**Before the**

**Federal Communications Commission**

**Washington, D.C.**

In the Matter of: )

)

Omnicom Cablevision of Illinois d/b/a ) DA No. 96-66

Post-Newsweek Cable )

)

Request for Clarification )

)

Negative Option Billing and the Preemption )

of State Consumer Protection Laws )

**MEMORANDUM OPINION AND ORDER**

**Adopted:** **August 20, 2003 Released: September 17, 2003**

By the Commission:

# introduction

1.  In this Memorandum Opinion and Order, we consider an application for
    review filed by an Omnicom Cablevision of Illinois ("Omnicom")
    subscriber, Jeffrey Greenberg ("Greenberg"), with respect to an
    opinion letter issued by the former Cable Services Bureau ("Bureau")
    at the request of Omnicom.[^1] The *Opinion Letter* concluded that
    certain of Omnicom's billing practices were consistent with the
    requirements of the Cable Television Consumer Protection and
    Competition Act of 1992 ("1992 Cable Act") and the Commission's
    implementing regulations thereunder.[^2] As discussed below, we
    affirm the *Opinion Letter* and deny Greenberg's application for
    review.

# Background

2.  Greenberg filed a class-action complaint against Omnicom in the
    Circuit Court for Cook County, Illinois alleging that the cable
    operator violated an Illinois state law prohibition on negative
    option billing when it: (1) transferred ownership of in-home cable
    wiring to residential subscribers and unbundled service charges
    related thereto, and (2) unbundled charges for its programming guide
    magazine.[^3] Omnicom moved to dismiss Greenberg's complaint on
    several grounds, including federal preemption of state law.[^4]
    Omnicom independently submitted a "Request for Clarification" to the
    Bureau seeking confirmation that the operator's unbundling of its
    in-home wiring maintenance and cable guide magazine charges complied
    with Section 623(f) of the Communications Act and Section 76.981 of
    the Commission's rules and that "insofar as Illinois law would have
    required Omnicom to seek affirmative subscriber consent to
    accomplish the . . . restructurings . . . Illinois law is
    inconsistent with federal regulation and is preempted thereby."[^5]
    The Bureau opined that Omnicom's unbundling of charges was permitted
    by federal law and regulations and that Illinois state law was
    preempted to the extent that the two were inconsistent.[^6]

# DISCUSSION

3.  The Bureau's *Opinion Letter* made three findings that are disputed
    by Greenberg on review: (i) Omnicom's unbundling of in-home wiring
    service charges for its Highland Park, Illinois cable system was
    consistent with the 1992 Cable Act and the Commission's regulations
    prohibiting negative option billing; (ii) Omnicom's unbundling of
    charges for its programming guide was consistent with federal law
    and regulations; and (iii) to the extent that Illinois consumer
    protection law imposes requirements for rate and service
    restructurings that are different than federal law, Illinois state
    law is preempted.[^7]

4.  ***Transfer of Ownership of Internal Cable Wiring & Unbundling of
    Wire Maintenance Charges.*** The effective date of the Commission's
    cable rate regulations implementing the 1992 Cable Act was September
    1, 1993.[^8] Omnicom asserts that, prior to its rate restructuring,
    subscribers were charged a set monthly fee for basic cable
    television service that included the maintenance of internal
    wiring.[^9] In anticipation of the September 1^st^ date, Omnicom, in
    August 1993, transferred ownership of internal wiring to its
    subscribers and, effective September 1, 1993, began to itemize a
    separate monthly charge on subscriber bills for internal wiring
    maintenance.[^10] In lieu of the monthly internal wiring maintenance
    charge, Omnicom states that subscribers could elect to pay hourly
    service charges in the event that a service visit was
    necessary.[^11]

