Verizon Escalates Fight Against Exclusive Cable Content

The filing is the latest complaint by telcos against cable operators for withholding from telcos channels the operators own, coming as AT&T seeks a commission ruling against Cox Communications over a San Diego sports channel. The FCC under Chairman Julius Genachowski is more likely to deal with the matter than when Michael Copps was interim chief and sought to defer action on controversial matters, analysts said. “This clearly is an issue that the telcos are trying to get some help on from the FCC,” said David Kaut of Stifel Nicolaus. “It’s just another step in the ongoing Bell campaign.” An AT&T spokeswoman declined to comment, as did an NCTA spokesman.

Verizon complained now because negotiations with Cablevision were unsuccessful, said an executive. After an earlier program access complaint, since withdrawn, Cablevision agreed to let Verizon carry the programming in SD, the telco said. MSG “complies fully with federal regulations,” its spokesman said. “The idea that a phone company more than 10 times our size needs a regulatory bailout is absurd,” said a spokesman for Cablevision. “The phone company’s problems are due to things like copycat products, poor customer service, confusing bills and long-term contracts filled with fees and excessive termination penalties.”

Cablevision violates Section 628 of the Cable Act by keeping from Verizon programming that’s “'must have'” for a new pay-TV entrant that does use satellite-delivered programming to deliver most of its product, the telco’s complaint said. “At the same time that Cablevision flouted the protections adopted by Congress in the program access statute, Cablevision has bragged to analysts and the public about its anticompetitive efforts,” it added. The operator is “trumpeting” that it’s the only source for games in HD of four of the New York market’s nine pro teams: New York’s Knicks and Rangers, both owned by Cablevision, and the New Jersey Devils and New York Islanders. Whether in SD or HD, on MSG and MSG Plus, the two channels at issue, “the underlying content on the feeds is the same,” Verizon said.

Federal law doesn’t require MSG “to license our local HD programming to anyone,” said a spokesman for the network. As a customer of satellite-delivered programming, Verizon has gotten “access to every single game on MSG and MSG Plus,” he added. Cablevision does let other large cable operators like Comcast and Time Warner Cable distribute the SD and HD versions of the channels because it doesn’t “directly compete” with them, said Verizon. “Cablevision has discriminated in the terms on which it makes this programming available.”

After trying “for some period” to get Cablevision to license the HD streams, “it has become clear that they are not interested in selling this under any circumstances,” said Edward Shakin, a Verizon associate general counsel. “But as time has gone on, interest in HD has grown” among consumers and “it’s risen to the point where it’s something we feel we really need to ask [for] the FCC’s intervention on,” he added. Verizon believes the commission should dispose of the complaint within five months, the limit the agency previously set for itself in dealing with such matters, Shakin said. The regulator has authority to close the terrestrial loophole for sports programming overall, though Congress could do so, too, he added. “We've certainly teed this up at the FCC.”

Small rural members of the National Telecommunications Cooperative Association “will be very supportive” of Verizon as the complaint process moves forward, said Keith Galitz, president of NTCA member Canby Telcom. On program access, Canby and other NTCA members are similarly situated to Verizon, he said. But Canby lacks the resources to file a complaint at the FCC, he said. Galitz said he hopes the FCC will take the opportunity to open a more-general review of the industry. Small cable operators continue to believe that all programming should be available to all pay-TV companies, said Ross Lieberman, vice president of the American Cable Association. “A new FCC chairman provides for new opportunities with these issues.”

The Verizon complaint should “highlight and underscore” the need to broadly address program access and close the terrestrial loophole, said Steve Pastorkovich, an analyst with the Organization for the Promotion & Advancement of Small Telecommunications Companies. The issue connects to the FCC’s broadband goals, because widening video content availability will encourage more consumers to adopt broadband, he added: “It’s really about the broadband.”

It’s too early to assess Genachowski’s interest in doing broad program access reform, but OPASTCO hopes to see the commission dig into the issue “in the coming weeks and months,” Pastorkovich said. The agency may need to have all five commissioners in place before it can act, he said. The commission seemed open to looking at the issue in recent ex parte meetings between NTCA and the FCC, though Genachowski’s position is unknown, said a spokeswoman for the group. The commission and Congress have been hearing intensified outcries on the issue from phone companies in recent months, noted Galitz. That could make regulation more likely, he said.

The commission has let stand the terrestrial loophole, noted analyst Paul Gallant of Stanford Research Group. A recent appeals court ruling upholding the FCC’s use of Section 628(b) in another video matter combined with “the perennial concern about cable rates” means “Verizon definitely has the wind at their backs on this,” he said. “This issue is controversial enough that it wasn’t going to be addressed until the permanent chairman arrived. So Verizon presumably waited until the new team was in place before filing the complaint and asking for it to be handled quickly.”