Robert Rini Attends NEBSA's 2011 Annual Meeting

Robert Rini spoke about substantial service compliance for Educational Broadband Service (EBS) licensees at the 2011 Annual Meeting of the National EBS Association ("NEBSA") in St. Petersburg, Florida. Rini Coran, PC helped sponsor the conference of educators using wireless technologies.

FCC Provides Guidance on Compliance with BRS and EBS "Substantial Service" Requirement

All broadband radio service (BRS) and educational broadband service (EBS) licensees are required to make a showing to the Federal Communications Commission that they have provided a “service which is sound, favorable and substantially above the level of mediocre service which just might minimally warrant renewal” of their BRS or EBS license. To help provide limited clarity for this vague mandate, the FCC released a public notice on Friday to give guidance on what it expects licensees to submit and when. The notice made clear that the deadline for EBS licensees and BRS Basic Trading Area (BTA) licensees to file their notifications is Monday, May 16, 2011 and for BRS incumbent licensees that expire on May 1, 2011, the deadline is May 2, 2011, the same deadline as for the filing of their renewal application.  The public notice comes as the FCC is accepting public comment on a proposal filed by the National EBS Association (NEBSA) and others – with the support of numerous licensees and commercial operators – requesting that the FCC grant a blanket extension of six months.   

The main point for all licensees and operators: facilities need to be built and actual service needs to be provided to pass the substantial service test with flying colors.

Here is what you need to know:

First, until May 16, 2011, EBS licensees and BRS BTA licensees can electronically file "substantial service" showings via the Universal Licensing System (ULS).  BRS "incumbent" licensees must file their "substantial service" showings as part of license renewal applications on or before May 2, 2011.  "Substantial service" notifications are filed on Form 601 as "NT" filings with an appropriate exhibit (discussed below).  Though the filing process has already begun, the FCC would not guarantee when it might begin to take action on individual "substantial service" showings.  The FCC did say, however, that it doesn't plan to wait for all notifications to be filed before taking action.  In cases where a "substantial service" showing is lacking, FCC staff said it will afford the licensee an opportunity to provide clarity or further information.  In these cases, the FCC indicated that it would return the notification to the applicant and would provide the licensee with a deadline to submit additional information. The FCC may also informally contact a licensee or its counsel for follow-up, so having accurate contact information in ULS is a must. 

Second, the FCC plans to "accept" many "substantial service" notifications only by providing notice in ULS – in other words, there will be no public notice of filing or of acceptance.  In some cases -- presumably the more tricky ones or cases where the FCC concludes a licensee has failed to pass the "substantial service" test – the FCC will issue written decisions.  FCC staff also confirmed to me that there is no right in the rules for parties to file petitions to deny against "substantial service" notifications or against requests for extension of time to comply. It is hoped that this will deter frivolous filings made only to obstruct or cause delay and mischief. 

Third, the public notice also makes clear that the FCC will not review any "substantial service" showing filed by a licensee that has transitioned but has not filed its post-transition modification application to change to the "new" frequencies.  In response to my suggestion, FCC staff also indicated that "acceptance" in ULS of compliant "substantial service" showings would be the only FCC action -- this would put investors on notice that they should not wait for a public notice announcing "acceptance." 

Fourth, any licensee that does not file a "substantial service" showing (by the May 16 filing deadline) or an extension request (by May 1) will have its license automatically terminated.  This statement presumes, of course, that the Commission does not grant the pending request for a six-month extension for EBS.  

FCC staff offered some guidance on what it will be looking for in "substantial service" notifications.  In all cases, the licensee must demonstrate "substantial service" within its geographic service area ("GSA") – service in white spaces or adjacent areas will not count.  For BRS and EBS point-to-multipoint and mobile operations relying on the 30% coverage "safe harbor," licensees should include a map showing where they provide a "reasonably reliable" signal using generally acceptable engineering practices.  Clearwire is developing a methodology for calculating coverage percentages, so perhaps all licensees can get behind a single method.  Licensees are required to use the most recent official Census data.  Licensees also need to indicate the type of service they are providing.  For BRS and EBS licensees relying on the point-to-point "safe harbor" of six permanent links per million pops, the FCC will not require the submission of maps but will want a list of the endpoint coordinates and a description of the spectrum use.  In addition, licensees relying on the rural service “safe harbor” (i.e., for mobile services, coverage to at least 75% of the geographic area of at least 30% of the rural areas within the service area and for fixed services, construction of at least one end of a permanent link in at least 30% of the rural areas within its licensed area) must provide in addition to the other information applicable to their type of service the area and population for counties that the licensee considers “rural” and must indicate which rural counties are receiving service. 

