News

Did Martin Flunk 70% Test?

11/16/2007 7:00 PM Eastern

Federal Communications Commission chairman Kevin Martin said the cable-industry’s penetration of the U.S. television market, for the first time, has crossed 70% of households that can subscribe to cable systems offering more than 36 channels of programming.

Crossing that threshold potentially gives his agency broad legal authority to re-regulate the industry. That’s because the FCC gets a booster shot of power over cable when 70% of households are passed by a cable system with at least 36 channels — and 70% of those households, in turn, subscribe to such cable systems.

But in his haste to exert more authority over cable by invoking the so-called 70/70 test, set out in 1984 legislation, Martin might have tripped over some bad data. The source on which he relied for his results says its data cannot be wholly relied upon.

Martin obtained his 70% result by relying solely on data culled from the Television and Cable Factbook, published annually by Warren Communications News. In the past, the agency’s analysis included not just Warren but two other outside sources and its own annual cable price survey.

But Warren chairman and publisher Paul Warren said last Wednesday that his company’s data were incomplete. Why? Not all cable operators agree to disclose their subscriber and homes passed totals for its survey.

The 70% Threshold
Only one calculation - by a cable competitor - contends that cable subscribership exceeds seven in 10 households.
Source Subscribers (Millions) Homes Passed (Millions) Share
All 2005 data, except 2004 FCC Price Survey
SOURCES: NCTA, FCC, SBC
Warren 63.1 93.1 67.8%
Nielsen 69.2 110.4 62.7%
Kagan 65.4 123 53.1%
SBC 65.1 84.5 77.2%
FCC Price Survey, 2005 NA NA 56.3%
FCC Price Survey, 2004 NA NA 58.8%

“As a result, even though we believe we have data representing more than 96% of all cable subscribers, this data is not well-suited to determining whether the [FCC’s 70/70] threshold has been met,” Warren said in a statement.

According to the most recent Warren data, cable penetration is 71.4%, more than enough to trigger FCC authority but higher than past results that put cable penetration no higher than 68%.

Last year, the FCC’s report on video competition put cable’s penetration at 59.6% of homes passed nationally, well under the threshold.

The idea that Martin is presenting — that cable penetration rose in a year when operators lost about 200,000 customers and satellite-TV providers gained 1.8 million — did not sit well with his fellow Republican FCC members, Robert McDowell and Deborah Taylor Tate. The commissioners on Nov. 14 jointly sent a letter to Warren requesting “any and all information” it provided to the agency.

“We are basically jumping from saying they were under 70/70 before but now, even though their subscribership declined, [cable is] over 70/70 when we use the Warren numbers,” an FCC official said.

In a conference call with reporters last Tuesday, Martin said the FCC relied on “one of the outside resources and data services that the commission relies upon.” He did not mention Warren by name.

The National Cable & Telecommunications Association insists that the 70/70 test has never been met, and because cable operators continue to lose market share and subscribers, it probably never will be.

“It’s just over 70[%],” Martin countered. “I don’t recall off the top of my head, but it’s just over 70.”

NCTA president Kyle McSlarrow said Martin’s announcement about the 70/70 test was all about pressuring cable to sell channels a la carte.

“They ought to be careful about the use of data and avoiding use of data for certain political policy purposes,” McSlarrow said, adding that cable would never yield to Martin’s pressure tactics.

Martin fired right back, saying in a statement: “The cable industry needs more competition and we will continue to act to bring more competition and its benefits to consumers.”

September