Archives: TV & Radio

June 20, 2006

Committee on Commerce, Science and Transportation

United States Senate

Washington, D.C. 20510

RE: Oppose the Communications, Consumers' Choice and Broadband Deployment Act

Dear Senator:

We strongly urge you to oppose the Communications, Consumers' Choice and Broadband Deployment Act of 2006 unless substantial changes are made during upcoming committee consideration. Although consumers could benefit from a streamlined or national franchising process that eases market entry for cable competitors while maintaining basic consumer protections, the Act falls far short of what is required to promote meaningful competition that will deliver price and quality of service relief to consumers. We have long sought new video competition, and it is with regret that we must oppose the pending measure in its current form.

The Act provides for sweeping deregulation of cable services regardless of whether meaningful competition emerges resulting in increased prices and degraded service for many consumers;  gives new market entrants a license to redline; inexplicably preempts state consumer protection laws for terms and conditions of wireless telephone services where consumer abuse is rampant and growing; and fails to provide meaningful network neutrality rules to prevent anti-competitive discrimination that squelches competition and innovation. If enacted, the legislation makes consumers far worse off than they are under current law. It provides too few guarantees of new competition to justify the significant sacrifices in consumer protections at the federal, state and local level. 

We urge your support for amendments that remedy the following serious shortcomings of the Act:

The Act Fails to Ensure Average Families will Benefit from Video Competition

If localities are no longer allowed to require wire-based video service providers to offer services across an entire franchise area, it is critical that Congress require new entrants to build-out over a reasonable period of time to help ensure badly needed video competition comes to consumers who most need it ― middle- and low-income consumers struggling under skyrocketing cable prices. Localities have long required build-out obligations of cable providers under Section 621(A)(3) and (4) of the Communications Act and have more recently required them of telephone companies seeking to offer video services in new franchising agreements secured to date. Build-out requirements are common place for other telecommunications services that use public assets. For example, the FCC requires most wireless telecommunications services licensees to construct their wireless systems or meet specific coverage requirements within a given time period. This requirement is frequently satisfied by a demonstration that the licensee is providing substantial service within the area covered by the license at either the mid-point or the end of the initial ten-year license term. These same principles can and should be applied to new video entrants and need not be a barrier to entry. Build out requirements can be phased-in service in order to balance the need for competition with the need for consumer protection.

In lieu of build-out obligations for video service provided by telephone companies, we have also suggested that the Committee consider requiring new video service providers who do not agree to build-out their systems to provide resources for localities to help them facilitate access to advanced telecommunications services for under-served residents. This modest compromise would provide a new entrant with the option of either committing under the franchise agreement to serve the entire community over a reasonable period of time or providing resources so that the community can ensure the needs of all residents are met.

Unfortunately, this bill takes neither approach, opening a wide door to redlining of low-income communities. Redlining prohibitions, on their own, are inadequate to address income-based service discrimination. Build out occurred in cable systems because of local requirements mandating it, not as a result of existing anti-redlining prohibitions. Moreover, the redlining prohibitions in this Act are riddled with loopholes that render them toothless. Virtually any justification would be adequate to overcome an anti-redlining allegation.

We urge the Committee to adopt amendments that address these serious but resolvable shortcomings to ensure the Act delivers on its promises to all consumers.

Consumer Protections against Cable Company Abuses are Eliminated without a Meaningful Competition Trigger

Under the "competition trigger" in the Act, once a new entrant secures a franchise agreement under the streamlined franchising process and begins offering service, basic consumer protections under Section 623 of the Communications Act of 1934, as applied to the incumbent, are eliminated, even if the new entrant is offering service to only a few households in that franchise area. Because new entrants are not required to build out within a franchise area, the "trigger" fails to ensure than any meaningful competition actually exists, but eliminates long-standing consumer protections that shielded consumers from cable abuses.

For example, regardless of how limited new competition is, the incumbent cable provider would be immediately released from:

