The Chairman vs. Cable
TV Violence May Further Chill Frosty Relations With FCC’s Martin
By Ted Hearn -- Multichannel News, 5/6/2007 6:00:00 PM MT
Washington — Washington— Two weeks ago, the Federal Communications Commission released a long-awaited report on television violence. The event gave FCC chairman Kevin Martin a new platform from which to endorse legislation that would force cable operators to let customers buy every channel one by one, instead of in large bundles.
That way, consumers wouldn’t have to pay for any channel they individually deemed too violent.
Martin’s a la carte advocacy wasn’t a surprise, since he’s been harassing cable for years over a business model that packages dozens of cable networks into large programming tiers and then offers those tiers to consumers on a take-it-or-leave it basis. Although Martin has said the FCC is powerless to impose a la carte, he has encouraged Sen. John McCain (R-Ariz.) and Rep. Ralph Regula (R-Ohio) to give him the authority to dictate programming sale terms to every cable operator in the country.
| Not Done Yet |
|---|
| FCC chairman Kevin Martin’s agenda of cable items for the 20 months remaining in the Bush administration includes: |
| Capping cable ownership. Comcast could not count more than 30% of pay-TV subscribers nationally as its customers. |
| A la carte legislation. Encouraging Congress to pass law forcing channels to be sold one at a time, to regulate cable prices and the distribution of violent and indecent content. |
| Dual carriage. Forcing cable operators to carry local TV signals in both analog and digital form, until all cable subscribers have digital reception equipment. |
| Forced Carriage. Requiring cable carriage of programming from FCC-qualified entities that have leased time from local TV stations. |
| Non-exclusivity. Banning cable operators from signing exclusive service contracts with apartment building landlords. |
A LA CARTE’S SHADOW
Cable’s longstanding opposition to a la carte mandates has put the industry at sharp odds with Martin. He’s a Republican appointee of President Bush who has made a la carte requirements a notable exception to the free-market philosophy he said should normally govern the telecommunications arena. Operators and programmers argue that the economics associated with an a la carte pricing system would end up raising retail cable rates and reducing programming diversity, especially for niche programming aimed at various minority groups.
His stance is ominous because, during Martin’s two-year tenure as FCC chairman, cable has lost important policy battles and has little to show in the victory column. For instance, phone companies got rules that required cities to act on their cable entry applications within 90 days. Rules that would impose the same deadline to act on renewals of cable incumbents were put off for at least six months.
Based on comments by Martin, AT&T and Verizon are all but assured of having government-guaranteed access to many leading cable programming networks owned by Comcast and Time Warner Inc. Meanwhile, Martin hasn’t moved to ensure Comcast and Time Warner can interconnect their VoIP networks directly with AT&T and Verizon for the exchange of voice traffic.
Now with 20 months left in his term, Martin has set his sights on regulating cable even more. He wants to restrict cable distribution of violent content; force cable operators to rely on expensive set-top boxes; and require systems to distribute local TV stations in analog and digital formats until every TV set in every cable home has been replaced by a cable-ready digital TV set or has been connected to a digital set-top box.
Assuming he can find the support, Martin wouldn’t mind capping Comcast’s subscriber base at 30% of all U.S. pay TV subscribers. He also would favor banning cable operators from signing new exclusive service contracts with apartment-building landlords.
And he’s shown little interest in helping small cable operators deal with TV stations that threaten to withhold their signals unless those operators agree to make large cash payments. Last October, Mediacom Communications asked the FCC to impose binding arbitration to settle a carriage dispute with Sinclair Broadcast Group, which threatened to pull 23 TV stations from 700,000 Mediacom homes if the cable operator didn’t pony up cash. Far into the dispute, Martin said the FCC lacked legal authority to require binding arbitration, though he urged both parties to do so voluntarily. Just before the Super Bowl in February, Mediacom caved in and quickly raised rates for the second time in three months in part to offset Sinclair’s retransmission fees.
“[The FCC] won’t step in with binding arbitration,” complained David Keefe, CEO of Atlantic Broadband, a Quincy, Mass.-based cable company with 290,000 subscribers in seven East Coast states.
