Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of: ) ) ) DAKOTA TELECOM, INC. ) ) Complainant, ) File No. CSR 5381-P ) v. ) ) CBS BROADCASTING, INC. d/b/a ) MIDWEST SPORTSCHANNEL, AND ) BRESNAN COMMUNICATIONS ) ) Defendants. ) MEMORANDUM OPINION AND ORDER Adopted: June 28, 1999 Released: July 1, 1999 By the Chief, Cable Services Bureau: I. INTRODUCTION 1. Dakota Telecommunications Group, and its wholly owned subsidiary Dakota Telecom, Inc. ("DTI"), filed a program access complaint ("Complaint") against CBS Broadcasting, Inc., d/b/a Midwest SportsChannel ("CBS") and Bresnan Communications Corporation ("Bresnan") (collectively referred to as "Defendants") alleging violations of Section 628(b) of the Communications Act of 1934, as amended ("Communications Act"), and Section 76.1001 of the Commission's rules, by engaging in unfair practices related to exclusive distribution contracts. Defendants each filed an answer, to which DTI filed a reply. II. BACKGROUND 2. Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act") to promote competition, with the view that regulation would be transitional until the video programming distribution market becomes competitive. In enacting the program access provisions, codified in Section 628 of the Communications Act, Congress sought to minimize the incentive and ability of vertically integrated programming suppliers to favor affiliated cable operators over nonaffiliated cable operators or other multichannel video programming distributors ("MVPDs") in the sale of satellite cable and satellite broadcast programming. 3. Section 628(b) of the Communications Act states that: [i]t shall be unlawful for a cable operator, a satellite cable programming vendor in which a cable operator has an attributable interest, or a satellite broadcast programming vendor to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers. In Section 628(c)(2)(D), Congress instructed the Commission to promulgate regulations that: with respect to distribution to persons in areas served by a cable operator, prohibit exclusive contracts for satellite cable programming or satellite broadcast programming between a cable operator and a satellite cable programming vendor in which a cable operator has an attributable interest or a satellite broadcast programming vendor in which a cable operator has an attributable interest, unless the Commission determines (in accordance with paragraph (4)) that such contract is in the public interest. "Satellite cable programming" is "video programming which is transmitted via satellite and which is primarily intended for the direct receipt by cable operators for their retransmission to cable subscribers." "Satellite broadcast programming" is "broadcast video programming when such programming is retransmitted by satellite and the entity retransmitting such programming is not the broadcaster or an entity performing such retransmission on behalf of and with the specific consent of the broadcaster." III. THE FACTS 4. Complainant, DTI, is a wholly owned subsidiary of Dakota Telecommunications Group ("DTG"). DTG is a telecommunications company offering a variety of services, including cable television programming in South Dakota, Iowa and Minnesota. DTI offers multichannel video programming distributor ("MVPD") service to approximately 1,365 subscribers in the communities of Adrian, Jasper, Hills, Ellsworth, Edgerton, Currie and Lake Wilson, Minnesota. DTI has a non-exclusive license to distribute Midwest SportsChannel ("MSC") on its Minnesota systems in these communities. In addition, DTI has obtained a nonexclusive franchise from the community of Marshall, Minnesota to provide cable television services. DTI sought to obtain a non-exclusive license for MSC in the Marshall franchise area, but CBS refused the request. Bresnan has had an exclusive license for MSC programming in Marshall, Minnesota since 1990. DTI then attempted to sublicense MSC through Bresnan. Bresnan refused DTI's request. In a letter dated August 6, 1998, the general manager of Bresnan stated that Bresnan Communications did not desire to sublicense MSC to DTI. After providing Defendants with the requisite notice of its intent to file a program access complaint, DTI filed the instant action alleging that MSC's and Bresnan's exclusive contract for MSC violates the program access provisions of the Communications Act. 5. MSC is a 24-hour regional sports network wholly-owned by CBS. MSC's satellite cable programming is distributed to cable and satellite subscribers throughout Minnesota, North Dakota, South Dakota, Iowa and Wisconsin. MSC's programming consists primarily of live coverage of regional college and professional sporting events and sports commentary. Bresnan is a multiple system operator based in Marshall, Minnesota. Bresnan operates cable television systems in 540 communities throughout the upper Midwest, including Minnesota, and provides cable television services to more than 658,000 subscribers. Bresnan provides fifty-four channels of programming to approximately 5,000 subscribers in the Marshall, Minnesota franchise area. IV. THE PLEADINGS 6. DTI argues that the exclusive contract for MSC provides Bresnan an unfair competitive advantage in the Marshall cable television service market. DTI contends that access to MSC programming is extremely important to Minnesota consumers. DTI asserts that lack of access to MSC programming will create a significant and unnecessary competitive disadvantage to DTI. DTI argues that the exclusive arrangement for MSC programming is an unfair method of competition, the effect of which is to hinder significantly DTI from providing MSC programming to subscribers or consumers in competition with Bresnan. DTI maintains that the exclusive license held by Bresnan for MSC programming violates the program access provisions of Section 628(b) and Section 76.1001 of the Commission's rules. 