Tussle Over Tiering in Conn.

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It could be the oddest couple since Felix and Oscar: Starz Encore Group and Connecticut Attorney General Richard Blumenthal on the same side of a regulatory spat sparked by a rate complaint filed against Cox Communications Inc.

At issue is Cox’s decision to force new customers to purchase a $3.95 Digital Gateway each month if they intend to order pay TV networks Home Box Office, Showtime and Starz Encore, or to view the pay-per-view fare cycling through the system that month.

The Digital Gateway is not a tier of video programming. Rather, it’s an electronic-access service that includes an interactive program guide (IPG) and the 45-channel, digital-quality Music Choice service.

ENFIELD COMPLAINT

Last fall, the controversy erupted when Cox refused to eliminate the $3.95 charge at the request of local cable regulators in Enfield, Conn., a suburb north of Hartford where the Atlanta-based MSO serves 38,000 subscribers.

“We formally asked Cox to do that. They were set in stone,” said Alex Fraser, chairman of the Enfield Cable Advisory Council.

In a complaint now before the Federal Communications Commission, Enfield alleged that Cox is violating the agency’s tier buy-through rule, one of several behavior restrictions Congress imposed on cable companies in the 1992 Cable Act.

The rule — whose effective date was postponed for a decade — prohibited a cable company from requiring customers to purchase a tier other than basic as a prerequisite to the purchase of premium or pay-per-view content.

The rule applies to any operator that is not subject to effective competition and whose basic-tier prices are regulated, such as Cox’s system in Enfield.

In truth, Starz Encore and attorney general Blumenthal see eye to eye on just one issue. But for Starz Encore, it’s a big one.

In response to Enfield’s complaint, the National Cable & Telecommunications Association has put up two defenses, one of which Starz Encore vehemently opposes.

TIERS OR CHANNELS?

The NCTA, supported by Cox, now says that HBO, Showtime and Starz Encore are no longer premium services in the traditional sense. Rather, as a result of opportunities created by digital technology, they have morphed into multiplexed tiers of video programming.

The significance of the NCTA’s position is this: Because the tier buy-through rule does not forbid mandatory purchase of one tier in order to buy a second, Enfield has no case, the NCTA said in a filing that asked the FCC to dismiss the complaint.

NCTA senior vice president of law and regulatory policy Dan Brenner said the reinterpretation of premium services based on current market realities was justified.

“Those channels have changed today in terms of what’s available,” Brenner said.

That the NCTA thinks premium services of today are different from premium services of yesteryear is problematic for Starz Encore, a longtime supporter of the tier buy-through rule.

Operationally, the rule redounds to the benefit of Starz Encore, because it prevents customers from having to load up on programming tiers they don’t want before being permitted to buy desired premium channels.

“It’s a primitive a la carte,” said Richard Waysdorf, Starz Encore’s vice president of business affairs.

“It was a means of allowing people to get what they really wanted [such as movie channels] without being forced to buy channels that they didn’t want.”

Starz Encore’s view that premium services are not tiers was endorsed by the FCC a decade ago.

At that time, the FCC regulated the price of basic and expanded basic.

To avoid rate regulation, Starz Encore asked the agency for a ruling that multiplexed premium services were not programming tiers for purposes of rate regulation. The FCC agreed.

According to Starz and Blumenthal, that ruling is as valid today as it was back in 1995 in promoting channel choice for consumers.

“The cable industry is fully aware that the FCC has long treated multiplex services as per-channel services for purposes of the buy-through rule,” Blumenthal told the FCC in a filing last month.

The outcome of Enfield’s complaint may not turn on whether present-day premium services are considered programming tiers or per-channel offerings.

Both Cox and the NCTA told the FCC that Enfield’s complaint is deficient for another reason: The tier buy-through rule applies only to tiers of video programming, not to electronic navigation devices like the Digital Gateway.

Starz Encore hasn’t totally defected from the cable industry. In its response to Enfield’s complaint, Starz Encore supported NCTA and Cox in the conclusion that because the Digital Gateway is not a tier of video programming, the complaint should be dismissed on that basis.

“It’s so clearly not a violation of the tier buy-through rule that the commission should just say that,” said Starz Encore’s Waysdorf.

Enfield and Blumenthal told the FCC that the tier buy-through prohibition was not limited to tiers of video programming.

“If you read the language of the law, video and audio are not mentioned,” Enfield’s Fraser said.

'ABSURD’ REASONING

Blumenthal called Cox and the NCTA’s position “absurd.” Under their reading of the law, Blumenthal said, consumers could be required to buy high-speed Internet access as a condition of purchasing premium networks.

“This is precisely the circumstance the buy-through prohibition was intended to prevent, where customers are being forced to purchase products and services they do not want as a condition of access to those services they do want,” Blumenthal said.

FCC staff members reviewing the various Enfield complaint filings have not made a recommendation to the five commissioners.

Were Enfield to win, the impact would vary by cable company.

CASE-BY-CASE

Operators that don’t require purchase of a digital gateway wouldn’t be affected, nor would those subject to effective competition.

Conceivably, cable companies could sidestep trouble by burying the gateway charge in the price of programming.

“I don’t know how big a deal it is, because I don’t know how prevalent it is,” NCTA’s Brenner said.

“I believe there are other operators who have a similar but not an identical kind of arrangement, where they have some kind of non-video tier like that.”

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