During oral arguments last Thursday, a three-judge panel of the D.C. Circuit Court of Appeals questioned the FCC’s grounds for reversing the agency’s long-standing rebuttable presumption that effective competition does not exist in the U.S. cable market.  While acknowledging that, during the two years preceding the FCC’s June 2015 decision, the FCC had processed 228 applications for effective competition with an approval rate of 99%, at least one judge suggested the FCC’s resulting conclusion in favor of effective competition for the cable industry as a whole may have been based on “selection bias.”   

The case was brought to the D.C. Circuit by the National Association of Telecommunications Officers and Advisors (NATOA), which is seeking to overturn the FCC ruling on grounds that it violates tenets of the STELA Reauthorization Act of 2015 (STELARA) by abolishing the effective competition test altogether instead of merely streamlining it.  Following the passage of the 1992 Cable Act, the FCC adopted a rebuttable presumption in 1993 that the U.S. cable market is not subject to effective competition.  As a result, cable operators were subjected to regulation of their basic rate tiers unless they could prove to the FCC that effective competition exists in their respective franchise areas.  Under Section 111 of STELARA, the FCC was required by June 2, 2015 to streamline the process by which small cable operators request relief from basic tier rate regulation on grounds that they are subject to effective competition.  Noting that it had approved 99% of petitions filed since 2013 for findings of effective competition, the FCC voted unanimously last year to apply a rebuttable presumption in favor of effective competition which applies not only to small and rural cable operators but to the U.S. cable industry as a whole.   

Charging that the FCC had “seized upon a narrow provision to escape statutory duties it had long been eager” to do away with, counsel for NATOA told the appellate panel there was no way the FCC could have built a finding in favor of effective competition in every local franchise area on a record which relies on national averages of competitive market share.  Asked by Judge Cornelia T.L. Pillard why an FCC record showing an average competitive market share of 34% nationwide is insufficient evidence of effective competition, counsel for NATOA replied that the 34% average includes telephone companies that have entered the multichannel video program distributor (MVPD) market since 1993 and that numerous franchise areas throughout the country remain unserved by telco MVPDs.   

As “proof” that the FCC’s decision to reverse the effective competition may have been correct, Senior Judge Douglas Ginsberg noted that only three franchising entities nationwide had filed rebuttals of the FCC’s plan to reverse the competitive presumption.  Nonetheless, Pillard appeared somewhat skeptical of FCC attorney James Carr’s claim that “it made perfect sense” for the Commission to reverse the presumption by virtue of  the fact that the FCC had recently approved nearly all of the applications that had been brought before it for findings of effective competition.  Countering that cable operators are more likely to apply for rate relief when they have strong evidence in favor of effective competition, Pillard told Carr that the FCC’s data could have been affected by “selection bias.”  Pillard also advised Carr that FCC figures on competitive market share may not suggest even distribution of that share nationwide, remarking:  “if I were a cable company, there are vast areas [of sparsely populated communities] that I would not be interested in serving.”