Appeal of DC Circuit's Effective Competition Decision Seen Unlikely

"Today’s outcome will not deter us from raising our voice in protest when we see the Commission taking action that conflicts with a recommendation from the Commission’s own Intergovernmental Advisory Committee, provides no clear benefits to consumers, and goes beyond specific Congressional direction," emailed NATOA Executive Director Steve Traylor. NATOA, along with NAB and Northern Dakota County (Minnesota) Cable Communications Commission, challenged the effective competition order didn't comment. . The FCC said it was "pleased with the D.C. Circuit’s decision, which recognizes the competitive nature of today’s video marketplace.”

"In today's market, consumers have at least three choices for traditional pay-television service and can elect to subscribe to many online video services, like Netflix and Hulu," the American Cable Association said in a statement. "There is no longer any good reason that cable operators should remain subject to burdensome rate regulation. ACA is also pleased to see that broadcasters' attempts to maintain unnecessary and unwarranted regulatory handcuffs on cable operators have been thwarted."

"This decision further affirms that consumers are enjoying the benefits of a hyper-competitive video marketplace and that consumer interests are best served by relying on competition rather than outdated regulations built for a world that no longer exists," NCTA echoed.

Since there hadn't been a stay of the FCC's effective competition decision during the appeal, the effects already have been felt, a cable lawyer said. Small numbers of local and state franchise authorities already had challenged the presumption of effective competition or sought reconsideration, and those numbers dwindled over time as additional findings of effective competition were made, cable lawyers said.

The D.C. Circuit ruling could mean more difficulties for local TV stations in retransmission consent negotiations, since cable operators now have the ability to threaten to move those stations higher up in the basic lineup or in tiers, Cowen analyst Paul Gallant said in a note to investors. Such stations are still a must-have for cable operators, but the ruling could cost local TV stations retrans revenue "to pay their way out of an unfavorable new channel location," Gallant said. He also said "having formal legal backing to strategically price up the basic tier is a nice new option for cable as it navigates a cord-cutting world."

Judges Karen Henderson, Cornelia Pillard and Douglas Ginsburg -- in an opinion (in Pacer) issued Friday and written by Ginsburg -- backed the FCC contention that its effective competition finding doesn't rely just on nationwide data since it gave each franchising authority the opportunity to rebut the effective competition presumption. That meets the requirement that the agency make the determination of effective competition on the basis of franchise area, the panel said.

Petitioners' "failure to come forward to rebut that presumption is [evidence] of franchise-specific conditions," the court said. The court also shot down the petitioners' argument that the Communications Act doesn't allow the FCC to terminate an approved effective competition certification in a given franchise without there having been a petition to do so, saying the section of law on revoking jurisdiction of a franchising authority requires the agency to act in specified circumstances but doesn't limit it "to acting only in those circumstances."

The judges called “not convincing” petitioner arguments that the effective competition finding violates the 2014 Satellite Television Extension and Localism Act Reauthorization Act requirement that the FCC streamline the effective competition petitioning process. The court also said since Congress hasn’t spoken to the petitioning process the FCC set up, the procedures as they stand are “a reasonable interpretation.”

The petitioners never explained why the FCC wasn’t justified in inferring that nationally available direct broadcast satellite service would fill the requirement that, to find effective competition in a franchise area, there must be at least two unaffiliated MVPDs each offering service to the majority of households in an area, the D.C. Circuit said. And pointing to DBS services having a nationwide market share of 25.6 percent, the judges said they backed the FCC contention that DBS’ ubiquitous national presence and marketplace share supports the effective competition presumption, and the presumption makes sense on the basis of efficiency: “The costs associated with the new presumption are limited to those relatively few instances in which the facts warrant the effort to rebut it, whereas the costs associated with adherence to the old presumption would be incurred in the much greater number of instances in which it would be rebutted.”