WASHINGTON (Reuters) – Four industry groups representing major internet providers and cable companies filed suit on Wednesday seeking to block California’s new law to mandate net neutrality rules.

The groups represent companies including AT&T Inc, Verizon Communications Inc, Comcast Corp and Charter Communications Inc. The lawsuit came after the U.S. Justice Department on Sunday filed its own lawsuit to block the new law.

The lawsuit filed by the American Cable Association, CTIA – The Wireless Association, NCTA – The Internet & Television Association and USTelecom – The Broadband Association, called California’s law a “classic example of unconstitutional state regulation” and urged the court to block it before it is set to take effect Jan. 1.

U.S. Attorney General Jeff Sessions said on Sunday in a statement that the “the California legislature has enacted an extreme and illegal state law attempting to frustrate federal policy.”

This marked the latest clash between the Trump administration and California, which have sparred over environmental, immigration and other hot-button issues.

In December, the Federal Communications Commission said in repealing the Obama-era rules that it was preempting states from setting their own rules governing internet access.

California Attorney General Xavier Becerra said on Sunday the Trump Administration was ignoring “millions of Americans who voiced strong support for net neutrality rules.”

The Trump administration rules were a win for internet providers but opposed by companies like Facebook Inc, Amazon.com Inc and Alphabet Inc.

Under President Donald Trump, the FCC voted 3-2 in December along party lines to reverse rules that barred internet service providers from blocking or throttling traffic or offering paid fast lanes, also known as paid prioritization.

In August, 22 states and a coalition of trade groups representing major tech companies urged a federal appeals court to reinstate the rules. The states argue that the FCC cannot preempt state rule because it is not setting any limits on conduct by internet providers.

A federal judge on Monday set a Nov. 14 hearing in Sacramento on the Justice Department lawsuit.

Polka

The nation’s trade association for independent cable companies wants the FCC to prohibit broadcasters from blacking out TV stations during disasters and local emergencies.

The American Cable Association applauded the FCC’s intervention in the recent retransmission consent dispute between Dish Networks and Lilly Broadcasting, which resulted in the satellite provider losing access to a Caribbean-focused station for viewers in Puerto Rico and the U.S. Virgin Islands.

“The commission should find it intolerable for a broadcaster seeking to leverage higher retransmission consent fees to block viewers in a state of emergency from accessing critical, and potentially life‐saving, information,” wrote ACA president Matthew Polka. “It is no answer in such a situation for the broadcaster to suggest that viewers should switch providers or install antennas in order to access this information.”

ACA members, often small cable companies providing service in rural areas, also face station blackouts during tough contract renegotiation talks at a time when many stations are asking for unprecedented rate increases — sometimes 100% or more — in return for a carriage renewal agreement. Some stations have used whatever leverage they can find to pressure cable operators to agree to their terms, without disclosing to viewers just how much some stations are asking to renew those contracts. Most cable operators have passed those fees on to subscribers, which can easily add $5-7 a month to a cable television bill just for three or four local stations.

Lilly’s decision to blackout its One Caribbean TV channel left English-speaking viewers in Puerto Rico without an important news source. Most broadcast outlets on that island broadcast for the much larger Spanish-speaking population. The station was quickly returned to Dish’s lineup after it became a political issue.

Polka wants to make sure a similar situation does not happen in the future, so he’s asked the FCC to consider adding a requirement to the FCC’s “good faith” rules that govern acceptable behavior during retransmission consent negotiations forbidding stations from pulling their signal anywhere the FCC has activated its Disaster Information Reporting System, and to guarantee those signals will remain accessible for the duration of the event.

“We urge the commission to propose and seek comment on such a rule change as soon as possible in order to avoid consumer harm in future emergencies,” Polka told the FCC.

The Boston Globe has joined a parade of media outlets concerned about the future of local news that could be affected if Sinclair is successful in winning approval of its acquisition of Tribune Media’s 42 television stations, calling Sinclair a “behemoth” and the deal “a matter of urgent concern.”

Sinclair is already the largest owner of local television stations in the United States, and its proposed $3.9 billion purchase of Tribune would turn it into a behemoth, with access to more than 70 percent of American households.

An expansion of that size isn’t in the public interest, and federal regulators should move to block it. If they fail to act, state attorneys general should step up and attempt to stop the merger. Sinclair, which already has stations in Rhode Island and Maine and is looking to expand into Connecticut, has a history of slashing staff and requiring its stations to share content — reducing local news coverage in the process.

The network also requires its stations to air centrally produced, conservative-leaning segments. There are daily missives, for instance, from the “Terrorism Alert Desk” — including one piece on the French controversy over “burkinis,” apparently deemed a terrorism-related story simply because it involved Muslims. One election package suggested voters shouldn’t back Hillary Clinton, in part, because of the Democratic Party’s proslavery history. And Sinclair hired former Trump surrogate Boris Epshteyn as its chief political analyst.