5.  The Bureau determined that Omnicom's transfer of ownership of inside
    cable wiring and its unbundling of wire maintenance services did not
    violate the Commission's prohibition against negative option billing
    and were consistent with its rules concerning the unbundling of
    cable services.[^12] The Bureau reasoned that since the prohibition
    on negative option billing applies to changes in the mix of
    programming services, the unbundling of related charges would not
    run afoul of the prohibition if subscribers continued to receive the
    same mix of programming services.[^13] The Bureau cautioned,
    however, that the prohibition on negative option billing would apply
    to rate restructurings "effect\[ing\] a fundamental change in the
    nature of the service."[^14]

6.  Following these principles, the Bureau concluded that Omnicom had
    simply unbundled its existing internal wire maintenance service,
    rendering the negative option billing prohibition inapplicable.[^15]
    The Bureau found Omnicom's situation to be similar to that in the
    *Comcast -- Tallahassee* case, where Comcast's itemization of an
    internal wire maintenance plan on subscriber bills following
    September 1, 1993, was characterized as "simply compliance with
    Commission rules requiring unbundling" and did not implicate
    negative option billing.[^16] In addition, the Bureau found that the
    "fact that Omnicom transferred ownership of the inside wiring to
    subscribers \[was\] not relevant for the purposes of our negative
    option billing analysis" because the transfer did not impose any
    cost upon subscribers.[^17] Rather than focusing on the ownership of
    the inside wiring, the Bureau's analysis concentrated on the wire
    maintenance service itself.[^18] Because Omnicom subscribers paid
    for the same maintenance service before and after September 1, 1993,
    the only difference being the itemization of the charge, the Bureau
    concluded that negative option billing had not occurred.[^19]

7.  In his application for review, Greenberg contends that Omnicom's
    unbundling of its wire maintenance plan violates the federal
    prohibition against negative option billing found in Section 623(f)
    of the Communications Act and its implementing regulations.[^20]
    Although Greenberg recognizes that the negative option billing
    prohibition does not apply in a variety of circumstances, enumerated
    as exceptions in Section 76.981(b) of the Commission's rules, he
    argues that these exceptions are limited by a requirement that
    billing changes must not result from "a fundamental change in the
    nature of an existing service."[^21] Greenberg argues that the
    Bureau impermissibly characterized Omnicom's unbundling of its wire
    maintenance plan as falling within the Section 76.981(b)
    exceptions.[^22] Greenberg cites the legislative history of the 1992
    Cable Act and asserts that the scope of the exceptions is limited to
    "changes in the mix of programming services that are included in
    various tiers of cable services."[^23] On this basis, Greenberg
    maintains that the wire maintenance charges resulting from Omnicom's
    unbundling falls outside the Section 76.981(b) exceptions and
    constitutes a violation of the prohibition on negative option
    billing. [^24]

8.  We disagree with Greenberg's interpretation of the *Opinion Letter.*
    The Bureau did not apply the Section 76.981(b) exceptions to
    Omnicom's unbundling charges, but rather found that the negative
    option billing prohibition did not apply to these charges in the
    first place.[^25] Negative option billing is a practice in which
    customers are charged for new services without their explicit
    consent. In the instant situation, customers were already receiving
    Omnicom's wire maintenance service as a bundled component of their
    basic cable service.[^26] After unbundling, these customers
    continued to receive the same service, only with a separate line
    item on their billing statement reflecting the specific charges for
    that service.

9.  Greenberg disputes the characterization of Omnicom's wire
    maintenance charges as the mere unbundling of a pre-existing service
    by arguing that "Omnicom had never previously provided any
    maintenance service on customer-owned equipment."[^27] In effect,
    Greenberg attempts to distinguish wire maintenance service for cable
    operator-owned equipment from that for customer-owned equipment,
    simply by virtue of the change in ownership. Greenberg cites the
    *Monmouth* and *Paragon* cases for the proposition that a transfer
    in the ownership of equipment automatically constitutes more than
    the unbundling of services and implicates negative option billing
    issues. [^28]

