FCC: AT&T's OTT Video Is Effective Competition to Cable

Deregulates final basic-rate regulated markets
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The FCC has voted to treat over-the-top Local exchange carrier (LEC) provided video distributor AT&T TV Now, and by extension any similar OTT, as effective competition to video cable service, triggering basic rate deregulation.

The FCC already considers DirecTV such a competitor and now is adding its rebranded, broadband-delivered video business. In granting the petition, the FCC is effectively ending basic rate deregulation of cable as well as signaling that if traditional satellite delivery sunsets in favor of streaming, cable rates won't be returning.

FCC chair Ajit Pai said that given the rise of Netflix, Hulu, and Amazon, and the addition next month of Disney Plus and Apple TV, it strained credulity to argue that cable was not now subject to effective competition "across the nation."

Historically, cable providers have cited the ubiquity of satellite as justification for removing rate regulations. But in this test case of sorts, Charter and the smaller, independent operators represented by ACA Connects were basing that OTT competition call on the availability of AT&T TV Now, the former DirecTV Now, and seeking rate dereg in various Massachusetts and Hawaii markets, essentially the last remaining rate-regulated markets because regulators in those two states had effectively rebutted arguments by Charter that the markets were effectively competitive. (The FCC under Democratic chairman Tom Wheeler voted to presume that cable face competition in all markets [thanks primarily to DBS] unless local regulators could rebut that. The former presumption had been they were not competitive unless cable ops could prove they were]).

The FCC’s Charter order says AT&T's OTT service fits all of the definitions of an LEC-provided competitive video provider for purposes of the effective competition trigger — comparable services, offered direct to home, and marketed by AT&T. The item says a provider does not have to have its own facilities to be a comparable video service, one of the sticky wickets in the long-standing debate on how streaming video should be treated in Washington.

Commissioners Michael O'Rielly and Brendan Carr said they strongly supported the decision.

O'Rielly said the item simply recognizes that over-the-top services can and do compete directly with MVPD distributors "consistent with the statutory test." he said he was surprised at the pushback by some, saying it just showed that "the desire by some to regulate and overregulate by some never subsides regardless of the facts."

Carr said that the argument that AT&T's TV Now does  not fit the definition because it is not facilities based is not supported by statute. He said the text is clear that the competition can be delivered by any means. He also said the decision reflects the realities of the modern media marketplace.

Democratic commissioners Jessica Rosenworcel and Geoffrey Starks concurred in the decision, which is short of a full-throated "yes."

Starks said he agreed that a "narrow reading" of the test for effective competition allows the FCC to conclude that OTT service AT&T TV Now constitutes effective competition. But he is concerned, as is Sen. Ed Markey (D-Mass.), that the decision will result in rate increases that hit vulnerable consumers the hardest.

"These are members of the community who are retired, elderly, veterans, or simply trying to make ends meet," said Starks. "The Commission’s goal, our mission, should be to make service more affordable for these consumers, not more expensive. Instead, I fear this decision risks reinforcing the inequity between families with resources to pay for these services, and families without."

Rosenworcel echoed that sentiment. "“While I acknowledge a narrow, legal reading of the law suggests that the petition before us should be granted, I think the analysis from this agency is woefully deficient," she said. "If protecting consumers is truly our top priority, this decision should include an assessment of the likelihood of price increases in the states where this agency is concluding competition is adequate to constrain prices. But comb through the pages of this decision and you will not find one. My office asked that our economists provide such an assessment, but we were refused.

"If you ask me, this is not the kind of competition that protects consumers. To the extent
that the relief requested in the petition before us fits within the law, then the law, frankly, is
showing its age."

To avoid a return to basic cable regulations, cable operators are looking to establish the precedent that OTT video maintains the effective competition status of almost all systems today, and do so now, as cord-cutting continues to cut into subscriber counts for traditional competitors and as over-the-top becomes the video delivery system of choice for former satellite customers.

Cable companies fear that if the subscriber counts for DirecTV or Dish Network go south, local franchise authorities could cite that as a reason they were no longer subject to effective competition and reinstate basic rate regulations.

A finding of effective competition lifts basic-cable price regulation, which has now been eliminated in all but a handful of systems thanks to the ubiquity of satellite service. Cable operators deemed subject to effective competition also do not have to provide broadcast TV signals on the basic tier, though they still do.

The item raises the issue of just how the FCC should define OTT services beyond effective competition, and the specter of subjecting them to the same regulatory regime, such as program-access and program-carriage rules.

Pai's predecessor, predecessor, FCC chairman Tom Wheeler, proposed redefining linear over-the-top providers (with day-and-date channel lineups similar to those of traditional cable and satellite) as MVPDs, but got pushback from some OTT providers. as well as from cable operators. Wheeler was looking to give OTT providers FCC-enforced access to vertically integrated programming to give them a boost as video competitors to cable. Netflix has become a big competitor anyway, in part by ponying up big bucks to fund its own original programming.

“We commend the Commission’s effective competition ruling which recognizes that today’s video marketplace is vibrant and competitive with a multitude of choices and services for consumers to enjoy," said NCTA-The Internet & Television Association, in a statement.

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