LUS alleges 'unfair, deceptive' conduct by Cox, NCTC

by Nathan Stubbs

By being kept out of a national co-op of cable operators, LUS Fiber could potentially lose out on "millions of dollars" in annual savings and revenue, according to a complaint filed by the public utility's telecommunications business.

By being kept out of a national co-op of cable operators, LUS Fiber could potentially lose out on "millions of dollars" in annual savings and revenue, according to a complaint filed by the public utility's telecommunications business. LUS Fiber filed the complaint Thursday with the Federal Communications Commission, alleging that the Kansas-based National Cable Television Cooperative, whose largest member is LUS Fiber competitor Cox Communications, has violated Section 628 of the 1996 Federal Communications Act by unfairly discriminating against LUS in denying its membership application.

The NCTC acts as the buying agent for more than 1,000 cable operators in negotiating deals with programming channels. As an independent operator and non-NCTC member, LUS has been forced to negotiate individually with each programmer in putting together its cable lineup. Not having the buying power of a national co-op puts it at a significant competitive disadvantage. "These discounts and benefits [of NCTC membership] total millions of dollars annually," LUS argues in its complaint. "Given the substantial market power of the Defendants, their refusal to deal with LUS is per se unlawful. LUS seeks expedited review, declaratory and injunctive relief, damages, penalties and forfeitures, costs, including attorney fees, and such other relief as the Commission may deem appropriate."

The complaint lists the NCTC and members of its 15-member board of directors, including Cox, as defendants. The complaint further singles out Cox as likely being the driving force behind denying LUS' membership, alleging:

For many years, NCTC treated all small cable systems, including public systems such as LUS, in a fair and non-discriminatory manner as Congress intended in enacting Section 628. In recent years, however, NCTC has become increasingly dominated by a handful of sizable cable companies that have long records of hostility toward public communications systems. This trend rapidly gained momentum in 2009, when Cox Communications and Charter Communications joined NCTC, more than doubling NCTC's subscriber base, and took seats on NCTC's Board of Directors. Their entry may well have driven, or at least cemented, NCTC's refusal to deal with LUS.

LUS has been trying to join NCTC since 2008, when the organization enacted a moratorium on new members. Since then, the organization has lifted the moratorium or made exceptions for Cox, Charter and, more recently, two other small municipal cable operators in Chattanooga, Tenn., and Wilson, NC, but not LUS. In its complaint LUS says that NCTC's admittance of Chattanooga and Wilson is the latest proof that NCTC's initial argument for withholding membership from LUS privacy concerns arising from LUS being a public entity is no longer valid. The complaint states:

Since the matters at issue between NCTC and LUS were virtually identical to those at issue between Chattanooga and Wilson, NCTC's discrimination against LUS cannot be explained on legal or factual grounds. In fact, the only significant distinction between LUS and Chattanooga/Wilson is that LUS's major rival, Cox Communications, is NCTC's largest member as well as a prominent member of NCTC's Board of Directors, whereas Chattanooga's and Wilson's major competitors, Comcast and Time Warner, respectively, are not members of NCTC.

In an e-mailed statement to The Independent, Cox Communications spokeswoman Patricia Parks Thompson states: "Cox has nothing to do with NCTC's membership decisions, which are entirely in the control of NCTC management. Cox has always embraced competition in Lafayette, and we will be vigorously defending ourselves against this meritless lawsuit."

LUS' FCC complaint, prepared by Lafayette city attorney Pat Ottinger and LUS Fiber attorney Jim Baller, acknowledges that the Communications Act does not expressly mention "the specific kinds of unfair and deceptive practices at issue here." However, LUS argues:

NCTC is not a private country club that is free to admit or reject whomever it pleases, nor is it still the small and powerless entity that it was before Congress enacted Section 628. Rather, acting under the protection that Congress afforded it in Section 628 for the express purpose of fostering vigorous competition in the cable industry, NCTC has grown into one of the most powerful players in the cable industry, with the power to cause great harm to the intended beneficiaries of Section 628, including LUS. It would flout Congress's intent to allow the Defendants to pervert Section 628 by acting anti-competitively themselves, for the benefit of NCTC's largest members." Section 628 states: "It shall be unlawful for a cable operator, a satellite cable programming vendor in which a cable operator has an attributable interest, or a satellite broadcast programming vendor to engage in unfair methods of competition."

In estimating the damage incurred to LUS in the complaint, LUS Fiber consultant Doug Dawson provides the following figures:

LUS is paying, and will pay, at least 10% to 15% more for access to video programming than it would pay if it were a member of NCTC. Applying these percentages to LUS's actual programming costs, and utilizing a conservative rate of projected subscriber growth, I estimate that LUS will suffer damages ranging between $227,000 and $341,000 for the fiscal year ending October 31, 2010 and between $663,000 and $995,000 for the fiscal year ending October 31, 2011. If LUS does not achieve its projected growth rates because of the cost pressures created by its exclusion from NCTC, its damages will be much higher, because they will also include lost revenues from sales of broadband and telephone services to subscribers that purchase bundled services.