FCC Releases Text of Program Access Order and New Notice of Proposed Rulemaking

Order extends ban on exclusive cable programming contracts; NPRM addresses tying arrangements and other program-access issues

By Burt Braverman, John Seiver and Chris Fedeli
[October 2007]

On Oct.1, 2007, the FCC released the text of the Report and Order (“Order”) and Notice of Proposed Rulemaking (NPRM) adopted at its Sept. 11 meeting (see our previous advisory) addressing the issue of whether existing program-access regulations should be allowed to “sunset,” or be extended and revised. The Order extends the existing ban on exclusive programming agreements for five years to Oct. 5, 2012, and modifies the current program-access complaint procedures, giving complainants greater access to program networks’ distribution agreements and the opportunity to resolve disputes through commercial arbitration.

The Commission rejected proposals to extend the exclusivity ban to terrestrially delivered programming of cable-affiliated networks, and declined to adopt rules to expedite the resolution of program-access complaints. The NPRM seeks comment on additional program-access issues, including expansion of the exclusivity ban to both terrestrially delivered programming of cable-affiliated networks and satellite-delivered programming of DBS-affiliated networks. The NPRM also initiates what is certain to be a controversial inquiry into whether the Commission should prohibit broadcasters from using their retransmission consent leverage to force carriage of affiliated broadcast stations or affiliated non-broadcast networks, and prohibit cable-affiliated networks from tying carriage of supposedly undesired cable networks to carriage of “marquee” program networks.

The FCC’s Order

Exclusivity ban extended

The “program-access rules,” as adopted by the FCC in 1992, were based on Congress’ belief that cable’s horizontal concentration and vertical control over program networks were inhibiting competition by existing and potential competitors, such as direct broadcast satellite (DBS), satellite master antenna television (SMATV) and multichannel multipoint distribution service (MMDS) operators. The rules were intended to encourage entry into the multichannel video programming distribution (MVPD) market by making available to competitors programming thought necessary for them to become competitively viable. In accordance with Section 628 of the 1992 Cable Act, the rules broadly prohibited exclusive program contracts between cable networks wholly or partly owned by cable operators and cable operators’ systems.

The ban on exclusivity originally was set to sunset on Oct. 5, 2002, but was extended by the FCC to 2007. In the Order just released, the FCC again has extended the ban on exclusive programming contracts for an additional five-year period, through Oct. 5, 2012. The Commission based this action on its belief that there still are “no good substitutes” for some of the most popular satellite-delivered, vertically integrated cable programming networks, and on what it viewed as “specific factual evidence” that, where the exclusivity prohibition does not apply, vertically integrated programmers have withheld programming from competitive MVPDs. Notwithstanding the growth of substantial competition in the distribution of video programming, the Commission concluded that vertically integrated program suppliers retain both the ability and the incentive to favor affiliated cable operators over non-affiliated MVPDs, and that the ban on exclusivity “continues to be necessary to preserve and protect competition and diversity in the distribution of video programming.” In taking this action, the FCC rejected claims by the National Cable & Telecommunications Association (NCTA) and by major multiple service operators (MSOs) that a further extension of the exclusivity ban would violate cable operators’ First Amendment rights.

The Commission considered and rejected proposals that it should narrow the scope of the exclusive programming ban by: (i) exempting new or less popular programming networks, (ii) exempting smaller cable operators or those subject to effective competition, or (iii) precluding certain competitive MVPDs, such as overbuilders or incumbent local exchange carriers (ILECs), from benefiting from the ban on exclusive program contracts. The Commission also rejected proposals to expand the exclusive programming ban to cover programming not owned by cable operators or program networks that are affiliated with non-cable MVPDs (e.g., DBS operators), and reaffirmed its prior holding that the exclusive contract prohibition of Section 628 (c)(2)(D) does not apply to programming delivered terrestrially instead of by satellite. The Commission said it would again review the exclusive contract prohibition in 2011 to determine whether it should then be allowed to sunset or be further extended.

New complaint procedures

The FCC’s program-access complaint rules previously had no provision for discovery of network contracts or other documents unless ordered specifically by the Commission. The new rules will require respondents to program-access complaints to produce documents that they expressly rely on in their defense at the time of filing an answer, and thereafter to produce all relevant documents in their control that are requested by the complainant or ordered by the FCC. Such documents will be subject to confidentiality orders forbidding such materials from being shown to employees of the complainant who are in a position to use the confidential information for competitive or business purposes. Parties also are permitted to pursue voluntary alternative dispute resolution, including commercial arbitration, during which time Commission action on the complaint will be suspended.

The FCC reaffirmed its goals of resolving program-access complaints within five months of the submission of a complaint for denial of programming, and within nine months for all other program-access complaints (e.g., price discrimination cases). However, the FCC rejected various specific proposals to expedite the handling of program-access complaints, and declined to make arbitration mandatory.

Notice of Proposed Rulemaking

The FCC also issued a NPRM inviting comment on a number of program-access issues, including the new issue of whether to prohibit the tying of “desired programming” with “undesired programming,” such as that which has occurred traditionally in the retransmission consent negotiation process.

