AT&T and Verizon Must Get Access to New York HD Sports Channels, Media Bureau Says

The orders each rejected several of the plaintiffs’ allegations about the unreasonableness of Cablevision and Madison Square Garden withholding from AT&T’s U-verse and Verizon’s FiOS pay-TV services the MSG and MSG+ channels in HD. But most of the defendants’ objections to the complaint were rejected, in the orders signed by bureau Chief Bill Lake. Cablevision signaled it may sue over the orders, and an analyst said if the cable operator appealed the bureau’s decision to the full FCC, it likely would lose.

The channels’ withholding were “unfair” actions that prevented FiOS TV and U-verse from competing with Cablevision in the New York and Buffalo markets, each of the orders said. That ran afoul of Section 628(b) of the Telecom Act, the bureau ruled. A partial remand June 10 by the U.S. Court of Appeals for the D.C. Circuit of last year’s commission order, which allowed complaints of unfair withholding of cable-affiliated channels that aren’t distributed using satellites, doesn’t preclude the bureau from acting, it said. “Despite their withholding of MSG HD and MSG+ HD from Verizon, Defendants have licensed these networks to many of Verizon’s competitors in the New York metropolitan area (including Cablevision, Time Warner, Comcast, DIRECTV, and RCN) and in the Buffalo area (Time Warner, Comcast, and DIRECTV).” The order in AT&T’s case had similar wording.

MSG must agree to license MSG HD and MSG+ HD to AT&T and Verizon within 30 days “on non-discriminatory rates, terms, and conditions,” the orders said. “In light of Defendants’ steadfast withholding of this programming from Verizon over the past several years, we are concerned that Defendants may use the negotiating process to further delay Verizon’s access to this programming by insisting that Verizon accept discriminatory rates, terms, and conditions.” The AT&T order was worded similarly. “Cablevision shall not prevent or otherwise impede MSG LP from entering into the license agreement” and both the cable operator and the programmer “shall be held responsible and subject to further remedies including, but not limited to, forfeitures and other penalties, if MSG LP fails to enter into such an agreement,” the orders said.

"Cablevision no longer can withhold popular programming,” including HD sports, from rivals, AT&T Senior Vice President Bob Quinn said. “We look forward to bringing to our customers this ‘must have’ content, and enhancing AT&T’s” U-verse “to better compete against the cable companies,” he said. MSG, reviewing the orders, had no further comment by our deadline.

Verizon views the order as creating a new opportunity for video competition, Deputy General Counsel Michael Glover said. RSNs in HD “are an important part of the video-service experience,” he added, noting the Knicks, Rangers and Sabres are on the channels. “Competition will be on a more level playing field in the New York/New Jersey region."

Cablevision called the orders “disappointing” and said they “do not appear to be based on the facts.” Data “clearly demonstrates that there has been no competitive harm to the nation’s two largest phone companies as a result of not having two HD channels they already receive in” standard definition, a spokesman said. “New York is the most competitive market in the country and this decision only hurts fair competition and consumers. Instead of competing on the merits in the marketplace, Verizon and AT&T are manipulating federal law to gain an unfair advantage and we have every intention of pursuing relief in the courts."

The bureau said it could dispose of the complaints on its own and it didn’t need full commission approval. Cablevision and MSG had asked for a commission vote. It’s “not a new or novel issue that would require a Commission, rather than Bureau, decision,” the orders said. They then laid out the guidelines the bureau used to determine whether the refusal to license the channels was unfair. “While Defendants put forth the theory that requiring MSG LP to share MSG HD and MSG+ HD with Verizon will reduce the economic incentives of Cablevision to invest in the networks, they have put forth no evidence demonstrating that this theory motivated their withholding strategy,” the bureau said. “Defendants put forth no evidence demonstrating that this withholding strategy has resulted in increased investment in the networks or that it has improved the quantity and quality of programming on the networks.” The AT&T order read similarly.

It’s unlikely Cablevision would win any appeal to the full FCC, analyst Paul Gallant of MF Global wrote investors. “The ruling represents a setback for Cablevision because Verizon FiOS now gains access to critical HD local sports programming throughout Cablevision’s footprint. This could affect churn rates for Cablevision in Q4 2011.” Cablevision could appeal any loss at the commission to a court, “but we believe the FCC’s Office of General Counsel carefully weighed the legal implications before the Media Bureau issued this afternoon’s decision,” Gallant wrote.