GENESIS OF COLD STREAK
The industry’s refusal to appease Martin by voluntarily embracing an a la carte system has been seen by some cable leaders as the genesis for so many setbacks at the agency in the past two years. National Cable & Telecommunications Association president Kyle McSlarrow said as much in March, but NCTA officials last week wouldn’t comment for this story.
FCC officials, agreeing to discuss Martin’s relationship with cable, last week denied that the chairman was biased against the industry.
“None of those decisions are the chairman being anti-cable. They are the chairman implementing the statute and being pro-consumer and pro-investment and pro-competition,” said FCC Office of Strategic Planning and Policy Analysis chief Catherine Bohigian, one of Martin’s most-trusted advisers.
FCC officials deflected numerous questions suggesting that cable’s cold streak at the FCC wasn’t just a coincidence.
“The cable industry isn’t in the dog house at the FCC,” an FCC official insisted. “The chairman takes these issues issue by issue.”
Others see it differently. Reps. Joe Barton (R-Texas) and Fred Upton (R-Mich.), two lawmakers normally in Martin’s camp, sent Martin a strong letter last month saying he was advancing proposals “that are leading the [FCC] precisely down the road of intrusive regulation when it is least justified.”
An FCC official said the Barton-Upton letter was being taken seriously, but the official hadn’t had time to discuss it with Martin.
Wall Street, which hasn’t been punishing cable stocks despite Martin-induced regulatory uncertainty, hasn’t ignored cable’s woes at the FCC.
“Anyone who follows the happenings at the FCC (and that, sadly, would be us) knows that the agency has had a run of recent policy decisions that might be categorized as ... well, rather blatantly anti-cable,” Sanford Bernstein cable and satellite analyst Craig Moffett noted in the March 16 edition of his weekly pay TV missive, “Weekend Media Blast.”
Steve Effros, a cable consultant in Fairfax, Va., who has spent 30 years observing cable’s political struggles in Washington, D.C., said the current state of affairs was the worst he could recall.
“The relationship between cable and the chairman I don’t think has been more testy, even with Reed Hundt,” Effros said. “The level of frustration is just so high. … Facts don’t seem to enter the debate.” [Hundt was FCC chairman in 1994 when the agency cut cable rates 7%, following a 10% reduction the prior year.]
Even at a time of high tension between cable and Martin, NCTA invited him to speak at this week’s Cable Show in Las Vegas. Martin is scheduled as the lead speaker at Monday’s 1 p.m. general session, which gives him the chance to choose the words that could set the tone for the whole event.
SHOWING UP
FCC officials couldn’t say whether Martin is heading to Las Vegas with olive branch in hand because his speech was still being drafted.
“My expectation is that it will be very consistent with what he always says. He’s not going to take some radical departure in his speech,” the FCC official said.
The TV-violence report could be on his Cable Show agenda. In the report, the FCC concluded for the first time that Congress could define TV violence and regulate it in a manner consistent with the First Amendment.
Giving Congress two options, the FCC said a law could ban violent content from 6 a.m. to 10 p.m., also called time channeling, or a law could require the a la carte sale of channels to ensure that access to violent content was governed by an opt-in regime.
Martin indicated that forced a la carte would have a better chance of surviving in court than time bans. Though Martin didn’t cite the case in his remarks, the Supreme Court in 2000 struck down a federal law that tried to time-channel cable pornography.
“[Martin] said an a la carte solution, because it’s content-neutral, raises fewer constitutional concerns. He never expressed the belief that time channeling on cable would be unconstitutional,” an FCC official said.
Sen. Jay Rockefeller (D-W.Va.) is planning to introduce TV-violence legislation shaped by insights in the FCC report. Past attempts by Rockefeller to slap violent content controls on broadcasters and cable operators have fallen short.
“The violence report might generate some renewed interest in Congress. But a la carte had difficulty getting traction last Congress. You would have to consider legislation to be an uphill climb,” said Paul Gallant, a media analyst with Stanford Washington Policy Research.
On cable-carriage issues, Martin is seeking to overturn some of cable’s most hard-fought First Amendment victories over broadcasters at the agency.