10. We disagree with Greenberg's assertion that a transfer in ownership
    necessarily involves negative option billing issues as well as his
    interpretation of the *Monmouth* and *Paragon* cases. In *Monmouth,*
    customers that leased remote controls were, without their consent,
    sold the remote that they leased and were billed the full price of
    the remote unit. [^29] The Bureau found that, because the leasing
    subscriber had not affirmatively requested to purchase a remote,
    Monmouth Cablevision had violated the negative option billing
    provision. This change was "more . . . than simply rearranging the
    way the same services and equipment were offered."[^30] Rather,
    there was a change in the nature of the service (lease versus
    ownership) for which the cable operators imposed an additional
    charge. Greenberg contrasts the result in *Monmouth* to that in
    *Paragon* where no transfer of equipment ownership occurred and
    customers' existing leasing charges were billed as separate line
    items, rather than the preexisting practice of including such costs
    as part of the subscriber's bundled cable service charge.[^31]
    Greenberg attributes the different results in the *Monmouth* and
    *Paragon* cases solely to the fact that the former case involved a
    transfer in equipment ownership while the latter did not.[^32]
    However, a change in equipment ownership alone does not compel a
    change in the nature of the service at issue, particularly where
    there is no increase in associated service fees. In the instant
    proceeding, ownership of inside wiring was given to subscribers at
    no charge while the existing maintenance service cost was unbundled
    with the applicable service charges remaining the same, simply
    expressed as a line item on subscriber bills. The relevant service,
    wire management, in no way changed as a result of the transfer of
    ownership.

11. Greenberg also questions the existence of a wire maintenance fee as
    a component in the Omnicom pre-September 1993 monthly charge for
    basic cable service.[^33] Greenberg cites Commission language
    stating "\[i\]n the absence of any other understanding, subscriber
    payments for cable service typically have not been made for a
    specific part of the system operation."[^34] However, the language
    cited by Greenberg relates to implementation of Section 16(d) of the
    1992 Cable Act, which requires cable operators to provide
    subscribers the opportunity to acquire cable home wiring.[^35] In
    this context, the language concerns the calculation of prices for
    inside wiring and the attribution of monthly charges thereto and
    provides no guidance in determining whether consumers paid for
    inside wiring maintenance service prior to implementation of the
    1992 Cable Act.[^36]

12. Finally, Greenberg asserts that Omnicom failed to unbundle the wire
    maintenance plan at cost.[^37] Omnicom offered customers either a
    monthly charge of \$1.75 or an hourly charge of \$23.66, which
    Greenberg compares to Comcast's monthly wire maintenance charge of
    \$0.45 and hourly charge of \$25.66.[^38] The reasonableness of
    Omnicom's wire maintenance fee is a matter within the province of
    the local franchising authority.[^39] As such, we decline to
    consider Greenberg's argument in this regard. [^40]

13. ***Unbundling of Program Guide Magazine*.** In its *Opinion Letter*,
    the Bureau relied on its decision in *Paragon* in determining that
    Omnicom's unbundling of its program guide magazine did not implicate
    our negative option billing prohibition.[^41] The Bureau observed
    that "\[a\]lthough a program guide is not an item subject to the
    equipment or installation rate regulation, its unbundling from the
    regulated tier charge appears indistinguishable from such charges
    for purposes of our negative option billing analysis."[^42]
    Following the rationale of the *Paragon* case, the Bureau further
    reasoned that "the guide was, in fact, a component part of the
    service offering that subscribers were entitled to receive when they
    ordered cable service."[^43]

