June 14, 2016

Via ECFS

Marlene H. Dortch Secretary Federal Communications Commission 445 12th Street, SW Washington, DC 20554

Re: American Cable Association Notice of Ex Parte Presentation; Expanding Consumers’ Video Navigation Choices, Commercial Availability of Navigation Devices, MB Docket No. 16-42 and CS Docket No. 97-80

Dear Ms. Dortch:

On June 10, 2016, Ross Lieberman, Senior Vice President, Government Affairs, American Cable Association (“ACA”); Mary Lovejoy, Vice President of Regulatory Affairs, ACA; Tom Cohen, Kelly Drye & Warren, outside counsel to ACA; Zachary Cohen, Cartesian, outside consultant to ACA; the undersigned, and representatives from three ACA member companies met with officials of the FCC Media Bureau, Office of Strategic Plans and Policy and Office of the General Counsel listed below to discuss ACA’s position on the Commission’s set-top box proposal.1 The ACA members in attendance were:

 Chris Hilliard, President, USA Communications  Jason Nealis, Vice President Engineering and Operation, RCN and Grande Communications  Karl Skroban, Vice President Media Content, Comporium

During the meeting, the ACA member companies discussed their efforts to offer innovative set-top boxes and apps to their subscribers in a rapidly evolving and economically challenging marketplace, consistent with ACA’s previous filings in the record and the attached presentation.2 Moreover, these members discussed how they offer tiers of video programming in clear QAM so that their customers can subscribe to these packages of service without requiring leased set-top boxes. ACA reiterated that, to the extent the Commission’s proposal can be understood, it is both unworkable and would be excessively expensive to implement for multichannel video programming distributors (“MVPDs”), not only in terms of direct costs that could be identified from the vague guidance contained in the NPRM, and calculated based on conservative assumptions, but also due to “soft” costs that cannot not yet be quantified, including impacts on the ability to raise (and the cost of) capital for network investment.

1 Expanding Consumers’ Video Navigation Choices, Commercial Availability of Navigation Devices, Notice of Proposed Rulemaking, MB Docket No. 16-42 and CS Docket No. 97-80 (rel. Feb. 18, 2016) (“NPRM”). 2 See Expanding Consumers’ Video Navigation Choices, Commercial Availability of Navigation Devices, Notice of Proposed Rulemaking, MB Docket No. 16-42 and CS Docket No. 97-80, Comments of the American Cable Association (filed Apr. 22, 2016) (“ACA Comments”); Reply Comments of the American Cable Association (filed May 23, 2016) (“ACA Reply Comments”).

Marlene H. Dortch June 14, 2016 Page 2 ______

Mr. Hilliard confirmed that the proposal, if adopted, would negatively impact ACA member companies’ rates, terms, and conditions of existing loans and their ability to raise capital in the future for network investments. He noted that banks serving smaller MVPDs pay close attention to the actions of government bodies that regulate their borrowers, particularly the imposition of new regulatory burdens that impact their borrowers’ financial circumstances. Mr. Hilliard explained that sizeable new costs imposed on smaller MVPDs through new regulatory mandates, such as the Commission’s set-top box proposal, could constitute a “material adverse change” which can allow a bank to modify the rates, terms, and conditions of existing loans that smaller MVPDs rely upon to upgrade and expand their video and broadband businesses. Moreover, these new costs can also impact these MVPDs ability to borrow in future.

Providing smaller MVPDs a fixed amount of additional time to comply with the Commission’s proposal instead of adopting ACA’s proposed relief will not mitigate the impact of the proposal on these operators. Due to decreasing video margins,3 and the uncertainty over when and by how much the costs for smaller MVPDs to comply will decrease over time, these operators may be less able to comply with the Commission’s proposal by the delayed compliance date than they are today. Moreover, delayed compliance will not solve the problem of financial institutions’ interest and ability to change the rates, terms, and conditions of existing loans, nor their unwillingness to grant additional credit stemming from the set-top box mandate.

In closing, ACA reiterated its position that the Commission should refrain from adopting its set-top box proposal and from applying it to any MVPDs because it is unwarranted, unlawful and extremely costly, but that should the Commission nonetheless move ahead despite these obstacles, it should refrain from applying the new rules to smaller MVPD systems.4

If you have any questions, or require further information, please do not hesitate to contact me directly.

