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November FCC Meeting – Cable Agenda
Update
By Steven
J. Horvitz
[November 2007]
The FCC’s November 27 meeting was an unusual one, from
the issuance of the agenda last week to the 12-hour delay in
its start last night. Chairman Kevin Martin had designated a
surprisingly large number of cable-related matters for adoption,
including several potentially new regulatory regimes (such as
minority-affiliated multicast carriage requirements and network
carriage arbitration procedures) that were pulled from the final
agenda.
Perhaps the most controversial item on the agenda was the Commission’s
annual report to Congress on the state of video competition.
Although the report is ordinarily non-controversial, the Chairman
this year contended that the cable industry had now passed the
“70/70” statutory threshold (i.e., cable passes
70 percent of all U.S. television households and 70 percent
of those households subscribe to cable) justifying adoption
of more intrusive cable regulations. The agenda also included
another look at the FCC’s existing “commercial leased
access” (CLA) rules, with the threat of a substantial
reduction in the rates cable operators can charge CLA programmers.
70/70 determination
Chairman Martin’s attempt to secure an affirmative ruling
on the 70/70 threshold was soundly rejected. The real debate
focused on the second prong of that statutory test, which asks
whether 70 percent of all television households subscribe to
cable. Chairman Martin relied on an analysis by Warren Communications
and disregarded contrary evidence from multiple sources that
the Commission had considered in prior reviews. Commissioners
Jonathan Adelstein and Robert McDowell were particularly critical
of Chairman Martin for trying to “cook the books”
and “suppress” contrary evidence from the public
and other Commissioners. In Commissioner McDowell’s words:
[I]t appeared that the Commission was going to ignore a mountain
of evidence from independent analysts and prior Commission
findings to favor a solitary study…. [T]he Commission
was prepared to do so…because this flawed anomaly was
the only fig leaf that could be found in an attempt to trigger
an avalanche of unnecessary regulation to cascade down upon
an otherwise competitive industry.
Because of concerns over the sufficiency of the data in the
draft report, the Commission adopted the annual competition
report without reaching a definitive conclusion on the 70/70
question. In an effort to secure a better record, the Commission
will now require each cable operator to submit information within
60 days regarding the number of homes the operator passes and
the number of subscribers the operator serves. Armed with this
new information, the Commission presumably will revisit the
70/70 question next year.
Commercial leased access
Last night’s commercial leased access deliberations were
almost as heated as the 70/70 debate. In this case, however,
the Chairman succeeded in adopting new rules by a 3-2 vote.
Martin’s two fellow Republicans (McDowell and Deborah
Taylor Tate) voted against the new rules. Although Commissioner
Adelstein voted for adoption, he simultaneously expressed grave
concerns about flaws in the Commission’s administrative
process, including the failure to put the new CLA rate formula
out for public comment. He volunteered, “To be frank,
the methodology was invented by staff out of whole cloth without
sufficient public input, independent review or any transparency.”
Under the Communications Act, cable operators are required
to set aside a portion of their channel capacity for lease by
unaffiliated programmers. The new CLA rules will replace the
existing rate formula (which values each CLA channel according
to the operator’s “average profitability”)
with a new reduced monthly figure equal to just 10 cents per
subscriber. The new rate is purportedly based on the operator’s
“least profitable” channel and represents a dramatic
reduction from the current formula. Operators will be allowed
to petition for a higher rate on a case-by-case basis, but the
associated legal and operational burden is likely to be high.
Recognizing that this dramatically reduced rate might attract
a large number of home-shopping and infomercial programmers,
the Commission did expressly exclude these commercial programmers
from the reduced CLA rates, pending a further inquiry. This
eligibility restriction may reduce the likelihood of a deluge
of CLA applicants, but it could subject the entire leased access
scheme to a judicial challenge on constitutional grounds for
being content-based.
In addition to the mandated rate reduction, the Commission
adopted several regulatory changes intended to facilitate CLA
usage. For example, the Commission reduced the response time
for operators to provide information to CLA applicants from
15 to three days, provided new, expanded discovery rights, and
required the FCC to resolve any future CLA complaints within
90 days.
Significantly, the effective date of the new CLA rate is deferred
for 90 days. The delay was evidently adopted to address Commissioner
Adelstein’s concerns about the FCC’s procedural
lapses. Commissioner Adelstein explained, “It is …appropriate
that we provide a 90-day delay in the effective date of the
new formula so that all parties can have opportunity to inform
us of any concerns or file petitions for reconsideration.”
It is unclear how this post facto comment opportunity
can cure earlier procedural lapses or whether the Commission
will further delay the implementation date or voluntarily consider
substantive changes in response to any articulated concerns.
The text of these two rulings is not yet available. We will
provide additional updates when the text is released.
For more information, please contact:
Other DWT contacts:
John
D. Seiver, Washington, D.C., (202) 973-4200, johnseiver@dwt.com
Robert
Corn-Revere, Washington, D.C., (202) 973-4200, bobcornrevere@dwt.com
Maria
T. Browne, Washington, D.C., (202) 973-4200, mariabrowne@dwt.com
Burt
Braverman, Washington, D.C., (202) 973-4200, burtbraverman@dwt.com
This advisory is a publication of Davis Wright Tremaine LLP.
Our purpose in publishing this advisory is to inform our clients
and friends of recent legal developments. 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.
Copyright
© 2007, Davis Wright Tremaine LLP.
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