In 2001 and 2005, the FCC rejected regulations that would have expanded the scope of cable operators’ legal obligation to carry local-TV signals. One regulation, commonly called dual must-carry, would have allowed a TV station to insist on cable carriage in both analog and digital formats until the TV station had to surrender its analog license to the FCC. The surrender date is Feb. 17, 2009 nationally, but when the FCC had dual must-carry under review, TV stations could keep their analog spectrum until 85% of TV households in a market had digital reception equipment.
The second proposed regulation twice rejected was referred to as multicast must-carry. Digital transmission offers TV stations the flexibility to transmit a single high-definition picture or four or five separate programming services that collectively use about the same amount of bandwidth as a single HD feed. TV stations wanted an FCC rule that forced cable to carry every programming service that a local TV station provided for free to local viewers. Although dual must-carry was a transition rule, multicast must-carry was intended to be permanent.
In rejecting dual must-carry and multicast must-carry, the FCC said that neither regulation was important enough, from the government’s perspective, to justify the impact each would have the First Amendment editorial rights of cable operators. Martin agreed with the outcome on dual must-carry, but disagreed with the outcome on multicast must-carry.
The 2005 vote occurred in the waning moments of FCC chairman Michael Powell’s time in office. Martin, who became chairman in March 2005, has used the past 23 months to resurrect both dual must-carry and multicast must-carry over cable’s strong objection.
Martin didn’t have a Republican majority at the FCC until June 2006 with the arrival of Robert McDowell. Martin tested him immediately by seeking McDowell’s support of multicast must-carry three weeks into his new job. McDowell balked at being rushed, forcing Martin to withdraw the multicast must-carry item from the agenda.
Three months later, Martin appeared before the Senate Commerce Committee to seek a second term at the FCC and lead the agency until President Bush’s scheduled departure from office in January 2009. Martin told the panel he had no “current intention” to pursue multicast must carry because there wasn’t an FCC majority in support. But just weeks after being confirmed in November, Martin revived multicast must-carry — but in a totally new context.
'A’ AND 'F’ GRADES
Martin proposed that if TV stations leased surplus spectrum to a certain class of individuals or entities to be designated by the FCC, those lessees would have the same mandatory carriage rights as the host station. Aside from a few public comments, Martin hasn’t indicated he’s ready to bring the matter to a vote.
Late last month, Martin decided to return to the dual carriage issue, in a move that angered Barton and Upton. In an April 26 statement, the lawmakers said that they did not believe “forcing dual carriage on the cable industry is appropriate or necessary.”
At its April 25 meeting, the FCC opened a rulemaking which would allow must-carry TV stations to demand digital and analog carriage on any cable system that wasn’t 100% digital by Feb. 17, 2009, when TV stations are required by law to cease analog transmission.
Since few cable systems are expected to be all-digital by early 2009, dual carriage would appear to be cable’s only option.
Martin said the law requires cable to ensure that local TV signals are viewable in every cable home. Cable’s legal position is likely to be that delivery of a digital TV signal to a home with only analog equipment would meet the “viewable” test because the consumer can view the channel by obtaining a digital set-top box or cable-ready DTV set.
“I give the chairman a A for persistence, I give him an A for resourcefulness, but I give him an F for statutory interpretation,” said Burt Braverman, a cable attorney at Davis Wright Tremaine in Washington, D.C.
An FCC official shot back that Martin was trying to facilitate and implement the DTV transition “in a way that’s consistent with the statute and in a way that would impose the minimum cost to consumers.”
Triple carriage is a possible outcome during times when must-carry stations transmit in high-definition. The cable system would need to deliver the signal in analog, standard-definition digital, and high definition to ensure that the signal is viewable on every TV set connected to the cable system, as required by law. Cable systems couldn’t rely on the standard and analog feeds to meet the dual-carriage requirement, because current FCC rules ban a cable operator from materially degrading an HD signal.
“The question, in part, is whether it’s going to be dual carriage or triple carriage,” Braverman said.
Two weeks ago, Martin said the status quo was unacceptable.
“It can’t be that cable subscribers won’t be able to view broadcast channels when analog broadcasting stops. And we do not believe that every consumer should be forced to rent a set-top box,” Martin said.