14. Greenberg challenges the Bureau's decision and its reliance on
    *Paragon*.[^44] At the outset, he questions the Bureau's decision in
    *Paragon* in so far as "it is not clear that the Commission has
    jurisdiction to regulate the marketing of the magazine."[^45]
    However, *Paragon* did not involve regulation of the marketing of
    program guide magazines; it simply concluded that the unbundling of
    related charges does not violate the Commission's negative option
    billing prohibition.[^46] Greenberg also disputes the outcome of the
    Bureau's negative option billing analysis since in his view
    programming guide magazines do not fall within the permitted
    exceptions in Section 76.981(b).[^47] To the contrary, the Bureau's
    ruling that the charges for programming guide magazines did not
    contravene the negative option billing prohibition was premised upon
    the fact that the magazines were not new services, but rather had
    been a component of the subscriber's pre-existing basic cable
    service charge.[^48]

15. ***Preemption.*** Omnicom asked the Commission to find that, under
    the specific facts of the present case, federal cable rate
    regulation preempts the Illinois consumer protection law invoked by
    Greenberg.[^49] In its *Opinion Letter*, the Bureau concluded,
    "application of a state negative option billing law against Omnicom
    would . . . undermine implementation of federal cable rate
    regulation."[^50] Greenberg responds by pointing to court cases
    ruling that state consumer laws can coexist with, and do not
    necessarily preempt, federal regulation.[^51] In addition, Greenberg
    recalls past Commission statements recognizing the concurrent
    enforcement of state and federal consumer protection measures where
    the state regulation does not interfere with federal rate
    regulation.[^52] Finally, Greenberg argues that, as an alternative
    means of complying with both the federal and state laws, Omnicom
    "could have provided the guide and maintenance plan at no charge on
    an introductory basis until it could solicit affirmative
    consent."[^53]

16. The Bureau stated that:

    \[S\]tate and local law relating to negative option billing are not
    preempted or displaced by the provisions of the 1992 Cable Act on a
    general basis. However, where there is a conflict between the rate
    regulation rules . . . and such state or local regulations, system
    operators are entitled to rely on the federal rules which must
    prevail over conflicting state or local requirements."[^54]

    We agree. Greenberg alleges that Omnicom's unbundling of the wire
    maintenance fees violates Section 10b of the Illinois Consumer Fraud
    Act and Section 4 of the Illinois Uniform Deceptive Trade Practices
    Act. Section 10b of the Illinois Consumer Fraud Act states that
    nothing in the Act "shall apply to ... Actions or transactions
    specifically authorized by laws administered by any regulatory body
    or officer acting under statutory authority of this State or the
    United States.[^55] Similarly, Section 4 of the Illinois Uniform
    Deceptive Trade Practices Act states that the Act does not apply to
    "conduct in compliance with the orders or rules of a statute
    administered by a Federal, state or local governmental agency."[^56]
    Section 76.923 of the Commission's rules requires cable operators to
    unbundle wire maintenance fees. Therefore, by their own terms,
    neither state statute appears to apply to Omnicom's actions taken to
    comply with the Commission's rules.

17. Furthermore, we note that Greenberg has not referred to specific
    language from an Illinois statute or a decision from an Illinois
    state court that holds that unbundling of wire maintenance fees or
    the unbundling of a program guide magazine are violations of
    Illinois consumer protection laws.[^57] Finally, we reject
    Greenberg's claim that Omnicom should have provided wire maintenance
    service and cable guide magazines temporarily free of charge until
    it could obtain affirmative subscriber consent. Our preemption
    analysis and rate regulation rules in no way compel such action
    where cable operators are properly unbundling existing customer
    charges.

# ORDERING CLAUSES

18. Accordingly, **IT IS ORDERED** that the captioned application for
    review **IS** **DENIED**.

19. This action is taken pursuant to statutory authority found in
    Sections 1, 4(i), 5(c), 405, and 614(h)(1)(C) of the Communications
    Act of 1934, as amended, 47 U.S.C. §§ 151, 154(i), 155(c), 405,
    534(h)(1)(C).

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch

    Secretary

[^1]: Letter from Meredith J. Jones, Chief, Cable Service Bureau, to
    Omnicom Cablevision of Illinois, Inc. c/o Stuart F. Feldstein, Esq.,
    Fleischman and Walsh, L.L.P., 11 FCC Rcd 2492 (1996) ("*Opinion
    Letter"*).

