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ACA: Rising Video Programming Costs A Drag On Broadband Deployment

FCC Should Adopt Video Reforms To Address Problem

PITTSBURGH, March 9, 2015 - The American Cable Association called on the Federal Communications Commission to reform key video regulations to prevent outsized annual programming rate increases from acting as a drag on broadband deployment by small and medium-sized providers.

"It has become evident that the increasing prices video programmers and broadcasters charge multichannel video programming distributors (MVPDs) can act as a drag on broadband deployment.  If these prices continue their upward spiral, existing providers of both broadband and MVPD services and new entrants will be deterred from expanding their broadband networks or otherwise undertaking new builds.  The FCC can and should address this problem now by modernizing existing MVPD regulations to ensure they work as intended, particularly for providers who are most likely to serve smaller markets and rural areas where new broadband build-out is most crucial," ACA President and CEO Matthew M. Polka said.

ACA set forth its recommendations in comments filed March 6 in connection with the agency's Sec. 706 proceeding on actions that will remove barriers to infrastructure investment and encourage more expansive and more rapid deployment of networks that can provide advanced telecommunications capability.

The market reality is that broadband providers must offer consumers video along with broadband and voice services, yet they face ever increasing video programming costs that squeeze margins.  As a result, smaller triple play providers' ability to achieve a sufficient return on investment for deploying broadband, particularly in new areas, is quickly diminishing.

ACA said triple play providers are struggling in a market where pay-TV margins are plunging as a result of the runaway cost of programming supplied by TV broadcasters and cable networks, and where consumers are resisting retail price increases.  Citing SNL Kagan data, ACA said per-subscriber programming costs for MVPDs grew at an annual rate of 9.3% between 2006 and 2014, though for smaller providers the growth was much greater.  Meanwhile, over the same period, per-subscriber MVPD revenues grew at an annual rate of just 4.9%.  MVPD margins will turn negative if this continues.

"If video margins continue to decline, absolute free cash flow declines as well.  This will reduce the incentive and ability of providers to undertake broadband builds in new areas, particularly in many of the least-served parts of the country, will be threatened," Polka said.

ACA noted that the FCC has already recognized a connection between programming costs and broadband deployment. Last summer, FCC Chairman Tom Wheeler wrote the CEO of Time Warner Cable to inquire about the high price it was charging MVPDs to carry the SportsNet LA regional sports network, adding he was "concerned about the negative impact that this dispute may have on the growth of broadband services in the Los Angeles area."

In its comments, ACA urged the FCC to take a series of steps immediately to address the harm excessive and increasing video programming prices have on network investments that would provide advanced telecommunications capability.

The following are steps to improve the effectiveness of the program access rules:

  • Ensure that an MVPD buying group, like the National Cable Television Cooperative (NCTC), has the right to bring a complaint against a cable-affiliated programmer that imposes discriminatory rates, terms, and conditions;
  • Prohibit cable-affiliated programmers from excluding a member of a buying group from participating in a master agreement the buying group has negotiated with a programmer, so long as the member is below a reasonable size threshold and satisfies other reasonable criteria;
  • Clarify that cable-affiliated programmers are required to extend the same volume discounts to buying groups as they extend to individual MVPDs; and
  • Ease the burden on aggrieved MVPDs and their buying groups to bring complaint cases and standstill requests against cable-affiliated programmers through the use of rebuttable evidentiary presumptions.

 The following are steps to improve the effectiveness of the rules government retransmission consent:

  • Protect consumers and MVPDs from service disruptions under which the parties' existing retransmission consent agreement would automatically be extended past its expiration date and the broadcaster would continue to receive compensation for retransmission consent per such contract until the matter can be resolved through a dispute resolution mechanism; and
  • Rule, after a further notice seeking public comments, that broadcasters' blocking of online video content amid disputes over linear broadcast station carriage represents a per se violation of the retransmission consent good faith rules.

About the American Cable Association: Based in Pittsburgh, the American Cable Association is a trade organization representing nearly 850 smaller and medium-sized, independent cable companies who provide broadband services for nearly 7 million cable subscribers primarily located in rural and smaller suburban markets across America.  Through active participation in the regulatory and legislative process in Washington, D.C., ACA's members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business.  For more information, visit http://www.americancable.org/

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