[…] Sinclair’s expansion also raises classic anticompetitive concerns. A larger company will be able to demand bigger fees from cable providers retransmitting their broadcasts — costs that will eventually be passed on to consumers. […] There are other ways to prevent large cable companies from throwing their weight around. Unfortunately, the Trump administration’s Federal Communications Commission doesn’t seem interested in implementing them. Indeed, Trump’s FCC and Department of Justice don’t seem interested in much regulation at all.

The FCC docket asking for public comment on the transaction has attracted plenty of opposition to the deal from industry groups, lobbyists, competitors, consumer groups, and members of the public.

Copps (Image: Peretz Partensky)

“Sinclair has failed to explain how this multi-billion dollar merger could possibly be in the public interest,” said Computer & Communications Industry Association President Ed Black. “Even more, allowing this centrally controlled broadcast behemoth that has a history of cutting local news staff and adversely affect independent, local TV stations, would be detrimental. Anyone who values decentralized government control, states’ rights and independent voices should oppose this merger that would harm citizens and weaken our democracy. It’s a concern that a merger that would be so harmful to rural areas, independent news stations and citizens could even be considered. The FCC should reject this takeover proposal outright, and Congress needs to hold hearings to more thoroughly understand the media landscape and how critical independent local broadcast stations are in a democracy.”

“We believe this merger as proposed is unlawful, not in the public interest and should be rejected,” said Matthew Polka, CEO of the American Cable Association. The ACA represents over 700 small independent telecom companies, primarily serving suburban and rural communities.

“It would turn Sinclair into the nation’s largest broadcast conglomerate and lead to higher prices, more station blackouts, less choice, and less local news for millions of consumers,” said Dish Network in its petition to deny the merger.

Even a former FCC commissioner has spoken up against the deal.

Sinclair “comes with an ideology that is far more focused on conservative points of view than any sense of balance or any deep-dive journalism,” said Michael Copps, a former FCC commissioner and special adviser to Common Cause. “No one company should have such power over the news and information that citizens must have if they are going to cast intelligent votes and practice successfully the art of self-government.”

Reuters is reporting the Republican-dominated Federal Communications Commission has reversed a pro-consumer mandate requiring Charter to overbuild at least one million homes to offer competitive internet service. The requirement was imposed on Charter Communications as part of the FCC’s approval of its merger deal with Time Warner Cable and Bright House Networks in 2016.

The overbuild requirement would have forced Charter to directly compete with incumbent phone and/or cable operators in areas where only one provider now offers service.

Pai

The petition to repeal the condition was personally circulated by FCC chairman Ajit Pai who didn’t feel the FCC should mandate cable companies to compete as part of a merger approval.

Former FCC chairman Thomas Wheeler pushed for the requirement, noting that Charter’s merger offered an opportunity to incorporate pro-consumer deal conditions like increased competition. The overbuild requirement would have required Charter to expand its cable service in areas where only telephone company DSL was available or give an opportunity for consumers to have a choice of cable operators. Pai’s effort gives Charter a big break, now only requiring the company to offer high-speed internet as a de facto monopoly to two million new customers where no internet service currently exists.

It also represents a gift to small independent cable operators and their lobbying arm, the American Cable Association, who feared the overbuild requirement would bring Charter into their service areas as an unwelcome competitor that would have “devastating effects on the smaller broadband providers Charter will overbuild” and could put them out of business.

The Competitive Enterprise Institute has its own pending filing asking the FCC to eliminate other deal conditions, including a prohibition on data caps Charter must adhere to for up to seven years.

Pai

As a result of the multibillion dollar cable merger between Charter Communications, Bright House Networks, and Time Warner Cable, the three companies involved freely admitted: your cable bill was unlikely to decrease, you won’t have any new competitive options, there was no guarantee your service would improve, or that you would get faster broadband service than what Time Warner Cable Maxx was already delivering to about half its customer base.

While shareholders and Wall Street bankers made substantial gains, top Time Warner Cable executives walked away with multimillion dollar golden parachute packages, and Charter took control of what is now the country’s supersized, second most powerful cable operator, regulators also required the dealmakers share at least a tiny portion of the spoils with customers.

Then President Donald Trump’s FCC chairman — Ajit Pai — took leadership of the telecom regulator. Now all bets are off.

Pai is reconsidering the settled deal conditions imposed by the FCC under the last administration, and wants to give Charter Communications a free pass to let them out of their commitment to compete. Last week, Pai circulated a petition among his fellow commissioners to roll back the commitment Charter acknowledged to expand its service area to at least one million new homes that already get broadband service from another cable or telephone company.

Former FCC chairman Thomas Wheeler sought the competition requirement to prove that cable operators can successfully run their businesses in direct competition with each other, potentially inspiring other cable companies to face off with incumbent operators outside of their own territories. A paradigm shift worked for Google, which inspired ISPs to boost speeds in light of its gigabit Google Fiber service, which reset customer expectations.

The FCC order approving the merger deal was hardly onerous, requiring Charter to compete head-to-head for customers in places the company can choose itself. Lawmakers eliminated exclusive cable franchise agreements years ago, but established major cable operators like Charter have gone out of their way to avoid competing in areas that already receive cable service. While Wheeler may have hoped some of that competition would be directed against fellow cable companies, Charter CEO Thomas Rutledge quickly made clear to investors and the FCC Charter would continue to avoid direct cable competition, instead promising to expand service into non-cable areas that already get DSL service from the phone company or no broadband at all.