7. In their answers, Defendants assert that their conduct violates neither Section 628(b) nor (c) of the Communications Act. Defendants contend that exclusive agreements between non-vertically integrated programming vendors and cable operators are permitted under Section 628(c) of the Communications Act. Defendants argue that the Commission's program access rules apply only to satellite programming vendors in which a cable operator has an attributable interest, satellite broadcast programming vendors and cable operators. Defendants maintain that neither CBS nor MSC is a satellite cable programming vendor in which a cable operator has an attributable interest, and neither is a satellite broadcast programming vendor or cable operator. Thus, MSC and CBS argue that Section 628(c) does not prohibit MSC from entering into an exclusive agreement with Bresnan or any other cable operator. 8. Defendants assert that DTI has failed to state a claim under Section 628(b). Bresnan argues that pursuant to Section 628(b) the burden is on the complainant to allege facts demonstrating that the defendant has: (1) engaged in deceptive or unfair acts or practices; and (2) the purpose or effect of defendants' actions are to significantly impede or prevent a competitor from providing programming to subscribers. Defendants argue that DTI failed to allege facts demonstrating that Bresnan and MSC acted unfairly. Bresnan argues that Congress, in adopting Section 628, recognized that exclusive programming agreements may be in the public interest and standing alone do not constitute unfair competition. Bresnan contends that the exclusive programming agreement furthered its legitimate business interests and that DTI failed to establish that the exclusive programming agreement constituted an unreasonable refusal to deal, an exercise of monopoly power in the distribution market, a violation of the antitrust laws, or that the agreement was otherwise anti-competitive. Bresnan also contends that DTI has not shown that its inability to carry MSC will significantly impede or prevent DTI from providing programming to subscribers. Bresnan asserts that DTI has failed to demonstrate that MSC is essential to DTI's survival. 9. Defendants further argue that Section 628(b) may not be used to preclude programming practices clearly sanctioned under more specific provisions of Section 628(c). Defendants argue that Bresnan's agreement with CBS for the exclusive distribution of MSC in Marshall is permitted under the provisions of the Communications Act dealing specifically with exclusive programming agreements. Defendants state that Section 628(c)(2)(D) of the Communications Act restricts a cable operator from entering into an agreement with a satellite cable programming network in which one or more cable operators have an attributable interest. Defendants assert that Section 628(c) does not restrict a cable operator's ability to enter into an exclusive agreement with a non-vertically integrated programming network. Defendants conclude that where the specific provisions of Section 628(c) permit non-vertically integrated programming vendors to enter into exclusive contracts, the general language of Section 628(b) may not be construed to prohibit the same. 10. Defendants argue that the legislative history and the text of the Communications Act reveal that Congress was concerned that vertically integrated program suppliers have the incentive and ability to favor their affiliated cable operators over nonaffiliated cable operators and programming distributors using other technologies. Defendants contend that Congress intended to omit non-vertically integrated programmers from the exclusivity restrictions of the Communications Act. Defendants cite Congress' and the Commission's repeated rejection of attempts to expand coverage of the program access rules to include non-vertically integrated programming networks. 11. Accordingly, Defendants maintain that Congress expressed this concern through the program access rules which prohibit "exclusive distribution contracts for satellite cable or broadcast programming between vertically integrated cable operators and programmers." Defendants assert that, consistent with its concerns, Congress did not apply the program access rules to non-vertically integrated programmers. 12. Bresnan argues that the Commission's narrow interpretation of the exclusivity restrictions may be found in numerous decisions resolving program access complaints. Citing American Cable Co. v. TeleCable of Columbus, Bresnan maintains that the Commission has specifically rejected attempts to use Section 628(b) to strike down exclusive programming agreements permitted under Section 628(c). 13. CBS contends that since neither it nor MSC is a satellite cable programming vendor in which a cable operator has an attributable interest and neither is a satellite broadcast programming vendor or cable operator, the Commission's program access rules do not apply to CBS or MSC. Moreover, CBS asserts that the rules do not prohibit MSC from entering into an exclusive agreement with Bresnan or any other cable operator. Accordingly, CBS argues that the Complaint should be dismissed for failing to state a claim on which relief can be granted. 