Cable Industry Flips Off FCC, Fines To Follow? Expect Other Industries to Tell FCC To [Fleeting Expletive] Off Too.

I clearly missed a class in law school. Not once in my Administrative Law class did my professor ever tell me that you could respond to a federal investigation by telling the agency “We know you have authority, but we’d rather not answer these questions because you are a great big meany.” But then, I’m not working for the cable industry, which has repeatedly shown it has trouble with the concept that federal law really applies to them and that the FCC is supposed to be a regulator not a lap dog.

Today’s episode of “I Can’t Believe The Chutzpah” comes from the ongoing investigation by the FCC over whether cable operators are using the confusion around the DTV conversion to push users into buying digital tier service, and rent new digital set-top boxes in violation of the rules on set-top box interoperability, or just generally violating the law by changing channel line ups without notice to either subscribers or local franchise authorities, migrating stuff off basic tier without warning, or charging for additional tiers to get channels required by law to be available on the basic tier. Mind, I’d also like them to explicitly ask whether the cable guys are unfairly migrating unaffiliated channels to digital in violation of Section 616, but that’s just me.

Anyway, after getting a bunch of consumer complaints and reading Consumers Union’s letter to Congress (or at least hearing about it on NPR), the FCC sent out a bunch of letters of inquiry to the named cable companies and Verizon asking them to provide a boatload of information which would allow the FCC to determine if the consumer complaints were, ya know, true. Given that this is lots of people being potentially ripped off big time, the agency told the everyone that got a letter they had two weeks to reply.

Mind you, this is hardly an original process or unique to the cable industry. I should know. The FCC did the same thing in response to my complaint about the wireless microphone guys back in August. The FCC (also under Martin I should add) acted with similar swiftness and intensity back in 2006, when Verizon and BellSouth tried to keep charging USF fees on DSL after they were phased out. The phone companies, apparently under the same misconception that I was that even if you are a big company you actually have to obey the law, backed off. The cable companies have other ideas. And, if they get away with it, I’m sure the Bells, broadcasters, and every one else will follow suit.

So yesterday, NCTA,the trade industry for the cable guys, sent a lengthy letter to the FCC explaining that the FCC is not allowed to investigate the cable industry. They recommend that the FCC rescind the letters of investigation and, instead of having the Enforcement Bureau actually act on consumer complaints, the FCC should hold a nice, quiet Notice of Inquiry instead. Then, if Martin gets all the other Commissioners to agree, and the FCC asks nicely and without any legal compulsion to answer honestly or completely, cable operators might consider responding.

Now I just know, KNOW that there are people out there who hate Kevin Martin so much that they will decide that it is really O.K. for cable to tell the FCC to “fleeting expletive off and die,” because it is the poor helpless widdle cable guys and the evil Kevin Martin (I cannot help but observe that Verizon does not seem to have any problems complying with this request, but of course they are an evil minion of Kevin Martin, or the other way around. Besides, Kevin Martin hates the cable industry, so there!)

As what is often called a “consumer advocate,” I’m a little alarmed that we will now have a new doctrine that says “consumers can complain, but the FCC can’t protect them if we think the FCC Chair might enjoy it.” And while I would flippin’ think that the idea that the cable companies need to obey the law like everyone else would be bloody self-evident, not to mention that the consequences of letting industry dictate to the federal watchdog agency what it will and won’t respect on enforcement go well beyond the poor picked on widdle cable guys to whatever industry you don’t like (in my case, wireless microphone manufacturers — I can hardly wait for Shure to refuse to cooperate with the FCC next), I long ago learned that even bloody obvious things need explaining when it comes to the cable industry and their rabid defenders.

So I address the actual legal issues below . . . .

One of the things that’s annoying about this is that most of the reporting on this — even the usually more sophisticated trade reporters — do not seem to understand what the heck is actually going on or how this process works. It’s been reported as an “investigation into soaring cable rates” and, because cable rates are largely deregulated, this has led people to believe that an enforcement investigation into rates is either a dog and pony show or an abuse of discretion because the FCC has no authority to regulate rates. Heck, even CU said (initially) they didn’t think it was illegal — just wrong. That’s why they wrote to Congress first.

