Cable’s Fall Agenda in D.C.

Industry Thrust Into ‘Vortex’ of Broadband Policy Issues

By John Eggerton -- Multichannel News, 9/13/2010 12:01:00 AM

The cable operator’s role as an Internet-service provider and online programmer, rather than a traditional video provider, has dominated the policy discussions, from reclassifying broadband transmissions as a common-carrier service subject to Title II of the 1996 Telecommunications Act; to migrating the Universal Service Fund — which subsidizes landline telephone service to hard to- reach rural communities — to broadband; to the vaunted gateway device that FCC chairman Julius Genachowski hopes will turn the TV set into a broadband media player.

Even the sleepy-sounding issue of pole-attachment rates (unless you are paying the freight) hinges on the issue of which portion of that levy the FCC will ascribe to Internet-service provision.

“The fact that this industry built out the most robust national broadband network, and it will remain that way, has turned out to be a double-edged sword,” said National Cable & Telecommunications Association president and CEO Kyle McSlarrow.

“In one sense, on the business side it has been terrific and it has allowed us to continue rolling out new services,” he said. On the public-policy side, though, “it puts you right into that vortex” of broadband issues.

That potential move to online video delivery is why the American Cable Association, the lobby group for smaller, independent cable operators, is pushing for consumption billing of Internet services, said president and CEO Matt Polka. “If video does move to the online model and video subscriptions go away, then we, as the broadband provider in the community, need to have the ability to charge for usage.”

For now, all eyes are on the 800-pound Peacock in the room: the deal to merge Comcast’s media assets with General Electric’s NBC Universal in a new, Comcastcontrolled joint venture. While the deal is ostensibly about only a single merger and any conditions would be deal-specific, how the FCC and Justice Department choose to treat Comcast-NBCU’s online video component could signal how the government will treat access to online video for other players going forward, as video moves to the Web.

Polka said the ACA is not trying to regulate via conditions, but is instead looking at the potential in the deal for Comcast and NBCU to combine their program assets to create an “over-the-top” service that would wind up competing with the trade group’s members.

“Online is here and it’s unavoidable,” Polka said, “so everything that we do from a policy perspective when we look at availability of content is going to have an online piece now.”

Both the Justice Department and FCC have made it clear they are looking at access to online video in their review. In a recent meeting between Comcast executives and FCC and DOJ staff members, Comcast Programming Group president Jeff Shell talked about the company’s “open and nonexclusive” approach to TV Everywhere — the industry euphemism for Internet-delivered pay TV content — while refusing to “set in stone” any plans for how content would eventually be put online.

As cable operators put Labor Day in the rear-view mirror, they’re gearing up for the heavy lifting of pushing their policy agendas to an FCC waist-deep in a National Broadband Plan and legislators campaigning for reelection.

Here’s a breakdown of the policy issues they’ll be dealing with this fall:

Comcast-NBCU and and Title II are going to dominate the D.C. landscape, overshadowing but also incorporating other issues on cable’s policy plate. Industry talks on the legislative solution to Title II were ongoing last week, according to a source, but no agreement was expected.

TITLE II RECLASSIFICATION
The NCTA has been in talks at both the FCC and elsewhere on clarifying the agency’s regulatory authority over Internet access. Since broadband implicates everything from telemedicine and education to accessing government services, the affected players are many.

Cable operators and telcos have done a good job at convincing many Democratic legislators, as well as Republicans, that unilateral FCC action is risky business. Their strategy has been to head off FCC action with a congressional solution they can live with.

NCTA’s McSlarrow said the FCC talks got the trade group 75% of the way to an agreement, and the later talks pushed such a deal’s likelihood to about 90%.

Cable operators would prefer the targeted law to the FCC’s proposal to reclassify broadband as a Title II common-carrier service with the potential threat of rate regulation and other restrictions down the road. For network operators, FCC chairman Genachowski’s pledge to forbear all but a few of those regulations and to steer clear of that rate regulation or unbundling is not sufficient protection against a course change by future commissions once the service is reclassified.

The NCTA has a lot of company in that concern, including a majority of the members of the House of Representatives. That number would be likely to increase if Republicans are able to capture some Democratic seats in the midterm election.

While FCC talks broke off after news Google and Verizon Communications cut a side “policy agreement,” that has not stopped the NCTA and other major players from moving the talks to a new venue. An industry framework, likely resembling the Google-Verizon endorsement of case-by-case enforcement, is expected to come out of those talks, but Congress would still need to come up with a bill and pass it. In the meantime, the FCC wants to get moving on the National Broadband Plan.

Applying network open-access rules to mobile is one of the key issues industry has yet to resolve. One solution might be to apply the regulations to 4G mobile services, but not to the morelimited 3G service.

The FCC’s proposal to expand and clarify its Internet-openness guidelines (widely known as network neutrality) has become inextricably intertwined with Title II. Any resolution of that FCC rulemaking proposal now looks to be pushed to 2011, with the FCC’s announcement that it will seek more comment on mobile and specialized services — comments not due until December.

