Wednesday, November 24, 2010

LUS wins first round with NCTC re FCC (But what about the FTC?) —Updated

LUS has successfully argued that the National Cable Television Cooperative (NCTC) was wrong to attempt to use the Federal Courts in Kansas to prevent LUS Fiber/LCG from complaining to the FCC (or the FTC or, well, anybody they want to) about the NCTC blocking their bid for membership. The case has been thrown out of court with the Federal Court in Kansas stating that it had no jurisdiction and, further, that the planitiff the NCTC was really trying to use the courts as an inappropriate battleground or as way to try and establish a decision before a case is actually brought—neither of which is legitimate:
The timing indicates that plaintiff is attempting to use this declaratory judgment action for purposes of procedural fencing or to provide an arena for a race to res judicata.
Folks who've followed the long fiber fight in Lafayette (currently in its seventh year) will recognize this as the latest iteration of the incumbents using the court system to delay LUS Fiber from moving forward. The consistent result for any case pursued to final appeal has been for the final decision to find in LUS' favor. This is simply the latest instance in which the real result, and likely the only really intended result was to cause delay and expense for the people of the city.

The immediate backstory for this instance is that LUS and two other municipal fiber to the home providers had been denied entry to the NCTC which provides their coalition of small cable firms with prices for content that are competitive with those the large multi-system cable companies are able to get. LUS had to wait during a two year moratorium on new members was put in place during 06 and 07; the moratorium was extended multiple times. LUS Fiber then immediately applied for membership when the NCTC lifted the moratorium on new members. But the NCTC quickly inducted two very unusual new members completely at odds with their previous membership: large cable corporatons Charter and, yes, Cox Communications. LUS and other muni providers were put on indefinite hold—their applications simply not responded to—far in excess of the organizations own deadlines for acting on applications. LUS and the other muni providers finally signaled their intent to ask the FCC for relief on the grounds that this exclusion from the cheaper prices available through the "small provider" coop amounted to anti-competitive behavior. The NCTC quickly offered to admit the other two cities on the condition that they drop their complaint. Neither city faced competition from either Cox or Charter who now had members on the board of directors. They agreed. LUS, who does compete with the largest (brand new) member of the NCTC was not offered membership and the basis for refusal to act on LUS' application has yet to be explained. Except, of course, by the Lafayette utility which unambiguously points to Cox. No denial or confirmation has been offered by the NCTC.

(If that recounting was too condensed or abridged please take a look at the account on "Stop the Cap" What makes their take even more interesting is the fact that the author has a prior, at one time supportive, relationship with the NCTC. His judgment is damning.)

The Case at Hand:
The NCTC asked the court for a "declaratory judgment" that would have precluded LUS/LCG from seeking any of the remedies that its FCC filing said were possible. Those ranged from asking the FCC for redress, to asking the FTC to withdraw its letter stating that the NCTC was not in restraint of trade, to requesting congressional review, to seeking redress under Louisiana law. The court walked through each claim by the NCTC and essentially found that the plaintiffs, the NCTC, asked the court to assert an authority it did not have—and to effectively reach a decision in advance of having a case actually presented.

Consequences, FCC:
So the complaint to the FCC will not be blocked. When Lafayette will hear back on that is anybody's guess but the filings with the Kansas court claimed that they thought that the chance of having to go beyond the FCC to receive satisfaction were small. That sounds like confidence to me. That confidence is reinforced when I realize what a potential "nuclear option" the NCTC is risking if LUS and Lafayette were to go to their second option...

