Adelphia Communications Corp. v. F.C.C., 95-1026
| Decision Date | 23 July 1996 |
| Docket Number | No. 95-1026,95-1026 |
| Citation | 88 F.3d 1250 |
| Parties | , 3 Communications Reg. (P&F) 1036 ADELPHIA COMMUNICATIONS CORP., Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
On Petition for Review of an Order of the Federal Communications Commission.
Terry S. Bienstock, Miami, FL, argued the cause for petitioner with whom Ira I. Hershkowitz, Miami, FL, Seth A. Davidson, Washington, DC, and Randall D. Fisher, Coudersport, PA, were on the briefs. Richard B. Beckner entered an appearance.
Clifford G. Pash, Jr., Counsel, Washington, DC, Federal Communications Commission, argued the cause for respondents, with whom William E. Kennard, General Counsel, Daniel M. Armstrong, Associate General Counsel, Anne K. Bingaman, Assistant Attorney General, United States Department of Justice, Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys, were on the brief. John E. Ingle, Deputy Associate General Counsel, and Laurence N. Bourne entered appearances.
Before: EDWARDS, Chief Judge, SILBERMAN and GINSBURG, Circuit Judges.
Adelphia Communications petitions for review of a Federal Communications Commission regulation governing the rates that a cable system operator may charge for a discounted package of premium programming, i.e., a package of channels and programs that may also be purchased individually. Having concluded that the Commission acted within its authority under the Cable Act to impose such a regulation, and that the Commission acted reasonably in adopting the regulation, we deny the petition.
Eight years after enacting the Cable Communications Policy Act of 1984, which resulted in deregulation of the rates that cable television system operators charge their subscribers, the Congress reimposed federal regulation of those rates. In Time Warner Entertainment Co., L.P. v. FCC, 56 F.3d 151, 162-63 (D.C.Cir.1995), we described at some length the regulatory regime established by the Cable Television Consumer Protection and Competition Act of 1992. Pub.L. No. 102-385, 106 Stat. 1460. Here we re-state only the details most relevant to the present case.
Except with respect to so-called premium programming (of which more in a moment), a cable system that does not face "effective competition" as that term is defined in the Act--and the "vast majority" of cable systems do not, Time Warner, 56 F.3d at 179-80--is subject to rate regulation under the Act. 47 U.S.C. § 543(a)(2); see also 47 U.S.C. § 543(l)(1) (defining "effective competition"); 47 C.F.R. § 76.906 (). Thus, the Act (1) requires that most cable systems offer a "basic service tier" subject to rate regulation by a state or local franchising authority pursuant to rules established by the FCC, 47 U.S.C. § 543(a)(2)-(6) and (b)(1); see also 47 U.S.C. § 543(b)(7) (defining "basic service tier"), and (2) subjects to regulation by the FCC itself the rates these systems charge for so-called "cable programming service," i.e., a tier of video programming that is neither part of the basic service tier nor offered on a per channel or per program basis. § 543(a)(2)(B) & (c); see also § 543(l)(2) (defining "cable programming service"). Finally, the Act (3) exempts from rate regulation all premium programming, which it refers to as video programming that is offered on a per channel or per program basis (such as the Home Box Office channels and championship boxing matches), regardless whether the cable operator is subject to "effective competition." § 543(a)(1)-(2), (l)(2).
The Act does not say whether the rate that a cable system operator charges for a package of premium channels or programs that are also offered separately--oxymoronically called an "a la carte package" in FCC jargon--is subject to regulation. Noting that this question had generated "sharply conflicting comments" from cable operators and programmers on one side and from municipalities and subscriber advocates on the other, the Commission initially concluded that the rate charged for an a la carte package ought not be regulated "so long as two essential conditions are met." Implementation of Sections of the Cable Television Consumer Protections and Competition Act of 1992: Rate Regulation (hereinafter "Rate Regulation"), MM Dkt. No. 92-266, 8 FCC Rcd 5631 pp 325, 327 (April 1993). First, the cable operator had to continue to offer the component parts of the package individually, id. at p 328; and second, the price of the premium package could not exceed "the sum of the individual charges for each component service," id. at p 327. (Query, why would anyone pay more for the package than for the parts?) The Commission believed that with these "safeguards" market forces were "likely to ensure that rates [for a la carte packages remained] reasonable"; regulation of such rates, therefore, "would not serve the purposes of the Cable Act" which "contains a clear and explicit preference for competitive resolution of issues where that is feasible". Id. at p 329 & 2. Indeed, "regulation in such circumstances might be counterproductive" because it might discourage operators from offering a discount (i.e., from piece prices) on a package of premium services. Id. at p 329.
