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ACA: FCC’s Unlawful Set-Top Plan Will Devastate Smaller Cable Operators

No Justification For Rules To Apply To Smaller MVPDs

PITTSBURGH, April 22, 2016 - The American Cable Association said the Federal Communications Commission's proposal to make smaller multichannel video programming distributors (MVPDs) disaggregate their networks so third party set-top boxes can interoperate is legally impermissible.  In an extensive filing to correct the record and forestall ruinous market intervention by the FCC, ACA said the proposal would inflict incalculable harm on these MVPDs and their customers while providing no tangible consumer benefit. The proposed rules also will undermine video content agreements, network security, and customer privacy, ACA said.

"The FCC's proposal is unlawful and poor public policy.  It rests on faulty premises about the market and it will impose substantial costs on smaller MVPDs.  Some of these smaller providers will be forced to shut down systems and others to raise customer rates significantly. If the FCC unwisely moves forward, the agency has no justification to apply any of its rules to the systems of these smaller providers," ACA President and CEO Matthew M. Polka said.

Polka spoke in defense of hundreds of independent MVPDs on the same day ACA submitted comments to the FCC as part of the agency's controversial and legally suspect plan to unbundle cable programming from customer premises equipment -- such as cable set-top boxes.  The FCC's proposal is especially unwarranted because the agency's aim is already being achieved in the market as MVPDs enable their subscribers to access pay-TV content "anywhere, anytime, or any device."

The FCC plan would prove incredibly disruptive because ACA members view video programming services and navigation devices as a single integrated offering that is being provided in a dynamic, rapidly evolving and competitive market.  As a result, in recent years, smaller MVPDs have been pioneering efforts with TiVo, Roku, and other third-party device vendors to integrate those devices into their systems.  These devices give their customers the ability to seamlessly access both pay-TV and over-top-programming.

ACA said adoption of the FCC's proposal, to the extent it is comprehensible and technically achievable, would impose significant costs on smaller MVPDs. These include the costs of complying with the requirements to provide the three information flows and a compliant security system; reviewing, amending, and ensuring compliance with content agreements; and ensuring third-party devices meet public interest obligations; and maintaining network security.

In declaring the FCC's proposal unlawful, ACA pointed to Sec. 629 of the Telecommunications Act of 1996, which deals only with "equipment" and not unrelated software. Sec. 629 also limits the FCC to addressing the availability of retail devices that can receive multichannel video and other services "offered" and "provided" by MVPDs. The FCC is not authorized to mandate that MVPDs disaggregate their information flows to enable services provided by third parties.  No other provision of the Communications Act cited by the FCC supplies the requisite authority.

Should the FCC adopt its proposed set-top box rules, ACA proposed that the agency should not apply them to smaller MVPDs.  ACA based its request on a cost analysis that validates that systems of smaller MVPDs would be financially burdened, which for many would result in their exiting the video business, leaving their customers with one less option for video service.

To help the FCC properly calibrate its rules, if adopted, ACA said the agency should define small MVPD systems as those serving 600,000 or fewer subscribers that are not affiliated with an MVPD serving more than one percent of all MVPD subscribers nationally or with an MVPD or any company with an attributable interest in an MVPD of 50% or more that has a market capitalization of greater than $100 billion.

ACA noted that the FCC, should it unwisely adopt regulations, can cover virtually all consumers without applying rules to smaller MVPDs.  In addition, smaller MVPDs, many of whom are already integrating third-party devices into their systems, will adopt the same technologies after larger MVPDs when these technologies are generally available and costs have declined.

"Should the FCC ignore the facts and consumer benefits now being achieved in the market by adopting its regulations, the FCC should embrace ACA's proposal to shield smaller MVPDs.  Such an action would serve the public interest by ensuring that the cost of MVPD service from smaller MVPDs does not dramatically and unnecessarily increase or, worse still, that competition suffers as smaller MVPDs are driven from the market unnecessarily," Polka said.

About the American Cable Association: Based in Pittsburgh, the American Cable Association is a trade organization representing nearly 750 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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