On October 11, 2016, the FCC’s Enforcement Bureau released an Order announcing that it had entered into a Consent Decree with Comcast Corporation (“Comcast”), closing the Bureau’s investigation into whether Comcast had improperly charged its subscribers for services or equipment they never affirmatively requested.  This practice, known as “negative option billing,” is the cable equivalent of the more familiar practice of telecom carriers “cramming” unauthorized charges onto customer bills.

Under the terms of the Consent Decree, Comcast will adopt a five-year compliance plan that requires Comcast to obtain customers’ affirmative informed consent prior to charging them for new services or equipment, send customers an order confirmation separate from any other bill that describes newly added services and their charges, offers mechanisms to customers that enable them to block the addition of new services to their accounts, and implement a training program to ensure customer service personnel resolve customer complaints about unauthorized charges. 

Although Comcast disputed the Bureau’s interpretation of the rule, Comcast agreed to pay a civil penalty of $2,300,000 to the U.S. Treasury to resolve the investigation.  This is the largest civil penalty assessed from a cable operator by the FCC.

Background.  Section 623(f) of the Communications Act, which is mirrored by Section 76.981 of FCC regulations, prohibits negative option billing – the practice of charging cable subscribers for services or equipment that they did not affirmatively request.  Under the Commission’s rules, a subscriber’s mere failure to refuse a cable operator’s offer to provide new services or equipment does not satisfy the affirmative request requirement.  In applying those rules, the Commission has previously found that the negative option billing prohibition protects consumers from having to take on the burden of identifying and negatively responding to charges for services that appear on a bill for services that are not desired and for which no request has been made, as well as the inadvertent payment of those charges.  While the Commission has found that prohibitions on negative option billing do allow cable operators to make certain adjustments to subscribers’ services and rates, it has also stated that these adjustments may not constitute a fundamental change in the nature of an existing service.  Finally, the Commission has permitted cable operators to offer their customers beneficial upgrades and to expand system capacity when appropriately justified.

Investigation.  The Order indicates that the Commission received “numerous complaints” from consumers alleging that Comcast imposed charges for equipment and services that customers did not order.  The complaints ranged from issues with services or equipment being added to subscribers’ service without their knowledge or permission, or even after the subscribers specifically declined an offer by Comcast representatives to add the services and equipment, to issues with the customer service representatives to resolve billing problems and unmet promises by Comcast employees to apply credits or billing adjustments.  Significantly, the Order states that many of the complaints described multiple attempts by subscribers to obtain clarification or redress of billing issues “during hours-long and repeated phone calls; allege unhelpful or abusive behavior by customer service representatives (such as unexplained disconnections, refusal to transfer calls to supervisory personnel, threats of service interruptions, or assertions that customers bore the responsibility to know how much their bill ought to be); and allege repeated, unmet promises by Comcast employees to apply credits or billing adjustments.”

In December 2014, the Bureau launched an investigation of Comcast’s compliance with the negative option billing prohibition and other requirements under the Act and the Rules.  Comcast cooperated in the investigation and provided the Bureau additional examples of customer complaints.  In its defense, Comcast maintained that, in the vast majority of the instances where there were complaints, the charges were authorized and when it was notified of concerns, it took corrective action where appropriate such as removing items from bills and refunding customers.  Comcast indicated that it has a Customer account audit and reconciliation process to adjust for any errors with installed equipment and to ensure that customers paid only for the services and equipment they received.  According to Comcast, the process includes daily reviews of orders and technician receipts to ensure that the equipment matches the service that the customer ordered.  Comcast also maintained that the Negative Option Billing Laws are not per se prohibitions, but instead are targeted only at affirmatively deceptive conduct on the part of cable operators and Commission enforcement requires a demonstrated pattern of violation.

In the Consent Decree, the Bureau rejected Comcast’s interpretation of the negative option billing prohibition as requiring deception.  The Bureau affirmed that it “interprets Section 623(f) and Section 76.981 . . . as constituting a per se prohibition on cable operators’ billing cable subscribers for any services or equipment that they did not affirmatively request, and as the functional equivalent of the prohibited practice known as ‘cramming’ (unauthorized placement of chargers on telephone bills) with respect to common carriers.”  It found the practice harmful to consumers by forcing them to detect or correct errors, a process that can involve significant consumer time and effort. 

Accordingly, the Bureau contended that Comcast’s billing cable subscribers for any service or equipment which they did not affirmatively request constituted a per se violation of Sections 623(f) of the Act and Section 76.981 of the FCC’s rules, and that Comcast had violated this prohibition through the course of conduct described in the Order.  Although Comcast disputed the Bureau’s contention regarding its conduct and the Bureau’s interpretation of the negative option billing prohibition, it agree to settle the matter by entering into a Consent Decree.  

Consent Decree.  To settle the investigation and complaints, Comcast is required to designate a compliance officer, develop and implement a five-year compliance plan which includes procedures designed to obtain customers’ affirmative informed consent prior to charging them for new services or equipment; send customers an order confirmation, separate from any other bill, that clearly and conspicuously describes newly added services and equipment and their associated charges; offer mechanisms to customers that, at no cost, enable them to block the addition of new services or equipment to their accounts; implement a detailed program for redressing disputed charges in a standardized and expedient fashion; limit adverse actions (such as referring an account to collections or suspending service) while a disputed charge is being investigated; designate a senior corporate manager as a compliance officer; and implement a training program to ensure customer service personnel resolve customer complaints about unauthorized charges.  Comcast will also make a $2,300,000 civil penalty to the U.S. Treasury. 

