CABLE LAW AND REGULATIONS
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The foundation of cable law is found at the local level.
Franchise
The franchise represents a contractual agreement between the cable
company and the community where the cable company is given the
right to provide cable service. The typical period is 10 – 12 years
Cable historically operated as a natural monopoly and therefore functioned
like a utility. Cable also required rights of way clearance. For this reason, local
communities operated a greater degree of regulatory control.
The Relationship Between Broadcasting and Cable
Historically, the relationship between broadcasters and cable canbe characterized
as antagonistic. Before cable became an acceptedmedium in thelate 70's, it was
often looked on by broadcasters asa medium that was ancillaryto the function of broadcasting.
Broadcasters have had three major concerns:
1. that distant signal importation could fragment localaudiences
(and the corresponding advertising dollar)
2. that pay cable television would siphon; that is, steal programming
intended for broadcast use and then distribute it on cable -- thereby
inflating the cost for program acquisition
3. that cable would have too much gatekeeping control at the local
local level in terms of the selection and placement of programs on the
system (hence the concern for the “must carry” of services)
The FCC for its part until the late 70's adopted a regulatory approach designed
to protect the interests of broadcasters.
Home Box Office v. FCC (1977)
Introduction
Historically the FCC has viewed cable as an ancillary service to broadcasting.
Starting in the late 60's followed by the issuance ofmore definitive pay cable rules in 1975, the rules put major restrictions on the kinds of programs that cable television could display.
Three examples:
1. The rules prevented cable systems from showing feature filmswhich
have had a general release in the US and are more than two years old.
Those films which are more than 10 years oldcan be offered by pay
cable one week in each calendar month.
2. The rules prevented cable from showing those sports eventswhich
have been offered on broadcast television at any time in the prior two
years. This also includes special eventslike the Olympics . . .
3. Television series type programs (with on-going characters)
Problem Defined
These rules were an obvious attempt to protect the interests of broadcasters.
As a consequence, HBO and several motion picture distributors petitioned the FCC
for a reconsideration of the rules.
1. Did the FCC exceed its legal authority by issuing thepay cable rules?
2. Did the rules violate the petitioners first Amendment rights?
3. Are the rules arbitrary and capricious?
Outcome
The WashingtonDC circuit court concluded that the Commission had not
established regulatory jurisdiction over the pay cable and that suchrules were in
direct violation of the petitioner's first Amendment rights.
As the court wrote:
The purpose of the Commissions pay cable rules is to prevent siphoning
of feature films and sports entertainment from conventional broadcast
television to pay cable. Although there is dispute over the effectiveness of
the rules, it is clear that their thrust is to prevent any competition by pay
cable entrepreneurs for film or sports entertainment. The commission
assures that siphoning is real and not imagined. We find little comfort in
this assurance.
As a consequence, the DC court held that the pay cable rules wereinconsistent with
First Amendment principles. In rendering its decision, the court noted that the FCC
had overstepped its authority by placing program restrictions on pay cable since there wasapparent lack of evidence to support this position.
The US District court thus vacated the Commission's pay cable rules.
Significance
The outcome was significant because the Court's decision fundamentally challenged
the Commission's approach to regulation of cable. The court stated that the Commission had failed to justify its position that cable television must be a supplement rather than an equal to broadcasting.
The case also raises obvious question regarding prior restraint; thatis, the attempt to restrain a speech, radio/television communication,journalistic activity before it takes place.
CABLE COMMUNICATIONS POLICY ACT of 1984
The passage of the Cable Act of 1984 was especially importantto the cable
industry. Cable operators were now able to adjust service and rates more flexibly in response to market conditions.
Selected Provisions:
1. provided an established procedure for franchise renewal that protects the cable
industry from arbitrary challenges or requirements.
2. empowered franchising authorities with the right to establish franchise fees
with a ceiling of up to 5% on a system's gross annual revenues.
3. provided for rate deregulation on basic cable service. Systems were allowed
to increase basic rates by 5% starting in 1985 and 1986.
Rights and Responsibilities
A cable operator has certain rights and responsibilities. Two of the cable operator's important rights include:
1) the right to make a reasonable return on investment and
2) the right to make all programming decisions that affect the business
operation of the cable system.
The Cable Act of 1984 protects the cable operator from communities that seek to impose unreasonable programmatic or service obligations that would adversely affect the financial or technical performance of the cable operator.
