Maine, NJ Cable Prorating Laws Not Expected to Spread; Ending Pro Rata Refunds Could

Maine and New Jersey laws requiring cable companies to provide prorated refunds when customers end service or go to a cheaper tier partway through a billing cycle were likely prompted by constituent complaints but “appear to run afoul of federal law and FCC regulation, so they may very well be preempted,” said American Legislative Exchange Council (ALEC) Communications and Technology Task Force Director Jonathon Hauenschild. He also found prorating rules in Massachusetts and Washington, D.C., but no challenges there.

Maine's law taking effect June 16 is preempted by the Communications Act, Charter said in its complaint (docket 20-cv-00168, in Pacer) against Maine Attorney General Aaron Frey (D) filed this month in U.S. District Court in Bangor. The act's Title VI bars state and local cable rate regulation when there's effective competition, which the FCC determined Charter faces in Maine, the MVPD said. Charter said it has told its Maine subscribers since June 23 that if they cancel service partway through a billing cycle, they won't get a partial month's refund but can continue service for the remainder of the month. Charter said the policy reduced administrative costs and reflects that many virtual MVPD, DBS and subscription VOD competitors don't prorate refunds to terminating customers. Charter and outside counsel didn't comment.

Altice, in a similar U.S. District Court in Trenton complaint in December against the New Jersey Board of Public Utilities (see here, docket 19-cv-21371, in Pacer), said that since 2016 it offers prorated refunds to canceling customers only under "extraordinary circumstances," but the NJBPU, citing state law, ordered it in 2019 to cease that practice in the state. Altice also argued New Jersey law is preempted since the company faces effective competition in the state. Altice and outside counsel didn't comment. The 3rd U.S. Circuit Court of Appeals is handling an NJBPU appeal challenging a preliminary injunction awarded Altice in January (docket 20-1773). Altice also sued the board in the New Jersey Appellate Division. State and Charter briefs are due at each the 3rd Circuit and state court over the next three months.

Charter follows cable lawsuits against two other Maine laws on public, educational and governmental stations and à la carte. NCTA and ACA Connects are also part of a larger telecom industry lawsuit against Maine’s ISP privacy law. Maine is “standing up for ourselves under the current governor and legislature in a way that we did not do previously,” said the prorating law’s author, Maine Rep. Seth Berry (D), in an interview. “It is time for the federal government to look broadly at monopoly and near-monopoly provision” of internet and cable and ask if it’s competitive and should it be regulated as a utility, he said.

ALEC's Hauenschild said it appears some cablers stopped prorating because they found the practice is contrary to existing terms of service. In New Jersey, where Altice bought Cablevision in 2016, the buyer seems to have conformed the policy to its own terms, Hauenschild said. Charter and AT&T appeared to stop prorating between late-2018 and mid-2019, but Comcast, Cox Communications and Frontier communications seem to allow it, he said.

Most states may be unable to adopt such policies. “Seems like it would be only those states that retained some level of jurisdictional control over cable,” emailed NASUCA Executive Director David Springe. “My sense is that there aren’t that many.” National Regulatory Research Institute Telecom Principal Sherry Lichtenberg emailed, “Only a few of the states have any oversight of cable or customer service rules that would apply to cable, so I’m not sure that this is going to proliferate.”

Cable operators and industry officials in multiple other states told us similar such prorating legislation there seemed politically unlikely. Vast Broadband CEO Jim Gleason and Boycom Vision President Patricia Jo Boyers told us prorating refunds are company policy.

CU's Schwantes said federal law generally trumps state law for rate regulation, but the state pro rata rules are "a gray area." Congress is unlikely to pass its own prorating refund legislation, he said. And Maine and New Jersey aren't likely to inspire other state legislatures to follow suit because they know they would face a pitched legal battle with the cable industry and that federal preemption could be a likely outcome, he said.

The federal court case in Maine will clarify “what authority any state has in this arena,” said Berry. Cable argues states are federally preempted, but Maine believes states’ consumer protection authority gives it jurisdiction to condition franchise agreements, he said. “Cable companies saw an opportunity to make some more money and use their essentially monopoly position to squeeze a little more out of customers,” said Berry. It’s a “violation of the spirit if not the letter of previous law” and of customers’ rights, he said.

Berry wasn’t surprised to be sued, given cable’s recent lawsuits against other recent state consumer protection laws, he said: “This appears to be the pattern.” Berry wrote the bill in response to consumers last fall complaining they had to pay for a whole month even though they canceled only a few days into the new billing cycle, or in some cases, before the new cycle. This was different from past practice, he said, when companies followed Maine law requiring them to discontinue billing within 10 days of the customer’s request. “There evidently was an obscure new policy adopted” without customer notice. Cable explained it was a national policy and the same is done by noncable providers, said Berry, but the lawmaker argued those don’t have state and local franchise agreements.