With LUS' complaint cleared to go forward what the NCTC has to decide is what they'd risk by allowing their pro-Cox position to be struck down by the FCC. Mainly it would seem to be that they'd lose their much of their current ability to arbitrarily deny an applicant membership. Their defense would have to put up some sort of reason to deny—something which they haven't deigned to do to date. Each potential defense, and were Lafayette's response successful, endangers an excuse which they might want to use at a future date. (For example: it would be risky to try and claim that LUS is using a different, IP-based technology from the rest of their clientle both because that isn't entirely true—IP is already embedded in much cable tech and they've admitted other muni providers using identical tech—but more worryingly because the loss of this excuse would endanger their ongoing policy of refusing to admit small, local telephone companies that are beginning to offer video.) Letting the FCC reach a conclusion on this matter is an open-ended risk for the NCTC; they can't know how far the new FCC under Genachowski will go. Openly stating that they are excluding competitors of current members would be even more risky, especially if they are successful—where the Federal Communications Commission might let such blatantly anticompetitive activity slide if it thought it served some higher purpose related to its telecom-related mandate it is unlikely that the FTC would be happy to hear that the NCTC had explicitly changed its raison d'être to one that is intends to exclude competitors in order to gain an advantage for its members. The central purpose of the Federal Trade Commission is to prevent collusion in restraint of trade..more on this below.

I won't be surprised if we soon hear that the NCTC has decided to let LUS join provided they drop their FCC complaint.

...Especially if they consider that even a refusal to act in Lafayette's favor on the part of the FCC might have truly dire results if the city has to go to its second option.

Potential Consequences, FTC:
The second avenue of redress mentioned by the city's lawyers was asking the Federal Trade Commission to withdraw its "business letter." That pretty much mystified me until I dug up the latest version of the FTC's letter. As it turns out what the letter does is to certify that the FTC does not think that the NCTC operating practices constitute an illegal restraint of trade that would lead them to start enforcement proceedings. But reading the letter makes it clear that its all pretty tentative and as I read it I started to wonder if the new size and constitution of the NCTC after it has bulked up and changed its nature by bringing in some of the nations largest cable companies (it now constitutes the largest group of customers in the nation) would change the FTC's view. And then I hit the final substantive paragraph, reproduced in full with my emphasis:
For these reasons, the Department has no current intention to challenge the NCTC's proposed procedures for jointly negotiating national cable programming contracts for its active members. This letter expresses the Department's current enforcement intentions, and is predicated on the accuracy of the information and assertions that you have presented to us. If the conditions you have presented are substantially changed—if, for example, a major MSO or a DBS provider were to join NCTC or there were other significant changes to NCTC's active membership—the conclusions we have drawn would no longer necessarily apply. In accordance with its normal practice, the Department reserves the right to bring an enforcement action in the future if the actual activities of NCTC or its members prove to be anticompetitive in any purpose or effect in any market.
That has GOT to send a chill through the hearts of the bureaucrats that head up the NCTC. And may well explain the panicky legal response to LUS' simple notification of intent to take their complaint to the FCC that the court has here so easily dismissed. Perhaps the FTC, not the FCC, is the entity they really fear. The FCC would merely make them play fair. The FTC could destroy them. That they've exposed their organization to such a danger should frighten the NCTC membership. And should thoroughly frighten its membership. If LUS/Lafayette were to pursue this it seems very likely that the FTC would have to seriously reconsider its reassurances. After all the NCTC has admitted not one but two major MSOs (mulitple system operators)—Cox and Charter. And it is acting rather transparently in the interests of one of them. That seems like a huge risk for the NCTC take. Playing a game of brinksmanship with LUS could easily lead to the dissolution of the coop. Something which wouldn't bother Cox or Charter; they've always had the heft to go it alone. In fact they'd find it a lot easier to compete with any of the little guys who now take advantage of the better prices the coop offers. It's win-win for Cox and Charter—either they gain a price advantage over little LUS that competes with Cox or they gain a price advantage over all the little guys when the coop fails to meet FTC standards. It's hard to avoid concluding that the little guys that the coop was once run to benefit have been snookered.

At the end of the day the real question remains unchanged; the lawsuit did not serve any real purpose but delay and to drain the resources of the defendant:
With respect to plaintiff’s malicious prosecution claims, a declaratory judgment would not clarify the legal relationship between the parties with respect to the question at issue: whether plaintiff broke the law when it denied defendant’s membership application.
Does LUS/LCG and Lafayette have grounds for claiming that this was frivolous lawsuit? I have no idea. But it certainly has proved, in fact, if not in intent, meaningless.

(Court order link via the inestimable Baller-Herbst List...)

The Lafayette legal team has released a press release that outlines their take on the victory in Kansas.

The Advertiser, the Advocate, and the Independent have all weighed in with responses to the LCG press release.

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