Yo, CU guys! You know my number . . . call FIRST next time. I could have set you straight. Because, as I noted in my first post on the subject, there are other provisions of the Communications Act and FCC regs at issue than rate regulation. Fortunately, the FCC Enforcement Bureau did its job. They took the consumer complaints, and instead of saying “unless you use the magic words we will not lift a finger to help you,” they said “hmmmm….this seems fishy. I better go back to my copy of the statute and the regs and see if what these consumers describe in their complaints potentially violates any rules.” As discussed below, the Enforcement Bureau thought the described behavior might violate 47 U.S.C. 543, and 47 CFR 76.608, 76.980, and 76.1603 — which I shall describe in a moment.

Personally, I would have liked to see an investigation into whether the pattern of shifting channels to digital tier violated Section 616 by migrating non-affiliated channels first and affiliated channels last. I would also have liked to ask whether the requirement to get a new digital box violated either 47 U.S.C. 544a (compatibility with consumer equipment) or 47 U.S.C. 549 (open set-top box rules) as well. While the Enforcement Bureau did not go down these paths, they covered themselves if they DID find anything that suggested these or other violations by using the words “including, but not limited to.” This is pretty standard because if you were investigating for one violation of law and instead found proof of a different violation of law, you’d like to be able to prosecute for the violation of law.

And before cable apologists start saying “oh, it isn’t the job of the Enforcement Bureau to try to figure out if a consumer complaint actually might be a violation of the rules, make the consumer figure it out” I can only say “you are soooo wrong” and give you the Bitch Slap of Reason. If you call the police and say “someone broke into my house!” They don’t say “we’d love to help you, but unless you can tell us what provision of the criminal code was violated, and whether you can prove it was ‘breaking and entering’ or ‘larceny,’ we really can’t do squat for you.” Nor do the Wall St. investment brokers who played such wonderful little games with bond ratings and collateralized debt get to tell FBI investigators with a legal warrant “sorry, I don’t have to acknowledge the authority of your warrant because I think you’re over reaching and on a fishing expedition.” Good God, the Enforcement Bureau does this every Goddamn day on slamming and cramming and other consumer complaints where consumers who are not lawyers call up the agency required by law to protect them and say “I’m calling because some phone company ripped me off, they did this this this and this!” And then the Enforcement Bureau says “that sounds like slamming” and they send an LOI. Am I really the only one who actually clicks through on the link in the Daily Digest for “FCC Enforcement actions?” But noooooooo…… everyone always believes the cable industry when they whine about how poorly they are treated and how mean old Kevin Martin has it in for them because the FCC actually does its job now and applies the law to cable like it does to everyone else. Feh.

Anyway, getting back to the letter of investigation (LOI) that the Enforcement Bureau sent out to the 14 cable companies and Verizon, the FCC said that the behavior described by the consumer complaints and CU may have violated 47 U.S.C. 543. In addition to the price controls, the statute also sets requirements for a “basic tier” of broadcast channels and PEG channels that cable operators may not mess with or require any special equipment to view.

This may sound familiar to some of you PEG fans. Think back to the beginning of the year, when Comcast tried to migrate PEG channels to digital tier in Michigan. There, the federal district court issued a restraining order stopping Comcast because migrating some channels from Basic Tier to a Digital Tier was more likely than not a violation of federal law.

More importantly, if what customers described is true, cable operators may be in violation of 47 U.S.C. 543(b)(8), the prohibition on buy through tiers. It says that cable operators cannot make you buy a tier other than the basic tier, and can’t force you to buy a tier in addition to basic tier in order to get channels that should be on basic tiers. And, finally, with regard to the general question of deceptive marketing around the DTV transition, the Commission acts to enforce 47 USC 543(h). That deserves to be quoted in full:

(h) Prevention of evasions
Within 180 days after October 5, 1992, the Commission shall, by regulation, establish standards, guidelines, and procedures to prevent evasions, including evasions that result from retiering, of the requirements of this section and shall, thereafter, periodically review and revise such standards, guidelines, and procedures.

While it is not definitive that telling or implying to people that they need to get a digital box and subscribe to digital tier because of the DTV transition is necessarily an “evasion” or an “evasion that results from retiering,” it strikes me as reasonable for the FCC to investigate and see if it happened and consider whether the behavior asked is true.

