For the first time in several years, the Federal Communications Commission’s Media Bureau has issued a decision resolving a cable operator’s appeal of a local order regulating the cable operator’s rates. The appeal, which was brought by Comcast, addressed nearly identical rate orders adopted by several local franchising authorities (LFAs) in Minnesota and focused on three issues: 1) Comcast’s “pay-by-phone” convenience charge; 2) the establishment of separate HD and SD converter rates for “basic-only” subscribers; and 3) the establishment of “mixed” equipment and service charges such as an “HD DVR Service Fee” or “Digital Adapter Additional Outlet Service Fee.” The Bureau’s decisions with respect to these charges are summarized below:
- Pay-by-phone convenience fee. Comcast challenged the LFAs’ decision to disallow a $5.99 pay-by-phone convenience fee charged to customers who pay their bill over the phone. The LFAs contended that Comcast had not provided any evidence that this fee was “unbundled” from the service rate charged when rates were first regulated in 1993 and thus collecting the fee would amount to a double recovery by Comcast. Comcast responded that the pay-by-phone option wasn’t available in 1993 and thus costs associated with it could not have been included in the initial rates for cable services. The FCC ducked the issue by finding that the pay-by-phone fee is not within the agency’s rate regulation oversight jurisdiction. The FCC likened the pay-by-phone fee to other types of “miscellaneous” fees that it has found to be outside its jurisdiction, such as late fees and returned check fees. According to the FCC, LFAs may regulate such fees to the extent permitted by state or local “consumer protection or other” law.
- Converter Charges. The FCC rules permit an operator to aggregate the costs of basic-only subscribers’ equipment, provided that such costs may not be aggregated with the costs of equipment used by non-basic only subscribers. (The rules also allow a cable system that does not separately calculate basic-only equipment rates to charge basic-only subscribers for equipment based on the assumption that all basic-only subscribers use equipment that is the lowest level and least expensive model of equipment offered by the operator). Comcast calculated a single maximum permitted rate (MPR) for basic-only converters by aggregating the costs of the HD and SD converters in basic-only homes. However, Comcast elected to charge basic-only customers different rates depending on whether the subscriber had an HD box or an SD box, with both rates set below the MPR. The LFAs demanded that Comcast file separate justifications for its HD and SD basic-only boxes. The FCC ruled in favor of Comcast, noting that it has previously held that a cable operator that calculates a single aggregated MPR for a category of equipment is free to charge different prices for different types of equipment so long as the price charged for any particular piece of equipment is equal to or less than the aggregated MPR.
- Equipment Unbundling. Comcast, like a number of operators, included as part of its subscriber charges several separate fees, identified on bills as the “HD Technology Fee,” the “HD DVR Service Fee,” and the “Digital Adapter Additional Outlet Service Fee.” Comcast argued that these are unregulated service fees while the LFAs contended that these fees, no matter what they are called, are really, in whole or in part, equipment fees that are subject to regulation and should be unbundled from any unregulated service charges. The FCC held that, in the case of cable operators that had not been determined to be subject to effective competition (and thus exempt from all rate regulation), the 1992 Act required that the cost of any equipment used to receive BST be unbundled from fees for service and charged for separately. The Commission also cited Section 629(a) of the Act, which allows MVPDs to offer customer premises equipment “if the system operator’s charges to consumers for such devices and equipment are separately stated and not subsidized by charges for any such service.” According to the FCC, “even as pricing schemes become more complex with the deregulation of [optional services], the digital transition and the development of advanced technologies, regulated equipment rates must still be separately calculated and separately listed on rate cards.” In this particular instance, the FCC found that it was reasonable for the LFAs to order Comcast to remove all costs for regulated equipment from the fees at issue.
Analysis. While the number of cable systems subject to local rate regulation has declined sharply in recent years, where an LFA can and does continue to regulate, it often employs the services of an aggressive consultant. Operators can expect such consultants to recommend to their client LFAs that they challenge “miscellaneous fees” even though those fees often represent a rational way to allocate costs so that all customers are not required to bear costs that are attributable to a small number of customers. In addition, consultants may take a renewed interest in service and additional outlet fees, although we believe that the Media Bureau’s decision leaves room for a rate-regulated cable operator to impose such fees provided that the fee does not reflect any equipment costs.