The cable operator has certain responsibilities as well. One of the cable operator's important responsibilities, includes the requirement to pay a franchise fee to the local community in which it operates. The franchise fee cannot exceed 5% of the cable operator's gross annual revenues. It is understood by both parties that franchise fees can be used to support a variety of local community projects, including education and community access channels.
Cable Act of 1984: Significance
In a few short years, the cable industry experienced dramatic growth both
interms of subscribers and number of operating systems
In the United States today, cable TV is the primary means of delivering
multichannel television service and high speed Internet access to the home.
Cable television is available in approximately 62.1 million homes in the U.S.
High speed Internet access is available in 41.8 million U.S. homes
(Dec. 2009)
Cable phone customers is estimated to be 22.2 million U.S. homes.
(Dec. 2009)
Cable Television Consumer Protection and Competition Act of 1992
The passage of the Cable Television Consumer Protection and Competition Act
of 1992, was an attempt to reregulate what was perceived to be cable's unassailable monopoly status.
Retransmission Consent
One of the most important provisions contained in the '92 Cable Act is the principle
of Retransmission Consent which gives local broadcasters the right to elect must carry status (guaranteed placement on the system)[1] or financial compensation for allowing
the signal to be carried.
Under the terms of Retransmission Consent, "must carry" status requires the cable operator to reserve a channel allocation for all local broadcasters who request placement on the system. Must Carry is the obvious choice for smaller, independent stations that want to ensure guaranteed placement on the cable system.
Otherwise, such stations run the risk of the cable operator choosing not to carry
them at all. Alternatively, some broadcasters, (most notably the major network affiliates), can elect compensation whereby the cable operator is obliged to compensate the broadcaster for the right to carry the said programming.
The broadcast industry's principle argument is that today's television landscape
has forever changed. They are in direct competition with multiple cable television networks, including USA,CNN, ESPN and MTV to name only a few. The said cable networks are paid by the cable operator for the right to be carried.
Such cable network services as ESPN, CNN and USA networks can command
licensing fees upwards of $1.50 per subscriber on a monthly basis. In several position papers, the National Association of Broadcasters argue that cable subscribers spend more than 70% of their time watching broadcast programming and yet broadcasters
are paid nothing for their service which by all accounts gives tremendous value to the cable operator.
The cable industry's counter argument is that network television is a "free" over-the-
air service that uses a publicly licensedmedium (i.e. the electromagnetic spectrum). The National Cable & Telecommunications Association (NCTA) takes the position that cable provides the broadcaster with improved television reception and greater
access to the home.
In several position papers, the NCTA argues that compensation for broadcast television programs would result in higher costs to the operator that, would in turn,
be passed on to the consumer. The direct consequence of that action runs counter opposite to the very principle of free, advertiser supported TV. In the end, the
cable operator can elect not to carry the networks (and their corresponding affiliates)
if compensation is sought regardless of whether the programming is popular.
The problem has become further complicated with the development of digital channels and HDTV.
TURNER BROADCASTING SYSTEM V. FCC (1994, 1997)
Problem Defined
Is it considered a violation of the cable operators First Amendment rights to require must carry of the operator when it comes to the delivery of broadcast originated programming?
Case Description
One of the most important test cases to examine the constitutionality of the 1992 Cable Act can be seen in Turner Broadcasting System v. FCC (1994, 1997) which resulted in two Supreme Court decisions.
Turner Broadcasting brought suit against the FCC arguing that the proposed must-carry requirements were a clear violation of a cable operator's First Amendment rights. Turner Broadcasting, for its part, was concerned with how the must carry requirements of the 1992 Cable Act would affect their ability to distribute new program services on those cable systems that had limited channel capacity and who were obligated to follow must carry requirements.
Outcome
In the 1994 ruling, the Supreme Court voted 5-4 to uphold the authority of the U.S. Congress to authorize the FCC's right to impose must-carry requirements on cable operating systems. What is significant, however, was the Supreme Court's apparent willingness to disregard several earlier decisions, most notably the Quincy Cable decision where previous courts had found so-called must-carry requirements to be unconstitutional.
