Updated: FCC Moves to Close ‘Terrestrial Loophole’

The Federal Communications Commission on Wednesday took a step toward closing the “terrestrial loophole,” an exemption in the current rules that allows cable operators to trip up their satellite-TV competition by withholding access to their proprietary regional sports networks.

In a 4-1 vote, the Commission elected to establish a review process by which it would consider complaints on the availability of terrestrial-delivered cable programming. The ruling would allow DBS providers and telco-TV services to petition the FCC for access to blocked RSN feeds.

The order also includes a codicil that would prevent cable companies from cutting off access to programming during program renewal negotiations.

“Today’s action represents a major step toward realizing the promise of a competitive marketplace for video services, while also supporting innovation in the video marketplace,” said FCC chairman Julius Genachowski, in a statement released Wednesday afternoon.  “Our new rules are structured to preserve incentives for cable operators to develop innovative programming … [while] creating a fair process for the Commission to adjudicate claims.”

The ruling concludes that under the Communications Act of 1992, the FCC has the authority to intervene if a cable operator unfairly blocks the competition from offering its RSN programming. While cable ops will be given the chance to refute a given complaint, the order was fairly explicit in its intent to prevent any future interference.

Republican commissioner Robert McDowell was the lone dissenter.

“Today the Commission levels the competitive playing field,” Genachowski said, adding that the ruling was a major advancement toward “promoting competition, empowering consumers and fostering innovation.”

DBS providers have argued that cable operators have withheld their RSN feeds in major DMAs such as New York, Philadelphia and San Diego, and that such practices have demonstrably had a negative impact on subscriber churn in those areas.

On the heels of the FCC vote, DISH Network and Verizon FiOS churned out congratulatory press statements.

“Sports fans in Philadelphia and San Diego will soon have a choice of pay-TV providers,” the DISH Net release read. “Consumers can no longer be held hostage during a contract dispute between cable programmers and video distributors.”

Verizon senior vp of federal regulatory affairs Kathleen Grillo chimed in, calling the ruling “a big-time victory for television sports fans.”

As a result of today’s vote, cable ops will no longer be allowed to withhold the hi-def simulcast of a given standard-definition service from its DBS and telco competitors. “The FCC’s decision to make must-see regional sports programming, including HD feeds, presumptively available to competitors, puts viewers in the driver’s seat,” Grillo said. “This ruling means that consumers will no longer have to stick with their incumbent cable provider in order to watch local teams in high-def.”

While cable operators understandably were less than enthralled with the ruling—Cablevision said it believes the legal basis for the decision is “unfounded”—at least one used the announcement as an opportunity to tweak the competition. “We are pleased that despite the phone companies’ overwhelming lobbying effort, the FCC has ensured a complaint process,” Cablevision remarked via a late-afternoon press release. “If the phone companies complain that they are unable to compete, we are confident that we can prove that it is for a variety of reasons, none of which have to do with HD sports programming.”