FCC Tightens 'Terrestrial Loophole'

The Federal Communications Commission (FCC) approved an order Wednesday that tightens, but doesn't necessarily close, a loophole that lets cable operators block certain programming from competitors such as DirecTV Group Inc. (NYSE: DTV) and AT&T Inc. (NYSE: T).

The 1992 Cable Act bans exclusive contracts between MSOs and satellite-delivered, vertically integrated TV networks in which a cable operator has an ownership stake. The ban was put in place so rival distributors (primarily satellite-TV operators at the time) could access that programming and build a competitive lineup.

But here's the loophole: Cable has been able to withhold some of that programming from the competition, so long as it's being delivered terrestrially -- over fiber feeds and other landlocked means. The exceptions have included some high-value regional sports networks.

The FCC voted 4-1 in favor of today's order, which argues that the language in the original Act was generic enough to include a "broader field" covering fiber-fed programming. However, the rule doesn't automatically open the floodgates, as the FCC will look at grievances on a case-by-case basis.

FCC commissioner Robert McDowell was the lone dissenter, not convinced that the Commission has the authority to take such a broad reading of the rule. "The FCC is not Congress; we cannot rewrite statutes," he said, predicting that today's order could be subject to a court challenge. He also suggested that a proposed new rule on the matter would've been more suitable in this instance.

Speaking for the cable guys, the National Cable & Telecommunications Association (NCTA) has argued that the ban on exclusivity is no longer necessary because video competition between MSOs, satellite-TV companies, and telcos, is thriving. It also believes that exclusivity, as a general rule, is a "pro-competitive tool," citing DirecTV's exclusive distribution rights to the NFL Sunday Ticket package as a prime example. [Ed note: Perhaps it should add 3D channels to its list of examples.] (See DirecTV Won't Give Cable Access to 3D Nets.)

The FCC disagreed with the NCTA's assessment, claiming that the withholding of some regional sports networks operating in San Diego (Cox Communications Inc. ), New York (Cablevision Systems Corp. (NYSE: CVC)), and Philadelphia (Comcast Corp. (Nasdaq: CMCSA, CMCSK)) has made the amount of satellite-TV subscriptions as much as 40 percent lower than it'd be if those networks were made available.

With that evidence factored in, the FCC found that withholding those networks qualifies as unfair.

Sanford C. Bernstein & Co. Inc. analyst Craig Moffett said Comcast's regional sports net in Philly is the most important, estimating that satellite has just a 16 percent share in that market (versus double that elsewhere) largely due to the loophole. Taking things a step further, he said a 15-point swing in market share in Philly, where there's about 2.5 million subscribers, could amount to 450,000 subscribers. He also said it's widely viewed that Comcast will try to block the implementation of today's order.

The Media Access Project , meanwhile, called the decision a "modest step forward," because it doesn't automatically scrap the terrestrial loophole, but instead allows for carriers to file complaints on an individual basis.

Broadband Plan update
Separately: Today's open meeting revealed little new about the FCC's National Broadband Plan, which, following an approved month-long delay, is now due to Congress on March 17. (See FCC Delays National Broadband Plan.)

Phoebe Yang, chief counsel and senior advisor to the Omnibus Broadband Initiative, reiterated that the Commission's last call for comments on the matter is Wednesday, Jan. 27, and that the current record stands at "no less" than 69,002 pages, and more than 1,500 proposals.

She said briefings with FCC commissioner legal advisors are expected to get underway next week, and that an outline of the plan will be presented at next month's open FCC meeting.

— Jeff Baumgartner, Site Editor, Cable Digital News

Jeff Baumgartner 12/5/2012 | 4:44:27 PM
re: FCC Tightens 'Terrestrial Loophole' Moffett also pointed out that the decision to tighten the loophole could outwardly weigh into Comcast's pending deal for NBC Universal.... the fact that the decision was made before that deal is done suggests that "the terrestrial loophole will not be 'counted' as a regulatory concession. There could be no clearer signal that the FCC is looking for bigger concessions than this in order to approve the NBCU deal," he wrote in a note issued today.
Jeff Baumgartner 12/5/2012 | 4:44:25 PM
re: FCC Tightens 'Terrestrial Loophole' The telcos are cheering the new rule, but Cablevision said it falls short of a regulatory bailout. Here's its statement:

"While we find the legal basis for the decision unfounded, we are pleased that the FCC recognized the value of CablevisionGÇÖs local programming strategy and investments. Verizon and AT&T will not receive an FCC bailout that will allow them to capture News 12, MSG Varsity and other programming that we have developed for our customers. We are also pleased that despite the phone companies' overwhelming lobbying effort, the FCC has ensured a complaint process. If the phone companies complain that they are unable to compete, we are confident that we can prove that it is for a variety of reasons, none of which have to do with HD sports programming. Verizon and AT&T do not need a regulatory bailout in order to compete.GÇ¥
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