Open Video System

The staff of the Federal Trade Commission and the Antitrust Division of the Department of Justice have told the Federal Communications Commission that it should not require Open Video System (OVS) operators to carry the programming of competing, in-region cable operators. The agencies responsible for maintaining competition and safeguarding the interests of consumers told the FCC that competition in video programming distribution will be enhanced if the OVS operators are allowed to refuse access to their systems by dominant, in-region cable competitors.

Open video systems were established under the Telecommunications Act of 1996. They will combine features of common carriers and cable systems in providing video programming. If demand exceeds capacity, an OVS is limited to providing programming to one-third of the capacity of its own system, and is obligated to allocate the other two-thirds to unaffiliated video program providers. Under provisions of the Telecommunications Act, the FCC is required to define regulations to prohibit OVS operators from “unjustly or unreasonably” discriminating among those video program providers. The agencies filed comments in opposition to petitions seeking reconsideration of an FCC rule that would give OVS operators the right to discriminate against or bar a dominant, in-region cable operator. The statement expressed support for the “bright line” approach taken by the FCC in its rulemaking giving OVS operators the right to bar a dominant cable competitor.

The statement noted that “Congress created OVS to provide competition and lower barriers to entry in the provision of video programming to consumers. When a dominant firm is protected by high entry barriers, efforts to lower those barriers to entry must be structured to prevent the dominant firm from seeking, either directly or indirectly, to thwart those efforts.” The statement concluded that “a requirement that OVS operators must permit competing in region cable systems with market power to have access to OVS channel capacity would impede such competition.”

The statement notes that an entrenched cable company, “...may have an incentive to see that the OVS is not successful. It could, therefore, use a request for capacity on the OVS as a way to protect and continue to exploit its market power. Enabling a cable operator to demand capacity on an OVS means that less capacity will be available for use by the OVS operator, and for other firms that might want to use some of the OVS capacity. This could result in the OVS providing a service that, because of its relatively limited channel capacity, is a less attractive alternative to the incumbent cable system. This, in turn, could help preserve the cable operator’s market power, thereby giving the cable operator a strategic incentive to demand capacity on the OVS. Thus, mandated access for in-region cable systems could result in less effective entry from OVSs than would otherwise be the case,” the statement says.

The statement represents the views of the Antitrust Division of the Department of Justice and the staff of the FTC’s Bureau of Competition, not necessarily that of the Commission, or any individual Commissioner.

Copies of the staff statement are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326- 2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710 FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov