Ted Hearn: Is a Ban on Cable and Satellite ‘Junk Fees’ Rate Regulation?

The Federal Communications Commission says no.

Ted Hearn: Is a Ban on Cable and Satellite ‘Junk Fees’ Rate Regulation?
The author of this Expert Opinion is Ted Hearn, editor of Policyband

The Federal Communications Commission could have a legal problem on its hands, but agency lawyers seem to have crafted what appears to be an acceptable workaround: Don’t call a ban on certain cable and satellite TV billing fees rate regulation – call it consumer protection.

At its Dec. 13 open meeting, FCC Chair Jessica Rosenworcel is planning to launch a rulemaking designed to bar cable and satellite TV providers from collecting early termination fees and billing cycle fees – even though the agency receives just hundreds of informal complaints about these fees annually. The U.S. has 53.3 million cable and satellite TV subscribers combined, down 15.7 million since January 2021.

Although the FCC says a ban on these fees has nothing to do with rate regulation, the agency is likely to face strong rebuttal on this point – if not from NCTAitv, the trade association for large cable TV operators, then at least from Charter Communications. Charter invoked impermissible rate regulation in its court fight against a billing cycle fee ban adopted by the state of Maine in 2020 that remains in effect.

In seeking U.S. Supreme Court review of its loss below, Charter was emphatic that Maine’s billing cycle fee statute embraced prohibited price regulation by requiring partial-month refunds.

“Maine’s law … caps Charter’s rates during the final month of service and precludes Charter from charging either for the full month, or a daily rate higher than its standard monthly rate. That is rate regulation, pure and simple,” Charter said last year in a brief with the high court. The Supreme Court declined to take the case, handing victory to Maine.

An early termination fee is collected when a customer cancels service prior to the expiration of an existing service contract, which can run as long as 24 months. A billing cycle fee involves denial of pro rata refunds when customers cancel before the end of the month. Echoing President Biden, Rosenworcel blasted ETFs and BCFs as “junk fees” that penalize consumers and impede competition.

If all goes according to plan, the FCC will adopt new junk fees rules in 2024. The FCC has floated an exemption for small or rural cable TV operators, but it put the onus on these entities to justify any special treatment.

The FCC’s crackdown on ETFs and BCFs would run counter to the agency’s bipartisan light-touch approach to cable TV regulation that began more than two decades ago. By law, the FCC in 1999 had to cease regulating the price of cable’s expanded basic tier, a service level which typically includes ESPN, C-SPAN, CNBC, and Fox News.

In 2015, the FCC stripped away the last layer of cable rate regulation. The agency, led at that time by Chairman Tom Wheeler, an Obama appointee, held that every cable operator in the country was subject to “effective competition.” That prevented local governments from continuing to regulate cable’s basic tier – the traditional home of local TV stations and public access channels. Rosenworcel, then an FCC Commissioner, voted against the Wheeler plan as going too far.

Rosenworcel is evidently not planning on letting the agency’s long legacy of cable deregulation to prevent her from pivoting in the opposite direction.

Sprinkled throughout the FCC’s junk fees ban proposal are references to recent court cases holding that BCFs are not rate regulation preempted by federal law, but rather consumer protection measures that states are permitted to adopt and enforce. The FCC said the logic used by the courts in upholding state BCFs applies just as well to a would-be ETF ban.

The FCC said its authority to ban ETFs and BCFs on cable is contained in the 1992 Cable Act, saying it provides for the agency to protect “consumers against … poor customer service” and “establish standards by which cable operators may fulfill their customer service requirements.”

Whether past FCC cable deregulation steps would prevent a junk fees ban, the FCC concluded: “The applicability of ETF and BCF regulations are not affected by the existence of effective competition in a community.”

DBS providers Dish and DirecTV will probably have an easier time than cable in getting a junk fees ban struck down in court.

Since their arrival in the mid-1990s, Dish and DirectTV have never been price regulated at the state or federal level or subject to any form of cable-like specific customer service obligations adopted by the FCC.

Still, the FCC is confident regarding its power to act, asserting that it retains “exclusive jurisdiction to regulate the provision of direct-to-home satellite services” and authority to impose “public interest or other requirements for providing video programming” on DBS.

In a final rationale left undeveloped, the FCC said a junk fees ban exemption for Dish and DirecTV would be inappropriate because it would allow the DBS providers to gain “a competitive advantage over their competitors through the use of ETFs and BCFs.”

The FCC failed to explain how DBS reliance on junk fees deemed unlawful for cable could be an effective tool at keeping customers or attracting new ones while Dish and DirecTV bled nearly 700,000 subscribers in the most recent quarter.

Maybe FCC lawyers don’t have it all figured out after all.

Ted Hearn is the Editor of Policyband, a new website dedicated to comprehensive coverage of the broadband communications market. A former communications executive and reporter for newsletters and trade journals, Hearn has decades of experience with traditional video and broadband industry trends, regulatory developments, technology advancements, and market dynamics. This piece is exclusive to Broadband Breakfast.

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