3 As ACA and others have noted, the Commission is statutorily and constitutionally prohibited from delegating its rulemaking authority to private standards-setting organizations, as the NPRM proposes; rather the Commission must retain the right to review, in a notice-and-comment rulemaking, any standards established by such bodies that are incorporated into its rules. See ACA Comments at 83-85; ACA Reply Comments at 42-43; Expanding Consumers’ Video Navigation Choices, Commercial Availability of Navigation Devices, MB Docket No. 16-42 and CS Docket No. 97-80, Comments of AT&T at 102-103 (filed Apr. 22, 2016) (explaining why the proposals would be an unconstitutional delegation of authority); Comments of the National Cable and Telecommunications Association, Appendix A, Theodore B. Olson, Helgi C. Walker, and Jack N. Goodman, Legal White Paper, The FCC’s ‘Competitive Navigation’ Mandate: A Legal Analysis of Statutory and Constitutional Limits on FCC Authority at 66-69 (filed Apr. 22, 2016) (explaining that the Commission cannot constitutionally “plac[e] its regulatory power in the hands of a private entity.”). 4 For this purpose, ACA has defined “smaller MVPD system” as having fewer than 600,000 subscribers that are not affiliated with either an MVPD serving more than one percent of all MVPD subscribers or an MVPD, or any entity with an attributable interest in an MVPD of 50 percent or more, that has a market capitalization of greater than $100 billion. See ACA Comments at 90-91; ACA Reply Comments at 67, 73-76.

Marlene H. Dortch June 14, 2016 Page 3 ______

Sincerely,

Barbara Esbin

Counsel to the American Cable Association

Attachment (1) cc: Media Bureau William Lake, Chief Nancy Murphy, Associate Chief Martha Heller Steve Broeckaert (via teleconference) Brendan Murray Maria Mullarkey (via teleconference) Kathy Berthot Susan Singer Lyle Elder Anne Russell (Intern) Arian Attar (Intern) Kelsie Rutherford (Intern) Andrew Manley (Intern)

OSP Scott Jordan, Chief Technologist Jonathan Levy

OGC Susan Aaron (via teleconference) John Williams Matthew Collins (via teleconference)

American Cable Association Presentation to the FCC’s Media Bureau

Expanding Consumers’ Video Navigation Choices MB Docket No. 16-42

Commercial Available of Navigation Devices CS Docket No. 97-80

June 10, 2016

1 American Cable Association Representatives

Ross Lieberman and Mary Lovejoy, ACA

Chris Hilliard, USA Communications Jason Nealis, RCN Karl Skroban, Comporium

ACA Outside Counsel Barbara Esbin, Cinnamon Mueller Thomas Cohen, Kelley Drye & Warren

ACA Business/Technical Consultants Zachary Cohen, Cartesian

2 Summary of Presentation

• The Commission should not adopt its Navigation Device proposal; it is unwarranted, bad policy, and legally infirm

– Smaller MVPDs are offering innovative navigation device solutions and are not overcharging subscribers to lease devices – Smaller MVPDs find the Commission’s proposal raises -- but does not adequately address -- a variety of policy and legal concerns, including involving privacy, consumer protection, copyright and licensing, and content protection and security matters – Smaller MVPDs find the Commission’s proposal, to the extent it can be understood, to be unworkable and, nonetheless excessively expensive to implement – The Commission’s proposal is outside the scope of Sections 629, 624A, and 335 and would conflict with other statutory provisions as well as the First and Fifth Amendments to the Constitution

3 Summary of Presentation

• However, should the Commission proceed in the face of these facts, new rules should not apply to smaller MVPD systems*

– Smaller MVPDs will be substantially and disproportionately harmed by the Commission’s proposal; hundreds will go out of business and hundreds more will be forced to raise subscription prices and scale back investments beneficial to subscribers – Smaller MVPDs do not control the development of new ecosystem technologies and should voluntarily adopt compliant solutions once they achieve critical mass – The record (proponents, as well as opponents) affirms that the Commission’s proposal could harm smaller MVPDs and relief should be granted

*A smaller MVPD system is defined as one serving fewer than 600,000 subscribers that are not affiliated with either (i) an MVPD serving more than one percent of all MVPD subscribers or an MVPD, or (ii) an MVPD or any entity with an attributable interest in an MVPD of 50 percent or more, that has a market capitalization of greater than $100 billion

