On June 2, 2015, the FCC adopted an Order implementing Section 111 of the STELA Reauthorization Act of 2014 (STELAR), which required the FCC to streamline its longstanding effective competition rules for small cable operators. Under the Communications Act, local franchising authorities (LFAs) may regulate basic cable service tier rates and equipment for a cable operator only if the Federal Communications Commission (FCC) finds that the cable operator is not subject to “effective competition.” The existing rules (dating back to 1993) have presumed the absence of effective competition such that LFAs have had the authority to regulate basic cable service tier rates and equipment unless and until the cable operator challenges and rebuts the presumption. In its recent Order the FCC, reversed this approach and instead adopted a rebuttable presumption that cable operators are subject to effective competition under the “Competing Provider” test. This amendment reflects current marketplace realities, in which DBS providers have achieved a combined nationwide distribution level more than double the 15% penetration level required to satisfy the Competing Provider effective competition test.

The FCC took this opportunity to revise the effective competition rules for all operators, regardless of size. By a 3 to 2 vote, the FCC reversed the existing presumption and held that LFAs seeking to regulate local cable rates now need to provide an affirmative showing to the FCC that the Competing Provider test is not satisfied in the local community. Commissioners Clyburn and Rosenworcel dissented in part, arguing that STELAR only referenced small operators and that the FCC should not have reversed the presumption at this time for larger operators.

Procedural Considerations

The FCC’s new effective competition rules will not go into effect until the FCC announces approval by the Office of Management and Budget. Once that occurs, except as noted below, each currently certified LFA will have 90 days to file a Form 328 recertification (including a showing that the Competing Provider test is not satisfied in the local community). Generally speaking, an LFA that fails to certify during this 90 day period surrenders its rate regulation authority (subject to it recertifying sometime in the future).

An LFA’s Form 328 certification will be deemed granted 30 days after filing, unless the FCC itself rejects the certification during that 30 day timeframe. A cable operator will then have 30 days after the LFA’s certification is deemed granted to challenge that certification by filing a petition for reconsideration. To succeed, the operator will have the burden of showing that the certification was flawed and that, in fact, the operator does face effective competition in the community at issue. If the operator files a petition for reconsideration of the LFA’s certification, the LFA’s rate regulatory authority will be automatically stayed pending FCC resolution of the substantive dispute.

Application of the New Rule to Different LFA Groups

• LFA is Not Currently Certified to Regulate Cable Rates: The LFA retains its existing right to certify, but will now be required to make an affirmative showing that the local cable operator does not face Competing Provider effective competition before it may regulate rates.
• LFA is Currently Certified to Regulate Cable Rates (No Pending Effective Competition Dispute): The LFA may continue to regulate rates but must recertify within 90 days to retain its existing authority, and the recertification must include an affirmative showing that the local cable operator does not face effective competition from a Competing Provider.
• LFA is Currently Certified (With Pending Effective Competition Dispute): An LFA is not required to recertify if: (1) it filed an opposition to a pending effective competition petition submitted by a cable operator; (2) there is a pending petition for reconsideration of LFA certification; or (3) there is a pending petition for reconsideration or application for review of an existing effective competition determination. In each of these instances, the certified LFA retains its regulatory authority while the existing dispute is adjudicated at the FCC. However, if the LFA did not previously oppose a pending effective competition petition, it must recertify within 90 days or the unopposed petition will be deemed granted.