For EBS, the FCC will be looking for a more detailed demonstration for licensees that are relying solely on their educational usage “safe harbor” and do not meet other "safe harbors” (including the 30% coverage, permanent links or the rural safe harbors).  At a minimum, EBS licensees should submit a brief description of (1) the services they are providing in the GSA, and (2) how they are meeting the educational programming and minimum usage requirements. I note the use of the word “and” is in the Public Notice despite the fact that the version of the rule in the Code of Federal Regulations (p.330), in the associated Federal Register publication (p. 35190) and in the attachment to the FCC Order adopting the rule (p.165) uses the word “or.” This may be largely academic because the FCC has wide latitude to interpret its rules and it has repeatedly warned EBS licensees that actual service and use of 20 hours per channel per week is required. Merely transmitting signals is not enough. 

There are some surprises relating to the amount of detail that is to be provided in the substantial service showing, based on the FCC's Public Notice:

  • Licensees relying on the "permanent links" safe harbor must provide, in addition to the coordinates of each end of each link, the population within the geographic service area, an indication of the uses for the links and the bandwidth of the links;
  • Licensees relying on the "30 percent coverage" safe harbor must indicate the signal level that they believe indicates coverage and the percentage of time such a signal is available within the service area; and
  • Licensees relying on the "EBS" safe harbor must provide, in addition to specific descriptions of the service being provided, the names and addresses of any accredited institutions to which the licensee is providing service.

The FCC is sensitive to the workload (ours and theirs) and will not require detailed showings of things like programming schedules, though it will require addresses where service is being provided if it is not being provided to the licensee itself.  Licensees that have channel-loaded or channel-shifted should mention this in their exhibits. 

Finally, a few words about extensions.  The FCC will look at extension requests on a case-by-case basis, and such requests should be filed at least 30 days before May 1.  Though the FCC did not offer a lot of guidance, we expect that a licensee would need to demonstrate that financial difficulties or events beyond its control require additional time and that it is reasonable for the licensee to meet "substantial service" in the near future.  Extensions also will be filed on Form 601 with the "EX" application code. 

Given the lack of any objections in Comments filed last week and the FCC staff’s “receptiveness” to the needs of educators, prospects are excellent that the FCC will grant the blanket extension some time after March 1 when Reply Comments are due. My view is that the blanket extension will be granted this week by March 4th (this is the week of the national NEBSA conference) by circulation to the FCC Commissioners. After all, it would be unfair to leave licensees twisting in the wind not knowing if more time will be provided. 

There is some concern that a government shutdown this week could throw a monkey wrench in the whole process. The reason is that ULS will automatically cancel the EBS license if a substantial service showing is not timely made, and of course if the government is shut down, so is the FCC – and ULS. While it seems unlikely that a government shutdown would extend beyond the applicable deadlines, no one wants to risk losing operating authority, so some licensees may rush to file their showing before Friday’s possible shutdown. If not, having lived through the last shutdown, I believe that there is little risk licenses will be lost during the FCC closure – if it even happens. 

The main point for all licensees and operators: facilities need to be built and actual service needs to be provided to pass the substantial service test with flying colors.

Missing Broadcast Program Reports Leads to $38,000 in FCC Fines

In a challenging economy, regulatory compliance may become the first casualty for a business.  A recent lack of diligence in meeting basic Federal Communications Commission obligations spelled trouble for four broadcasters in FCC enforcement actions announced last week. The FCC fined these broadcasters a combined $38,000 because their stations’ local public inspection files were missing the required quarterly issues/programs reports. 

Under FCC rules, broadcasters must place in their local public inspection file at the end of each quarter a list of those programs broadcast on the station responsive to issues of importance to the community.  These quarterly issues/programs reports form the basis for documenting broadcasters’ license-renewal expectancy, which in turn protects broadcasters from the filing of competing applications for their broadcast license at license renewal time. 

When the FCC inspects a broadcast station, even on an unrelated matter, it is almost a certainty that the FCC will check the station’s local public inspection file.  The FCC may inspect the local public file as part of a random inspection or in response to a complaint and may discover the missing quarterly issues/programs reports.  Broadcast licensees must disclose on their license renewal application if any reports are missing. 

