Cable TV companies can charge higher prices thanks to new court ruling

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The cable TV industry has won a big victory against rate regulation via a court decision that will make it harder for cities and towns to impose price controls on pay-TV service.

Today’s ruling from the US Court of Appeals for the District of Columbia Circuit upheld a June 2015 decision by the Federal Communications Commission that helped cable companies avoid local rate regulation. The FCC, under then-Chairman Tom Wheeler, ruled that cable TV providers face “effective competition” nationwide, mainly because of the widespread availability of satellite TV service from DirecTV and Dish.

Local franchise authorities are allowed to regulate the rates cable TV providers charge for basic cable services and equipment if the local cable company does not face “effective competition.” Before the June 2015 FCC vote, the burden of proof was on cable companies to show that they faced effective competition. The Wheeler FCC’s decision shifted the burden of proof to local authorities by adopting a “rebuttable presumption” that cable operators face effective competition.

This move did not outlaw local rate regulation entirely, as an individual city or town can still regulate rates if it proves to the FCC that the local cable company doesn’t face effective competition. Cities and towns that did regulate basic cable TV rates were required to ask the FCC for permission to keep their price controls in place. (This is entirely related to cable TV; broadband services weren’t subject to the price controls. The price controls also affect only entry-level cable TV packages.)

FCC decision supported by evidence

After the 2015 ruling, the FCC was sued by the National Association of Telecommunications Officers and Advisors, the National Association of Broadcasters, and the Northern Dakota County Cable Communications Commission, which wanted to overturn the new restrictions on rate regulation.

Those groups filed a “petition for review of the Order as an impermissible construction of the statute and as arbitrary and capricious. We deny their petition,” a three-judge DC Circuit panel wrote in today’s decision. The commission properly relied upon evidence to determine that the vast majority of local franchise areas have cable TV competition, judges wrote.

“Here the evidence is that [satellite] services are in fact available to households in all areas, from which the Commission has reasonably inferred there is likewise effective competition in all areas,” judges wrote. “Instead of leaving it at that, however, because the statute operates on an area-by-area basis, the Commission has made that inference rebuttable with respect to any individual franchise area.”

The FCC arguments were supported in court by two cable lobby groups, NCTA-The Internet & Television Association and the American Cable Association (ACA).

Cable prices rose despite rate regulation

The price controls at issue in the court case stem from Cable Act of 1992, which “authorized the Commission to certify a state or local franchising authority to regulate the rates for basic cable service charged by any cable system that it ‘finds’ is ‘not subject to effective competition,’ the court decision noted.

Congress passed the Cable Act of 1992 after it “found rates for cable services rose significantly following the 1984 Cable Act,” the FCC says. “These rules were intended to improve service to the cable subscriber and to ensure competitive rates.”

The expansion of satellite TV has dramatically changed the competitive landscape since the early 1990s, the FCC said in its effective competition decision. Despite that, basic cable TV prices have risen significantly faster than inflation over the past 20 years, according to Federal Communications Commission data released last year.

The FCC’s effective competition decision was supported by Wheeler, a Democrat, and Republican Commissioners Ajit Pai and Michael O’Rielly. Democratic Commissioners Mignon Clyburn and Jessica Rosenworcel approved of helping small cable TV companies avoid rate regulation, but they objected to giving the same relief to bigger cable companies.

The ACA, which represents small and medium-sized cable companies, celebrated today’s court ruling.

“In today’s market, consumers have at least three choices for traditional pay-television service and can elect to subscribe to many online video services, like Netflix and Hulu,” the lobby group said. “There is no longer any good reason that cable operators should remain subject to burdensome rate regulation. ACA is also pleased to see that broadcasters’ attempts to maintain unnecessary and unwarranted regulatory handcuffs on cable operators have been thwarted.”

Before the 2015 decision, cable companies had to prove to the FCC that their competitors served at least 15 percent of subscribers in a franchise area in order to get relief from price regulations in a city or town, the ACA said. This process was expensive for smaller providers, the group said.