FEDERAL COMMUNICATIONS COMMISSION WASHINGTON OFFICE OF THE CHAIRMAN The Honorable Heidi Heitkamp United States Senate 110 Hart Senate Office Building Washington, D.C. 20510 Dear Senator Heitkamp: July 11 , 2016 Thank you very much for your letter sharing your views about cost-benefit analysis in the Commission' s proceeding for better fostering competition in the set-top box and navigation app marketplace and how this proceeding might impact small pay-TV providers. I take your input on these issue seriously and assure you that it will receive careful consideration. Section 629 of the Communications Act, adopted by Congress in 1996, requires the Commission to promote competition in the market for devices that consumers use to access their pay-television content. Yet, unfortunately, the statutory mandate in section 629 is not yet fulfilled. The lack of competition in this market has meant few choices and high prices for consumers. One of the main contributing factors to these high prices is the no-option, add-on fee for set-top box rental that is included on every bill, forcing consumers to spend, on average, $231 in rental fees annually. Even worse, a recent congressional investigation found that the price of most equipment fees is determined by what the market will bear, and not the actual cost of the equipment. 1 With the lack of competition in this market, it should come as little surprise that fees for set-top boxes continue to rise.2 Clearly, consumers deserve better. This February the Commission put out for public comment a proposal that would fulfill the statutory requirement of competitive choice for consumers. This action opened a fact-finding dialog to build a record upon which to base any final decisions. Our record already contains more than 280,000 filings, the overwhelming majority of which come from individual consumers. FCC staff is actively engaged in constructive conversations with all stakeholders­ content creators, minority and independent programmers, public interest and consumer groups, device manufacturers and app developers, software security developers, and pay-TV providers of all sizes-on how to ensure that consumers have the competition and choice they deserve. I am hopeful that these discussions will yield straight-forward, feasible and effective rules for all. 1 U.S. SENATE PERMANENT SUBCOMMITIEE ON INVESTIGATIONS, COMMITTEE ON HOMELAND SECURITY AND GOVERNMENT A FFAIRS COMMITTEE, M INORITY STAFF REPORT, INSIDE THE BOX: C USTOMER SERVICE AND BILLING PRACTICES IN THE CABLE AND SATELLITE INDUSTRY, I 7 (Jun . 23, 20 I 6). 2 One recent analys is found that the cost of cab le set-top boxes has ri sen I 85 percent since 1994 while the cost of computers, television and mobile phones has dropped by 90 percent during that same time period. Page 2-The Honorable Heidi Heitkamp You shared your views about the benefits of cost benefit analysis in our proceeding. I agree that a cost-benefit analysis is a valuable tool that can assist in the evaluation of a proposed regulatory course of action. Since President Obama issued Executive Orders 13563 and 13579 in 2011, the Commission has endeavored to act consistently with the cost-benefit analysis principles articulated in those orders in its rulemaking proceedings. This includes consideration of quantifiable, monetized costs and benefits associated with a proposed regulatory approach, as well as careful consideration of those costs and benefits that are not as easily quantifiable or monetized. As we build our record in this proceeding, we will continue to conduct this proceeding following the same principles and guidelines. You also expressed your views about the potential impacts of this proceeding on small pay-TV providers. I share your goal of ensuring that pay-TV subscribers in all parts of our country can enjoy the benefits of consumer choice without unduly burdening small providers of pay-TV. Recognizing the important role that small pay-TV providers play in many rural communities, the Notice of Proposed Rulemaking (NPRM) adopted in February seeks comment on how this proceeding could affect these providers. Notably, the NPRM proposes to exempt all analog cable systems from new requirements while also seeking comment on the American Cable Association's proposal to exempt all pay-TV providers serving one million or fewer subscribers from any rules. The NPRM further asks how the Commission can ensure that any rules adopted are not overly burdensome to pay-TV providers. We are continuing to engage with all stakeholders on this issue, including small pay-TV providers. Customers of MVPDs of all sizes deserve choice and innovation, and I am confident that we will be able to find a balance that accurately reflects the technology and resources available to truly small providers. The rich record we are developing will help us avoid overburdening small pay-TV providers while delivering American consumers meaningful choice. Thank you for your engagement in this proceeding, and I look forward to continuing to work with you on this important consumer issue. Tom Wheeler FEDERAL COMMUNICATIONS