Is an FCC Ban on Junk Fees a Slam Dunk in Court?

Nov 25, 2023

By Ted Hearn, Editor of Policyband

Washington, D.C., Nov. 25, 2023 – Cautious in some places, highly speculative in others, the Federal Communications Commission’s proposal to ban certain politically disfavored cable and satellite TV billing practices may not be the judicial slam dunk that some might think.

If she has the votes, FCC Chair Jessica Rosenworcel will surely move quickly to adopt the regulations in 2024. But can her rules stand up in court? That’s not so obvious with FCC reliance on a record chock-a-block with debatable propositions and conclusions about consumer behavior in today’s dynamic video market.

Last week, Rosenworcel released a proposed rulemaking in which the agency would ban Early Termination Fees (ETFs) and Billing Cycle Fees (BCFs) imposed by cable and satellite TV operators. Echoing President Biden, Rosenworcel referred to these as “junk fees” designed to impede video competition and mistreat consumers. Consumers do not seem fixated on the issue: The FCC said that from 2018 to 2022, it received just “hundreds” of informal complaints annually.

For starters, the FCC can’t say with total self-assurance that Rosenworcel has the facts on her side. In support of a blanket ETF ban, the FCC noted that ETFs “may have the effect of limiting consumer choice” and “may negatively impact competition …”

The FCC’s tentative language is likely rooted in the fact that cable TV operators have lost 9 million subscribers combined since January 2021, and satellite providers DirecTV and Dish have lost 6.7 million combined over the same period. Numbers like that don’t exactly scream limits on consumer choice when scores have opted to subscribe to Netflix and Disney +.

The FCC’s proposed regulations do not attempt to quantify the ETF problem. The agency declined to identify a single cable TV operator by name with an ETF or describe its ETF policies. The value of an ETF typically declines in equal monthly amounts over the life of the contract. So, a consumer who quits with 23 months left on a two-year contract is going to pay more than a consumer with 2.3 months remaining. Why wouldn’t the FCC disclose that all consumers are not similarly situated vis-à-vis the burden of an ETF obligation?

The FCC also sidestepped another common business practice that can blunt the impact of an ETF. Charter Communications will rebate new Spectrum customers up to $500 each to defray the cost of an ETF collected by a former provider.

“In a contract? Don't worry, we'll buy it out up to $500. With superfast Internet speeds, FREE HD and unlimited nationwide calling, Spectrum gives you the service you want without the stress of a binding contract,” Spectrum’s consumer alert says.

The FCC’s failure to mention that Charter/Spectrum – the second largest cable TV provider with 14.3 million customers – will cover the cost of an ETF suggests that an expert agency issued proposed regulations in a cloud of darkness.

The FCC also wants to protect consumers from BCFs – which require payment for an entire month of service and do not include partial rebates or credits for the remaining days in the month of cancellation.

In explaining the issue, the FCC said BCFs represent payment for services consumers no longer want. But the FCC did not document the extent to which cable and satellite TV providers continue to provide access to their services for the remainder of the month. By doing so, the FCC created a BCF blackhole filled with negative implications. Can BCFs be fairly described as unfair if consumers continue to have service access for the balance of the month?

Like the Charter ETF rebate, the FCC seems unaware of this: BCFs are a video industry staple and do not seem endowed with an anti-consumer purpose. BCFs are likely the norm because they result in a streamlined billing structure and less stress on consumer service representatives.

All the major video streaming services with linear TV channels – YouTube TV, Sling TV, Hulu + Live TV and FuboTV – rely on BCFs. But they do provide continued access for the remainder of the billing period.

The FCC’s BCF regulations would certainly put Dish Network Corp. in an awkward spot. Rosenworcel’s billing bans on Dish’s satellite TV service would not apply to Dish’s video streaming service, Sling TV.

Meanwhile, the FCC said the basis for covering satellite in the billing bans was to prevent “DBS providers from gaining a competitive advantage over their competitors through the use of ETFs and BCFs.” The FCC did not explain how anti-competitive practices by satellite operators would win over consumers shopping for a new pay-TV provider.

The junk fees issue being pushed by the Rosenworcel FCC with coaxing from the Biden White House might make for good headlines. But the issue seems more nuanced than Rosenworcel would care to admit, meaning she needs to develop a stronger record to win the coming battle in federal court.