ACA urged FCC action in comments filed Sept. 9 in connection with the preparation of an agency report on the RSN marketplace. The report will focus on the efficacy of the Adelphia Order conditions in curtailing the post-transaction marketplace behavior of Comcast and Time Warner Cable and the effect, if any, of the FCC's 2007 and 2010 program access rule revisions and the Comcast-NBCU license conditions on the ability of MVPDs to gain access to RSN programming.
There is ample evidence that MVPDs owning cable programming networks have an economic incentive to charge higher fees to their rivals than they would charge other operators that they do not compete against. While these vertically integrated programmers are required to provide access to their programming to all MVPDs under current program access rules, these programmers use the "volume discount" loophole in the rules to charge smaller rivals above-market rates. Given that all programming contracts are shrouded in confidentiality, it is impossible for an MVPD, particularly a smaller cable operator, to prove that a portion of the price being charged reflects the fact that the operator is a competitor to the owner of the programming.
"The resulting fee increases are then substantially passed through to subscribers in the form of higher subscription fees in contravention of the aim of the program access rules to ensure fair competition in the distribution of video programming to consumers," Polka said.
ACA stressed that program access rules fail to protect consumers and competition because vertically integrated programmers can easily circumvent the ban on charging rivals discriminatory programming fees. For instance, if a vertically integrated RSN raises its prices dramatically for all distributors, the impact is felt by only its rivals because the fees paid by the RSN's affiliated MVPD are nothing more than an internal transfer of funds.
"An RSN's decision to raise fees for all MVPDs is simply to camouflage the fact that the only MVPD that does not have to absorb the increase is the MVPD affiliated with the RSN," Polka said. "The FCC is well-aware of this glaring shortcoming in the program access rules and recently attempted to do something about it by including an arbitration remedy in the Comcast-NBCU transaction."
ACA noted that the program access regime tends to distort competition by failing to provide an interim carriage guarantee during the pendency of a complaint. In many studies and merger reviews, the FCC has recognized that RSNs stand out as having enormous ability to persuade consumers to jump to another pay-TV provider. For ACA members, interim carriage is necessary both because the duration of a complaint can last several months or years and because it will undermine any attempt by a vertically integrated RSN to use abusive pricing tactics to gain an unfair advantage over competing pay-TV providers.
The FCC has recognized the validity of ACA's concerns in past license transfer reviews, including News Corp-DIRECTV, Time Warner-Comcast-Adelphia, and Comcast-NBCU. In its license conditions, the FCC has provided MVPDs with the right to take the vertically integrated RSN programmers to arbitration and has provided them interim carriage rights during the pendency of these arbitrations.
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