Cablevision: Dereg in Massapequa Park

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Cablevision Systems Corp. is asking the Federal Communications Commission to remove price controls on a system in a Long Island community where Verizon Communications Inc. has launched a competitive pay TV service.

If the FCC grants Cablevision’s request, the Village of Massapequa Park, N.Y., would be barred from capping Cablevision’s basic-tier rate and from requiring the company to market a uniform rate structure to all 7,400 village households.

Another rule that would go away is the FCC’s tier-buy-through requirement, which bars cable companies not facing effective competition from requiring consumers to buy one or more tiers above basic in order to purchase pay-per-view or premium channels.

In theory, rate regulation is considered a proxy for competition. Where competition is demonstrated, the FCC is authorized to remove various restrictions on incumbent cable operators.

On March 31, 1999, the FCC lost authority to set the price of expanded-basic programming tiers of incumbent cable operators. The agency has never had authority to cap the price of premiums services like Home Box Office or PPV events.

In many recent cases, cable companies have asked the FCC for deregulation based on the so-called 15% test, a provision in the 1992 Cable Television Consumer Protection and Competition Act that continues basic-tier regulation until cable competitors’ combined subscriber total exceeds 15% of the households in a franchise area.

In an April 11 filing that the FCC did not disclose until May 5, Cablevision invoked the so-called “LEC test,” a provision in the Telecommunications Act of 1996 that frees a cable company from regulation if the new cable entrant is a phone company (which the law refers to by the name local-exchange carrier, or LEC).

As Verizon and AT&T Inc. invade cable markets around the country, cable incumbents are likely to rely on the LEC test more and more.

Under the LEC test, a cable operator is not required to show that the phone company has subscribers. Instead, it must demonstrate that among other things, the LEC is offering video service and its channel lineup is comparable to that of the incumbent cable operator.

In the filing, Cablevision said 94% of homes in Massapequa Park can subscribe to Verizon FiOS TV service, which includes “more than 180 channels of programming,” such as ESPN, CNN, TNT and MTV. Cablevision added that Massapequa Park residents have been made aware through Verizon marketing efforts and local news stories that Cablevision isn’t the only cable provider in the community.

“In sum, Verizon’s services are clearly ‘comparable’ to those offered by Cablevision,” Cablevision attorneys told the FCC.

When Verizon sought a 10-year franchise, Cablevision complained that Massapequa Park was offering Verizon a sweetheart deal in a dispute that later caused Cablevision to file suit. But the suit was tossed out.

Verizon spokesman David Fish said Cablevision’s FCC filing was ironic “given Cablevision's ongoing efforts to block competition. But consumer choice is what counts. We say let the competition begin.”

On an earnings call Monday, Cablevision chief operating officer Thomas Rutledge called into question Verizon’s claims that it has achieved 6.5% FiOS penetration in Massapequa Park.

He said a recent analysis by Cablevision of Massapequa Park estimated that the operator lost about 200 subscribers. Of those 200 homes, Cablevision won back about 28, he added. That works out to less than 2% penetration for Verizon in that area.

“We don’t believe that [6.5% penetration] number or understand how anyone can argue that they have that number,” Rutledge said on the call, suggesting that Verizon may be counting existing data and voice customers who upgrade to the FiOS video service.

Mike Farrell contributed to this report.

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