The Supreme Court argued that many cable systems in the U.S. function as defacto monopolies in the communities in which they operate. As such, they possess the power
to deny a broadcast station direct and immediate access to the majority of viewers it
is licensed to serve. The Supreme Court reasoned that the goal of fostering universal, over-the-air broadcast television justified the government's need to require cable operators to carry local TV stations even if that meant denying some cable program services.
In the 1994 decision, the Supreme Court remanded the case to the D.C. Circuit Court
for further review and to examine the question of potential economic harm to those stations that are dropped by a local cable operator. The lower court examined the problemin greater detail and concluded that the apparent danger is quite real and that
in some markets, broadcasters could lose up to two thirds of their potential audience.
In an opinion delivered by District Court Judge Stanley Sporkin:
There is also no dispute that these monopolists face virtually no competition
from othermonopolists because the vast majority of television communities
are served by only one cable system. Accordingly, local broadcasters cannot look
to other cable systems for recourse when they are denied carriage on the one
cable system in their area. . .
Having determined that the burden to the cable industry is quite small and is expected to diminish, the question becomes whether the burden on protected
speech is substantiallymore . . . than is necessary to achieve the government's legitimate interests. . .
Based on the foregoing analysis, the Court finds that Sections4 and 5 of the
'92 Cable Consumer Protection Act survive the intermediate level of scrutiny applicable
to content neutral restrictions that impose only an incidental burden on speech as set
forth in O'Brien v. U.S.
Significance
In 1997, the Supreme Court reconsidered the case once again and affirmed Judge Sporkin's decision by voting 5-4 to uphold the must-carry rules (Turner Broadcasting System, Inc. v. FCC, 1997).
The Supreme Court concluded that the must carry rules were necessary in order to ensure the survival of local broadcast television and to promote competition in the television programming marketplace. The critical issue is that the imposition of such rules are content neutral and furthers a legitimate government interest as defined in United States v. O'Brien.
As a result of the Turner Broadcasting decision, the must-carry provision of the 1992 Cable Act remains in effect, requiring all but the smallest of cable systems to carry local TV stations which opt for must carry rather than for retransmission consent.
NCTA v. Brand X Internet Services
Problem Defined
Should a broadband cable modem service be considered a telecommunications
service and,therefore,be subject to common carrier regulation under Title II. of theTelecommunications Act of 1996? Or should a cable modem service fall under the completely different category of “information service” and, therefore, be free from
traditional common carrier regulation?
Case Description
Brand X. (and Earthlink) are ISPs that rely on dial up, cable television modem services
and DSL as the basis for reselling their own Internet access service, albeit at a reduced rate service. The question raised in this case is whether current cable television operators areobligated to provide carriage to an otherwise external service provider – undera traditional common carrier model. On March 14, 2002, the FCC adopted a Declaratory Ruling and Notice of Proposed Rulemaking:
In a Declaratory Ruling, the FCC classified broadband cable modem service as an “information service” and not a “telecommunications service.” Therefore, broadband delivery services ais not subject to mandatory Title II. common-carrier regulation.
We conclude that cable modem service, as it is currently offered, is properly
classified as an interstate information service, not as a cable service, and that
there is no separate offering of telecommunications service.
Brand X, EarthLink, the State of California, and others sought review of theFCC’s declaratory ruling in various federal circuits. These petitions for review were assigned
to the 9th Circuit by lottery.
The petitioners argued that cable modem service is both an information service and a telecommunications service, and is therefore subject to regulation on a common carriage basis. In sum, they argue – the cable service provider must be required to let other
Internet Service Providers (ISPs) use their facilities.
On October 6, 2003 the U.S. Court of Appeals (9thCir) issued its in Brand X Internet Services v. FCC, vacating the FCC's declaratory ruling that cable modem service is an information service. The case was appealed to the US Supreme Court.
Outcome
On June 27, 2005, in a highly controversial 6-3 decision, the U.S. Supreme Court ruled
in favor of the FCC’s position to exempt cable modem service from the common carrier regulation. The Court determined that cable broadband internet service is an
information service,thus reversing the judgment of the U.S. Court of Appeals (9thCir).
Significance
The decision to eliminate common carrier requirements on broadband networks
essentially grants the incumbent cable giants the prerogative to control competitive access
to their wires.
Equally important, it raises important questions concerning the future of net neutrality.
1
[1]In March 1997, the U.S. Supreme Court upheld the must carry provision
of the 1992 Cable Act.