Small Cable Companies Blame High Prices on Comcast

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Whether you have Comcast (NASDAQ: CMCSA) as your cable provider or a smaller, lesser-known carrier, you still may pay dearly for your pay-TV package. According to a new filing with the Federal Communications Commission (FCC) by the American Cable Association (ACA), that is because the cable giant forces its smaller rivals to offer Comcast's array of channels, preventing them from selling cheap, "skinny" bundles.

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The ACA, a trade organization made up of smaller cable companies, submitted its brief as part of the federal agency's annual review of pay-television competition. They are trying to demonstrate that because Comcast owns a broadcast network, multiple cable channels, and regional sports networks, it has unfair leverage when it comes to carriage deals with smaller players.

How is Comcast allegedly pushing prices higher?

The ACA alleges that Comcast does not always allow smaller rivals to make reasonable deals for basic cable packages, excluding its cable and regional sports networks. Instead, it allegedly forces them to make a deal where most of their customers must subscribe to its broadcast, cable, and sports networks.

Traditionally, content/channel owners have excluded ultra-basic cable packages from minimum penetration requirements. In all other packages, if a company wants to make a deal to have access to USA, Bravo, or a regional sports network, it would agree to make sure a certain percentage of its subscribers got those channels.

But the ACA claims Comcast has decided that its smaller partners can no longer sell "the basic broadcast service tier, coupled with broadband Internet, in a totally unrestricted fashion." According to a statement from the ACA:

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As a result, a [multichinannel video programming distributor, MVPD] must either dampen demand for the service by, for example, raising the price of the broadcast basic tier or essentially cease to offer a true basic tier/broadband combination that does not include a large number of costly cable programming networks. Either outcome will clearly harm consumers and potentially slow the overall adoption of broadband by denying some consumers access to the video/broadband package of services that is most attractive to them.

The ACA also alleges that the cable providers being impacted by this practice are the ones that directly compete with Comcast. It also says that while Comcast "interferes with its competitors' ability to offer consumers a broadcast basic tier of service on an unrestricted basis," it is marketing its own stripped down "Instant TV" bundle to its own broadband-only customers.

Comcast has a deal with a group of ACA members known as the National Cable Television Cooperative (NCTC) that expires in a little over a year. The terms of that agreement were a mandated condition of the merger between Comcast and NBC Universal. They forced the cable giant to exempt basic cable from minimum penetration requirements at least when it comes to NCTC members.

The ACA worries that when that deal ends, Comcast will stop offering a basic cable package to that buying group.

Skinny bundles and very-basic packages should be increasingly in demand as consumers opt to cut the cord, replacing cable with streaming services. Not being able to offer them while a larger rival can, would be very bad for small carriers' ability to compete.

What might the FCC do?

While Comcast has every right to use its leverage to force its smaller rivals to carry its channels, the ACA's members, which serve about 7 million broadband customers, also have every right to be concerned.

The FCC has the responsibility of deciding what's best for the American public. It's hard to see how that would be making them buy cable channels they don't want just so they can receive a bottom-rung basic pay-TV package, but the current leanings of the commission suggests it won't deal with this issue.

The threat of public outcry may keep Comcast from moving too drastically, but the reality is that big cable companies have always pressed their advantage over smaller rivals. That's not likely to be any different here, which will force millions of Americans to choose between paying for channels they don't want or not getting ones they do.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.