The FCC Sides With Cable Companies Over Local Governments

FCC Chairman Tom Wheeler. Source: FCC.

When it comes to disliked industries, very few are as hated as cable TV companies. In 2015's first-quarter American Satisfaction Customer Index survey, subscription TV service finished last out of 43 industries in terms of satisfied users, tying Internet service providers with a score of 63. Considering many Americans receive both subscription TV and Internet from the same provider, the identical -- and poor -- scores should come as no surprise, as both are faulted for poor service and increasing costs.

More recently, however, many have taken solace in the fact the Federal Communications Commission had turned decidedly pro-consumer. After years of facing allegations that the governmental body was essentially a revolving door of industry lobbyists and those connected with pro-cable trade associations, the FCC had taken anti-business stances with its net neutrality ruling and rejection of the Comcast and Time Warner Cable merger. Perhaps ironically, the chairman of the new pro-consumer FCC, Tom Wheeler, also led the National Cable & Telecommunications Association and the CTIA, both pro-industry trade groups.

But was the pro-consumer label given too quickly? According to a broadcasting trade group and other critics, the FCC is back to its old ways of industry-friendly backdoor deals.

Local governments lose clout

According to a recent lawsuit in the U.S. Court of Appeals (as reported by International Business Times) , the National Association of Broadcasters, the National Association of Telecommunications Officers and Advisers, and the Northern Dakota County Cable Communications Commission petitioned for a judicial review of the new FCC rule.

The impetus of the lawsuit was due to a change in early June. Before the June ruling, price increases were governed by the Cable Television Consumer and Competition Act of 1992, which allowed local authorities to regulate basic cable service tier rates if the FCC finds the cable system is not subject to effective competition. The fact that this only affects basic cable service is important because the FCC found only 15% of all cable subscribers have the basic package.

The new rule -- which allows cable operators to increase rates without authorization from local governments -- appears to be a win on two levels: First, the assumption shifts to there being effective competition instead of assuming there is not. And, second, the onus to prove a lack of effective competition is on the local governments and not on the subscription provider to prove otherwise. The argument against this new rule is that many cash-strapped, rural governments that don't have effective competition won't be able to prove it under the new rules, and will face basic service price increases.

A few caveats

On the surface, it may seem as if rate regulation has kept a lid on price increases -- after all, the FCC's last price increase survey found basic cable (both in areas of effective competition and not) increased at an annualized rate of 3.9%, whereas expanded basic cable, the next option that's not subject to municipal review, increased by 6.1%. However, during that same period, the number of channels on expanded basic cable went from about 50 to nearly 150 while the basic remained roughly flat.

But on a per-channel basis, prices for basic service in non-competitive areas, subject to municipal review, were nearly 20% higher than in those with effective competition, according to the FCC's data, highlighting that perhaps expanding competition would be more effective than the current process of municipal rate regulation. And that's the FCC's argument in the June ruling changing the process: "the Commission has found Effective Competition in more than 99.5% of all communities evaluated since the start of 2013."

Using the aforementioned 15% of subscribers who choose rate-regulated basic service, and that 99.5% of all communities have effective competition, it seems this lawsuit will affect very few people. In the end, I don't think of this as a giveaway to big cable, and the FCC should focus its attention on ensuring effective competition to the other 0.5% that currently don't have it.

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Jamal Carnette has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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