• Existing obligations to charge all consumers the same price for the same services regardless of on which side of the tracks they live. Existing uniform rate requirements under Section 623 has helped prevent predatory pricing that could squeeze out new entrants and prevent rate discrimination against some consumers in the market. Elimination of uniform rate requirements not only puts new entrants at a disadvantage, it allows the incumbent cable company to lower prices in competitive areas and subsidize those decreases with rate hikes in neighborhoods unserved by the new entrant. Consumers unserved by the Bells get hit twice ― they have no new competitive option and they may see their cable prices rise.
• Existing protections that ensure rates for basic tier cable services do not skyrocket as they have in the "expanded-basic" tier. The basic tier is the affordable, entry-level package that includes local broadcast stations and public, educational and government channels. While rates for upper tiers are unregulated and have dramatically increased in price, the basic tier remains subject to rate regulation to ensure that a basic cable package remains affordable. Some consumers purchase only the basic tier because they want only basic television but lack adequate over-the-air reception, or wish to buy only premium channels rather than the costly expanded-basic tier;
• Existing obligations even to provide a basic tier, allowing the cable provider to roll broadcast stations and PEG channels into the costly, expanded basic tier. Under current law, cable providers must continue to offer the entry-level, basic broadcast tier. The obligation to offer a basic tier allows even low-income consumers access to broadcast stations and public, educational and government channels.
• Existing prohibitions against "buy-through" requirements, dramatically increasing costs for many consumers. Buy-through―the practice of requiring consumers to buy the costly expanded basic tier just to buy premium channels like HBO or Showtime―is currently prohibited under Title IV.  By eliminating the prohibition against buy-through requirements as soon as a new entrant enters the market, many consumers who currently buy only basic plus premium channels may be required to also purchase the costly expanded basic tier just to purchase the premium, for-pay channels they want.

The troubling elimination of these requirements could be easily remedied by providing for an effective competition test that releases the incumbent from these obligations only when the telephone companies offer video service to at least 50 percent of the franchise area with 15 percent of the area's households subscribing. This is the existing test under current law for elimination of basic tier regulation and uniform rate requirements as applied to other types of video competitors. This same test should be applied to entrance of telephone companies into video markets, particularly given that the local franchising authority will be unable to require build-out. Maintaining basic tier and uniform rate protections in no way affects the new entrant's ability to compete but maintains modest and reasonable consumer protections from abuse by the incumbent.

If these shortcomings are addressed, the Act will at least mitigate the harm that will result from prematurely deregulating basic cable rates and eliminating uniform rate requirements before consumers have competitive alternatives.

Incumbent Cable Providers Are Allowed to Withdraw Cable Service or Refuse to Provide Uniform Upgrades Even if No New Competitor Enters its Market

Under the Act, incumbent cable providers are eligible to apply for the streamlined franchising process when their existing franchise agreement expires, regardless of whether a telephone company has entered their franchise area. Since the streamlined franchise process does not allow localities to secure build-out commitments, cable providers will be released from any prior obligation to maintain or upgrade service over its existing franchise area. That means that consumers currently receiving service from a cable company under prior build-out obligations could see cable service withdrawn or could be denied system upgrades if the cable provider deems that neighborhood unprofitable. If no other competitive provider is available, consumers will have little recourse.

This problem can be easily remedied. For example, the streamlined franchise agreement for incumbents could grandfather in prior build-out and uniform upgrade requirements contained in the expired franchise agreement and maintain them until a new entrant offers service that meets the "50/15" competition test noted above. Anti-backsliding protection is necessary to ensure the deregulation provided in this bill does not result in degraded service for existing cable consumers with no competitive alternative.

Network Neutrality Provisions Roll Back FCC Authority and Fail to Protect Broadband from Anti-Competitive Discrimination

The Act fails to guarantee meaningful network neutrality. The "consumer Internet bill of rights" included in the recent redraft fails to address the core concern of network discrimination that does not overtly block access but instead impairs access by increasing the cost of competitive online services or applications through "tiered access" or by favoring the network owners own services over that of their competitors. Moreover, the Act ties FCC hands by prohibiting it from issuing regulations to ensure even these minimal rights provided in the bill are protected.

The firewall of network neutrality—the nondiscrimination principle which protects competition, maximizes consumer choice, and guarantees fair market practices—has been abandoned. This endangers the most important engine for economic growth and democratic communication in modern society. Nondiscrimination made possible the grand successes of the Internet. Its removal can take them away. Once the practice of network discrimination begins, it will be virtually impossible to reverse — bringing higher prices, fewer choices, and a gatekeeper distorting the free market. At best, the Act offers only a half-step toward protecting the Internet, and opens to door to anti-competitive tactics that will forever change the Internet as we know it.

Notably, nondiscrimination is applied throughout this bill as a critical protection against abuses in the marketplace and a promoter of competition. The bill has it right in each case, but fails to bring the same logic to the Internet. For example, local franchising authorities must treat competitive video providers in a nondiscriminatory manner in the use of the public rights-of-way. Local governments that propose to build broadband networks must not use local ordinances to discriminate. USF support must be distributed according to principles of competitive neutrality. The only sector that does not enjoy this protection against discrimination is Internet content, applications and service providers — the most dynamic marketplace in our economy.