The individual fines ranged from $8,000 for missing quarterly/programs reports for two full years to $12,000 for missing reports for three full years

The next license renewal cycle for radio broadcasters begins on June 1, 2011.  Now is the time for broadcasters to review their local public inspection file and make sure it is complete and accurate.  Most state broadcasters associations will also conduct a mock inspection.  These can be valuable in avoiding costly fines later.  It will be too late once the FCC inspector or a member of the public stops by to check out the file.

FCC's Revisions to Broadcast License Renewal Application Warrant Close Attention from Licensees

Broadcasters take note: the Federal Communications Commission has revised the license renewal application (Form 303-S) that you must file with the FCC during the upcoming license renewal cycle, which begins on June 1, 2011 for radio stations.  Among other things, these revisions will require broadcasters to disclose more detailed information about ownership, nondiscrimination policies and operating schedules during the license term.  Given the legal risks associated with making inadequate or improper disclosures to the FCC, it is important to become familiar with these new requirements so that the broadcaster can submit an accurate renewal form. 

One key revision is in the ownership disclosure.  The broadcast licensee now must disclose all parties with an “attributable” interest in the licensee in light of the FCC’s Equity Debt Plus standard (“EDP”).  Under this standard a party is deemed to have an attributable interest in a licensee if that party has a combined debt and equity interest in the licensee of more than 33 1/3% and that party holds an attributable interest in another station in the same market.  Licensees should be familiar with the EDP standard because it has been a requirement on assignment and transfer applications for several years.

In addition, the revised renewal application includes some new certifications that licensees should give careful consideration:

  • Licensees must certify that their advertising sales agreements do not discriminate on the basis of race or ethnicity and that all such agreements contain nondiscrimination clauses.  It is unclear what the FCC considers acceptable language for inclusion in such agreements (or why the certification appears to exclude discrimination based on sex).
  • Licensees must certify that the broadcast station has not been silent or operating for less than its permitted operating hours for more than 30 consecutive days.  If the licensee cannot make this certification, it must submit an exhibit specifying the exact dates during the license term when the station was silent or operating for less than the minimum hours.  What is unclear is whether a station operating with reduced power but still on the air would need to submit an exhibit.

Broadcasters should review their station operations to make sure they can check “yes” to the two new certification requirements.  Expect the FCC to review carefully any application where the applicant cannot make these certifications -- and to impose forfeitures or other penalties, where appropriate.

The revised renewal application eliminates the requirement that broadcasters include an exhibit to demonstrate compliance with the FCC’s maximum permissible radio frequency (“RF”) exposure limits.  Licensees must still certify that their broadcast facilities comply with the FCC’s maximum permissible RF limits.

The new Form 303-S reflects developments since the FCC last updated the renewal application in September 2009.  The new form will become effective on March 14, 2011.  Licensees must use the revised form when filing their renewal applications between June 1, 2011 and April 1, 2014

FCC Fines Broadband Operator for Causing Interference to TDWR Operations; Readies Rulemaking Proceeding

Aviation safety remains a critical enforcement issue for the Federal Communications Commission, as we highlighted in a recent blog post.  Late last week, Utah Broadband found out the hard way as the FCC assessed the company a $25,000 fine for violating rules designed to prevent interference to Terminal Doppler Weather Radar (TDWR) stations that operate in the 5.6 GHz band to detect wind shear and microbursts that can affect aviation safety.  In this case, an FCC/FAA enforcement team found that Utah Broadband had modified its transmission equipment to impair TDWR operations at the facility located near the Salt Lake City International Airport.  In addition to its enforcement efforts, the FCC intends to launch a rulemaking proceeding to create a long-term solution to enable access to more than 100 megahertz of spectrum in the 5.6 GHz band, to allow new devices to be certified and to improve interference protection to existing TDWR locations. 

The problems for Utah Broadband occurred in part because the frequencies that the government uses for TDWR systems are shared with commercial users of unlicensed devices – called UNII devices – in the 5600-5650 MHz band.  UNII devices are authorized under Part 15 of FCC rules and are subject to specific technical requirements, including the obligation to use Dynamic Frequency Selection (DFS) in the 5470-5725 MHz band to help allow the device to avoid using channels occupied by nearby TDWR systems.  Toward the end of 2007, TDWR systems began encountering interference at various locations nationwide.  In February 2009, the Federal Aviation Administration (FAA) asked the National Telecommunications and Information Administration (NTIA) and the FCC to assist in resolving the interference problem.   In response, the government conducted initial field testing at the station near San Juan International Airport in Puerto Rico, a station that was subsequently found to be experiencing “severe” interference.  FAA and FCC field engineers agreed that the interference was caused by UNII devices.  