COMMISSION WASHINGTON OFF IC E OF THE CHAIRMAN The Honorable James Lankford United States Senate 316 Hart Senate Office Building Washington, D.C. 20510 Dear Senator Lankford: July 11 , 2016 Thank you very much for your letter sharing your views about cost-benefit analysis in the Commission's proceeding for better fostering competition in the set-top box and navigation app marketplace and how this proceeding might impact small pay-TV providers. I take your input on these issue seriously and assure you that it will receive careful consideration. Section 629 of the Communications Act, adopted by Congress in 1996, requires the Commission to promote competition in the market for devices that consumers use to access their pay-television content. Yet, unfortunately, the statutory mandate in section 629 is not yet fulfilled . The lack of competition in this market has meant few choices and high prices for consumers. One of the main contributing factors to these high prices is the no-option, add-on fee for set-top box rental that is included on every bill , forcing consumers to spend, on average, $231 in rental fees annually. Even worse, a recent congressional investigation found that the price of most equipment fees is determined by what the market will bear, and not the actual cost of the equipment. 1 With the lack of competition in this market, it should come as little surprise that fees for set-top boxes continue to rise. 2 Clearly, consumers deserve better. This February the Commission put out for public comment a proposal that would fulfill the statutory requirement of competitive choice for consumers. This action opened a fact-finding dialog to build a record upon which to base any final decisions. Our record already contains more than 280,000 filings, the overwhelming majority of which come from individual consumers. FCC staff is actively engaged in constructive conversations with all stakeholders­ content creators, minority and independent programmers, public interest and consumer groups, device manufacturers and app developers, software security developers, and pay-TV providers of all sizes--on how to ensure that consumers have the competition and choice they deserve. I am hopeful that these discussions will yield straight-forward, feasible and effective rules for all. 1 U .S. SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS, COMMITTEE ON H OMELAND SECURITY AND GOVERNMENT A FFAIRS COMMITTEE, M INORITY STAFF REPORT, INSIDE THE B OX: C USTOMER SERVICE AND BILLING PRACTICES IN THE CABLE AND SATELLITE INDUSTRY, 17 (Jun. 23, 20 16) . 2 One recent analys is found that the cost of cable set-top boxes has ri sen 185 percent since 1994 while the cost of computers, television and mobile phones has dropped by 90 percent during that same time peri od. Page 2-The Honorable James Lankford You shared your views about the benefits of cost benefit analysis in our proceeding. I agree that a cost-benefit analysis is a valuable tool that can assist in the evaluation of a proposed regulatory course of action. Since President Obama issued Executive Orders 13563 and 13579 in 2011, the Commission has endeavored to act consistently with the cost-benefit analysis principles articulated in those orders in its rulemaking proceedings. This includes consideration of quantifiable, monetized costs and benefits associated with a proposed regulatory approach, as well as careful consideration of those costs and benefits that are not as easily quantifiable or monetized. As we build our record in this proceeding, we will continue to conduct this proceeding following the same principles and guidelines. You also expressed your views about the potential impacts of this proceeding on small pay-TV providers. I share your goal of ensuring that pay-TV subscribers in all parts of our country can enjoy the benefits of consumer choice without unduly burdening small providers of pay-TV. Recognizing the important role that small pay-TV providers play in many rural communities, the Notice of Proposed Rulemaking (NPRM) adopted in February seeks comment on how this proceeding could affect these providers. Notably, the NPRM proposes to exempt all analog cable systems from new requirements while also seeking comment on the American Cable Association's proposal to exempt all pay-TV providers serving one million or fewer subscribers from any rules. The NPRM further asks how the Commission can ensure that any rules adopted are not overly burdensome to pay-TV providers. We are continuing to engage with all stakeholders on this issue, including small pay-TV providers. Customers of MVPDs of all sizes deserve choice and innovation, and I am confident that we will be able to find a balance that accurately reflects the technology and resources available to truly small providers. The rich record we are developing will help us avoid overburdening small pay-TV providers while delivering American consumers meaningful choice. Thank you for your engagement in this proceeding, and I look forward to continuing to work with you on this important consumer issue. Sincerely,/ j / ~WI~!~ Tom Wheeler