The FCC is Using Streaming Services as an Excuse to Raise Cable Rates

The rise of streaming services could give cable companies an excuse to raise rates under a Federal Communications Commission (FCC) order handed down on October 25th. The order, which comes in response to a petition by Charter (the parent company of Spectrum), finds that AT&T’s TV Now streaming service qualifies as reasonable competition for conventional cable, opening the door to a massive deregulation in monopoly cable markets.

Under the Cable Act of 1992, local regulators are permitted to regulate cable prices in markets with only one provider. The provision is meant to prevent cable companies from leveraging that monopoly power to set unfairly high rates. When a new cable company comes to town, providers can file a petition to have those regulations removed.

Charter’s case centered on a small group of territories in Massachusetts and Hawaii, but Charter’s new competition wasn’t coming from a competing cable TV service. Instead, Charter argued that AT&T’s streaming service, combined with the company’s existing broadband offering, made up a close enough substitute for cable TV that Charter no longer counted as a local monopoly. Despite opposition from both Massachusetts and Hawaii state governments, the FCC ultimately agreed, leaving Charter free to raise its cable rates.

As the FCC put it in a statement, cable rates can be deregulated wherever “an online streaming service option with comparable programming is available from an LEC affiliate in the franchise area.” In this case, the FCC decided that AT&T’s TV Now service met that definition.

LEC refers to “local exchange carrier,” a regulatory term for the telephone and cable providers that fall under the purview of the FCC. Charter’s legal gambit only works if the competition is coming from another LEC, which makes it hard for Netflix or Hulu to be presented as competitive. But with AT&T, Comcast, and other telecoms now launching their own streaming services, the argument can be applied far more broadly.

Charter explicitly confirmed that it would raise prices if the petition was successful, which many saw as proof that the streaming service was not truly competitive. “Charter’s acknowledgement of the immediate, substantial rate increases that deregulation would produce makes clear that DIRECTV NOW [later rebranded as AT&T TV Now] does not provide any competitive check on Charter’s rates,” the state of Hawaii argued in its filing.

Sen. Ed Markey (D-MA) also sent a letter urging the FCC to deny the petition, arguing that labeling streaming services as a remedy for cable monopolies would set a bad precedent for future cases.  “In considering non-cable offerings in this context, the Commission would effectively authorize analysis of “over-the-top” online video services in effective competition proceedings,” Markey wrote. “While the marketplace for video content has shifted considerably in recent years, your obligation to work in the best interest of the public remains today.”

After the order came through, Markey sent out a follow-up statement decrying its impact. “Today,” Markey wrote, “the FCC paved the way for a powerful cable company to increase its prices without regard to the impact on consumers.”

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