4 Background on the Provision of Video Programming and Navigation Devices by Smaller MVPDs

5 Background on USA Communications

• USA Communications serves ~8,000 video subscribers in smaller markets in five states (Alabama, California, Colorado, Montana, and Nebraska) – 19 headends and no system serves more than 1,400 subscribers – Basic video service uses analog technology; additional packages are offered digital. – Because USA serves lower-income communities, it seeks to provide low- cost video services, including by providing clear QAM signals, which do not require a STB – Makes Roku devices available to subscribers – The video business has low and decreasing margins • Because USA Communications lacks scale, it faces challenges in providing digital service directly and relies on Comcast Wholesale’s Headend in the Sky (HITS) service – With HITS QuickTake service, HITS manages the conditional access elements – HITS services are accessible over a limited type of (“Motorola”) STBs, which have analog and digital tuners

6 Background on RCN/Grande

• RCN serves ~450,000 subscribers as an overbuilder in five urban markets (Boston, Chicago, New York, Philadelphia, Washington); Grande, another overbuilder, serves ~160,000 subscribers in seven urban markets in Texas – RCN uses Arris network equipment with one DAC per market and a backup; Grande uses Arris and Cisco network equipment – Early in 2016, RCN installed an additional DAC for IP Video – RCN/Grande’s networks are bandwidth constrained; it is constantly seeking to free up bandwidth to upgrade broadband performance – RCN just initiated a decade long project to fully transition to all IP • RCN/Grande’s video business is highly competitive, with low and decreasing margins; it views the video experience as an integrated whole, from provision of and access to programming to the devices to user interfaces • RCN/Grande have six year relationship with TiVo; it took many years and cost hundreds of thousands of dollars to integrate TiVo’s platform; today, of the ~750,000 STBs leased by RCN/Grande, ~50% are on the TiVo platform – RCN/Grande have deployed apps on TiVo STBs from numerous providers, including Netflix, Hulu, HBO GO, and TV Everywhere

7 Background on Comporium

• Comporium has ~56,000 video subscribers, 10% lower than five years ago, which it serves over multiple, interconnected systems, primarily in South Carolina, with a central headend and which use Cisco network equipment • Comporium’s video business has low and decreasing margins • To allow customers to receive service without a STB, it offers basic/expanded basic service on clear QAM • Comporium views broadband as its anchor product, and it is upgrading and rebuilding its networks to free up more bandwidth for this service • Comporium has ~13,000 Arris Moxi Whole-Home DVR customers – Moxi integrates linear video service and OTT content – OTT Content Offered: Premium (e.g. YouTube, Pandora) and Other (e.g. Newsmax TX, Accuweather, WURL, Opera TV Store, Golf TV, Vimeo) – The Netflix app is available, but Netflix will not work with Comporium because it is a smaller operator

8 The Commission’s Navigation Device proposal is unwarranted, bad policy, and legally infirm

9 The Navigation Device Market is Working

• Smaller MVPDs provide access to linear and OTT video programming, including by use of third party platforms and apps, over a plethora of navigation devices, meeting the spirit of the Commission’s proposal – Smaller MVPDs are offering set-top boxes (e.g. TiVo) that provide access to pay-TV and OTT services with feature-rich user interfaces – Smaller MVPDs have developed app-based solutions that provide access to pay-TV content through a device that can access other OTT services • Navigation devices and app-based solutions deployed by smaller MVPDs ensure legal and regulatory obligations (e.g. privacy, EAS accessibility) are met and contractual obligations with programmers and content owners are fulfilled • Smaller MVPDs are not overcharging subscribers to lease navigation devices; in fact, as ACA has demonstrated, many lose money on device leases • ACA members support CableCARDs and will continue to deploy them

10 Aspects of the Commission’s Proposal are Unknown; Others are Infeasible • The proposed solutions advanced by proponents of the Commission’s proposal depend on imaginary, infeasible, or, at best, undeveloped technologies and approaches – The proponents’ proposed solutions change significantly from version to version, and still in the most recent version… – The proponents’ proposed solutions are merely an inventory of existing standards that might be used as a starting point to develop detailed specifications, including design, proof-of- concept, security validation, content owner approval and interoperability achievement – Proponents’ arguments rely on technologies that would have to be substantially repurposed but provide no evidence this could be achieved

