Telcos of All Sizes Look to FCC to Plug Terrestrial Loophole

“Whether or not three of the five commissioners agree with us, that remains to be seen,” said Vice President Dan Mitchell of the National Telecommunications Cooperative Association. “If they did, it’s sure to be appealed. … Our legal interpretation would have to withstand scrutiny on appeal.” Mitchell said the NTCA thinks the Communications Act allows the FCC to end what’s called the terrestrial exemption. So did executives of USTelecom, the American Cable Association and Organization for Promotion and Advancement of Small Telecommunications Companies.

Executives of the NTCA and OPASTCO said they tried in April and May to get lawmakers to rewrite Section 628 to prevent exclusive video programming deals. With health care reform and other topics higher on Capitol Hill’s agenda, “there doesn’t seem to be movement at the moment,” said OPASTCO Business Development Director Steve Pastorkovich. Legislative aides told Mitchell that the industry groups and allies including Consumers Union, Free Press and the Media Access Project would need “an 800-pound gorilla” such as the NCTA or the NAB to get the legislation through, he said. But those groups are unlikely to support it, Mitchell acknowledged. “It doesn’t look like we're going to be able to move it as quickly as we'd like to.” Consumers Union and Media Access Project officials said their groups didn’t formally support the Section 628 rewrite but did generally support the changes.

So groups representing telcos of all sizes and small cable operators are looking to the FCC. Vice President Glenn Reynolds of USTelecom said the commission probably will act on the matter in six to eight months. “There is an incentive for them to move,” Reynolds said. “If they stall for a long time, it looks bad.” There’s “a very significant amount of momentum for the commission to take this on in the near term” and it’s “not exclusively a big company issue,” he added. “Indeed, it is even a bigger issue or sort of a longer-term issue for many of our companies besides AT&T and Verizon,” because the smaller member telcos sell video but will never benefit from major cable operators’ volume discounts.

The FCC has yet to propose action on complaints from AT&T and Verizon against Cablevision’s withholding two HD sports channels, or AT&T’s complaint against Cox over a San Diego channel. So telcos and small cable operators may have to wait for help, said cable and telco lawyers. No item on any of the complaints is circulating among the commissioners, and they haven’t discussed video programming much, a commission official said. The FCC probably won’t want to move on the question soon, and telcos haven’t “put a full court press on it,” said an attorney for the carrier industry. “I think they're preparing people for the idea, because obviously it is a significant extension of commission authority to go into that area.”

A cable lawyer said the FCC may have a hard time defending any rule changes in court because the commission has long said the terrestrial exemption doesn’t cover any programming delivered by cable operators other than by satellite. “It’s very difficult to overturn a settled statutory interpretation over there,” the lawyer said. “It’s very different than if they were trying to make it for the first time.” The problem isn’t with the terrestrial exemption but with law’s allowing DirecTV an exclusive to carry the NFL Sunday Ticket, said cable consultant and lawyer Steve Effros. The exemption “is the only remaining thing that we're allowed to compete with,” because it allows cable operators programming exclusives, too, he added. An NCTA spokesman declined to comment. FCC representatives didn’t reply right away to messages seeking comment. A Cablevision spokeswoman had no comment by our deadline.

There’s an argument that the FCC has the power to change the terrestrial exemption, ACA President Matt Polka said. “It’s a legal question that will get answered.” An order changing the exemption probably would end up in court, he said. But under Chairman Julius Genachowski, the commissioners “may be willing to take some steps to make programming available to consumers and then of course the legal system will kick in after that,” he said. “Change in the short-term from Congress is not likely,” Polka said. “What can take place in the shorter term would be more realistically accomplished at the commission. Congress has not had that much appetite in review of broad reform of aspects of the Communications Act.”

But in approving broadband stimulus, Congress intended for the FCC to remove barriers to deployment, and exclusive video deals create a barrier, said a number of telecom executives. The administration has many priorities, but OPASTCO is hopeful that the terrestrial exemption will be among them as a broadband issue -- “because whenever you bundle video with broadband, your take rates go up,” Pastorkovich said. To invest profitably in broadband, particularly in rural areas, telcos need the most revenue possible, and selling video helps, Reynolds said. “This is in fact a broadband issue, and I am optimistic that in that context it will be considered in the course of that broadband strategy.”