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Martin’s Aim: Upending Cable

11/16/2007 7:00 PM Eastern

National Cable & Telecommunication Association president Kyle McSlarrow last week accused Federal Communications Commission chairman Kevin Martin of deliberately inflicting regulatory pain on the cable industry.

The point: To pressure cable operators to sell channels on an a la carte basis, instead of in bundles of many channels at once.

No matter how bad it gets with Martin, McSlarrow said cable would never yield to that kind of intimidation, which he called “completely inconsistent” with the free-market philosophy of President Bush, who appointed Martin chairman in 2005.

“That’s not going to happen,” McSlarrow said on a conference call with reporters last Wednesday. “We are not going to fundamentally wreck the business model and hurt our customers in order to appease one chairman of the FCC.”

Martin has every intention of testing cable’s hang-tough stance, saying through a spokeswoman:

“The cable industry needs more competition and we will continue to act to bring more competition and its benefits to consumers.”

Over the next year at least, Martin has any number of opportunities to draw blood from cable operators and programmers. Here are just some of things he’d like to do.

  • Impose ownership rules that would block Comcast from making a large acquisition.

  • Expand the number of digital programming services from a local TV station that a system has to carry.

  • Authorize designated entities to demand carriage on cable systems if they lease spectrum from digital TV stations.

  • Slash rates operators can charge for leasing access to their channels by 75%, restricting cable bandwidth at a time of high demand for HDTV and faster Internet speeds.

  • Require operators to carry independent channels such as the Hallmark Channel and the NFL Network on their basic tiers of programming; and compensate both with attractive license fees.

  • Impose wholesale a la carte rules in which programmers would need to sell channels one at time to their pay-TV distributors.

  • Adopt the Consumer Electronics Association’s technical specifications for two-way, plug-and-play digital TV sets, which the NCTA is fighting.

The FCC’s Cable Guy: Getting Martin-ized
Here are strictures Chairman Kevin Martin could use to rein in cable, on the premise that cable now is an obstacle to 'diversity of information.’
SOURCE: Multichannel News research
Cable ownership: In 1999, the FCC barred one cable company from serving more than 30% of subscribers to all pay TV providers, but a panel of the U.S. Court of Appeals for the D.C. Circuit voided the cap in March 2001. Although a new cap has not been adopted, the FCC and the Justice Department can still enforce the 30% limit when operators seek approval to add subscribers through mergers and acquisition.
Leased access: In 1984, Congress ordered large-capacity cable systems to lease up to 15% of their channels for the commercial use of third-party programmers. Although an FCC formula already sets leased access rates, Martin wants to slash rates by 75%, to 10 cents per month, per subscriber. Public interest advocates, in lobbying Martin in private, sought a rate of $0.006 per analog subscriber and $0.008 per digital subscriber. The same groups want the FCC to overturn a precedent and allow independent Internet-service providers rely on the leased-access rules to lease broadband capacity.
Program carriage: Since 1992, the FCC has had authority to ban operators from (a) demanding an equity interest in networks in exchange for carriage and (b) from discriminating against networks based on their ownership structure. Though seldom invoked, NFL Network and Hallmark Channel want the FCC to use compulsory arbitration to force carriage in the first instance and then to help them obtain license fees at levels operators wouldn’t want to pay in a purely market-based setting.
Wholesale a la carte: For the past 15 years, FCC rules have forced cable operators to sell their satellite-delivered networks to satellite-TV and competing cable providers. Martin wants to use language in the same program-access law which outlaws “unfair or deceptive acts or practices” to order Walt Disney, Viacom and News Corp. to ensure that pay-TV distributors have a la carte access to their channels. Critics of Martin’s approach are already wondering how the FCC can enforce any “wholesale a la carte” scheme without fixing the per-channel price of each channel sold.

According to McSlarrow, Martin’s agenda is tantamount to regulatory harassment, harmful not just to a critical part of the nation’s communications industry, but also to the FCC’s reputation as an independent agency where the development of sound policy is supposed to triumph over raw political considerations.

“My judgment is that the FCC is broken,” McSlarrow said, adding that an honest appraisal of Martin’s agenda would force one to “conclude overwhelmingly that the issues that have been teed up as they relate to the cable industry have been designed to hurt the cable industry.”

The latest cable-Martin tempest erupted after The New York Times reported on Nov. 10 that Martin had concluded that cable had reached a level of dominance specified in law that provided him with new and potentially sweeping power over cable.

Over cable’s fierce objections, Martin said that systems with at least 36 channels now pass 70% of U.S. households and at least 70% of households passed by such systems subscribe to cable.

Under the 1984 federal cable law, the so-called 70/70 test, which has never been invoked, permits the FCC to “promulgate any additional rules necessary to provide diversity of information sources.”

Although cable insists the mandate under the 70/70 test is narrow, the statutory language, read expansively, could allow the FCC to treat operators as common carriers. That would turn largely closed networks into nondiscriminatory platforms for video providers. Along the way, the FCC could slap price controls on all programming not sold a la carte. And it might even mean that third-party Internet-service providers or Web sites could lease cable channels.

“It is not yet clear whether the FCC will let Internet-based video providers purchase cable capacity via leased access, but if it did, this could have broad implications for cable’s current video services,” said Stanford Group analyst Paul Gallant, adding that the FCC could force cable to lease on-demand services.

In the past, Martin has said the FCC has no legal authority to impose a la carte pricing, and last week he said he had not changed his mind.

“I haven’t proposed anything for the [FCC] to do anything on a la carte,” Martin said in a conference call with reporters on a largely unrelated topic.

Nevertheless, cable-industry leaders cut short a board meeting at NCTA headquarters last Thursday to fan out across Washington, D.C. to seek allies in the battle with Martin.

On hand were Brian Roberts of Comcast, Glenn Britt of Time Warner Cable, Tom Rutledge of Cablevision Systems and Michael Willner of Insight Communications. Programming chiefs included A&E Networks’ Abbe Raven, Fox Cable Networks’ Tony Vinciquerra and former NCTA chief and president of Landmark Communications Decker Anstrom.

NCTA vice president of communications Brian Dietz said they emphasized McSlarrow’s points expressed in a letter to the FCC last Tuesday that cited “a recurring, disturbing pattern of attempts to set policies that harm consumers.”

 

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