11 The Commission’s Proposal Would Impose Substantial Costs on Smaller MVPDs • ACA has identified comparable costs for a limited subset of capital expenses that would result from the Commission’s proposal, and these costs would be substantial – Smaller MVPDs would need to customize solutions since systems differ in technologies, equipment ecosystems and services offered; ACA conservatively estimates a cost of at least $1M per headend – Contrary to claims by the proposal’s advocates, an in-home gateway device -- costing ~$350 per device, excluding development costs -- would be required to convert existing data streams to a compliant format capable of delivering the three information flows (since a cloud based approach is not financially or technically feasible)

12 The Commission’s Proposal Would Impose Substantial Costs on Smaller MVPDs

• Smaller MVPDs would face additional costs undertaking the following activities to comply with the Commission’s proposal – Standards development (including the significant cost to participate in Open Standards Bodies) – Specification development – Product development – Customer support training – Operating costs (e.g., software) – Replacement of equipment unable to be converted by the gateway (e.g., archaic EAS systems) – Opportunity costs (diversion of resources from more productive uses, e.g. broadband upgrades) – Plant upgrades (particularly for analog and hybrid systems) – Costs to review and modify content agreements and programmers could raise fees to compensate for weakened security – Costs to participate in standard-setting activities can be so significant that smaller MVPDs may forgo involvement – Truck rolls due to installation or technical problems will involve additional costs

13 The Commission’s Proposal is Legally Infirm

• The Commission’s proposal exceeds the scope of Commission’s authority under Section 629 and STELAR • No other provision of the Communications Act affords the Commission the discretion to adopt its proposed mandate • Carterphone does not provide the requisite authority for the proposed mandate • Delegating authority to develop enforceable standards to Open Standards Bodies violates anti-delegation principles and due process • Adoption of rules based on the Commission’s proposal would be arbitrary and capricious

14 In No Event Should the Commission’s Proposal Apply to Smaller MVPDs

15 In No Event Should the Commission Apply its Proposal to Smaller MVPDs • If the Commission decides to move forward with its proposal, it should not, and need not, apply its proposed rules to Qualifying Multichannel Video Programming Systems, defined as – – MVPD systems serving fewer than 600,000 subscribers that are not affiliated with either (i) an MVPD serving more than one percent of all MVPD subscribers, or (ii) an MVPD or any entity with an attributable interest in the MVPD of 50 percent or more, that has a market capitalization of greater than $100 billion

• As stated earlier, ACA members support CableCARDs and will continue to deploy them

16 In No Event Should the Commission Apply its Proposal to Smaller MVPDs • Costs driven by the Commission’s proposal would threaten smaller MVPDs – ACA projects the estimated $1M capital cost would force at least 200 smaller MVPDs to go out of business or cease video operations › Subscribers in these areas would experience decreased choice and increased prices › The loss of an MVPD would also increase market concentration, which may drive remaining MVPDs to decrease their investments, increase prices, and degrade service quality – Smaller MVPDs that remain in the video business would be forced to divert resources from initiatives that would provide greater value to consumers, improve consumer experience, and expand consumer choice

17 In No Event Should the Commission Apply its Proposal to Smaller MVPDs

• FCC can achieve its purported goals by not applying the regulation to smaller operators – Critical mass for technology is 15-20% – Not applying it to smaller MVPDs would still cover 93% of subscribers – DISH and DirecTV serve virtually all consumers – Smaller MVPDs do not drive the development of ecosystem technology and equipment • Smaller MVPDs should adopt compliant technologies – If significant numbers of subscribers of larger MVPDs purchase and deploy third party navigation devices, then smaller MVPDs, which compete with multiple MVPDs, will be inclined to purchase new equipment so they can offer any additional services and capabilities being provided by competitors – As vendors transition toward supporting and selling compliant equipment for larger MVPDs, smaller MVPDs would adopt these solutions as they upgrade their systems, because they typically deploy accepted solutions and alternative technologies would no longer be available

18 In No Event Should the Commission Apply its Proposal to Smaller MVPDs • Relief for smaller MVPDs is widely supported by commenters, and the record indicates no opposition – Groups representing smaller MPVDs, such as NTCA and WTA, support relief for smaller MVPDs – Proponents of the Commission’s proposal, including TiVo and Public Knowledge, support relief for smaller MVPDs – Bi-Partisan groups of over 60 Representatives and 10 Senators have sent letters raising concerns about the impact of the Commission’s proposal on smaller MVPDs – The SBA Office of Advocacy, earlier this week, raised concerns that the Commission’s proposal “will be disproportionately and significantly burdensome” for small MVPDs and therefore they should be exempted from new rules

19