Program-access proposals

Although it has twice rejected such proposals, the Commission again asks for comment on whether competitive MVPDs need access to all terrestrially delivered cable-affiliated programming in order to offer a viable video service, and whether it would be appropriate to extend the Commission’s program-access rules (including the exclusivity ban) to such programming. The FCC also asks for information concerning whether cable operators are shifting programming from satellite delivery to terrestrial delivery for the purpose of evading the program-access rules. In addition, the NPRM requests comment on whether the FCC should (or even has the authority) to extend the exclusive contract prohibition to programming that is affiliated with non-cable MVPDs such as DBS operators.

The Commission also seeks comment on whether it can establish a procedure that would shorten the term of the five-year extension of the exclusive contract prohibition if, after two years (i.e., Oct. 5, 2009), a cable operator can show competition from new-entrant MVPDs has reached a certain level in a designated market area.

Finally, the NPRM seeks comment on whether, and if so how, it should address additional program-access concerns raised by small and rural MVPDs regarding allegedly onerous and unreasonable conditions imposed by some programmers for access to their content.

Program-access complaint procedures

The FCC requests comment concerning several possible amendments to its program-access complaint procedures, including (i) whether to allow complainants to seek a temporary stay of any proposed changes to an existing programming contract that is the subject of a complaint pending resolution of the complaint, and (ii) whether, as part of the remedy phase of the complaint resolution process, to require parties to submit to the Commission, when requested, their best “final offer” proposals for the rates, terms and conditions under review.

Programming tying arrangements

Venturing into highly controversial territory, and citing alleged “problems associated with programming tying arrangements” both in the cable network and broadcast retransmission consent contexts, the NPRM seeks comment on whether the Commission should prohibit arrangements that tie desired programming to undesired programming.

• First, the Commission asks for comment on how retransmission consent negotiations are impacted when broadcasters tie carriage of their broadcast signals to carriage of other owned or affiliated broadcast stations in the same or a distant market, or to one or more affiliated non-broadcast networks, and whether that practice should be prohibited.
• Second, the FCC asks whether Section 628(b) requires satellite cable programmers to offer each of their programming services on a stand-alone basis to all MVPDs at reasonable rates, term and conditions.
• Third, the Commission inquires whether it should require terrestrially delivered cable programming networks, and programming networks affiliated with neither a cable operator nor a broadcaster (e.g., one affiliated with a DBS operator), to be offered on a stand-alone basis to all MVPDs at reasonable rates, terms and conditions.

While the FCC did not explicitly pre-judge any of these issues in its NPRM, its statements—regarding whether it has the jurisdiction to prohibit retransmission consent tying, in light of Congressional legislative history that the Commission says appears to contemplate and permit the practice; whether the FCC’s prior precedent in favor of retransmission consent tying precludes it from reversing course now; whether a prohibition of retransmission consent tying fails First Amendment scrutiny; and its statement that broadcast tying is “presumptively … consistent with competitive marketplace considerations and the good faith negotiation requirement”—seem to reflect a strong predisposition to not prohibit tying that arises from retransmission consent negotiations. In contrast, the Commission’s statements regarding the supposed tying practices of cable-affiliated program networks suggests a much more hostile agency attitude and a very different outcome.

The statements of the FCC commissioners accompanying the Order are predictable and not particularly noteworthy, with two exceptions. Chairman Kevin Martin’s statement references the supposed interest of consumers in not being required to purchase channels that they do not want. While uttered in reference to the Commission’s request for comments regarding the wholesale tying of programming, this statement suggests that the chairman may use this rulemaking to build a case for requiring a la carte retail distribution of programming by cable operators, a goal that he has pursued zealously since shortly after he assumed FCC chairmanship. Reflecting a different view toward the FCC’s anti-tying proposals—one that no other commissioner expressed—Commissioner Robert McDowell, the most junior of the commissioners, questioned the Commission’s “[v]enturing into what has long been squarely within the realm of the private sector.”

Petitions for reconsideration of the FCC’s Order are due Nov. 5, 2007. Petitions for judicial review of the Order are due Dec. 3, 2007. Comments regarding the Commission’s NPRM will be due to be filed 30 days after publication of the NPRM in the Federal Register, which has not yet occurred. Davis Wright Tremaine will be filing comments in this proceeding for its clients. Please let us know if you would like further information regarding the Order and NPRM, and if you would like to participate in comments that we will be filing with the FCC.

For more information, please contact:

Burt Braverman, Washington, D.C., (202) 973-4200, burtbraverman@dwt.com
John Seiver, Washington, D.C., (202) 973-4200, johnseiver@dwt.com
Robert Corn-Revere, Washington, D.C., (202) 973-4200, bobcornrevere@dwt.com
Maria Browne, Washington, D.C., (202) 973-4200, mariabrowne@dwt.com
James Tomlinson, Washington, D.C., (202) 973-4200, jimtomlinson@dwt.com
Chris Fedeli, Washington, D.C., (202) 973-4200, chrisfedeli@dwt.com

This advisory is a publication of the Communications Group of Davis Wright Tremaine LLP. Our purpose in publishing this advisory is to inform our clients and friends of recent developments in the communications industry. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may be given only in response to inquiries regarding particular situations. Attorney advertising. Prior results do not guarantee a similar outcome.

Copyright © 2007, Davis Wright Tremaine LLP.

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