Executives with DirecTV met with various staff members at the Federal Communications Commission (FCC) last week to discuss their opposition to a proposal that would ban cable and satellite companies from charging early termination fees in the future.
The proposal, put forward by FCC Chairperson Jessica Rosenworcel late last year, would prohibit cable and satellite companies from charging customers who break their multi-year service contracts early. The fees are typically charged to cover the cost of installation and certain equipment, including set-top boxes that are leased by customers.
DirecTV and Dish Network, and some cable TV companies, have long used service contracts as a way to offer customers free equipment and installation in exchange for a long-term commitment to a subscription TV package. The contracts range from one to three years, with the average service contract lasting around 24 months.
The contracts typically include a stipulation that customers will pay an early termination fee if they want to walk away from their service before the end of their agreement. The fees are usually prorated based on how much time is left on a contract.
Last year, Rosenworcel challenged the practice, calling the contractual provisions “junk fees” that punish customers who want to switch between cable and satellite services. The FCC approved a preliminary step toward banning junk fees last December, agreeing to hear public comment on the matter.
DirecTV is one of several companies that oppose the measure, with executives meeting regularly with FCC officials over the past few months. Their latest meeting took place last Tuesday and Wednesday, when DirecTV’s counsel met with several people who work under Rosenworcel and other commissioners. A member of the FCC’s Media Bureau was also engaged, according to a letter submitted last week describing the meetings.
The letter, penned by DirecTV General Counsel Michael Nilsson, said multi-year service contracts allows DirecTV to offset the cost of installation and equipment by securing an agreement from consumers to subscribe to a TV package for at least two years.
DirecTV does not charge customers an early termination fee if they end their subscription after that two-year period, Nilsson said, unless the customer takes advantage of a promotion offered through the company that requires a new or separate agreement.
A ban on early termination fees would upend DirecTV’s business model, Nilsson suggested, writing that it would “likely” lead to DirecTV charging all new customers for equipment and installation up front. That could lead some customers to pay as much as $700 for the equipment and installation needed for DirecTV service, he offered.
“While this proceeding’s goal is to make switching providers easier, the unintended consequence would be to make switching to DirecTV considerably harder, particularly for low-income subscribers,” Nilsson offered.
The situation could also make DirecTV’s satellite product less-desirable compared to similarly-situated streaming services like YouTube TV, Hulu with Live TV, Sling TV, Fubo and Philo, which offer many of the same local and national channels through smart TVs and streaming devices like Roku, Apple TV and Amazon’s Fire TV that are likely already in a person’s home (or, if they’re not, are incredibly cheap to buy). Roku devices start around $20, while the cost of Sling TV is around $40 per month — substantially less than the cost of DirecTV’s installation and monthly service agreement.
DirecTV has a leg up in some respects: It doesn’t require broadband Internet to view its offering of hundreds of local and national networks, and can be installed just about anywhere in the country, making it a viable option for TV service in rural and low-populated areas where high-speed Internet is hard to come by. Those customers will likely have to foot the full cost of installation and equipment if DirecTV moves away from multi-year contracts in response to a ban on early termination fees.