“When I talked to the FCC, I said I can’t overbuild another cable company, because then I could never buy it, because you always block those,” Rutledge said. “It’s really about overbuilding telephone companies.”

Charter’s CEO believes most phone companies are not competing on the same level as cable operators and are unwilling to make the necessary investments to upgrade their aging wired infrastructure to offer faster internet speeds. That makes competing with telephone companies like Windstream, Frontier, and Verizon’s DSL-only service areas a much better proposition than trying to compete head-to-head with Comcast, Cox, or Cablevision.

Rutledge’s clear views about Charter’s expansion plans apparently never made it to the American Cable Association, a cable industry lobbying group that defends the interests of independent and smaller cable operators. Despite Rutledge’s public statements, the ACA and its members are afraid Charter could expand on their turf anyway, potentially forcing small cable operators to compete with the same level of service Charter offers. The horror.

The ACA’s arguments found a sympathetic audience in Mr. Pai and now he wants to let Charter off the hook, at the expense of competition and better service for consumers.

Under the proposal circulated by Pai, Charter would still be required to expand its cable broadband service by at least one million new homes, but those homes would no longer have to be in areas outside of Charter’s existing service footprint. In practical terms, this would mean Charter would focus on wiring areas not far from where it provides service today — ‘DSL or nothing’-country. Charter would also be able to fritter away the number of expansions required by counting newly constructed neighborhood developments it would have likely wired anyway, as well as upgrading its remaining shoddy legacy cable systems — some still incapable of offering broadband or phone service.

The ACA’s talking points prefer to emphasize the David vs. Goliath scenario of a big bully of a cable company like Charter being forced to compete (and likely obliterate) existing small cable operators:

“The overbuild condition imposed by the FCC on Charter is stunningly bad and inexplicable government policy,” said ACA president and CEO Matthew Polka, in a statement. “On the one hand, the FCC found that Charter will be too big and therefore it imposed a series of conditions to ensure it does not exercise any additional market power. At the same time, the FCC, out of the blue, is forcing Charter to get even bigger.”

The real goal here is to minimize direct competition at all costs. The FCC’s deal conditions already included the need for more rural broadband expansion. Wheeler’s second goal was to introduce a new model — cable company competing against cable company — fighting for new customers by offering consumers better service and pricing. The existence of such competition would belie the industry’s claim that cable overbuilds and head-to-head competition is uneconomical. Wildly profitable, perhaps not, but certainly possible. Historically, the traditional way cable operators dealt with the few instances of direct cable competition was to buy them out to put them out of business. Rutledge was certainly thinking along those lines when he complained that the FCC’s order to compete did not include permission to eventually devour its competitor, effectively making competition go away.

Had Charter chosen to compete with cable companies not afraid to spend money to upgrade service above and beyond the anemic broadband speeds Charter offers, it would likely find few takers for its maximum 300Mbps broadband service that comes with a $200 install fee.

“Why would we go where we could get killed?” Rutledge admitted.

Industry claims that the cable business is already fiercely competitive are also countered by Rutledge’s own statements making clear direct competition with brethren cable companies on the cusp of speed-boosting DOCSIS 3.1 upgrades was bad for business. Instead, he would focus on competing with inferior phone companies, which he characterized as mired in debt, still skeptical about the financial wisdom of fiber optic upgrades, and the only competitor where dismal 3-10Mbps DSL service presented a ripe opportunity to steal customers away.

Clyburn – A likely “no” vote.

Charter’s merger approval and its conditions are a sealed deal that was acceptable to Charter and its shareholders and at least offered small token treats to ordinary consumers. Mr. Pai’s willingness to reopen and undo those commitments is just one reason we’ve referred to his regulatory philosophy as irresponsible, nakedly anti-consumer, and anti-competitive. Mr. Pai’s willingness to embrace things as they are comes at the same time most consumers are paying the highest broadband bills ever while also facing an epidemic of usage caps, usage billing, and increasing service and equipment fees. Mr. Pai’s other actions, including ending an effort to introduce competition into the set-top box market, curtailing customer privacy, ending inquiries on usage caps/zero rating, threatening to eliminate Net Neutrality, and reducing the FCC’s already anemic focus on consumer protection makes it clear Mr. Pai is a company man, on a mission to defend the interests of Big Telecom companies and their lobbyists (that also have a history of hiring friendly regulators for high-paying positions once their government job ends.)

That conclusion seems apt considering what Mr. Pai said about Chairman Wheeler’s vision of improving broadband: “one more step down the path of micromanaging where, when, and how ISPs deploy infrastructure.” Missing from his statement are consumers who have spent the last 20 years watching ISPs govern themselves while waiting… waiting… waiting for broadband service that never comes.

Mr. Pai’s proposal needs just one additional vote to win passage. That extra vote is unlikely until President Trump appoints another Republican commissioner. Pai’s proposal isn’t likely to win support from the sole remaining Democrat commissioner still at the FCC — Mignon Clyburn.