Leased Access Order Imposes Significant Regulatory Burdens on Cable Providers

On November 27, 2007, the Federal Communications Commission (“Commission” or “FCC”) released an Order and Further Notice of Proposed Rulemaking in its Leased Access Proceeding (“FNPRM”). The Order was released on February 1, 2008.

In the Report and Order, the Commission modified its leased access rules which require cable operators to set aside channel capacity for commercial use by unaffiliated video programmers. Specifically, § 612 of the Communications Act authorizes the Commission to promulgate leased access rules to promote diversity of programming at reasonable terms and conditions. In its Notice of Proposed Rulemaking sought comment on a number of provisions relating to enforcement, rates and procedural issues. The Commission adopted a plethora of cumbersome new rules in all of these area that all cable operators must fully comply with, in addition to the already existing regulatory standards. The Commission attempts to justify the rule modifications by claiming that they are necessary in order to create uniformity in customer service standards, negotiation standards, rates, reporting requirements. However, these rules significantly limit the ability of cable operators to carry out their business plans in a manner that is tailored to their specific business needs. These rules become effective 90 days after publication in the Federal Register.

The Commission tried to take a preemptive strike against any challenge by cable operators, claiming that the rules, as adopted withstand constitutional scrutiny. While the DC Circuit has already held that the leased access provisions of the 1992 Cable Act are not content-based, further regulation may not survive the intermediate scrutiny standard of review due to the elimination of public access obligations in the broadcast context and the great possibility of a negative impact on revenue impact may be a taking. Further, robust growth in access to the Internet and increasing consumer preference for web-based and other alternative forms of content diminishes the need for access through traditional cable service.

FCC Releases Proposals to Reform USF

On Tuesday, January 29, 2008, the Federal Communications Commission ("Commission") released three Notices of Proposed Rulemaking ("NPRM") to examine the deficiencies in the high-cost Universal Service Fund ("USF"). The Commission asks for comment in three areas: (1) changes to the identical support rule for wireless providers; (2) use of reverse auctions to distribute subsidies; and (3) recommendations of the Federal-State Joint Board on Universal Service including making broadband services eligible to receive subsidies.

These reform proposals are long overdue as the stability of the fund, in terms of both contribution base and distributions has waned in recent years. Whether the reform efforts announced will actually go through is yet to be determined. Commission Democrats have already expressed dissenting views on the use of reverse auctions, demonstrating a lack of unity on the proposals. And, industry backlash is highly likely.