CU — bless their little consumer advocate hearts — have been pissed because giving people fewer channels for the same price or making them pay more money to get the same number of channels is a de facto price increase. Since they described it as a price increase, everyone talks about this as a raise in rates and an investigation into a raise in rates. This leads to the erroneous conclusion that the FCC has no authority. But the violation is really much more straightforward — if true. Which, of course, is why the FCC does investigations, and why cable companies are not allowed to tell the FCC “we don’t feel like cooperating.”

In addition to 47 USC 543, the FCC LOI cited three regulatory provisions. The first regulatory provision, 47 CFR 630, implements the part about basic tier from 47 U.S.C. 543(b)(7) I just described. The second provision cited, 47 CFR 76.980, regulates the amount cable operators can charge for the cost of switching service tiers. This is different from rate regulation (which doesn’t exist where the FCC has found “effective competition”), because it is a consumer protection standard that deals with the cost of switching tiers not with what the cable operators charge for tiers. The third provision, 47 CFR 1603, requires that cable operators inform both subscribers and the local franchise authority of any change in price or service at least thirty days in advance.

This is important, because the idea is that if I as a subscriber get 30 days advance notice, I might shop around and see if someone else is offering better service at lower prices or is keeping the show I like on a more affordable service plan. But if I don’t have notice, and my choice is to lose TV while I go trying to find a substitute, I am going to be stuck paying the higher fee for at least one month and — very likely — will just grumble and pay rather than go out and find a new provider.

Notice to the LFA is also important. As I noted back in my analysis of the Michigan PEG case, LFAs have franchise agreements that bind cable operators. They also have certain consumer protection powers under the Cable Act. Giving the LFA 30 days notice allows the LFA to decide whether to challenge a proposed change by a cable operator or not. Failing to give the LFA adequate notice prevents the LFA from stopping the action, and makes it much harder for the LFA to challenge because “facts on the ground” are always harder to stop. Finally, particularly in cases like this (if the allegations bear out) where we are talking about widespread behavior that has huge impact, it is important to note the power of the LFA as bully pulpit. Even if the LFA may not have the legal right to challenge the action, it may be able to persuade the cable operator to change course.

So th notice requirement actually matters. Even if the action by the cable company is otherwise legal, the failure to give proper notice is significant and potential subject to some kind of fine or remedial action (such as requiring the cable operators to restore the previous service tier, provide free digital boxes, or refund money to customers).

Which now brings us to the content of what the FCC actually asked for. It all relates back to the provisions that the cable companies may or may not have violated. The cable guys argue that asking for pricing information is obviously out of bounds, because the Commission has no power to regulate the rate so why should they care about the price increase, if any. But, as noted above, the question of price increases for new tiers goes directly to the question of the whether the cable operators violated the tier buy-through prohibition in 47 USC 543(b)(8) and the prohibition on evasions through retiering in 47 USC 543(h). It also potentially violates the notice requirement, if the cable operators did not provide adequate notice — a question which the FCC also asks.

As this post is running on at length, and it is frankly pretty damn late (or far too early), I will not give a blow-by-blow of everything wrong with the NCTA response. I’ll just hit the high points.

You can’t do an enforcement proceeding against named companies if it covers too much of the industry. There is something about the cable industry that makes them think that if they all collude together to violate the law, it can’t possibly be a violation of the law. Besides, as Comcast demonstrated ad nauseam during the Comcast/BitTorrent business, it is always good strategy to complain about process when the facts are against you. But I’ll admit, the idea that you can tell the FCC “it is an abuse to act on consumer complaints, you must instead do a general Notice of Inquiry and get a vote of the full Commission and have no real power to make us tell you anything” is chutzpah on such a grand scale I would think it bordered on outright delusion — were there not so many folks apparently willing to believe the poor widdle cable guys are being picked on whenever the FCC (and specifically Kevin Martin) tries to enforce the law.

Sorry cable guys. The law really does apply to you. And, as the D.C. Circuit reminded you last May: The briefs filed by Comcast, the intervenors, and the amici make assertions bordering on accusations of the Commission’s bad faith. We must presume an agency acts in good faith, Thomas v. Baker, 925 F.2d 1523, 1525 (D.C. Cir. 1991), but in any case we see no substance to these assertions.

