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ACA Urges FCC To Close Major Program Access Loophole

The American Cable Association urged the Federal Communications Commission to close a major loophole in the program access rules to combat unfair pricing tactics by vertically integrated cable programmers.

"The FCC's program access rules - crafted to nurture competition among Multichannel Video Programming Distributors (MVPDs) - need to ensure cable networks affiliated with cable operators cannot discriminate against unaffiliated MVPDs," ACA President and CEO Matthew M. Polka said. "The FCC can best accomplish this by closing the uniform price increases loophole."

ACA set forth its views in reply comments filed July 23 with the FCC in connection with the agency's ongoing review of the cable program access rules. ACA believes the record shows a strong need for the FCC to modify program access rules so that unaffiliated MVPDs will have the full range of protections that Congress intended, whether they purchase programming directly or through a buying group.

The loophole that ACA seeks to close distorts competition broadly in that it allows vertically integrated cable programmers to charge inflated fees to both affiliated and unaffiliated MVPDs, but these fees represent just an internal transfer for affiliated MVPDs, not a real cost that unaffiliated MVPDs either must absorb or pass through to their customers.

"The uniform price increases loophole undermines the program access prohibition on discrimination because it allows pricing that is facially neutral but has a disparate, discriminatory impact on unaffiliated MVPDs," Polka explained. "The FCC should step in and bar cable-affiliated programmers, which have the incentive and ability to favor their affiliated cable operators, from making it more difficult for unaffiliated MVPDs to secure access to programming on nondiscriminatory prices."

Under ACA's approach, an MVPD would be able to sustain a program access complaint if it can establish that cable-affiliated programming is offered at a rate higher than fair market value, as evidenced by prices that other non-cable affiliated programmer's offer for similar programming. ACA maintained that Congress gave the FCC more than sufficient authority to engage in such a review.

The FCC's regulatory review also includes whether to retain the program exclusivity ban, which bars satellite-delivered cable networks that are affiliated with cable operators from withholding their programming from unaffiliated MVPDs or their qualified buying groups. ACA called on the FCC to extended the exclusivity ban for an additional five years because a stable of popular and competitively significant programming, ranging from national cable networks to regional sports networks (RSNs), are affiliated with some of the largest cable operators.

ACA said allowing the ban on exclusivity to sunset would expose ACA Members to an unacceptable risk of denial of access to programming for which no good substitute exists. The exclusivity provision -- retained twice by the FCC as necessary to promote pay-TV competition and secure consumer access to popular content -- sunsets on Oct. 5, 2012 unless extended by the FCC.

"Arguments made by cable-affiliated programmers and vertically integrated cable operators against retention of the exclusivity prohibition and extension of the FCC's program access rules are not persuasive," Polka said. "The need of rival MVPDs to have reliable access to the full array of highly popular cable-affiliated, satellite-delivered programming remains as critical today as it was at the time of the FCCs first sunset review in 2002."

 

Regardless of whether the FCC allows the exclusivity ban to sunset, ACA urged the FCC to make clear that the law will prohibit selective refusals to deal as a form of non-price discrimination. By way of example, ACA said that if a cable-affiliated programmer licenses programming both to its affiliated cable operator and another MVPD that it competes with for subscribers, the cable-affiliated programmer should be required to license its content to other MVPDs that compete for the same subscribers.

By supporting ACA, the FCC would especially promote the competitive prospects of smaller MVPDs that are overbuilders operating primarily within the footprint of a vertically integrated cable operator.

ACA stressed that these operators are particularly vulnerable to selective refusals to deal because a cable-affiliated programmer could find it profitable to withhold programming from a small overbuilder within its affiliated cable operator's service area, even if it would not find it profitable to withhold the same programming from a large national MVPD that competes against it, like DirecTV and Dish or AT&T and Verizon.  The discrimination protection would therefore provide protections to small overbuilders regardless of whether the FCC allows the exclusivity prohibition to sunset.

"Clarification of this point would also be of particularly importance to new entrants.  Although a vertically integrated programmer might sell to large MVPDs to protect an important source of revenue, it would not have the identical incentive with regard to new entrants that represent just a small percentage of license fee revenue," Polka said.

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