The Federal Communications Commission has voted along party lines to prohibit cable and satellite TV operators from imposing early termination fees (ETFs) on their video subscribers, calling them junk fees that discourage competition.

But there was a strong suggestion a majority of commissioners also wanted a conversation about just what the effects of those fees are and whether there were pro-consumer benefits that could be offset by protections from unfair fees.

Cable operators said the rules would hurt their competitive position concerning video streamers that aren’t subject to the same FCC regulations, and that the regulator lacks the authority to adopt them in any event.

Long-term contracts with multichannel video programming distributors (MVPDs) come with a fee for dropping the video service before the end of the agreed-upon contract period.

The FCC voted Wednesday (December 13) on a notice of proposed rulemaking that would end the fees as well as require MVPDs to provide rebates to customers who cancel service before the end of a month for which they have already paid (billing cycle fees).

The notice begins a cycle of comments and reply comments from interested stakeholders before a vote on a final order, though given support by the Democratic majority, the item is expected to make it onto the FCC’s rulebook at the end of that process.

In proposing the fees, FCC chair Jessica Rosenworcel had cited President Joe Biden’s executive order on Promoting Competition in the American Economy, which “encouraged” the FCC to prohibit “unjust or unreasonable early termination fees for end-user communication contracts.”

NCTA-The Internet & Television Association, the cable industry’s main trade association, has told the FCC the proposal is misguided because it would “deprive consumers of competitive options they currently enjoy and would raise cable operators’ costs of providing service while creating additional disparities between competitors in a hypercompetitive marketplace.” It’s a marketplace in which streamers continue to drain away video share due to the rise of “streaming services not subject to the same” rules, NCTA said. 

If the FCC does ban the fees, NCTA said, it needs to preempt state or local regulation of early termination fees, since that would further impair the ability of MVPDs to compete with unregulated streamers.

NCTA also pointed out to the FCC before the vote that the Biden executive order had not proposed banning all early termination fees, just those that were unjust or unreasonable. 

(After the vote, NCTA said: "We look forward to participating in this proceeding to ensure it preserves consumer choice and competitive parity. For instance, we do not support banning consumers from choosing a service plan with discounted rates in exchange for long-term service agreements that may include early termination provisions. The FCC should understand that its proposals would amount to rate regulation and result in consumers having fewer options.”)

If the FCC’s final order did switch gears and focus only on “unjust and unreasonable” fees, the commission would have to come up with a standard for what is or isn’t just and reasonable.

As to the FCC's authority to adopt the rules, NCTA said an ETF ban is a rate regulation on video service that the agency cannot impose given that it has determined that there is effective competition nationwide, and thus no basis for rate regulation.

Republican commissioner Brendan Carr agreed with NCTA that the prohibition was illegal rate regulation preempted by the FCC’s decision that MVPDs are subject to effective competition.

The FCC said it can regulate the fees under its customer service regulatory authority under the 1984 Cable Act, but Carr said he disagreed and so was a no on the item.

Commissioner Geoffrey Starks, a Democrat, said he could see the value in some ETFs if they provided for discounted service for consumers, so wanted a conversation about whether there were ways to protect consumers and still allow some such fees.

GOP commissioner Nathan Simington said consumers would wind up paying more for service if the item makes it onto the rulebook and so he, too, was a no. He also pointed out that, in terms of billing cycle fees, other businesses that don't provide rebates include Netflix, Hulu, YouTube, Apple and Spotify.

Simington said the ban would reduce consumer choice and make it harder for MVPDs to compete.

Democratic commissioner Anna Gomez also said there needed to be broad questions asked about what possible value there was in ETFs before a final decision.

Rosenworcel did use the term “restrict” rather than “ban” when discussing the relevant fees, so it was unclear just how the final item would come down on whether the fees were unfair and unreasonable on their face, or as applied unfairly and unreasonably.

Federal Communications Commission chair Jessica Rosenworcel is proposing prohibiting cable and satellite TV operators from imposing early termination fees on their video subscribers, calling them junk fees that discourage competition.