The FCC also halted certifying devices for operations in this band and began to engage an industry group to help develop new testing parameters for equipment certification, while also looking for a short-term solution. Manufacturers wanted to see equipment certifications re-examined.  Wireless ISPs wanted to gain access to additional spectrum – the 5600-5650 MHz band and the 30 megahertz on either side of that block, for a total of 110 megahertz.  The FAA and NTIA wanted to see the interference disappear.  The FCC was acting as the broker for all of these interests, attempting to balance the interests of the public and the governmental sectors.  After months of talks, and with the encouragement of the agencies, the Wireless Internet Service Providers Association and Spectrum Bridge (both clients of our law firm) established a voluntary database by which UNII users could register their technical data and locations.  The registration would be for UNII devices operating within 35 km of a TDWR location on frequencies within 30 megahertz of the TDWR center frequency.  The database proved to be somewhat successful, but interference problems have persisted.  As a “stick” for the database “carrot,” the FCC took the unusual step of writing a memorandum to manufacturers and operators explaining the problem and issuing a stern warning that enforcement would continue.

For the government, detecting and rooting out interference is a bit like playing Whac-A-Mole – interference would disappear at some stations, only to reappear later and in different locations.  In San Juan, in the wake of near-continuous interference, the FAA actually shut down the TDWR station and the FCC sanctioned a company called AyustarTDWR stations in Miami, Ft. Lauderdale, New York, Chicago, Dallas and Salt Lake City have suffered periodic interference.

These developments bring us to the Utah Broadband decision.  Amid reports of substantial interference to the Salt Lake City TDWR station, FCC and FAA enforcement visited the Salt Lake City area in October 2010 and found that Utah Broadband was doing many things wrong:

  • Operating UNII devices outside the authorized frequencies.
  • Disabling DFS functionality
  • Likely operating at power above the maximum permitted by FCC rules
  • Repeatedly and willfully violating FCC rules

Although detecting the source of interference is apparently not easy, when the inspectors enabled DFS to block operations on spectrum used by the TDWR station, the interference from Utah Broadband’s operations disappeared.  Citing “the totality of the evidence, the number of unauthorized systems in operation, and the gravity of the public safety risks posed by the unauthorized operation,” the FCC slapped Utah Broadband with a $25,000 fine, representing an upward adjustment over the base fine and an increase over the forfeiture imposed against Ayustar.  The FCC also required Utah Broadband to make a “blackboard apology” by sending a signed statement into the FCC certifying its compliance with the equipment authorization and FCC rules.

According to the FCC, about two-thirds of the interference cases involve intentional abuses of Commission rules similar to the violations for which Utah Broadband was cited.  We should expect the FCC and the FAA to continue their enforcement efforts to find violators and issue stiff fines.

For a long-term answer, the FCC remains interested in finding solutions that will enable UNII devices to operate in the band while reducing – or eliminating – potential interference to TDWR stations.  DFS requirements and the voluntary database have had a limited impact because rogues will always look for ways around the rules.  Unfortunately, these bad apples have spoiled it for the vast majority of UNII device manufacturers and operators that operate legitimately.

The FCC is expected to commence a rulemaking proceeding this year.  Among other things, the FCC will consider mandatory database registration for all new devices certified under new testing parameters.  This database could be manual – requiring device users to enter technical and location information into a database – or GPS-based – requiring the devices themselves to automatically register in the database under procedures similar to those recently adopted for TV white space devices.  This approach is a bit problematic for legacy devices, which are not equipped for geo-location registration, but mandatory registration will provide the FCC with another “carrot” – compliance by registration – and a “stick” – fines and other sanctions for failing to register. 

For now, the Utah Broadband decision shows that FCC and FAA inspectors remain in the field looking for violators and will take action to address wrongdoers that cause illegal interference.  Aside from the obvious ramifications to manufacturers and operators in the 5.6 GHz band, it’s important for industry to understand that responsibly sharing spectrum with the government can open doors for additional spectrum use down the road.