14. Bresnan argues that the Commission should impose sanctions on DTI for filing a frivolous program access complaint. Bresnan contends that: (1) the complaint is based upon arguments which have been specifically rejected by the Commission in other proceedings; (2) DTI should have known that exclusive agreements permitted under Section 628(c) do not violate Section 628(b); (3) both Congress and the Commission have rejected attempts to expand the scope of the program access rules to include non- vertically integrated programming agreements; and (4) DTI failed to put forth any credible arguments that its ability to compete is threatened by the exclusive agreement. V. DISCUSSION 15. The facts underlying DTI's complaint are not disputed. DTI and Bresnan are each franchised to provide cable service to Marshall, Minnesota. DTI sought carriage of MSC from CBS and was refused based on its prior agreement to provide exclusive carriage to Bresnan. DTI sought subdistribution from Bresnan and was refused. MSC is not a vertically integrated programmer. 16. DTI does not allege that MSC's and Bresnan's actions violate Section 628(c) of the Communications Act, which prohibits certain types of exclusive contracts. Instead, DTI asserts that MSC and Bresnan's exclusive contract combined with both parties refusal to provide MSC's programming to DTI constitutes an unfair practice under Section 628(b) of the Communications Act. Section 628(c)(2)(D) provides that: with respect to distribution to persons in areas served by a cable operator, [the Commissions rules shall] prohibit exclusive contracts for satellite cable programming or satellite broadcast programming between a cable operator and a satellite cable programming vendor in which a cable operator has an attributable interest or a satellite broadcast programming vendor in which a cable operator has an attributable interest In the instant case, a non-vertically integrated programming vendor entered into an exclusive agreement with a cable system operator. Exclusive agreements between cable operators and non-vertically integrated programming vendors are not prohibited by Section 628(c) of the Communications Act. Section 628(c) of the Communications Act only restricts a cable operator from entering into an agreement with a satellite cable programming network in which one or more cable operators has an attributable interest. DTI argues that exclusive agreement between the Defendants violates Section 628(b) of the Communications Act, which provides that: It shall be unlawful for a cable operator, a satellite cable programming vendor in which a cable operator has an attributable interest, or a satellite broadcast programming vendor to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers. 19. In order to find a violation of Section 628(b), the Commission must make two independent determinations. First, the Commission must determine that the defendant has engaged in unfair methods of competition or unfair or deceptive acts or practices. If the Commission finds unfair acts or practices, the Commission must then determine that the unfair acts or practices had the purpose or effect of hindering significantly or preventing a MVPD from providing satellite cable programming to subscribers or consumers. 20. The facts alleged by DTI do not constitute a Section 628(b) violation. As the Commission has stated, Section 628(b) remains "a clear repository of Commission jurisdiction to adopt additional rules or to take additional action to accomplish statutory objectives should additional types of conduct emerge as barriers to competition and obstacles to the broader distribution of satellite cable and broadcast programming." However, Section 628(b) cannot be converted into a tool that, on a per se basis, precludes cable operators from exercising competitive choices that Congress deemed legitimate. 21. The unfair practices provision of Section 628(b) "cannot be read in isolation" and must be interpreted in light of the more specific provisions of the Communications Act permitting exclusive contracts with non-vertically integrated programming vendors. As the Commission stated in American Cable v. Telecable, "a practice permitted under the Communications Act and the Commission's rules cannot, without more, form the basis of a claim of unfair competition." Section 628(b) may not be used to preclude programming practices clearly permitted under the more specific provisions of Section 628(c). 22. Bresnan's exclusive contract with CBS to distribute MSC is permitted by the Communications Act. Given Congress' clear intent and language with respect to cable operators' exclusive contracts in the 1992 Cable Act, an exclusive contract represents a practice that Congress examined and did not consider anticompetitive. A central element of a claim based on Section 628(b) is that the conduct must be unfair or deceptive. Based on the Communications Act's treatment of exclusive contracts, we cannot consider such contracts a new or "additional type of conduct" that may "emerge as a barrier to competition" that the Commission may prohibit through Section 628(b). Bresnan's insistence on its exclusive rights, therefore, cannot be considered an unfair or deceptive practice in violation of Section 628(b). 23. Defendants request that the Commission impose sanctions on DTI for filing a frivolous claim. While we deny DTI's program access complaint, we believe that it was filed in good faith and without knowing disregard to the Commission's rules and decisions. Accordingly, Defendant's request for sanctions is denied. VI. ORDERING CLAUSES 24. Accordingly, IT IS ORDERED, that the complaint filed in CSR 5381-P by Dakota Telecommunications, Inc. IS DENIED. 25. IT IS FURTHER ORDERED, that CBS Broadcasting Inc.'s and Bresnan Communications Corporation's Motion for Sanctions IS DENIED. 26. This action is taken pursuant to authority delegated by Section 0.321 of the Commission's rules. FEDERAL COMMUNICATIONS COMMISSION Deborah A. Lathen Chief, Cable Services Bureau