The notice of proposed rulemaking (NPRM), which Rosenworcel has teed up for a vote at the commission's December public meeting, would also require multichannel video programming distributors (MVPDs) to provide rebates to customers who cancel service before the end of a month for which they have already paid.

In making the proposal, Rosenworcel cited President Joe Biden’s executive order on Promoting Competition in the American Economy, which “encouraged” the FCC to prohibit “unjust or unreasonable early termination fees for end-user communication contracts,” signaling that Rosenworcel also considers them to be either unjust or unreasonable.

“No one wants to pay junk fees for something they don’t want or can’t use,” Rosenworcel said. “When companies charge customers early termination fees, it limits their freedom to choose the service they want.”

Because the item has been scheduled for a vote, Rosenworcel is almost certain to have the Democratic majority she needs for its approval.

The notice begins a cycle of comments and reply comments from interested stakeholders before a vote on a final order.

“Because these fees may have the effect of limiting consumer choice after a contract is enacted, it may negatively impact competition for services in the marketplace,” Rosenworcel's office said in announcing the upcoming vote. “Additionally, billing cycle fees require TV video service subscribers to pay for a complete billing cycle even if the subscriber terminates service prior to the end of that billing cycle. These fees penalize consumers for terminating service by requiring them to pay for services they choose not to receive.”

NCTA–The Internet & Television Association had no comment on Rosenworcel’s proposal.

Before heading out for their August recess, the House of Representatives last week passed a bill that would allow members of the armed services to terminate their cable, satellite or internet access service when they are deployed or are transferred without having to pay an early-termination fee.

Some states already have their own laws, and there are currently laws that let them get out of rental agreements, auto leases and cell phone contracts.

The bill (H.R. 2409) updates the cell phone contract portion of the Service members Civil Relief Act to include pay TV and internet contracts.

Service members don't have to pay an early termination fee of they are deployed or otherwise have to relocate for at least 90 day. They must return any provider-owned equipment within 10 days after their service, as in cable or 'net service, is disconnected.

The bill was co-sponsored by Reps. Ryan Costello (R-Pa.) and Derek Kilmer (D-Wash.).

“When service members and their families receive military orders to deploy or relocate, they should not have to face fees from internet, cable, or other paid television service providers in their moving process,” said Rep. Costello. "This commonsense legislation would implement a federal solution to ensure military families do not have to pay these fees."

Citing the need to pass spending bills, Senate Majority Leader Mitch McConnell (R-Ky.) last month canceled the Senate's August recess, so the bill could get a Senate vote.

The bill has been referred to the Senate Committee on Veterans' Affairs. It will have to move quickly to get a vote before the second week of august since Senators are expected to get a break the first week of August for a home state work period.

In a 6-3 decision, the Supreme Court has upheld a provision in a DirecTV contract that allows it to avoid a class action suit over early termination fees and instead have the dispute arbitrated.

DirecTV's service contract includes a class action waiver saying that claims have to be resolved by binding arbitration.

After they were sued by two customers in a California state court over early termination fees they said violated state law, DirecTV pointed to the arbitration provision and asked the court to send it to arbitration. The court refused, pointing to a state law that made such waivers unenforceable, apparently paving the way for a class action lawsuit, and a Federal Appeals court agreed.

But the Supreme Court ruled that DirecTV's contract waiver was enforceable nonetheless given that it had since ruled in a separate case that the Federal Arbitration Act preempts state rules that render class-action bans unenforceable.

The Supreme Court's decision Monday (Dec. 14) buttresses the practice of companies putting in contractual protections from class actions suits.

The Supreme Court opinion was written by Justice Breyer, joined by Chief Justice Roberts and Justices Scalia, Kennedy, Alito and Kagan. Dissenting were Justices Thomas, Ginsburg and Sotomayor.

Writing for the dissenters, Justice Ginsburg said it had become common for powerful companies to include such no class-action arbitration clauses and said he would have "take[n] no further step to disarm consumers, leaving them without effective access to justice."