"Déjà vu All Over Again": Radio License Renewal Cycle Begins June 1, 2011

The license renewal cycle for radio stations is fast approaching, and to paraphrase Yogi Berra, for many broadcasters the familiar renewal process should be “déjà vu all over again.”  That said, broadcasters should take care to prepare their renewal applications to avoid common filing errors and should review their practices to help ensure that they can obtain renewal of their license through filing a complete and correct renewal application with the Federal Communications Commission – particularly in light of recent changes in the renewal application. 

The renewal cycle for radio stations begins on June 1, 2011 (the deadline for stations licensed to communities in Maryland, Virginia, West Virginia and the District of Columbia to file their renewal applications) and winds up on April 1, 2014 (the license renewal deadline for stations licensed to communities in Delaware and Pennsylvania).  Between these dates, radio stations licensed to the remaining U.S. states and territories will file their license renewal applications.  TV stations operate on a different renewal cycle. 

The FCC has released a new version of the license renewal application (Form 303-S), which licensees must use in this renewal cycle.  The revised Form 303-S includes a question on the FCC’s anti-discrimination policy and whether the broadcast station has been silent, as discussed below. 

What can we expect to see during this license renewal cycle?  

○          Renewed and vigorous review of a licensee’s EEO Public File Report obligations.  Licensees with five or more full time employees must prepare an EEO Public File Report on the anniversary of the date when the station would file its license renewal application.  The EEO Public File Report must be placed in the station’s local public inspection file and must be posted on the web site for the station, if one exists.  When the broadcaster files the renewal application for the station with the FCC, the broadcaster must also file the station’s two most recent EEO Public File Reports.  The FCC has stepped up enforcement in this area, recently fining two radio stations for incomplete EEO Public File Reports.  Additional enforcement action is expected in the future. 

○          Fines for filing late or incomplete renewal applications.  The FCC fined broadcasters during the last renewal cycle for late filed or incomplete renewal applications.  Expect to see the FCC continue that trend, with little-to-no tolerance for broadcasters who submit incomplete renewal applications. 

○          Review of whether the station complies with the FCC’s non-discriminatory policy regarding sales contracts.  Licensees will be required to certify in the renewal application that the station’s advertising sales agreements do not discriminate on the basis of race or ethnicity and that all such agreements include nondiscrimination clauses.  Because of uncertainty regarding what language must be included in a sales agreement to satisfy this requirement, broadcasters should review their sales policy carefully. 

○          Was the station silent during the license term?  The renewal application requires licensees to certify that the station has not been silent (or operating with reduced power) for more than 30 days.  If the licensee cannot make this certification, the licensee must submit an exhibit listing the exact dates during the preceding license term when the station was silent or operating with reduced power. 

○          Enforcement Bureau hold on the renewal application.  The FCC generally defers processing renewal applications if the Enforcement Bureau has put a hold on processing the application.  The most common reason that the Enforcement Bureau would put a hold on a renewal application is because of a pending indecency complaint against the station. The FCC has not yet granted renewal applications for a small number of radio stations from the last renewal cycle because of indecency complaints. 

○          Timing of assignment applications.  The FCC will not grant an assignment or transfer application for a station while the renewal application for the station remains pending before the FCC. It is important that broadcasters plan the sale or transfer or a broadcast license to avoid overlapping with the renewal application. 

During the last renewal cycle, the FCC issued some hefty fines to broadcasters for common and avoidable filing mistakes:

○          Failure to file the license renewal application in a timely manner.  License renewal applications must be filed four months before the broadcast license expires.  For example, if a broadcast license expires on October 1, 2011, the renewal application must be filed before June 1, 2011.  During the last renewal cycle, some broadcasters waited to file their renewal application until just before the license expiration date.  Worse, others did not file until after their license had expired

○          Failure to file the license renewal application electronically.  A licensee must file their renewal application with the FCC electronically.  The FCC will not accept filings submitted on paper

○          Failure to pay the filing fee in a timely manner.  Commercial licensees must pay the filing fee for a renewal application within 14 days of submission of the application.  The FCC must receive payment by the 14th day.  Several times during the last cycle, licensees timely submitted their license renewal application only to forget to pay the filing fee

○          Failure to request special temporary authority to continue broadcasting.  If a licensee does not file their renewal application before the license expires, the broadcaster no longer has FCC authority to broadcast its signal.  The broadcaster must file with the FCC a request for special temporary authority for the station to continue broadcasting. 

