Effective Competition Change Could Improve Cable Retrans Leverage

Cable companies’ retransmission consent negotiating positions would be improved by a proposed FCC rule change making it a “rebuttable presumption” that all cable companies face effective competition, said Womble Carlyle cable attorney Mark Palchick and American Cable Association President Matt Polka in interviews Monday. Palchick and Polka agreed with broadcast industry officials (see 1503270047) that because rules requiring local broadcast stations to be offered on the basic tier are tied to rate regulation, and cable companies ruled to face effective competition don’t face rate regulation, the basic tier requirement therefore wouldn’t apply if the FCC approves the rule change proposed in its recent NPRM (see 1503260037). Polka and the ACA lobbied for the Satellite Television Extension and Localism Act Reauthorization provision that triggered the FCC NPRM, and Palchick represented cable companies challenging the commission’s retransmission consent rules in 2010.

Without the basic tier requirement, cable companies would be able to place big-four stations that charge for retransmission on a higher cable tier, and thus be able to charge customers more to see them, Polka said. They would also have the option of not carrying the stations at all, an increasingly viable option as the over-the-top venues for viewing broadcast content become more available, Polka said. “It’s not 1992,” Polka said, referring to the year the Cable Act was passed. “All cable companies are facing effective competition,” he said. Public Knowledge disagrees, Senior Staff Attorney John Bergmayer told us via email last week. The FCC's current standards aren’t tough enough, he said. In a joint filing with NAB, Public Knowledge asked the FCC for more time to prepare comments on the FCC proposal (see 1503270047).

Cable companies have been declared to be facing effective competition in numerous markets, but still offer broadcast stations on the basic tier, several cable industry officials have told us. Though rate regulation, effective competition and the broadcast tier are all tied together through a 1995 court decision (Time Warner v. FCC) , the FCC has never explicitly stated that cable providers not subject to rate regulation are also free from the basic tier rule, Palchick said. This uncertainty, and the fact that many cable companies haven’t filed for effective competition, has kept cable companies from trying to use carriage off the basic tier in retrans negotiations, Polka said. Many smaller cable companies haven’t filed for effective competition despite the high success rate for companies that do because the process is expensive, Polka said. The legal fees and the competitive data are “very costly for a small cable provider,” he said.

If all of cable is declared to be facing effective competition, most cable companies would press the point about broadcast carriage on the basic tier, Palchick and Polka said. Most retrans contracts also include a requirement that the stations involved be carried on the basic tier, Palchick told us. This means the impacts of making effective competition a “rebuttable presumption” would likely not be felt until the next round of retransmission consent negotiations, Polka said.

Though the FCC NPRM proposes a broader rule change, the Satellite Television Extension and Localism Act Reauthorization provision that inspired the notice requires effective competition relief only for smaller cable companies. Both NAB and Public Knowledge have suggested the FCC should follow that narrower mandate, and Polka said that while he agrees with the proposal in the NPRM, he would support the smaller scale rule. According to STELAR, the FCC has until June 2 to reach a final rule.