Significance.  This case is significant for both the size of the settlement payment and the precedent set by the Enforcement Bureau that Section 623(f) and the FCC’s rules create a per se prohibition on negative option billing.  This broad reading appears to be a change from prior interpretations, relied upon by Comcast, suggesting that the prohibition was targeted only at affirmatively deceptive conduct on the part of cable operators and basing enforcement on a pattern of violation rather than isolated incidents. 

This case highlights that cable operators must be vigilant in ensuring that they do not intentionally or unintentionally improperly charge subscribers for services or equipment that they never affirmatively requested and that simply resolving the complaints after they arise by removing items from bills and making refunds is not sufficient to avoid a penalty.  If you have questions about the negative option billing prohibition, please contact Barbara Esbin at besbin@cinnamonmueller.com or (202) 872-6811, or Scott Friedman at sfriedman@cinnamonmueller.com or (312) 372-3930, or Bruce Beard at bbeard@cinnamonmueller.com or (314) 394-1535.

FCC Selects MVPDs for EEO Audits

On October 6, 2016, the Media Bureau released a Public Notice identifying certain multichannel video programming distributors (“MVPDs”) that they had been randomly selected for annual Equal Employment Opportunity (“EEO”) audits.  The Public Notice lists the MVPDs selected.  Responses are due to the FCC by November 21, 2016.

The FCC annually audits about five percent of MVPD employment units for compliance with cable EEO rules.  The audit letter requests certain data from the selected MVPD employment units, including the unit’s most recent EEO public file (which is required to be placed on the MVPD’s website), information on job openings, pending or resolved complaints filed during the past five years alleging unlawful discrimination in employment practices, and documentation demonstrating performance of the required recruitment initiatives.

All selected MVPD employment units must respond to the audit letter, but employment units with fewer than six full-time employees have more limited response requirements. 

Failing to timely respond to the audit letter could result in a certification that the employment unit is not in compliance for 2016 with the FCC’s EEO rules, which may put an affected operator in violation of debt covenants or franchise requirements. 

If you have any questions about EEO compliance, please contact Scott Friedman at (312) 372-3930 or sfriedman@cinnamonmueller.com.

Media Bureau Releases 2016 Report on Cable Industry Prices

Report Shows 63 Percent Increase in Retransmission Consent Fees from 2013 to 2014

On October 12, 2016, the Media Bureau released its annual Report on Cable Industry Prices (“Report”).  As required by Congress, the Commission surveys 800 cable operators at random for information regarding average rates for the delivery of basic cable service, other cable programming, cable equipment and, for the first time, data on retransmission consent costs.  The data examined on basic cable television service, expanded basic service and cable equipment covers the calendar year ending January 1, 2015.

Although the FCC has been surveying cable industry prices for decades, in the STELA Reauthorization Act of 2010, Congress directed it to include retransmission consent fees as part of its price survey.  For this purpose, respondents were asked to include data for at least two calendar years in which full year data would be available; in this case, 2013 and 2014.  The Report finds that retransmission consent costs increased by 63 percent over that time, from almost $7.8 million in 2013 to over $12.7 million in 2014.  The Report further finds that, on a station basis, the monthly fee per subscriber per broadcast station was 75 cents in 2013 and $1.07 in 2014, representing a 43 percent annual increase in retransmission compensation.  The average number of broadcast stations carried pursuant to retransmission consent by a cable system also increased by 1.2 percent.  At the same time that retransmission consent costs were increasing dramatically, the average number of subscribers per cable system that were subject to retransmission consent compensation decreased by 1.7 percent. 

The Report also indicates that although prices for expanded basic services continue to increase, they are increasing at a slower rate for operators facing effective competition, as compared to those that do not.  Among the effective competition subgroups, operators facing effective competition from a cable overbuilder had the highest rate of price increase, at just over 10 percent, whereas rates from operators facing effective competition from DBS showed the lowest rate of price increase at 1.3 percent.  The Report explains this reversal of previous trends by noting that the DBS subgroup constitutes over two-thirds of all effective competition findings and therefore has considerable weight in the average price.  The subgroup tends to contain larger systems that on average carry more channels.  The price for expanded basic charge by cable operators in the DBS subgroup is significantly higher, by 3.8 percent, than the noncompetitive average, however, the price per channel for expanded basic is lower for this group by 1.7 percent.  Although cable operators’ expanded basic service prices on average were lower than the comparable DIRECTV Choice package, DISH’s America’s Top 120 plus plan underpriced the cable average, though it offers almost 55 fewer channels than cable.

Earlier this year, the Commission adopted a rebuttable presumption of effective competition that cable operators are subject to the competing provider effective competition test based upon the ubiquity of DBS competitors in the MVPD marketplace.  The rebuttable presumption does not affect the data in this report, but will impact the way the Commission collects and reports their data in the 2017 report.   

If you have further questions, please contact Barbara Esbin at besbin@cinnamonmueller.com or (202) 872-6811.