Court Affirms FCC Cable Rate Deregulation

A three-judge panel of the U.S. Court of Appeals today affirmed a 2015 FCC ruling that makes it far easier for cable operators to avoid rate regulation of their basic tiers by states and local municipalities and could handicap broadcasters in retransmission consent negotiations.

American Cable Association President Matt Polka applauded the court decision. “In today’s market, consumers have at least three choices for traditional pay-television service and can elect to subscribe to many online video services, like Netflix and Hulu.

“There is no longer any good reason that cable operators should remain subject to burdensome rate regulation.”

By law, states and municipalities cannot regulate the rates of a cable system if it is subject to “effective competition,” defined as competition from one or more “comparable” cable systems that reach half the service area and provide service to at least 15% of the homes within in.

For years, it was up the cable operators to prove effective competition.

“That was an expensive process for smaller pay-TV providers, especially when the point was to demonstrate the well-established fact that Dish and DirecTV had become formidable competitors across the nation,” Polka said.

With its 2015 order, the Tom Wheeler-led FCC shifted the burden of proof to the regulators, essentially granting cable operators the presumption that they face effective competition and thus beyond the reach of the regulators.

The National Association of Telecommunications Officer and Advisors, which represents the regulators, challenged the FCC action.

It was joined by the National Association of Broadcasters is opposition to the FCC action, saying it lead to higher cable sub fees and cable operators pulling broadcast signals off the basic tiers.

But concerns of NAB may go deeper than that.

Cable systems facing effective competition also no longer have to carry broadcast signals on their basic tier.

“After today’s ruling, it’s likely that all cable operators can at least threaten to put stations in hard-to-find places on the lineup or on less penetrated tiers,” said Cowan analyst Paul Gallant. “Clearly not what broadcasters want given advertisers partly pay for homes’ potential eyeballs, not just actual viewership. Broadcasters are still must-have programming and presumably can protect themselves, but it could potentially cost them retrans revenue to pay their way out of an unfavorable new channel location (hence the broadcasters’ legal opposition to the FCC’s ruling last year).”

The NAB had no comment.