At the same time, the Commission recognized that exempting premium packages from rate regulation might invite operators to engage in evasive maneuvers inconsistent with the policies of the Act. The FCC made clear, therefore, that the first condition for regulatory exemption--that the operator continue to offer the components of the package individually--"is satisfied only when the per channel offering provides consumers with a realistic service choice." Id. p 328 n. 808. In this regard the Commission referred to its statutory obligation not only to address evasive practices case by case but also periodically to "review and revise [its] regulations on evasion." Id. p 451.
Concern about evasive behavior and the difficulty involved in detecting it also prompted the Commission to comment upon the possibility that the exemption of premium packages from rate regulation would invite cable operators opportunistically to restructure their offerings. The Commission stated its belief that the Cable Act does not "require [it] to restrict the movement of a channel [from a regulated service tier] to premium and deregulated status," id. p 441 n. 1105, and decided not to restrict such channel shifting because it had "no evidence that operators would or, as a business matter, could shift programming previously offered as part of a tier to 'a la carte' status ... to avoid the rate regulation applicable to tiers." Id. at p 453 n. 1161. At the same time, the Commission reserved the question "whether a shift of programming from a tier to an 'a la carte' offering in and of itself would constitute evasion." Id.
Five months later, but still a few days before the regulations took effect, the FCC defended its so-called "tier-neutral" approach to rate regulation--meaning that it applies the same "benchmark formula and rollback requirements," see Time Warner, 56 F.3d at 180, to the basic and cable programming service tiers--against various complaints including the claim that tier-neutral regulation creates an incentive to shift programming from regulated to unregulated status by offering it a la carte in order to avoid regulation. Rate Regulation, MM Dkt. No. 92-266, 9 FCC Rcd 1164 pp 31-35 (First Order on Reconsideration, August 1993). The Commission explained that by calling for regulation to hold the rates for all tiers of service down to "reasonable" competitive levels, it was the Cable Act itself, not the FCC's tier-neutral approach, that created the incentive for operators to avoid regulation. Id. at p 35. The Commission also stated its view that "restructuring program offerings to provide more a la carte services is not per se undesirable" because it serves the statutory goal of increasing consumer choice, and reiterated its doubt that "operators, as a business matter, have unlimited ability to shift programming from tiers to per-channel offerings." Id.
Roughly seven months after the regulations took effect the Commission noticed that "a number of operators ha[d] restructured service offerings so that channels that could have been subject to regulation [had] been removed from a regulated tier and [were] being offered on an 'a la carte' basis as well as on package basis." Rate Regulation, MM Dkt. No. 92-266, 9 FCC Rcd 4119 p 193 (Second Order on Reconsideration, March 1994). Because operators could "raise their overall rates for the same service by removing channels from regulated tiers and offering them on a package and on an 'a la carte' basis," id. at p 193, and because the Commission had received comments suggesting "that some of these offerings may not comply with [the] requirement that subscribers must have a realistic option to purchase [a la carte] channels that are not subject to regulation," id., the Commission re-examined its position.
The FCC then re-affirmed its belief that it could better serve the public interest by leaving unregulated the rate for any premium package the price of which did not exceed the sum of the charges for the component services offered separately. Id. at p 194. The Commission reiterated its concern, however, that the a la carte offering be a "realistic service choice," id. at 194, and issued "interpretive guidelines" to help cable operators and regulators determine whether in a particular case an offering of a la carte programming--packaged and separate--would be considered an evasion of rate regulation rather than a realistic service alternative. Id. at p 195. These guidelines included five factors that would count in favor of exemption and ten...
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