○          Make sure the station local public inspection file is complete.  The renewal application requires broadcasters to certify the station’s local public inspection file is complete and documents timely placed in the file.  The most common documents missing from the local public file during the last renewal cycle were the station’s quarterly issues/programs lists.

            The FCC may have streamlined its license renewal process over the years, but the obligations of broadcasters to serve their community remain.  Now is the time for broadcasters to make sure their station is ready for the new license renewal cycle.  Review your local public inspection file and make sure it is complete and accurate.  Know when you must file your license renewal application.  Above all, be diligent and treat the license renewal application with the importance it deserves.

Comcast-NBCU: FCC Conditions Deal to Promote Online Video Services; Questions Remain

Perhaps video never “killed the radio star,” but what should we expect for online video now that the joint venture between Comcast Corporation and NBC Universal, Inc. (“Comcast-NBCU”) has become a reality? This new entity may be the product of two “old media” powerhouses, but new-media concerns about online video distribution represent a major theme in regulatory approvals of the Federal Communications Commission and the U.S. Department of Justice. These new regulatory ground rules will help shape the online video marketplace – a marketplace that so far is vaguely defined and in a state of transformation.

As we’ve previously described, the FCC often uses its merger-review authority to help advance objectives that may ordinarily exceed the agency’s reach. In light of the continuing legal battles over the scope of the FCC’s legal authority to regulate the Internet, it is noteworthy that Comcast and NBCU, in an effort to obtain FCC approval, agreed to some enforceable commitments and conditions to govern the new entity’s participation in the online video marketplace. While these conditions are specific to the transaction, they will affect how Comcast-NBCU will negotiate with third parties who want access to Comcast-NBCU content.

A key question: what “marketplace”? In conditioning its approval, the FCC expressed concern that Comcast-NBCU would have the “incentive and ability” to discriminate against two FCC-defined categories of online video distributors: 

  • Multichannel video programming distributors (or “MVPDs”) such as cable operators, satellite providers or other providers of such multichannel programming; and
  • Non-MVPD distributors of online video programming, such as standalone “over-the-top providers” like Hulu (in which NBCU has an ownership stake), Netflix, GoogleTV and iTunes.  

In general, these categories contrast MVPDs (as providers combinations of linear program streams such as cable or broadcast channels of programming) with more “over-the-top” video services (such as on-demand and pay-per-view services). To complicate matters further, in a footnote, the FCC left open the possibility that certain types of OVDs also could be deemed MVPDs. The FCC determined that “regardless of whether online video is a complement or substitute to MVPD service today, it is potentially a substitute product” and sought to implement conditions to address these “nascent” online video services. The FCC’s decision has consequences for online video and in other contexts. For example, just yesterday DirecTV asked the FCC to clarify which entities constitute MVPDs for purposes of regulations involving set-top boxes. 

With respect to the marketplace for online video, Cardozo Law School professor Susan Crawford's blog post on Comcast-NBCU provides an interesting analysis of the FCC’s decision to apply conditions to protect OVDs. She asserts that the FCC has “created a market” by designating OVDs as a category entitled to protection. In my view, the “OVD” designation is more like a class of service providers than a market, because the FCC declined to identify current potential substitutes for the provision of these services and implicitly raised the question of whether some OVDs compete in a separate market for the provision of multichannel programming service. For these reasons, and in light of the definitional ambiguities surrounding the “MVPD” designation, the “marketplace” for OVD services, however defined, is an evolving concept. 

Acronym soup notwithstanding, the FCC sought to address Comcast-NBCU’s purported incentives to discriminate against rival OVDs (whether MVPD or not). For example, the FCC expressed concerns that Comcast-NBCU would raises prices for rivals to access its affiliated programming or would refuse to provide this programming in a timely manner or in the same quality. The FCC found that its program-access rules – i.e., rules designed to prevent vertically integrated program suppliers from improperly favoring affiliated cable operators – would not provide sufficient protection because strategies of uniform price increases would not discriminate among service providers. Instead, the FCC required Comcast-NBCU to provide affiliated programming to rival MVPDs at fair market value and on nondiscriminatory prices, terms and conditions.   

For OVDs seeking access to Comcast-NBCU programming, the FCC provides the following rights. 

