FCC Proposes Requiring Local Authorities To Demonstrate Lack of Cable Competition

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By Lydia Beyoud

March 16 — The Federal Communications Commission is proposing to go well beyond a congressional directive to streamline any finding that effective competition exists in a small cable provider's service area by putting the burden to prove competition doesn't exist on the shoulders of local and state franchise authorities.

The move would benefit small cable providers, as well as the entire cable marketplace, according to a notice of proposed rulemaking (NPRM).

In the March 16 NPRM, the FCC sought comment on reversing its regulatory status quo by adopting a rebuttable presumption that competition exists in the cable marketplace, thereby requiring a state or local franchising authority to show that competition doesn't exist in order to regulate basic cable rates.

The proposed rule is part of the FCC's effort to implement §111 of the STELA Reauthorization Act of 2014, which directs the agency to streamline the effective competition petition process for small cable operators. The proposed rule wouldn't simply reduce the amount of paperwork and compliance costs small and large cable operators face but could decrease regulatory costs for the FCC as well, a cable industry attorney, speaking on background, told Bloomberg BNA.

Current State of Competition 

The 1992 Cable Act required cable operators to prove that sufficient competition exists in their service areas in order to avoid having their basic-tier cable rates and equipment regulated by local, state or federal franchise authorities.

With the significant growth of competing direct broadcast satellite providers such as Dish Network Corp. and DirecTV, and the approval since early 2013 of more than 99.5 percent of effective-competition requests, the FCC said the current state of competition in the multichannel video programming distributor (MVPD) marketplace supports the proposed rebuttable presumption.

Nearly 26 percent of U.S. households in 2013 subscribed to a satellite TV service, according to Dish and DirecTV financial reports. From the start of 2013 to the present, the FCC's Media Bureau granted in their entirety 224 petitions requesting findings of effective competition and granted four such petitions in part; the Commission did not deny any such requests in their entirety, the FCC said.

The STELAR Act was signed on Dec. 4, ensuring that about 1.5 million Americans would continue to receive satellite broadcast signals for the next five years, while also making some major changes to the MVPD marketplace.

Effect on Small Operators 

The FCC sought comments on whether adopting rebuttable presumption of effective marketplace competition would fulfill the requirements of §111 of STELAR or whether it would require additional statutory authority to change its current presumption.

“We note that, if this provision were read to restrict the Commission from changing the presumption for small operators, it could have the perverse effect of permitting the Commission, consistent with market realities, to reduce burdens on larger operators but not on smaller ones,” the FCC said.

The NPRM also asked if adopting a presumption of competing-provider effective competition would be consistent with the current state of the market.

“The market changes since the adoption of the original presumption do not appear to support a presumption that any of the other effective competition tests (low penetration, municipal provider, or [local exchange carrier]) are met,” the FCC said, asking for comment on the accuracy of that observation.

Two-Prong Test 

The commission specifically sought input on whether changing the marketplace competition presumption would pass the two prongs of the competing provider test.

The first prong asks whether the FCC should presume that the ubiquitous nationwide presence of Dish Network and DirecTV satisfies the requirement that a franchise area be served by two unaffiliated MVPDs offering comparable programming to at least 50 percent of the households in the area.

The commission noted that it has never found that the presence of either satellite TV company failed to satisfy this first prong.

The second prong asks whether the FCC should presume that MVPDs other than the largest MVPD have captured more than 15 percent of the households in the franchise area. On a nationwide basis, competitors to incumbent cable operators have captured about 34 percent of U.S. households, or more than twice the 15 percent threshold needed to satisfy the second prong of the competing provider test, the FCC said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Sheldon B. Richman at srichman@bna.com

Text of the FCC's notice of proposed rulemaking is available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0316/FCC-15-30A1.pdf.