D.C. Court Upholds Ban on MDU Contracts - Broadcasting & Cable

D.C. Court Upholds Ban on MDU Contracts

FCC prevents new exclusive contracts and nullifies existing ones
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The U.S. Court of Appeals for the D.C. Circuit Monday upheld an FCC decision banning exclusive contracts between cable companies and the owners of apartments and other multiple-dwelling units (MDU).

In the decision, the FCC both prevented new exclusive contracts and nullified existing ones.

The National Cable & Telecommunications Association had appealed the FCC decision, but a three-judge panel of the court concluded that "the commission acted well within [its] bounds" to ban the contracts.

NCTA had argued that the FCC had exceeded its authority in regulating exclusive deals, that it had not justified the change in policy, and that it had not considered the consequences of applying the decision retroactively to existing contracts.

The court disagreed, and on the issue of justifying the change in policy from its 2003 decision allowing exclusive contracts, the court invoked the Fox fleeting profanities case, in which the Supreme Court said the same Kevin Martin-led FCC had sufficiently justified that change in policy. The court found that the FCC's "extensive discussion" of its change was "more than equal" to what the court called its "forgiving standard of review."

That standard gives strong deference to the regulatory agency's expertise absent some showing that the decision was arbitrary and capricious.

AT&T, which filed a complaint against Cox for denying it access to Padres games, used the decision to push the FCC to rule in its favor, suggesting the situation was analogous. "Incumbent cable companies were actively walling off competition to consumers living in apartments and condos through these exclusive access arrangements," said AT&T in a statement. "This decision recognizes the FCC's authority and prohibits unfair practices by cable companies that limit competition and consumer choice for video service."

The FCC in 2007 unanimously voted to nullify the exclusive deals between cable companies and apartments and other multiple-dwelling units and to ban any such clauses going forward, calling them unfair competition.

The commission found that the contracts favored incumbent cable operators and impeded cable competition and broadband deployment, pointing out that some 25%-30% of Americans, or close to 100 million, live in apartments, condos or managed communities.

The move helped open the MDU market to telephone companies getting into the video business to compete for those millions of eyeballs. The FCC also noted that such exclusive clauses had increased as potential competition for those MDUs had increased.

Not surprisingly, Verizon praised the decision. It also saw it as a win for larger issues of access to programming:

"This ruling is a big win for millions of consumers living in apartments and condominiums who want nothing more than to enjoy the full benefits of video competition," said Michael Glover, Verizon senior VP, deputy general counsel, in a statement. "In upholding the ban on new and existing exclusive access deals, the Court's decision also confirms the FCC's authority to address other barriers to more meaningful competitive choice and video competition, such as the cable companies' refusal to provide competitors with access to regional sports programming."

USTelecom President Walter McCormick added his praise for the court's decison.

"Thanks to the Court's positive ruling, Americans across the nation, including seniors living on a fixed income, will continue to enjoy the unbridled benefits of enhanced choices and innovative services, and our economy will benefit from further investment by telecom companies," he said in a statement. "USTelecom applauds the Court's conclusion, which will accelerate an array of video and high-speed choices at competitive prices to consumers everywhere."

NCTA had no comment on the decision.

NCTA first sought a stay of the portion of the decision that nullified existing contracts, then challenged the decision in the D.C. Court, arguing that the 2003 decision not to regulate such contracts resulted in operators making "substantial investments that they will not be able to recoup if the exclusivity provisions of existing contracts are abrogated."

In addition, NCTA said, "there are strong arguments that the FCC has no statutory authority to address this entire subject and that, in any event, it was arbitrary and capricious..."

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