What is Effective Competition?

Under FCC regulations at 47 C.F.R. § 76.905 cable systems are subject to effective competition when any of the following conditions are met:

1. Fewer than 30% of the households in its franchise area subscribe to the cable service of a cable system.

2. The franchise area is:

i. served by at least two unaffiliated multi-channel video programming distributors (“MVPDs”) each of which offers comparable programming to at least 50% of the households in the franchise area; and

ii. the number of households subscribing to multi-channel video programming other than the largest MVPD exceeds 15% of the households in the franchise area.

3. A MVPD, operated by the franchising authority for that franchise area, offers video programming to at least 50% of the households in the franchise area.

4. A local exchange carrier or its affiliate (or any MVPD using the facilities of such carrier or its affiliate) offers video programming services directly to subscribers by any means (other than direct-to-home satellite services) in the franchise area of an unaffiliated cable operator which is providing cable service in that franchise area, but only if the video programming services so offered in that area are comparable to the video programming services provided by the unaffiliated cable operator in that area.

The key criteria which the cable industry has been using in its petitions for effective competition is the criteria outlined in #2 above. Generally, the industry’s petitions argue that a direct broadcast satellite (“DBS”) provider meets this criteria because it offers comparable programming to the entire franchise area via its satellite delivered signal and its penetration in the franchise area exceeds 15% of the households.

FCC regulations at 47 C.F.R. § 76.905 provide a few definitions which may be helpful when analyzing whether effective competition is present in your community.

1. Each separately billed or billable customer counts as a “household” subscribing to or being offered video programming services, with the exception of multiple dwelling buildings that are billed as a single customer. Individual units of multiple dwelling buildings count as separate households.

2. The term “households” does not include those dwellings that are used solely for seasonal, occasional or recreational use.

3. A MVPD is an entity such as, but not limited to, a cable operator, a multi-channel multipoint distribution service, a DBS service, a television receive-only satellite program distributor, a video dial tone service provider or a satellite master antenna television service provider that makes available for purchase, by subscribers or customers, multiple channels of video programming.

4. For purposes of determining the number of the households subscribing to the services of a MVPD, other than the largest MVPD, the number of subscribers of all MVPDs that offer service in the franchise area will be aggregated.

5. In order to offer comparable programming, as that term is used above, a competing MVPD must offer at least 12 channels of video programming, including at least one channel of non-broadcast service programming.

Despite the cable industry’s efforts to the contrary, 47 U.S.C. § 76.906 maintains that cable systems are presumed not to be subject to effective competition absent a demonstration to the contrary. In other words, your cable operator must prove to the FCC that effective competition exists.

Why is Effective Competition So Important?

1. If the FCC determines a cable operator is subject to effective competition the local franchising authority can no longer regulate rates for: a) the basic cable services tier, b) converters, c) remotes, d) installation, and e) hourly service charges.

2. Cable operators generally are prohibited from requiring customers to subscribe to specified tiers of programming on their cable system, other than the basic service tier (“BST”), as a condition of subscription to video programming offered on a per channel or per program basis. Thus, a cable operator is not allowed to force a customer to subscriber to expanded basic service or some level of digital cable service before that customer is permitted to buy HBO or pay-per-view movies. However, if the cable operator is deemed subject to effective competition this prohibition (found at 47 C.F.R. § 76.921) is no longer applicable.

3. A cable operator is no longer required to maintain a low priced BST if subject to effective competition. Some cable operators have argued that maintaining a low priced BST permits customers to buy DBS services and then receive local channels via the BST offered by the cable operator. Many cable operators have indicated that if subject to effective competition they would consider eliminating the BST and moving to a single, unregulated, tier of expanded basic programming so as to prevent DBS customers from obtaining local channels at a low cost. The problem with this approach is that those residents of the community on a fixed income or otherwise unable to afford a greater price for cable service may be prevented from receiving cable programming as no low priced options may be maintained from any provider.

4. A number of other provisions under the FCC regulations would also no longer be enforceable against the cable operator including