Plans for Holston Electric Cooperative to offer television service as part of its Fiber-to-the-Home (FTTH) network deployment are on pause following allegations from the east Tennessee co-op that broadcasting company Nexstar Media Group refused to engage in “good faith” negotiations over retransmission consent agreements.
Holston Electric Cooperative established its broadband subsidiary, HolstonConnect, in late 2017 after a state law change removed restrictions on rural electric co-ops. Currently, HolstonConnect is in phase one of its FTTH project, which will bring high-quality Internet access to underserved communities in Rogersville, Surgoinsville, and nearby areas. Subsequent deployments will connect the remainder of the cooperative’s service territory, partially aided by federal funding from last year’s Connect America Fund phase II reverse auction.
From the start, the co-op planned to offer a “triple play” of broadband, voice, and video services. However, failure to come to an agreement with Nexstar, one of the nation’s largest station operators, over access to essential local channels has delayed the delivery of television services to HolstonConnect subscribers. In early March, Holston filed a complaint against Nexstar with the Federal Communications Commission (FCC), arguing that the broadcasting company demanded exorbitant fees and unfair station tying arrangements during negotiations with the co-op.
“Failure to Negotiate in Good Faith”
To carry popular television programming, networks must sign cable retransmission consent agreements with regional station operators. The FCC requires that these companies behave in “good faith” and make tangible efforts to engage in negotiations.
Holston claims that Nexstar has not met the standard for substantive engagement, stating in a press release, “Nexstar violated FCC rules by failing to negotiate in good faith toward an agreement enabling HolstonConnect to deliver essential local broadcast TV content.” In its FCC complaint, Holston argues that the broadcaster has instead mandated excessively high rates and attempted to force the co-op to pay for extra unwanted stations. According to the complaint, the fees requested by Nexstar were much higher than those charged by other broadcasters and exceed what the company had previously offered other local providers.
Holston explains in its filing with the FCC,
“Knowing that HolstonConnect has an urgent need to finalize its cable lineup, [Nexstar] has sought to use its exclusive control over ‘must-have’ ABC and CBS programming to obtain grossly excessive retransmission consent rates from HolstonConnect, not just for Big 4 programming itself, but also for multiple channels that HolstonConnect does not want.”
The complaint continues,
“In addition, [Nexstar] has consistently failed to communicate in an effective and timely manner with HolstonConnect, which has caused HolstonConnect to waste extraordinary amounts of time and effort in seeking to elicit responses and conduct meaningful negotiations.”
In a filing opposing the complaint, Nexstar refutes Holston’s claims and argues that HolstonConnect was actually the entity delaying negotiations.
Impact on Rural Connectivity
Despite the rise of online streaming services, the inability to offer television access can put small providers like HolstonConnect at a competitive disadvantage when trying to attract subscribers, potentially delaying rural broadband deployment. “Without prompt and forceful remedial action by the Commission,” the complaint asserts, “HolstonConnect’s ability to deploy gigabit infrastructure and services in rural East Tennessee will be hamstrung.”
Holston explains the importance of acquiring retransmission rights further, saying,
“To provide widespread gigabit broadband Internet access service in rural East Tennessee on an economically sound basis, HolstonConnect must be able to obtain essential cable television programming – particularly from the four major television networks – at reasonable and non-discriminatory rates, terms, and conditions.”
“If left unchecked,” the co-op insists in its FCC complaint, “[Nexstar’s] conduct in this case will have a strong anticompetitive effect that dampens the development of competitive cable television service in rural East Tennessee.”
Nexstar Makes Play for Greater Market Share
These allegations add a new dimension to Nexstar’s current attempt to merge with Tribune Media Co., another large broadcasting company. If Nexstar successfully acquires the company, it would become the largest broadcaster in the nation with control over 216 stations in 118 markets. Tribune was previously in the merger crosshairs of Sinclair Broadcast Group, but the deal fell apart in the face of public and regulatory opposition.
Public interest groups have raised concerns about this merger as well, arguing that it would result in higher prices for consumers and less competition in broadcast television. If approved by federal regulators, the acquisition could further depress the negotiating ability of smaller providers, like HolstonConnect to obtain reasonable retransmission terms and rates.
Nexstar asserts that the FCC can’t block its acquisition of Tribune on the grounds that it “might” result in anticompetitive conduct, as opponents to the merger are requesting the agency do. However, considering that HolstonConnect is accusing Nexstar of already engaging in this sort of behavior, the FCC may decide that the deal is indeed not in the public interest.