Without a dual-carriage mandate, a station that elected must-carry after Feb. 17, 2009 would be viewable only in the 55% of cable homes with digital reception equipment. Nevertheless, cable officials have said they plan to do dual must-carry on their own and don’t want the government to compel it.
An SD-analog must carry regime would consume about 7 MHz of cable plant per station while an SD-HD-analog mandate would involve 9 or 10 MHz. In markets with a high number of must-carry stations, cable capacity might not be available for non-broadcast services offered over modern cable systems.
“The more bandwidth the broadcasters are able to get through government fiat, the less bandwidth there is available for programmers, such as C-SPAN, who don’t have government license, who rely on market forces, not government fiat, for their place on a cable system,” said C-SPAN corporate vice president Bruce Collins.
SET-TOP STANDOFF
In some ways, Martin’s new approach to dual must-carry is tied to yet another issue where he and cable have clashed: set-top box regulation. While Martin has argued that banning certain cable boxes would promote competition among set-top makers, NCTA, Comcast and many more cable operators have complained that the rule will drive up set-top box costs, thereby slowing consumers’ transition to digital by making the move more expensive.
In 1996, Congress ordered the FCC to develop rules that would assure “the commercial availability” of set-top boxes. Because the technology used to prevent signal theft was closely guarded, cable operators relied on just a few vendors to supply set-top boxes, effectively preventing consumers from shopping for boxes at major consumer-electronics stores.
In a rulemaking a decade ago, the FCC determined that to achieve the aims of the statute, channel selection and signal security functions had to be separated. The agency approved the use of an insertable card — first known as a point-of-deployment module, now called a CableCard — that would contain signal security features that would be compatible with any retail “host” device, which today includes set-top boxes and cable-ready digital TV sets.
During the past decade, the FCC hasn’t required cable operators to rely on CableCard-enable set-tops. Instead, the agency had only insisted that cable make CableCards available to requesting consumers.
But that’s about to change. Starting July 1, every cable operator in the country without a written waiver from the FCC is banned from issuing new integrated boxes, including the Motorola DCT-700 now in use in millions of cable homes. The FCC has received 40 waiver requests, including major ones from Comcast and Charter, but has acted on only three of them.
Although the law requires the FCC to grant waivers within 90 days, it appears to give the FCC unlimited time to reject waivers. Charter, for example, has waited 292 days for an FCC response. Comcast’s waiver request, rejected in January, took the Media Bureau 266 days to decide. Comcast has appealed the ruling to the five FCC members.
“We’ve applied for a waiver,” said Patrick Knorr, general manager of Sunflower Broadband, a Lawrence, Kan.-based cable operator serving about 30,000 subscribers. Knorr’s company, which has waited 161 days for an FCC response, wants to keep using the DCT-700 until Dec. 31, 2009 if downloadable security isn’t available before that time.
Forced to use CableCard-enabled set-tops, Knorr’s company plans to cover the additional cost by raising the monthly set-top box charge from $3.95 to $6.95, a 76% increase.
The integration ban “unnecessarily imposes hundreds of millions of dollars of annual costs on cable customers for no discernable benefits while, at the same time, slowing cable’s transition to digital,” the NCTA said in support of Comcast’s appeal of its waiver denial.
Knorr predicted that the FCC and cable could be heading toward a confrontation not long after July 1.
“I think it’s even money whether those boxes will be available July 1 in quantity. I’d say it’s less than even money whether independent operators will have access to those boxes. I think it’s going to be a colossal mess.”
In the end, cable’s grappling with Martin might end up being more noise than news if the industry’s financial performance isn’t harmed by regulatory burdens. According to Multichannel News research, publicly traded cable-operator stocks shot up 40% last year, the first positive gain since 2003. Stocks were down 10% in 2005 and 8% in 2004.
“So far, other than generalized anxiety about what seems to be almost a cable vendetta at the FCC, the impact on Wall Street has been minimal,” Sanford Bernstein’s Moffett said. “There’s been a lot of head scratching about the chairman’s motivations, but the consensus seems to be that prospect for regulation, or legislation, from most of these initiatives is relatively low.”
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