Cable and satellite TV companies are defending their early termination fees (ETFs) in hopes of avoiding a ban proposed by the Federal Communications Commission.
The FCC voted to propose the ban in December, kicking off a public comment period that has drawn responses from those for and against the rules. The FCC plan would prohibit early termination fees charged by cable and satellite TV providers and require the TV companies to give prorated credits or rebates to customers who cancel before a billing period ends.
NCTA-The Internet & Television Association, the main lobby group representing cable companies like Comcast and Charter, opposed the rules in a filing submitted Monday and posted on the FCC website yesterday. DirecTV and Dish opposed the proposal, too.
The NCTA claimed that banning early termination fees would hurt consumers. "Discounted plans with ETFs are an advantageous choice for some consumers," the lobby group said. The NCTA said the video industry is "hyper-competitive," and that it is easy for customers to switch providers.
"In response to these marketplace realities, some cable operators offer discounts for consumers who choose to agree to remain customers for a longer term," the NCTA said. "Longer subscriber commitments decrease a cable operator's subscriber acquisition costs and provide a more predictable revenue stream, which in turn enables a cable operator to offer discounted monthly rates."
Cable companies also recently urged the US to scrap a "click-to-cancel" regulation that aims to make it easier for consumers to cancel services.
NCTA opposes partial-month credits, too
TV providers will be less likely to offer discounts to long-term customers if they are unable to impose early termination fees on those who want to cancel before a contract expires, the NCTA said. Customers who don't want the possibility of an ETF can just choose a month-to-month plan, the NCTA argued.
The NCTA also defended whole-month billing in cases where customers cancel partway through a month. Whole-month billing "is the norm for many other common services, including gym memberships, gaming subscriptions, and online publications," the NCTA said.
Taken together, "prohibiting ETFs and whole-month billing would increase prices and impair competition, to consumers' detriment," the NCTA claimed. The NCTA also claims the proposal amounts to rate regulation and is not allowed under the FCC's legal authority to "establish standards by which cable operators may fulfill their customer service requirements."
The proposed "ban on ETFs and a proration requirement are not 'customer service requirements' by any common understanding of the term," the NCTA said.
The FCC proposal said that "customer service" isn't defined in the 1984 Cable Act, but that the legislative history suggests the term includes rebates, credits, and other aspects of the relationship between providers and customers.
"Although section 632 specifies certain topics that must be addressed in the Commission's cable customer service rules, such as 'communications between the cable operator and the subscriber (including standards governing bills and refunds),' the list is not exhaustive," the FCC said. "Because section 632(b) states that the standards must address these topics 'at a minimum,' the Commission has broad authority to adopt customer service requirements beyond those enumerated in the statute."
DirecTV and Dish express their displeasure
A lobby group for smaller cable providers, America's Communications Association, lodged complaints similar to the NCTA's in an FCC filing. Opposition also came from DirecTV and Dish, the two main satellite providers that would have to follow the rules.
The proposed bans "will increase costs for DirecTV subscribers and they will hamper competition in what is now an extraordinarily competitive marketplace," DirecTV told the FCC. DirecTV claimed that its own implementation of ETFs "permit DirecTV subscribers to pay over time for benefits—such as installation 'truck rolls' and equipment—for which they would otherwise have to pay up front."
DirecTV said it will raise its standard prices if it is prohibited from charging early termination fees. "If prohibited from using ETFs, DirecTV would—as a matter of basic economics—seek either to recoup costs up front or to do so over time by raising monthly bills. This, naturally, would harm consumers—especially lower income consumers who can least afford to pay upfront for a truck roll and a set-top box," the company said.
Dish told the FCC that rather than banning ETFs, it "should instead ensure that any new rules related to ETFs promote transparency and choice." Dish praised itself for its own billing practices, which it claims are "designed to give consumers transparency and choice at all points of the customer experience, from activation to disconnection."
"If the terms of ETF plans are fully disclosed and participation is voluntary, consumers should be able to avail themselves of the benefits they provide," Dish wrote. "Conversely, prohibiting the availability of ETF plans entirely would limit consumer choice, thereby undermining the [proposal's] stated goal of promoting competition in the video market."
The FCC will likely vote in the coming months to finalize the rules, which are supported by the agency's Democratic majority. Republicans dissented in a 3-2 vote on the Notice of Proposed Rulemaking in December.
Local governments back FCC ban
The commission proposal received support from commenters such as the National Association of Telecommunications Officers and Advisors (NATOA), which represents local governments. "NATOA's member communities know first-hand the frustration and harm experienced by our constituents—who are also cable and DBS [direct broadcast satellite] customers—that stem from complicated and opaque billing practices and equipment rental agreements," the group said.
NATOA said that a ban on the fees "would be a welcome relief from the burden of additional costs in a termination process that is already onerous," would make it easier to switch providers, and would "encourage providers to work to retain subscribers to their service through high customer service standards."
The NATOA also urged the FCC to reject cable-industry proposals to preempt state and local regulation of early termination fees. That seems to be where the FCC is heading, as the commission proposal tentatively concluded that more strict local regulations should not be preempted "so long as they are not inconsistent with Commission regulations."
The FCC plan also got support from state officials in New York, Hawaii, and South Carolina. More support came in a joint filing by local government officials in Massachusetts, the District of Columbia, Oregon, and Texas.
The National Association of Broadcasters (NAB), which has frequently fought with TV providers over programming fees, submitted a filing that said ETFs and other TV-provider billing practices harm consumers.
Consumer advocacy group Public Knowledge urged the FCC to approve the bans, saying the fees are confusing and disguise the true cost of service. The fees reduce competition, lead to higher prices, and "have no economic rationale, other than the fact that MVPDs [Multichannel Video Programming Distributors] can get away with charging them, and no economic benefit, other than to the MVPDs who impose them," Public Knowledge wrote.
