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Competitive Disadvantage Claims

Video ETF Ban Proposal Sees Challenges to Efficacy, FCC's Legal Authority

MVPDs and their allies opposed the FCC's proposed crackdown on video service fees, though backers, ranging from states and localities to broadcasters, cheered. Comments were filed this week in docket 23-405. During its December meeting, a 3-2 commission vote approved the video service fees NPRM, which proposes banning early-termination fees (ETF) and requires prorated refunds when service is canceled (see 2312130019).

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MVPD operators and their allies warned of higher prices for consumers. Service packages with ETFs typically are cheaper, they added. In addition, they said the FCC's moves put streaming services at a competitive advantage. NCTA said the ETF and refund proposals are beyond the scope of customer service standards authorized under the Cable Act's Section 632. "It would warp the meaning of 'customer service requirements' beyond recognition to extend them to regulating the types of service plans that cable operators offer or their rates and terms," it said.

Also questioning the FCC's legal authority, ACA Connects said the proposals would particularly burden small cable operators. It urged the commission to apply a grace period of at least a year after the effective date of the rules, and to have its prohibitions apply only to contracts with mass-market retail customers and not to individually negotiated contracts.

If the FCC wants to aid consumers and improve competition in the MVPD marketplace, it should consider requiring providers to offer options without ETFs, DirecTV said. It said its ETFs aren't a revenue stream but a way of letting subscribers pay over time for such benefits as equipment and installation "truck rolls" that they otherwise would have to pay for up front. Urging ETF guidelines rather than an outright ban, Dish Network said the agency should require clear disclosures at the point of sale and through the billing process about terms of available plans, so subscribers are enrolled in plans with ETFs "only when they seek to be."

Consumers might complain about ETFs, but many nonetheless enter into agreements with ETF clauses because the net benefits of the agreement, such as lower billing, outweigh the benefits of an agreement without an ETF, the International Center for Law & Economics said. It said prices will rise more than the savings from avoiding such fees, ICLE said. The FCC clearly hopes to increase churn with a ban on ETFs, yet the NPRM solicits no comments about how such a ban might affect revenue projections and thus investment, it added. The prorated rebate requirement would make MVPDs set a daily price for their services despite laws against rate regulation, Free State Foundation said. "This misguided effort to implement an ill-conceived instance of 'Regulatory Bidenomics' should be abandoned," it said.

ETFs and not having to provide prorated refunds help MVPDs manufacture supposed evidence of a broken retransmission consent regime, NAB said. It said ETFs insulate MVPDs from the consequences of creating retrans disputes.

Backing the NPRM's draft proposals, NATOA said the FCC action would "protect consumers and promote competition [and] be a welcome relief from the burden of additional costs in a termination process that is already onerous."

Other NPRM backers had suggestions for the FCC. Local franchising authorities including Boston and the District of Columbia said any rule the FCC adopts should be "a floor, not a ceiling." They said the agency should preserve state and local consumer protection authority by explicitly declining to preempt except in the case of a direct conflict. The New York State Public Service Commission said that if the FCC has the legal authority, it should expand the proposal to cover other types of video providers, such as over-the-top services. While decrying ETFs and the lack of prorated refunds, the South Carolina Department of Consumer Affairs said it understood cable's arguments about creating an unbalanced competitive field with unregulated streamers.

Pointing to cable sub complaints it has received, the Ohio Department of Commerce said the video service rulemaking proceeding should include a move toward clarity and uniformity in subscription agreement terms.

The MVPD billing practices "have no economic rationale, other than the fact that MVPDs can get away with charging them, and no economic benefit, other than to the MVPDs who impose them," Public Knowledge said. The FCC has used its Cable Act authority to strike down other practices that hinder or prevent MVPD competition, such as exclusive agreements between landlords and MVPDs, and should wield that authority against the fees, it said.