[^2]: *See* 47 U.S.C. § 543 *et seq*.; 47 C.F.R. 76.901 *et seq.*

[^3]: *See* *Greenberg v. Post Newsweek Cable*, 95 CH 1212 (Cir. Ct.
    Cook Co., IL Feb. 8, 1995)*.* The applicable Illinois statute is the
    Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1
    *et seq.*

[^4]: Opposition to Application for Review at 4 ("Omnicom Opposition").

[^5]: *Opinion Letter,* 11 FCC Rcd at 2492; *see* 47 U.S.C. § 543(f); 47
    C.F.R. § 76.821.

[^6]: *Opinion Letter,* 11 FCC Rcd at 2493-94. The Circuit Court for
    Cook County dismissed Greenberg's class action suit in part based
    upon the findings made in the *Opinion Letter*. *See* *Greenberg v.
    Post Newsweek Cable*, 95 CH 1212 (Cir. Ct. Cook Co., IL Feb. 14,
    1996)*.* An appeal of the Circuit Court's dismissal is pending
    before the Appellate Court of Illinois. *See Greenberg v. Post
    Newsweek Cable*, No. 96-0903 (App. Ct. Ill., 1^st^ Dist., 2d Div.).

[^7]: *Opinion Letter,* 11 FCC Rcd at 2493-94.

[^8]: *See* 58 Fed. Reg. 41,042 (1993).

[^9]: Omnicom Opposition at 3.

[^10]: *Id*. at 3, 11.

[^11]: *Id*. at 3.

[^12]: *Opinion Letter,* 11 FCC Rcd at 2493-94; *see* 47 U.S.C. § 543(f)
    ("\[a\] cable operator shall not charge a subscriber for any service
    or equipment that the subscriber has not affirmatively requested by
    name"); 47 C.F.R. § 76.981; *see* 47 C.F.R. § 76.923.

[^13]: *Opinion Letter,* 11 FCC Rcd at 2493.

[^14]: *Id.*; *see also* *Implementation of Sections of the Cable
    Television Consumer Protection and Competition Act of 1992: Rate
    Regulation*, 8 FCC Rcd 5631, 5905-08 n.1105 (1993) ("*Rate Order*").

[^15]: *Opinion Letter*, 11 FCC Rcd at 2493.

[^16]: *Id.,* citing *Comcast - Tallahassee, Florida*, 10 FCC Rcd 2106,
    2108-09 (1995) ("*Comcast - Tallahassee*").

[^17]: *Id.*

[^18]: *Id*.

[^19]: *Id*.

[^20]: Application for Review at 2-3; *see* 47 U.S.C. § 543(f); 47
    C.F.R. § 76.981.

[^21]: Application for Review at 2-3, quoting in part 47 C.F.R. §
    76.981(b). The enumerated exceptions include the "adjustment of
    rates to reflect inflation, cost of living and other external costs,
    the addition or deletion of a specific program from a service
    offering, the addition or deletion of specific channels from an
    existing tier or service, the restructuring or division of existing
    tiers of service, or the adjustment of rates as a result of the
    addition, deletion or substitution of channels pursuant to § 76.922.
    . . ." 47 C.F.R. § 76.981(b).

[^22]: Application for Review at 8-9.

[^23]: *Id*. at 9, citing H.R. Conf. Rep. No. 102-862, 102d Cong., 2d
    Sess. 65 (1992).

[^24]: *Id*. at 10.

[^25]: *Opinion Letter*, 11 FCC Rcd at 2493; *see* Omnicom Opposition at
    8.

[^26]: *Opinion Letter*, 11 FCC Rcd at 2493; *see* Omnicom Opposition at
    9.

[^27]: Application for Review at 11.

