The Federal Communications Commission on Wednesday voted to move forward a proposal that would eliminate early termination fees that cable and satellite operators impose on customers for canceling TV video services before the end of their contract.
FCC Chairwoman Jessica Rosenworcel last month introduced the proposal against so-called “junk fees” and in a 3-2 vote along party lines this week the FCC adopted a Notice of Proposed Rulemaking. Now the proceeding will be open for comment before the FCC decides on next steps, including any final rules.
The FCC’s announcement pegged the aim of the proposal as protecting consumers who can be locked into satellite or cable contracts but want to terminate service for any number of reasons, such as moving, financial hardship or poor service. With early termination fees, TV providers force customers to pay for a complete billing cycle even if they cancel service before the end of the billing cycle. The FCC took issue with the practice, saying both that fees might limit consumer choice, thereby reducing competition for video service, while also penalizing consumers for ending contracts by making them pay for services they opted not to receive.
The rules wouldn’t apply to virtual MVPDs like YouTube TV or Hulu+ Live TV but would apply to MVPDs including cable and direct broadcast satellite (DBS) operators like Charter, Comcast, DirecTV and Dish Network.
“Consumers are tired of these junk fees. They now have more choices when it comes to video content,” said Rosenworcel in a statement. “But these friction-filled tactics to keep us subscribing to our current providers are aggravating and unfair. So today we kick off a rulemaking to put an end to these practices.”
Rosenworcel noted the rulemaking is also part of a larger effort to create more transparent and fair billing practices across the country, such as the adoption of broadband nutrition labels and last year’s proposal for “all-in” pricing for cable and satellite providers.
In addition to adopting consumer protections, the NPRM also proposes studying the impact of the practices on consumer choice and recommends adopting requirements that cable and satellite providers give subscribers a prorated credit or rebate for the whole days left in a monthly or periodic billing cycle after a consumer cancels service.
FCC Commissioner Geoffrey Starks voted in favor and in a statement said the commission first needs to understand how early termination fees may be used in MVPD contracts. That includes whether they unfairly prohibit consumers from switching providers or if there are instances in which they might benefit consumers by giving them a choice between a longer-term, lower-priced contract with termination fees or a higher-rate month-to-month service agreement that doesn’t have them.
“Even if those situations exist, are there ways we can protect consumers from unreasonable fees? These are the questions we’re asking today. I look forward to seeing the record develop,” Starks stated.
Not all in favor
However, not all commissioners are on board.
In a dissenting statement FCC Commissioner Brendan Carr indicated the FCC may not have the legal authority and said he could not support the push for rate regulation. He pointed to President Biden’s Executive Order on Promoting Competition in the American Economy, which encouraged the FCC to consider “prohibiting unjust or unreasonable early termination fees for end-user communications contracts.” Carr said this week’s decision acts on Biden’s demands in a cable and satellite context.
“It does so at a time when traditional MVPDs are bleeding market share to new, unregulated competitors. And it does so based on illusory statutory authority under the FCC’s customer service mandates,” Carr stated. “Congress’s charge was to address customer service issues such as wait times on services calls, not rate regulation.”
FCC Commissioner Nathan Simington also dissented, contending that “consumers will be worse off after these rules are adopted – provided that the rules survive legal challenge” and that “consumers will pay more for their cable packages” because eradicating early termination fees could also eliminate the discounted rates for non-month-to-month contracts that they support as operators lose the other form of revenue.
The Republican commissioner argued that in many cases a consumer is better off having paid an early termination fee and getting a service discount relative to higher month-to-month service fees.
“Indeed, the discount is often greater on a monthly basis that the ETF [early termination fee] reduction, putting the ETF-paying consumer in the money even faster,” he stated.
Simington also asserted it would make it harder to operate as an MVPD as the item’s “billing cycle fees” rebate rules would impose a burden on cable and satellite providers that other players like streaming services and vMVPDs don’t need to follow and said it would hurt MVPD customers as providers raise rate.
“Rather than improving the consumer experience, it will just make the experience for most MVPD consumers marginally worse, as MVPDs recoup lost revenues in the form of higher monthly service costs overall,” he said in a dissenting statement.
Speaking to StreamTV Insider last month, One Touch Intelligence VP and lead analyst Michael Grebb said junk fees have been a point of contention for a while. As for what kind of financial impact cable and DBS operators could feel by prorating the bill for early terminated contracts, the analyst said it “would be painful but not devastating, in my opinion.”
Still, “if a large cable operator lost, say 300,000 subs in a quarter, the cost of not completing all those billing cycles could still amount to several million dollars,” Grebb commented.