D.C. Circuit Affirms Inside Wiring In Fairly Broad Opinion. Terrestrial Loophole Next? And What About Time Warner's TV Anywhere?

While folks in the suburbs sometimes forget this, a lot of people live in what we call “multiple dwelling units” (MDUs) — which is a fancy way to say things like apartment buildings and condos. One of the problems for people trying to switch from one provider to another for cable (for example, from Comcast to RCN) is that a cable operator may already have an exclusive deal with the landlord to provide cable services to everyone in the building. Competitors asked the FCC to ban such practices. In 2003, under Michael Powell, the FCC refused to ban such exclusive deals because “regulation is always bad, mmmmkayyy.” In 2007, as part of Kevin Martin’s attack on cable market power evil vendetta against the helpless cable industry, the FCC reversed this determination and found that under Section 628(b) of the Communications Act (47 U.S.C. 548) it needed to prohibit cable operators from entering into or enforcing such exclusive deals because Verizon can’t sell FIOS w/out being able to offer triple play. Predictably, this was widely denounced by the cable companies and their cheerleaders as not merely unwarranted, but a violation of law and certain to be overturned on appeal.

Turns out, not so much. In fact, in a rather broadly worded opinion, the D.C. Circuit affirmed the 2007 Order. Indeed, the language affirming the decision opens the door to the FCC tackling other cable issues, such as the terrestrial loophole (which Verizon wasted no time in pointing out to the FCC). Mind you, it remains unclear at this point whether the new FCC will have any interest in cable market power or not.

Still, there are a number of important aspects about this case, especially its implications for the FCC to regulate Time Warner’s TV Anywhere strategy, aka “how cable operators plan to preserve their existing business model and fight off Netflix.” I discuss this in more detail below . . . .

The first aspect of the case, NCTA v. FCC, may prove more psychological for the FCC than anything else. In 1992, Congress passed the 1992 Cable Act. Because the cable industry had managed to really piss people off big time after deregulation in 1984, Congress gave the FCC broad powers to regulate cable. And because the FCC was in the hands of Free Market fundamentalists who refused to do squat to regulate cable (a tradition the FCC proudly continued until Kevin Martin showed up, and now sadly looks poised to resume), Congress also set minimum requirements for regulation. The FCC, in its desire to prove to the cable industry what a good little lapdog it could be, spent the time between 1992 and Kevin Martin’s “vendetta” against cable pretending that the minimum requirements were the maximum allowable and pretending that it lacked authority to regulate conduct Congress told it point blank to regulate.

Section 628 is a fine example of this. Section 628(b) says:

It shall be unlawful for a cable operator, a satellite cable programming vendor in which a cable operator has an attributable interest, or a satellite broadcast programming vendor to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers.

That looks pretty broad, right? except that the next part, 628(c), spells out minimum requirements for the regulations known as the “program access rules.” So until 2007, the FCC went around in a trance believing that Section 628(b) did not actually exist, and that the only conduct Section 628 could possibly address was spelled out in Section 628(c), because the phrase “minimum requirements” in Section 628(c) clearly means “only thing you can actually do, and please try not to do that particularly well.”

But then came the wicked Kevin Martin who insisted that if Congress bothered to actually write Section 628(b), it actually gave the FCC authority to regulate “any unfair methods of competition” that have “the purpose or effect” of which is to prevent competing MVPDs from providing programming, then that’s what the FCC should probably do. The cable guys, of course, said this was just crazy talk. Heck, after 15 years of repeating this to each other and the FCC, and having the FCC agree and repeat it back, they probably believed it.

The D.C. Circuit, despite being generally anti-regulation, found this mantra a lot less persuasive than the pre-Martin FCC. As the court observed, the FCC’s interpretation tracked the statutory language. In order to get to the NCTA’s interpretation, you have to completely ignore what the statute actually says and try to dig stuff up out of the legislative history — and even that isn’t very convincing. As the court explained:

Mindful that “statutes written in broad, sweeping language should be given broad, sweeping application,” Consumer Elecs., 347 F.3d at 298, we note section 628(b)’s broad and sweeping terms, which prohibit practices “the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers.” § 548(b) (emphasis added). This breadth comports with section 628’s express purpose of “promot[ing] the public interest, convenience, and necessity by increasing competition and diversity in the multichannel video programming market,” 47 U.S.C. § 548(a). Thus, while the specificity of section 628’s references to satellite cable and satellite broadcast programming may reveal the primary evil that Congress had in mind, nothing in the statute unambiguously limits the Commission to regulating anticompetitive practices in the delivery of those kinds of programming by methods addressed to that narrow concern alone.