[^28]: Application for Review at 13-15; Greenberg Reply at 6-8; *see
    also* *Monmouth Cablevision*, 10 FCC Rcd 9438, 9440-41 (1995)
    ("*Monmouth"*); *Paragon Cable,* 10 FCC Rcd 6012, 6013 (1995)
    ("*Paragon*").

[^29]: *Monmouth*, 10 FCC Rcd at 9438-40.

[^30]: *Id*. at 9441.

[^31]: *Paragon,* 10 FCC Rcd at 6013.

[^32]: Application for Review at 14-15.

[^33]: *Id*. at 11-13.

[^34]: *Id*. at 11, citing *Implementation of Cable Television Consumer
    Protection Act of 1992: Cable Home Wiring*, 8 FCC Rcd 1435, 1438
    (1993) ("*Home Wiring Order"*).

[^35]: 47 U.S.C. § 544(i).

[^36]: The Commission indicated that it was attempting to identify a
    means of calculating the price of inside wiring where subscribers
    were given the option to purchase it. *Home Wiring Order*, 8 FCC Rcd
    at 1438.

[^37]: Application for Review at 15-16.

[^38]: *Id*. at 16.

[^39]: *See* 47 U.S.C. § 543(a); *Paragon*, 10 FCC Rcd. At 6013.

[^40]: We do not address here whether the changes in rates led to
    overall higher rates as this issue was not raised before the local
    franchising authority. If the overall rates were higher, this could
    be a violation of the Commission's rate rules**.**

[^41]: *Opinion Letter*, 11 FCC Rcd at 2493-94.

[^42]: *Id.* at 2493, quoting *Paragon Cable,* 10 FCC Rcd at 6013.

[^43]: *Id.* at 2494.

[^44]: Application for Review at 17-18.

[^45]: *Id*. at 17.

[^46]: *Paragon Cable,* 10 FCC Rcd at 6013.

[^47]: Application for Review at 17-18.

[^48]: *Opinion Letter*, 11 FCC Rcd at 2494 ("\[W\]hen Omnicom began
    unbundling its cable services, the operator was permitted to itemize
    all services previously contained in its package, including the
    provision of a programming guide, and recover associated costs.").

[^49]: Omnicom Opposition at 4-5.

[^50]: *Opinion Letter*, 11 FCC Rcd at 2494.

[^51]: Application for Review at 19-21; *see also Total TV v. Palmer
    Communications*, 69 F.3d 298, 302-03 (9th Cir. 1995) ("*Total TV*");
    *AMSAT Cable v. Cablevision of Conn.*, 6 F.3d 867, 875-76 (2d Cir.
    1993) ("*AMSAT*"); *Cable Television Ass'n v. Finneran*, 954 F.2d 91
    (2d Cir. 1992) ("*Finneran*"). Greenberg also distinguishes one
    federal case holding that the 1992 Cable Act preempted state law on
    the grounds that the cable operator's challenged action was a minor
    channel realignment specifically considered by the Commission. *Time
    Warner Cable v. Doyle*, 66 F.3d 867 (7^th^ Cir. 1995) ("*Doyle*").

[^52]: Application for Review at 21; *see Implementation of Sections of
    the Cable Television Consumer Protection and Competition Act of
    1992: Rate Regulation*, 10 FCC Rcd 1226, 1263 (1994) ("*Sixth Report
    and Order*").

[^53]: Greenberg Reply at 9-10.

[^54]: *Opinion Letter*, 11 FCC Rcd at 2494.

[^55]: Il. St. Ch. 815 Sec. 505/10b(1).

[^56]: Il. St. Ch. 815 Sec. 510/4(1).

[^57]: As the D.C. Circuit observed in *Time Warner v. FCC*, under these
    circumstances, it is difficult to determine whether there is a
    conflict between state and federal law. *See* 56 F.3d 151, 195 (D.C.
    Cir. 1995) ("whether a state regulation unavoidably conflicts with
    national interests is an issue incapable of resolution in the
    abstract.").