Cablevision, FCC Square Off in Court Over Program Access Rules

Cable operator has high hurdle to overturn predictive judgments of FCC
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Cablevision and the FCC squared off in federal court Tuesday over the FCC's five-year extension of the program access rules back in 2007, with both sides getting some tough questions, though Cablevision's lawyer seemed to get the judges a bit more exercised as they probed arguments over the presence and absence of sufficient competition.

Chief Judge David Sentelle suggested Cablevision had a high hurdle in asking it to overturn the predictive judgments of the FCC in not sunsetting the program access rules, suggesting it had been years since the court did something similar.

Cablevision attorney Henk Brands reminded him that the court had ruled just a couple of weeks ago in the Comcast case that the FCC had not justified its retention of the 30% subscriber cap.

Sentelle conceded the point as 40-plus minutes of oral argument in Cablevision's challenge to the program access rule extension came to a close.

Brands pointed out that in the Comcast case, the FCC had argued for not removing the cap by saying, "hold on, the time is coming" just not yet. The court said that was not good enough, and the same reasoning should apply to the FCC's defense of the program access rule extension, he argued.

The arguments opened and closed with a focus on the Comcast decision.

Brands argued from the outset that after that Comcast decision, the FCC can no longer contradict that there is competition and that competition is effective. FCC attorney Nandan Joshi countered that Comcast was a different issue, but that even in that case the FCC had had conceded the multichannel video marketplace was more competitive, and that there is some benefit to exculsive programming contracts.

But the FCC's point was and is that the market was not sufficiently competitive to sunset its program access rules, and that what competition there was resulted from those rules.

When asked if the FCC was arguing that there has to be no incentive for withholding programming from competitors before the FCC will sunset the rules, Joshi said no. "But what is the standard?" asked Sentelle. Joshi said that cable market share would have to be reduced from the current 1/3 of English-language programming. Sentelle asked whether 1/6 might be the magic number. Joshi would only say that was "much closer," conceding there would never be a point when there was no incentive to withhold programming.

Brands drew some incredulous looks and questions from Sentelle and Judge Brett Kavanaugh after he suggested that the presence of any competition from DBS was sufficient to sunset the rules. "You can't be arguing that once there is DBS, the FCC has to sunset the rule," Sentelle said.

"Yes," said Brands. "Even 1% DBS penetration?" asked Sentelle. Brands said that there might be some hypothetical of a DBS operator with no subs, but beyond that, once the facility is created, there's competition.

Asked to indicate at which point he thought the competition standard had been met, Brands said that certainly when there were three competitors available in every market, cable, DirecTV and EchoStar.

Judge Thomas Griffith asked whether this was just a case of the FCC's judgment vs. Cablevision's, saying that the FCC's judgment appeared to be a classic case of the kind of agency expertise Congress deferred to.

One thing all the judges seemed to want to know was how exclusive contracts were beneficial to the consumer.

Judge Brett Kavanaugh said that exclusive sports contracts like Sunday Ticket on DirecTV and, say, an exclusive-to-Comcast deal in Philadelphia would mean higher prices to consumers who would have to pay for both services if they wanted the NFL package and Phillies games.

Brands said that for a small group of consumers that might be the price, but that exclusive deals were the lifeblood of the business because they helped differentiate services and could give net channels a chance by exchanging that exclusivity for carriage and promotion.

Kavanaugh asked whether the FCC could justify preserving the prohibition on exclusive contracts so consumers would not have to foot the bill for both cable and satellite.

Brands said that viewers inconvenienced by effective competition would definitely not be the right standard to apply.

Sentelle asked whether Cablevision was arguing that the FCC decision was subject to "intermediate scrutiny," a tougher standard of review applied to cases that implicated First Amendment issues. Brands said it did, but Sentelle said he had a hard time finding where the company made that case strongly in its brief. Brands said that the court could
use the lesser "arbitrary and capricious" standard and reach the same result. "All roads lead to Rome," he said.

Brands could have added that they led to "roaming" as well. In making the argument that exclusivity is a common business practice, he more than once cited the exclusive AT&T/iPhone deal.

Brands got some help from at least one judge on the exclusivity argument. Judge Kavanaugh asked Joshi what the difference was between cable operator's exclusive programming contracts and a newspaper signing a columnist to write exclusively for their paper, pointing out that the Supreme Court has likened cable operators to book publishers.

Joshi said that there was a difference between the hundreds of years of developed newspaper markets and cable.

Arguing briefly as an intervenor for AT&T, Verizon, and EchoStar, Helgi Walker told the court that the issue was not whether incumbents would withould "just about everything" but whether they would withhold "must-have programming."

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