  • An OVD may decide to become an MVPD and, like other MVPDs, would be entitled to access Comcast-NBCU-affiliated content for online display at fair market value and on nondiscriminatory prices, terms and conditions.  
  • An OVD may request that Comcast-NBCU offer its video programming to the OVD on the same terms and conditions that would be available to an MVPD, provided that the OVD is willing to pay the economic equivalent of the price, terms and conditions on which Comcast-NBCU provides video programming to MVPDs. If the OVD qualifies, Comcast-NBCU must provide “materially” the same programming that it offers to other “similarly situated” MVPDs; however, if the other MVPD is obligated to make the programming available through a linear stream, the OVD’s obligation must be “materially similar.” 
  • An OVD will be entitled to access to “comparable programming” available on economically equivalent prices, terms and conditions if the OVD enters into an arrangement to distribute programming from one or more of Comcast-NBCU’s non-affiliated “peers.” Who are these peers? They include certain broadcast networks, cable programmers, production studios and film studios whose names you’ve heard before (e.g., they are affiliated with Disney, Time Warner, News Corporation, Viacom, Warner Bros., 20th Century Fox or Sony Pictures) or otherwise must be one of a handful of the largest players in their industry. Unlike the second option, this programming need not be provided in linear streams.

So what’s the upshot? Comcast describes these procedures as a “focused mechanism for online video providers to obtain access to certain NBC Universal content [that is] carefully crafted to be fair to all players.” That said, these conditions clearly serve as a filtering function to help ensure that Comcast-NBCU only has to share programming with companies that demonstrate certain “bona fides.” OVDs may opt to enforce these conditions via arbitration, but the legal text is replete withdense interpretive issues. Moreover: 

  • If the OVD opts to become an MVPD, that is an expensive proposition. The OVD must consider the costs of deploying networks, negotiating carriage and programming rights, and obtaining local franchises, as well as the prospects of being deemed another cable company.
  • If the OVD decides to compete on an equal footing with an MVPD, that too is an expensive proposition. The MVPD must consider the costs of economically equivalent programming and the likely requirement that the programming would have to be provided as a linear stream offered on an “all or nothing” basis – i.e., akin to real-time distribution of a program channel as opposed to on-demand programming.
  • If the MVPD enters into an agreement with a Comcast-NBCU “peer” for comparable programming, that is – you guessed it – an expensive proposition. This trigger requires an agreement with one of the largest industry players, who no doubt would have to be presented with a compelling business case to sign an agreement with an unaffiliated distribution partner because many of these participants already have extensive distribution channels.  

In addition, Comcast provides some online programming on an “authenticated” basis to only those individuals who subscribe to Comcast MVPD service. Comcast will continue to be allowed to do so, subject to these sets of conditions. Comcast-NBCU also will not be allowed to put certain online programming behind a paywall for as long as at least one of the other major broadcast networks provides a similar service. 

The FCC has tried in other ways to implement enforceable “fair play” conditions on Comcast-NBCU. Comcast-NBCU may not enter into agreements to hamper online distribution of its or another’s video programming. Comcast-NBCU also must continue to offer standalone broadband Internet access services, at reasonable prices and of sufficient bandwidth that customers can access online video services without being required to purchase a Comcast-NBCU subscription for cable television services. The company may not disadvantage rival online video distribution services through its broadband services and/or set-top boxes. Finally, Comcast-NBCU has agreed to abide by the FCC’s “Open Internet” rules (a.k.a "Net Neutrality"), and it appears that this commitment would remain even if those rules are successfully stricken or modified by judicial appeal

As for Hulu, as a result of the FCC’s approval, neither Comcast nor NBCU will be permitted to exercise any rights to influence Hulu’s conduct or operation, but the companies may retain a purely economic interest. Recent media reports indicate that Hulu is considering an MVPD-style approach to online video distribution. Just yesterday Hulu CEO Jason Kilar posted his thoughts about the future of TV and argued that consumers, advertisers and content owners will play a more important role than distributors in the future of online video – an interesting take in light of the FCC’s actions to limit Comcast-NBCU’s oversight. 

In the end, the FCC’s “transaction-specific” conditions will have major implications for the “over the top” providers who had no part in the transaction. Time will tell how the FCC’s actions, and the reactions of Comcast-NBCU and the competition, will influence the evolution of online video services. In light of this unprecedented vertical combination, all eyes will be on the industry to spot the next players in line with plans to create a similar combination of content and distribution.