COMCAST-NBCU
The NCTA has not been actively lobbying on the Comcast-NBC Universal deal, though, of course, its largest member Comcast has.

A number of lobbyists who requested anonymity said they still expect that deal (which would give Comcast 51% control of a partnership with current NBCU owner General Electric) to get done by the end of the year. It is already certain to include a number of conditions since Comcast has made various concessions to TV station affiliates, unions and minority groups.

It is not clear whether access to online content will be on that list. The cable industry does not want the deal to become a referendum on the issue and has made that clear to policymakers.

But while the NCTA, representing the largest operators, has stayed on the sidelines of the deal, the small-cable ACA has made it a priority. Polka, who agrees that the ISP side of the cable business is the common thread among a number of key issues, continues to push for merger-specific conditions.

“One of the concerns we have raised in the merger is the ability of a Comcast-NBC to basically create the same kind of over-the-top network that they could use in competition with our members across the country, using our broadband pipe,” he said.

Look for the deal to get done before year-end, likely without divestitures and possibly with some online access conditions.

UNIVERSAL SERVICE REFORM
Getting this high-cost fund under control — which means not supporting phone competitors where there is already competition, and figuring out how to migrate the fund from phone to broadband support — is high on cable’s agenda. The NCTA thinks it can be done with authority the FCC already has. The odds are good that some kind of reform will be enacted, but probably not before year-end.

Cable operators want to make sure that transitioning the fund doesn’t mean expanding it for current recipients. Verizon and AT&T are the two biggest beneficiaries, according to the FCC, with each getting about $1.3 billion over the last three years.

Rep. Rick Boucher (D-Va.), who is behind the USF reform bill, has said controlling the size of the fund is high on his agenda, as has FCC chief Genachowski.

But it is less clear whether the industry can keep some of that repurposed support from broadband from underwriting competition to existing service being supplied by cable operators. The FCC will need to collect better data on where broadband is and isn’t being provided, and a defi nition that includes speed and aff ordability could wind up providing support in already-served areas.

NCTA members do not get much from the fund and are OK with phasing out the support. The ACA doesn’t want Verizon or AT&T to be subsidized for phone service in markets where its members compete with those telcos, but it also doesn’t want a longer transition timeline for withdrawing the funds from its members that currently provide phone service.

McSlarrow expects the FCC to push ahead with reform. A hearing has been set for Sept. 16 on House Energy & Commerce Committee chairman Rick Boucher (D-Va.)’s USF reform bill, which the NCTA supports. But since there is no Senate companion bill, the measure is unlikely to pass this fall.

POLE-ATTACHMENT FEES
One issue on which the stars look to be aligned for cable and the FCC is how much cable operators should have to pay to hook up their wires to electric utility poles.

As part of its grand plan for boosting broadband, the FCC has signaled it will look to reduce the rate telecom providers pay power companies for pole access. Cable operators have been arguing for that for years, but a rate cut would be even more important if the FCC proceeds with Title II reclassification. Such a move would mean some portion of cable service would have to be ascribed to the broadband-transmission element, on which cable would have to pay that telecom rate.

Despite the pushback from pole owners, the FCC does not want high attachment rates to discourage broadband rollouts, particularly in the rural areas where there are more poles and fewer folks with Internet service.

There is no timeline, but once the reclassification issues are resolved, matters ought to move ahead swiftly and in cable’s direction.

RETRANSMISSION CONSENT
Cable and satellite operators have been urging the FCC to step in and “fix” the retransmissionconsent process, most prominently with a petition for rulemaking that the agency is still considering. Broadcasters have been pushing back just as hard.

The FCC is unlikely to wade into that issue before election time, particularly absent any major blow-up. The resolution of the carriage dispute between The Walt Disney Co. and Time Warner Cable without an interruption of service (“Comprehensive Peace,” Sept. 6, 2010, page 5) removed one potential spotlight on the issue.

Even those looking for some action from the FCC aren’t looking for anything to happen this year.

ONLINE PRIVACY
Online privacy bills continue to circulate on the Hill, and Senate Communications Subcommittee Chairman Jay Rockefeller of West Virginia has been very vocal about his concerns over targeted marketing and online content’s accessibility by kids.

Look for more hearings in the fall, but for most of the activity to roll over into next year. As with the all-video proposal, it is in cable’s interest for the issue to get the extended vetting that has become something of a hallmark of the “data-driven, transparent” Genachowski regime.

For smaller cable operators, the issue is not so much about the substance of the bill, but as with many issues, about the disproportionate cost of the regulation on smaller companies. Polka said the issue for his members is more about what the reporting and technical requirements will be.

For big companies, said Polka, it is just an additional cost of doing business, but for smaller operators the extra person-hours, paperwork and technical requirements could pose a problem.