The fact that the FCC has proceeded under its enforcement authority in response to a complaint is not an “abuse of authority.” It is its freakin’ JOB. And given the consumer interests at stake and the fact that the accusation is that you are leveraging the DTV transition, a quick turnaround of 14 days is not unreasonable. But even if you think you should get a full 30 days instead of 14 days, big fat hairy deal. If I get audited by the IRS, I don’t get to tell them “gosh, you’re asking for a lot of information just to see if I am complying with the law, I don’t want to do that.”

Telling the press about the LOIs is “unprecedented.” This is so untrue I am again forced to wonder if I am the only person who actually (a) keeps track of FCC stuff and (b) has a memory that goes back further than last week. The FCC does this routinely when a story is in the news. They like to show they are being responsive to consumer complaints and stuff. They told the press last August when they sent LOIs to Shure in response to my complant about wireless microphone manufacturers. Heck, they disclosed the notice of the investigation in the bleeding notice of proposed rulemaking. They told the press when they began the investigation of the Comcast/BitTorrent Complaint. They told the press back in 2006 when they sent LOIs on whether the Bells were violating the Truth-In-Billing Act. There is no confidentiality about the fact of an LOI (although the investigation itself is a closed proceeding and confidential, as you well know, so the claim about disclosing proprietary information is also a load of crap and you know it). True, the FCC rarely holds a press conference when it is a routine slamming or cramming complaint. But to pretend that you are shocked, SHOCKED that the Chairman of the FCC would tell the press after NPR does a story on the CU letter and other press outlets are reporting on it “we the FCC are protecting consumers and investigating this” and carry on as if this is somehow so unusual it must be a violation of something is a rather transparent attempt to play on the fact that everybody hates Kevin Martin these days.

The fact that the Enforcement Bureau keeps investigating complaints against cable operators shows that this is abusive. Or it shows that cable operators are breaking the law a lot. One or the other. As I said above, given that the FCC sends out tons of LOIs every damn day to cable operators, phone companies, and others subject to consumer complaint, the fact that the Enforcement Bureau has dared to send LOIs to NCTA members is not exactly proof of a vendetta.

The evidence against the cable companies is “thin”. NCTA takes great umbridge at the FCC investigating cable companies based on complaints from peasants subscribers. They hint that the FCC really is not allowed to start an actual investigation unless someone has already produced a boatload of evidence proving the case. Allow me to quote Commissioner Robert McDowell on the subject. In his dissent on the Comcast/BitTorrent Order, McDowell chastised Martin and the majority for failing to conduct a proper investigation. As Commissioner McDowell observed:

In a proceeding of this magnitude, I do not understand why, in the absence of strong evidence, the Commission did not conduct its own factual investigation under its enforcement powers. The Commission regularly takes such steps in other contexts that, while important, do not have the sweeping effect of today’s decision.

Well, you can hardly say Martin isn’t open to suggestions. (‘Course it turned out to be kind of ironic that when Comcast did disclose what they were doing, it turned out that everything the majority concluded was in fact true.)

As always, if it weren’t the cable industry, you would expect the idea that you can’t begin an investigation unless you have enough evidence to prove guilt and make an investigation unnecessary would just get laughed at. But because it’s the cable industry, and it’s Kevin Martin, somebody is going to want to believe.

I’m not even going to bother with the clams that an enforcement proceeding somehow violates the Paperwork Reduction Act. This is not a regulatory report, it is an enforcement proceeding. They are explicitly exempt from the Paperwork Reduction Act. Could Enron have said “sorry, we will not produce documents that might prove we defrauded investor, that is an undue burden on business not approved by OMB.”

A Final Thought

Now lets pretend that NCTA is right. Lets pretend that the FCC is over reaching. Does that give the cable operators the right to refuse to comply? And if so, who else gets to flip off the FCC because they don’t think the FCC should be investigating them. Phone companies? Television broadcasters with their licenses up for renewal? Or is it going to be done based on the size of companies? Only little companies have to obey the law, but big politically connected cable companies get to decide which laws they will obey and which they won’t?

At the end of the day, I would hope that even those who think the cable industry is the victim of a runaway vendetta by a a swaggering, overbearing, tin-plated, dictator with delusions of godhood with the brains of a Denebian slime devil would think twice about living in such a world. Because however much you may hate Kevin Martin, I would hope you would love the rule of law more. Because once companies start defying the FCC and getting away with it, there is no stopping it.

Stay tuned . . . .

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