Even better, in language I simply must memorize for the next time I get the zombie-like repetition of the mantra from the cable guys or FCc staff that the FCC lacks authority:

By its terms, section 628(c) describes only the “[m]inimum contents of regulations,” § 548(c)(2), and as the Commission itself noted, Congress’s enumeration of specific, required regulations in subsection (c) actually suggests that Congress intended subsection (b)’s generic language to cover a broader field, see Order, 22 F.C.C.R. at 20,256, ¶ 44. The Commission’s remedial powers similarly extend beyond the kinds of unfair-dealing interventions Congress specifically foresaw. Indeed, instead of limiting the Commission to those powers, Congress broadly authorized the Commission to “prescribe regulations to specify particular conduct that is prohibited by subsection (b),” § 548(c)(1), to “prescribe regulations to implement this section,” § 548(f), and to “order appropriate remedies” including but expressly not limited to the price-setting option, § 548(e)(1)–(2). Ultimately, then, our view of section 628’s structure mirrors our view of its text: Congress had a particular manifestation of a problem in mind, but in no way expressed an unambiguous intent to limit the Commission’s power solely to that version of the problem.

Or, in other words, if a statute confers broad authority, and also compels minimum requirements for the regulations, those minimum requirements are not limitations on authority. They are the absolutely rock bottom minimum you need to do, and you are not only authorized but damn well required to do more if that’s what it takes to address conduct which has either the purpose of effect of limiting the ability of rival MVPDs to distribute cable video programming.

Impact on Pending Cable Issues

As I observed above, the 1992 Cable Act has a number of provisions that follow the structure of “protect against this very broadly defined bad thing, and at a minimum make these regulations.” In particular, Section 616 (47 USC 536) has similar “effect of” language. Should the FCC decide to revisit the currently stalled Section 616 Rulemaking process, this decision would give the FCC new ammunition.

Indeed, because we can now take Section 628(b) at its word, the Commission has a broad range of targets to chose from for possible reform. Certainly Verizon hopes so. It rushed out a quick filing urging the FCC to go after that perennial favorite, the terrestrial loophole. Also on the waiting list remains retransmission consent and wholesale unbundling fights and other ways in which little cable operators represented by the likes of the ACA get the crap kicked out of them. Arguably, all of these touch on “unfair and deceptive practices” that have “the effect of” hindering significantly yadda yadda yadda.

More at issue is whether the new FCC will have any interest in taking up the fight against cable market power and trying to resolve any of these issues. So far, the FCC has pretty much backed off any action or enforcement proceedings against the cable industry initiated by Martin. But the actions of the current caretaker FCC are not necessarily a good indicator as to what the next FCC will do. Conventional wisdom has it that the next FCC will focus primarily on broadband, spectrum, and other tech issues — with a dollop of old media diversity because “hey — it’s Democrats.” While the new FCC may well take action on the pending AT&T PEG Petition (more diversity and “hey — it’s Democrats.” Protecting PEG should be a softball for these guys, and should fall within the scope of enforcing existing law for the two Rs), no one expects them to go gunning for cable the way Martin did (other than on broadband, but broadband is a whole separate subject).

TV Anywhere

But there is one area where clarification that Section 628(b) conveys broad jurisdiction may make a huge difference, Time Warner’s TV Anywhere initiative. I will need to do a much longer post on TV Anywhere because it deserves a post of its own. Suffice it to say that while I initially had my doubts this would amount to anything, I have become increasingly concerned that this may become the way in which cable operators and other MVPDs successfully defend their current video business model. Unfortunately, because we just about every major broadband access provider is also an MVPD, and because so many programmers are either vertically integrated with MVPDs or afraid of losing their traditional advertiser-supported model to the Internet, this plan may work after all.

See, cable has always loved to claim that the Internet is “competition” and therefore we did not need any pesky old fashioned regulations on ownership limits or other curbs on market power. But with the emergence of higher speeds, companies such as Netflix with established brands prepared to offer “over the top” video service, and companies such as Boxee.tv offering open source devices to make it easier to watch streaming media on your TV set, cable operators are actually getting nervous about viewers “cutting the chord”, as they did with cell phones and landlines. i.e., dropping their cable service (which is where cable providers and other MVPDs make the big bucks) and just getting a plain vanilla broadband connection (which is one of those dreary, low margin, commidity services providers just absolutely hate to provide). With cable finding new revenue sources increasingly hard to come by, cable companies are counting on squeezing more revenue out of their video services. The prospect of customers dropping that cannot be a good thing.

So Time Warner hit on a brilliant scheme. Get all the programmers to agree to put their programming behind a wall. If you have a subscription to an MVPD, you get the programming “free” as part of your cable service. How wonderful! If you do not have an MVPD subscription, but only a broadband subscription, you do not get the programming at all. No, you cannot separately pay for it or subscribe. The whole point, as it has been since John Malone first used control of programming to kill “wireless cable” and delay DBS about ten years until passage of the 1992 Cable Act brought us Section 628, is to keep the “must have” programming in the hands of the existing MVPD club.

Until this most recent decision, it was not at all clear whether the FCC had jurisdiction over this. But the expansive reading of Section 628(b) pretty clearly seems to apply. That’s good to know. I’ve got a feeling that before too long, that might be important.

Stay tuned . . . .

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