermissible rate regulation; and that new burdens exclusively targeting cable and DBS providers inappropriately would pick winners – unregulated streaming behemoths – and losers – struggling traditional MVPDs uniquely subject to FCC oversight.

Divided FCC Imposes New Pricing Requirements on Legacy Video Providers

At its Open Meeting on Thursday, the FCC voted along party lines to require facilities-based video distributors – that is, cable and direct broadcast satellite (DBS) providers, but not upstart competitors that stream their content over the public Internet – to present an "all-in" price on their customer bills and in advertising materials. Republican Commissioners Brendan Carr and Nathan Simington issued Dissenting Statements exposing the agency's general lack of statutory authority to impose such obligations.

The Commission's pending proceeding exclusively targeting cable and DBS billing practices, in which Free State Foundation President Randolph J. May and I filed comments and reply comments, similarly singles out traditional multichannel video programming distributors (MVPDs) for additional regulatory burdens wholly lacking statutory authority even as they struggle to compete with streaming services like Netflix, Hulu, YouTube, Amazon Prime Video, and Disney Plus, among many others.

Commissioner Simington in his Dissenting Statement emphasizes this concern, writing that:

[W]e are yet again adding additional regulatory burden and complexity on an industry that is shedding customers by the millions. Traditional linear video is on the way out, but we don't have to shoo them away like the last guest who hasn't gotten the hint that the party's over. For every mote of regulatory complexity we add to legacy providers, unregulated online video providers become more nimble by comparison.

Commissioner Simington also finds fault with each source of statutory authority relied upon by the majority in the as-yet-unreleased Order. Notably, he calls out the fact that (1) the FCC's limited power pursuant to Section 632 to impose customer service requirements not only presupposes the existence of a provider-customer relationship (and thus does not extend to promotional materials targeting potential customers) but also is constrained heavily by the Television Viewer Protection Act of 2019, and (2) Section 335(a) – incidentally, the same DBS-specific provision relied upon in the billing practices NPRM referenced above – "relates essentially to the provision of political programming."

In his Dissenting Statement, Commissioner Carr similarly questions the agency's statutory authority to act, conceding that "[o]nly in the case of cable billing does that authority arguably exist." And where Commissioner Simington characterized the majority's misguided reliance upon Section 4(i) ancillary authority as "[t]he authority of the gunslinger," Comissioner Carr describes it as a "Hail Mary [that] falls incomplete."

PRESS RELEASE: The FCC's "Cable Operator and DBS Provider Billing Practices" Proposal Will Harm Consumers

 

Today Free State Foundation President Randolph May and Senior Fellow Andrew Long filed comments opposing the FCC’s proposal to prohibit cable and DBS service providers from imposing early termination fees and to require these providers to grant a prorated credit for the remaining days in a monthly or periodic billing cycle after the cancellation of service.

A complete copy of the comments, with the footnotes, is attached. Here is an excerpt from the Introduction and Summary:

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The Billing Practices NPRM proposes (1) "to prohibit cable and DBS service providers from imposing a fee for the early termination of a cable or DBS video service contract" – that is, to deny traditional MVPDs the benefit of their open-eyes bargains with consumers in a manner that certainly will result in higher prices – and (2) "to require cable and DBS service providers to grant subscribers a prorated credit or rebate for the remaining whole days in a monthly or periodic billing cycle after the cancellation of service" – that is, to require that traditional MVPDs establish a daily price for their service despite a statutory prohibition against rate regulation. In short, the Commission's proposal would reduce consumers' options and lead to higher prices, while contravening Congress's bar on rate regulation of cable services. This misguided effort to implement an ill-conceived instance of "Regulatory Bidenomics" should be abandoned.

Forty years ago, in the 1984 Cable Act, Congress articulated a clear intent to leverage competition, rather than regulation, to generate efficiencies – lower prices, greater options, enhanced innovation – for consumers of video content. Today that competition undeniably exists, and the variety of billing arrangements offered to consumers – including those vilified and proposed to be prohibited in this proceeding – is evidence, not of consumer harm, but of competition-fueled consumer choice. Nevertheless, employing some linguistic legerdemain that would make George Orwell blush 75 years after publication of his masterpiece, the coincidentally titled 1984, the Commission proposes to not just regulate rates, but to dictate – and, for existing relationships, disregard – the specific terms of the informed voluntary agreement between (1) empowered purchasers of video programming, and (2) the shrinking subset of providers over which it has some regulatory authority: traditional, facilities-based MVPDs. If adopted, these proposals would diminish consumer welfare directly, through higher monthly prices and fewer billing options, and indirectly, by further hindering the ability of subscriber-shedding cable operators and DBS providers to compete with ascendent streaming alternatives.