A cable company that competes against Comcast says it was forced "to pay a punitive ransom totaling nearly $3.5 million" in order to keep airing Comcast-owned TV programming.

Wave Broadband, which has about 455,000 customers in Washington, Oregon, and California, filed a complaint against Comcast-owned networks with the Federal Communications Commission in December. Comcast-owned NBCUniversal asked the FCC to dismiss the complaint, but Wave pressed forward in an official reply to Comcast yesterday.

Demands from Comcast-owned Regional Sports Networks (RSNs) "had the effect of withholding must-have regional sports programming from the largest cable competitor to Comcast Cable on the West Coast unless Wave agreed to pay a punitive ransom totaling nearly $3.5 million," Wave wrote yesterday. This violates Section 548(b) prohibitions on cable operators using deceptive or unfair acts and practices to hinder rivals' access to programming, Wave argued.

"The Comcast RSNs do not deny their conduct and barely attempt to defend it; instead they primarily rely on procedural defenses," Wave wrote.

The Comcast/NBC filing with the FCC argued that RCN's purchase of Wave moots the allegations. "Once the RCN-Wave transaction closes, distribution of the three RSNs in the legacy Wave systems will be governed by the RCN agreement," NBC wrote in December. (The merger closed on January 24.)

Wave countered that the merger does not change the fact that it had to pay $3.5 million to prevent Comcast RSNs from shutting off programming. "Those payments were very real, wrongfully extracted, and should be returned," Wave wrote.

Time limit?

The Comcast filing also argued that Wave's petition is time-barred because it was filed "in the final month of the contract terms, long after the [FCC's one-year statute of] limitations periods expired."

But there is no time limit for bringing a petition pursuant to Section 548(b), Wave wrote:

The Comcast RSNs, for their own benefit as well as all of their sister Comcast Cable-affiliated programming networks, seek a Commission declaration that any conduct by a cable-affiliated satellite programming service provider, no matter how egregious, no matter how clearly it violates statutory prohibitions, if not complained about within one year of signing a multi-year agreement, cannot be restrained.

Comcast also said that its licensing terms are valid and that Wave merely wants to be "shielded from competition by avoiding its contractual obligations."

Expired merger conditions

Comcast is newly free of restrictions that it had to follow for seven years as a result of its 2011 purchase of NBCUniversal. Smaller cable companies have warned that the expiration of merger conditions will let Comcast use its ownership of programming to squeeze rivals that offer TV-and-broadband packages in the same cities as Comcast.

Comcast's smaller rivals have repeatedly asked the FCC to take action, saying that Comcast's payment demands can force them to raise prices for TV service. The FCC hasn't imposed any new requirements in response to the requests.

The Wave complaint was filed against NBCUniversal and three Comcast-owned regional sports networks. It asks the FCC for a ruling that NBC and the sports networks "have engaged in unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent Wave from delivering the RSN Services."

Wave asks for refunds and damages, and it wants the FCC to declare certain contract provisions null and void. The exact refund demanded is $3,480,710.54 plus interest for payments made from July 2017 to December.

Wave's complaint largely relates to minimum penetration policies, which we described in a previous article.

Minimum penetration policies included in programming contracts require TV providers "to distribute a cable network to a minimum specified percentage of its video subscribers," the American Cable Association (ACA), which represents nearly 800 small and medium-sized cable operators, told the FCC last year.

When calculating that percentage of the subscriber base, almost all programmers exclude subscribers who receive only a basic tier consisting primarily of broadcast channels, the ACA also said. Comcast generally refuses to exclude basic tier subscribers from minimum penetration policies, making it financially infeasible for small cable companies to offer the basic tier, the ACA said.

Wave says that it could no longer continue complying with minimum distribution requirements based on total subscribers because customers are increasingly subscribing to the basic cable tier and augmenting it with online video subscriptions that also have Comcast-owned programming.

No “meaningful negotiations”

Wave says it wanted to strike a deal with Comcast "to address the issue on a going forward basis as part of a negotiation of long-term renewals," but it was rebuffed. Wave wrote:

Wave was shocked that without engaging in meaningful negotiations, the Comcast RSNs served Wave with a demand that it either include the services in its broadcast basic tier, a move they admitted was an impossibility for Wave, or the services would go dark four days later. It was from this demand that the Comcast RSNs were able to extract the punitive payment of nearly $3.5 million from Wave—payments that would keep the services on for fewer than six more months.

The "imminent threat to withhold the services" was withdrawn "only after the Comcast regional sports networks extracted a payment of approximately $2.4 million and a promise to pay even more on an ongoing basis—amounts far in excess of what would have been required by the distribution agreements," Wave also wrote.

Comcast's success in licensing programming to online video services has helped it "offset losses from cable cord-cutters and cord-shavers," a fact that "destroys the integrity of their economic justifications for strict enforcement of minimum distribution requirements in cable programming agreements," Wave argued.

Wave argues that Comcast is trying to collect the same fee twice for subscribers who purchase basic TV service and augment it with a separate online video service. If Wave has to include the Comcast networks in the basic tier, then Comcast would be able to collect programming fees for the same subscriber from both Wave and whichever online video service that subscriber purchases, Wave said.

Comcast: FCC can't change contract terms

Comcast notes that Wave agreed to minimum penetration requirements multiple times beginning in 2005, and the company said that "[t]hese voluntary commitments have enabled Wave to retain all of the benefits of continued distribution of the RSN programming."

"Yet Wave now asks the Commission to declare that the parties' arrangements under the expired agreements are 'unlawful,' to absolve Wave's acknowledged breach of the contracts," Comcast wrote.

The FCC has no authority "to impose non-market minimum penetration terms that permit Wave to exclude an unlimited number of subscribers from any minimum penetration commitment," Comcast also wrote.

The FCC has not yet ruled on Wave's petition or Comcast's motion to dismiss.