Rosenworcel Holdout on Set-Top Order, as O'Rielly Tells Hearing of Draft's Details

“I have some problems with licensing and the FCC getting a little too involved in the licensing scheme here,” Rosenworcel told Sen. Jerry Moran, R-Kansas, saying, “I just don’t think we have the authority” in Communications Act Section 629. She repeated that objection later to Sen. Cory Gardner, R-Colo., referring to the licensing scheme and her “one concern” with the order. She cited “complexity that needs work.”

Commissioners Ajit Pai and Mike O’Rielly criticized the order, mentioning licensing. The order “is clear that the job of this licensing body is merely to develop recommendations for a consensus license, recommendations that the commission may accept, micromanage, or retool at will,” O’Rielly testified. “Since the authority is delegated to the Media Bureau, it is not even the Commissioners that will make the decisions.”

O’Rielly’s released testimony included some details of the set-top draft order, and he said it includes a “starter list” of specific terms that would be allowed in the licenses between multichannel video programming distributors and third-party box makers, and a list of those that would be “unquestionably unreasonable.” Several industry officials have told us the draft item contains lists of specific terms that would or wouldn't be allowed.

An FCC official said the item contains a list of permitted practices that were requested by programmers to prevent MVPDs from setting terms with the third-party manufacturers that would exclude any of the programmer’s content. The permitted terms are intended to maintain programmer control over which content is in the apps, the official said. The draft also requires pay-TV companies to provide standardized information streams to the third-party devices that communicate what services a customer is entitled to receive, an industry official said. Those streams would be contained within the app, and are thus under MVPD control, an FCC spokeswoman said. "The proposal requires MVPDs to share with device makers only the minimum amount of data necessary for innovators to develop integrated search functionalities, allowing consumers to search across the programming they’ve paid for.”

The spokeswoman said agency involvement in contract terms is limited to deals between MVPDs and third-party box makers. Industry officials disagree. If the FCC were to decide licensing terms between an MVPD and a third-party device maker were anticompetitive and strike them down, and those terms stemmed from the original deal between the MVPD and a programmer, it could create a situation where the third-party device maker isn’t bound by contract terms the MVPD is bound by, pay-TV industry officials said.

Open to Changes

Wheeler told senators he's not sure the licensing issue “is a real problem but I’m open-minded in having us solve it.” He's open to further changes to the order, he said, saying that's part of the deliberative process. The only two outright defenders were Sens. Ed Markey, D-Mass., and Richard Blumenthal, D-Conn. Markey held up a chained set-top to illustrate his support, saying the debate with programmers is similar to debates he faced in 1992, and insisting they can be resolved.

Commerce Committee Chairman John Thune, R-S.D., said it “would be good if they could work that out” and release the proposal. He previously called the order unlawful. He questioned O'Rielly on the matter, who told Thune that Wheeler's descriptions are misleading. "It’s inaccurate to say that we’re leaving those [contracts] intact," O'Rielly told Thune.

“We’re not setting ourselves up to second guess the contract after it’s been done,” Wheeler said, explaining the licensing body provisions. “For seven or eight weeks this summer, we held extensive discussions with both cable industry and programmers. This was a provision that the programmers specifically asked needed to be in to protect their contracts. I keep saying I am for protecting programmers’ contracts. If that was a mistake, as with anything else in that item, and my colleagues have a different approach or different thoughts, let’s do it.”

Ranking member Bill Nelson, D-Fla., said if consensus can't be reached, there’s no success and said stakeholders keep telling him parts of the order need work, generally on content and copyright. “I share these concerns,” Nelson told Wheeler. “If we stay on the present course, I fear the FCC’s actions to promote set-top box competition would be tied up in the court and hamstrung for years.” He requested the FCC “take the time necessary” to resolve concerns.

Sen. Claire McCaskill, D-Mo., expressed confusion, called the licensing part “new” and pressed Wheeler where the commission derives the authority. Wheeler insisted his goal isn’t to write copyright policy or interfere with contracts: “I’m looking forward to working with my colleagues on what does it take to lock things down. Because it is not our goal to become a judge of the contracts between MVPDs and programmers.” McCaskill was pleased: “I’m glad you acknowledge you’re not there yet.”

Questions kept coming, from Communications Subcommittee Chairman Roger Ricker, R-Mo., and with mentions from Sens. Roy Blunt, R-Mo., and Amy Klobuchar, D-Minn. Blunt identified copyright concerns and cited his position as Rules Committee chairman, with oversight of the Copyright Office. Klobuchar probed Wheeler on the effect on smaller programmers, prompting Wheeler to tout the Wednesday endorsement of the order from Writers Guild of America, West. “What’s going to get us to 100 percent?” asked Sen. Cory Booker, D-N.J., describing “a lot of friends who I trust” expressing “legitimate concerns.” Wheeler relayed the different scenarios for a licensing structure they considered -- contemplating a board with programmers and equipment manufacturers -- before landing on the current commission-centered model. Sen. Ron Johnson, R-Wis., asked whether any cost-benefit analysis was done, prompting Pai to say there was none but should be. Wheeler defended the notice-and-comment process as the administrative law equivalent of the scientific method, with a significant record.

Finish Line Near

The FCC is “very, very close to getting across the finish line” but the order now does more than initially was mentioned, said Communications Subcommittee ranking member Brian Schatz, D-Hawaii, citing his own past advocacy and backing for the underlying proposal. “It’s not at all clear to me that it’s necessary to do all of these other things to get across the finish line,” said Schatz. He focused on the licensing objections from Pai and O’Rielly, calling them “quite legitimate concerns,” but also wondered whether Pai would come up with new objections if Wheeler negotiated and removed the offending provisions. Pai defended his practice of outlining recommendations early to let his positions be known.

“There must be FCC oversight,” said Sen. Richard Blumenthal, D-Conn., “Voluntary standards got us into this mess. … This issue is a classic inside the Beltway versus people of America issue.”

“I hope that the significant departure from structure but not from principle that our new proposal represents is a real-life indication of how we are willing and seeking to resolve remaining concerns while allowing that chain to be chopped,” Wheeler told Markey.