We urge the Committee to apply the principles of nondiscrimination everywhere in an even-handed fashion and strongly urge the adoption of an amendment that would institute meaningful network neutrality protections.

State Laws Protecting Consumers from Unfair Terms and Conditions of Wireless Contracts are Preempted Without Any Assurance of Adequate Federal Protection

Inexplicably, the redraft of the Act preempts existing state authority to regulate the terms and conditions of wireless services. Such preemption is particularly unwarranted given the substantial growth in the wireless industry under the current system of dual federal and state regulation provided by Section 332 of the Communications Act. Subscribership has grown from 13 million in 1993 to more than 190 million today, suggesting the dual system has not been an impediment to industry growth. Unfortunately, widespread unfair, misleading and deceptive business practices that adversely affect consumers have accompanied that growth. The wireless industry leads the Better Business Bureau's list of most complained-about industries, surpassing even car dealers in customer dissatisfaction. Wireless complaints to the FCC have more than doubled since 2002, exceeding even the rate of wireless subscriber growth over this time. Despite this rise, FCC has not taken even a single enforcement action against a wireless provider in response to consumer complaints.

Complained about practices, such as billing, quality of service, failure to disclose terms and conditions, and misrepresentations by employees harm consumers financially and deprive them of information and choices they should have in a competitive marketplace. Among the most egregious practices are unilateral contract extensions without affirmative consent of the consumer, locking consumers into yet longer term contracts with onerous early termination fees, effectively eliminating consumers' options to switch to another carrier that will deliver superior service or lower prices. As a result, states have worked to protect consumers from the wireless industry's unfair practices. Contrary to myths promoted by the wireless industry, the debate over state authority to regulate wireless carriers is not about font size or billing formats. Instead, it is about state efforts to protect consumers from unfair and deceptive practices, unconscionable contract terms and conditions that reduce consumer choice. FCC is not up to this task.

The inclusion of federal preemption in the Communications, Consumers' Choice and Broadband Deployment is contrary to the legislation's intent to offer consumers more and better choices. Moreover, the legislation's complete omission of any requirement that FCC must promulgate new regulations to replace preempted state protections leaves consumers badly exposed with little hope of remedy or recourse.  We strongly urge the adoption of an amendment to strike Section 1005 from the Act.  

Pro-Competitive Program Access Rule Improvements Are Omitted in the Recent Redraft 

Among the pro-competitive, pro-consumer provisions in earlier drafts of the Act were program access requirements - the "Sports Freedom" provisions - that ensured incumbent cable providers that owned regional sports networks could not deny carriage of those networks by their competitors. Long-standing loopholes in current law allowed dominant cable providers to impede competition by denying such carriage. Now, with the entry of telephone companies into video services, the need to close these loopholes is even more important. We urge the restoration of the program access provisions in the legislation.

Conclusion

The bill does have several important reforms that we support. If the bill is not substantially improved, we encourage the Senate to move on these important issues separately to bring welcome reforms to American consumers. For example, we support the provisions opening up more unlicensed spectrum in the empty broadcast channels for innovative wireless broadband applications. We also support the protections for municipalities exploring broadband services. Finally, we support the reforms of the Universal Service Fund in this bill that would stabilize the programs, introduce more accountability, and create a program for broadband. However, we are disappointed to note that the requirement for USF-supported networks to become broadband compatible has been removed from the bill.

We strongly urge the Committee to  incorporate the following key components that are currently absent from S.2686: 1) meaningful and enforceable network neutrality that will preserve the free, open, and nondiscriminatory Internet; 2) reasonable but mandatory build-out requirements for all holders of franchises under the streamlined framework or in lieu thereof additional resources provided to the locality so it may meet the needs of unserved consumers; 3) maintenance of basic tier regulation and uniform rate regulation until meaningful competition exists in a franchise area; 4) protection against cable service backsliding; 5) consumer protection structures in which local and state authorities can strengthen and enforce federal minimum standards; and 6) reforms to cable program access rules.

Absent these substantial changes, S. 2686 will fall well short of its goal of bringing competitive communications services to all consumers and is likely to make many consumers worse off. We look forward to working with you to remedy these problems to promote badly needed video competition while maintaining fundamental consumer protections.

Respectfully,

Jeannine Kenney, Senior Policy Analyst, Consumers Union   

Mark Cooper, Director, Consumer Research, Consumer Federation of America

Edmund Mierzwinski, Director, Consumer Program, U.S. Public Interest Research Group    

Ben Scott, Director, Public Policy, Free Press