Handing an important legal victory to the FCC and the cable industry, the D.C. Circuit Court of Appeals affirmed an FCC ruling last Friday that reversed the agency’s long-standing rebuttable presumption that U.S. cable systems are not subject to effective competition. Adopted in June 2015, the FCC order at the heart of the D.C. Circuit decision responded to a directive, contained in Section 111 of the STELA Reauthorization Act of 2014 (STELARA), which required the FCC to streamline the process by which small cable system operators must seek relief from basic cable rate regulation on the premise that they are subject to effective competition. As it reversed a presumption against effective competition that had stood since 1993—a time when cable operators dominated the U.S. multichannel video program distribution (MVPD) sector with a 95% market share—the FCC decided to apply the new presumption in favor of effective competition not just to small cable operators but to the cable industry as a whole. In support of its decision, the FCC cited statistics demonstrating that cable’s share of the MVPD market had fallen to just over 50% since 1993, due in large part to the competitive success of direct broadcast satellite and other alternative video viewing platforms. The FCC further justified its ruling on the fact that it had approved 99% of petitions filed since 2013 for findings of effective cable competition.
Legal challenges against the June 2015 order were filed at the D.C. Circuit by the National Association of Broadcasters, the National Association of Telecommunications Officers and Advisors and the Northern Dakota County Communications Commission. In addition to labeling the FCC’s decision as arbitrary and capricious, the petitioners warned that reversal of the presumption against effective competition would lead to higher prices and would also induce cable operators to withdraw their local TV station signals from basic cable tiers. The petitioners further claimed that the failure or refusal of local franchise authorities (LFAs) to pursue FCC certifications that would rebut the new presumption in favor of effective competition provided no evidence of a competitive environment, as LFAs may decline to act for a variety of reasons that are unrelated to competition. Supporters of the FCC, including Internet and television association NCTA and the American Cable Association (ACA) argued, however, that retention of the previous presumption against effective competition would have been arbitrary and capricious in light of current competitive market conditions. NCTA and ACA also advised the court that the June 2015 order constitutes a reasonable interpretation of the 1934 Communications Act and complies with STELARA and other relevant statutes.
Ruling in the FCC’s favor, the three-judge appellate panel granted the FCC “Chevron” deference as an expert agency in interpreting federal law in this area, declaring that “Congress has not spoken directly to the question of whether the Commission may use a rebuttable presumption in lieu of case-by-case findings of fact.” In so doing, the court thus characterized the FCC’s decision to use a rebuttable presumption in favor of effective competition as “a permissible construction of the statutory requirement that the Commission find ‘effective competition’ before terminating rate regulation.” As it based that finding on “the strength of [the FCC’s] nationwide data and the opportunity [the FCC] gave each franchising authority to support the opposite conclusion,” the court also observed that the FCC had “reasonably inferred” effective competition in cable markets nationwide based on evidence “that DBS services are in fact available to all households in all areas.” Rejecting the petitioners’ claims with respect to LFAs and the meaning of their refusal to challenge the new competitive presumption, the court decreed: “in the absence of stronger evidence that the cost of filing or other . . . burdens are preventing franchising authorities from rebutting the presumption, the Commission’s inference that there is effective competition in any franchising [area] that did not file a new certification form is entirely reasonable.”