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Thursday, February 07, 2008

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.

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