Award Winning Blog

Monday, April 28, 2014

Cable Retransmission/Channel Placement Negotiations and Commercially Reasonable Internet Connections

            Back at the drawing board, Chairman Wheeler and staff have attempted to find the sweet spot where ISPs can negotiate paid traffic prioritization so long as it’s “commercially reasonable.”  Libertarians and a lot of other observers would conclude that all commercial negotiations reach a reasonable outcome between two willing parties.  So absent coercion or evidence of an unfair—okay call it unreasonable—trade practice, the negotiation should produce a mutually beneficial outcome.

            Such outcomes do not prevent one side from exercising superior bargaining leverage.

            In broadcaster-cable television retransmission consent negotiations, the former enjoys a superior bargaining position for two reasons: 1) broadcasters have exclusive access to “must see” television such as the regular season of professional football and 2) cable operators face severe restrictions on their ability to negotiate with a distant broadcaster if the local station imposes unreasonable demands. So arguably the deck is stacked in favor of broadcasters.

            What does the Commission do in this situation?  Nothing for two reasons: 1) the Commission lacks specific statutory authority to impose terms and conditions; and 2) the Commission wisely refrains from interfering with “marketplace driven” negotiations knowing that eventually the parties will reach closure, particularly after the regular NFL season begins.  The Commission limits its intervention to defining what constitutes good faith negotiations.

            I acknowledge that the consequences of regulatory reticence to act can more significantly harm consumers when ISPs cannot come to terms.  The pain threshold arrives almost immediately when access to the Internet cloud becomes congested, or when specific sites become inaccessible.  Many would assert that reliable and neutral Internet access has more significance than whether cable television subscribers can watch a football game. 

            Similarly the D.C. Circuit Court of Appeals has instructed the FCC that it lacks jurisdiction to supersede cable operators’ channel placement and content tiering decisions. Absent a “voluntary” commitment, as occurred when Comcast agreed to limits on its channel placement freedom, the FCC cannot mandate neutrality and fairness.  Comcast can place its owned and operated Golf Channel on the basic tier and relegate the Tennis Channel to a more expensive tier viewed by fewer subscribers.   Was this a commercially prudent decision, or one designed to disadvantage the Tennis Channel?  The court in effect said it does not matter.

            The FCC has a model in retransmission consent and case precedent that it may not consider applicable.