An appeals court decided to back consumers on Tuesday, unanimously upholding a Federal Communications Commission order banning exclusive cable video contracts in apartment buildings and other multiple dwelling units (MDUs).

The agency acted well within the bounds of the law, ruled the United States Court of Appeals for the District of Columbia Circuit. The court even smiled on applying the new regulations to current cable/realtor deals, noting that the FCC "balanced benefits against harms and expressly determined that applying the rule to existing contracts was worth its costs." The call is also a victory for telcos like AT&T and Verizon, both of which pushed hard for the FCC to make its decision.

Changing course

The Commission moved on this issue on the last day of October in 2007, invoking Section 628 of the Communications Act, which prohibits cable companies from pursuing deals that have "the purpose or effect of hindering significantly or preventing their competitors from providing satellite cable programming or satellite broadcast programming to subscribers or consumers." That decision reversed a 2003 call on the question which decided that the trade-offs between the "pro-competitive and anti-competitive effects" of exclusive contracts were too close to call.

By 2007, however, the agency had reached a new consensus on the matter, its order noting that by then, thirty percent of Americans lived in MDUs, many of them minorities. Restricting an apartment building's access to one cable provider foreclosed the expansion of fiber and "triple play" (phone, video, Internet) services in many areas, the Commission observed. "Exclusivity clauses deny MDU residents the benefits of increased competition, including lower prices and the availability of more channels with more diverse content."

Two days earlier, then FCC Chair Kevin Martin had tipped reporters that the agency would take this step. "Should Martin & Co. actually strike down existing contracts, expect speedy litigation from the cable operators," Ars' Nate Anderson predicted at the time.

And sure enough, they did, suing the FCC in appellate court. The National Cable and Telecommunications Association and several real estate groups offered two very technical arguments against the Commission's decision.

Abuse of market power

First, the plaintiffs contended that when Congress wrote Section 628, they were not worried about barriers to expanded service choice, but with practices that prevented consumers from getting certain kinds of programming. The legal arena of conflict on lawmakers' minds was the endless battle between content providers and cable companies, NCTA et al contended, not roadblocks to service in general.

The DC Court rejected this argument in a few pages, noting that nothing in the literal text of Section 628 prevented the FCC from making its ruling. And although NCTA pointed to "considerable evidence that Congress was specifically concerned with unfair dealing over programming," the judges explained, "they offer no evidence from the legislative record to show that Congress chose its language so as to limit the Commission solely to that particular abuse of market power."

Second, the NCTA lawsuit invoked an old standby—that the FCC had not properly explained why it had changed its position on exclusive MDU contracts, thus running afoul of the Administrative Procedures Act's prohibition against "arbitrary and capricious" decision making among government agencies. But the DC Circuit noted that the FCC had not changed its policy on exclusive contracts in 2003 in large part because of insufficient data on the question. The Commission's perspective on this issue was clearly in flux.

And, in an interesting tangent, the judges bowed to the Supreme Court's recent reversal of the Third Circuit Court of Appeals strikedown of the FCC's fine against CBS for the famous Janet Jackson wardrobe malfunction of 2004. The Third Circuit had agreed with CBS that the Commission's new regulations against "fleeting images" were arbitrary and capricious.

Not so, declared the Supremes. The agency "need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one," the high court ruled; "it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better." (The judges added italics here.)

The DC Circuit cited this sentence in upholding the FCC's order against exclusive MDU deals.

Assuming this case doesn't go any further up the judicial ladder, the Commission's ban on exclusive apartment contracts for cable service is now a done deal. But it doesn't affect all MDU-like dwellings, among them "time share units, academic campuses and dormitories, military bases, hotels, rooming houses, jails, prisons, halfway houses, hospitals, nursing and other assisted living places, and other group quarters characterized by institutional living, high transience and, in some cases, a high need for security," the order noted. So if you are reading this story in a maximum security lock down, you'll still have to take whatever video service they give you.

About four months after its decision on MDUs, the agency extended the exclusivity ban to ISPs as well.

"There is no reason that consumers living in apartment buildings should be locked into one service provider," the FCC's Martin declared shortly after the move. "Competition is ultimately the best protector of the consumer's interest."

Listing image by Stephen O'Neill