News

Cable’s David and Goliath Collaborate

10/17/2008 8:00 PM Eastern

Cable’s David and Goliath are working together.

The National Cable & Telecommunications Association, which represents a broad constituency that includes large cable operators and programmers, and the American Cable Association, a lobbying group for small- and medium-sized independent cable companies, have a history of strained relations.

Yet by teaming up, the NCTA, with its large cable-operator clout and resources, and the ACA’s small-fry cable companies, with their grass-roots approach, have gotten more traction on policy issues in Washington than by working alone.

The two groups can claim a list of recent successes. They won reform of a broadband-subsidy program that cable claimed was unfairly benefiting its rivals in rural markets and lobbied together successfully to secure a digital must-carry exemption for smaller cable systems this summer.

These days, the NCTA and ACA are trying to put in force a so-called “quiet period” for retransmission consent, to take effect before Dec. 31 so that TV stations can’t pull their signals on the eve of the digital-TV transition Feb. 17.

And small and big cable operators — via the NCTA, ACA and the National Cable Television Cooperative, a small-operator buying group — are currently coordinating efforts with broadcasters to make that digital transition seamless.

There is one issue over which the two sides are fiercely opposed and which threatens their fragile alliance: The ACA has sought government intervention on programming issues, including the unbundling of programming on a wholesale level by large cable programmers.

With Congress considering new telecom legislation, the stakes are high for both groups next year. If the NCTA and ACA present a unified voice, that could help the cable industry’s chances of winning favorable provisions on such issues as retransmission consent.

“There will be a number of opportunities with telecom-related bills that certainly will be moving through next year,” said ACA CEO Matthew Polka. “And that will give us a lot of opportunity to change the current order, and that’s what we’re going to be trying to do.”

The two groups weren’t always this close. When the 1992 Cable Act, which re-regulated the industry, was passed, some independent cable operators were taken off-guard when they realized its impact on their small rural systems. They felt the NCTA had left them in the lurch by failing to represent their needs as small operators, and that the lobbying regarding the act had been framed by the concerns of the large MSOs.

The independent operators were so disgruntled that in May 1993, they formed their own group, the Small Cable Business Association — later renamed the ACA — “to combat the ill effects of the ’92 Act” and to have a voice on the Hill, since they had “fundamentally different interests than the larger urban operators,” according to Polka. Today, the ACA represents systems with 7 million subscribers.

Polka conceded that some cable companies and programmers came to view the ACA as “anti-cable” for its outspoken stances, and for its tactic of seeking help from Washington on a variety of issues. The ACA often stood alone for a dozen years.

But that began to change in March 2005, when Kyle McSlarrow joined the NCTA as president. He reached out to the cable’s other lobbying group.

“I was reading trade mags and I kept seeing ACA,” McSlarrow said. “I’m like, 'Wait a minute, I thought I was representing cable, who’s the ACA?’ And then somebody said they represent the small guys, and I said, do we work with them, and the answer was, 'Not really.’

“So I literally just picked up the phone and called Matt Polka and said, 'Hi, I’m new. Why don’t we get together some time?’ ”

That opened up a line of communication and cooperation between the NCTA, with its political muscle and leverage, and the ACA, with its mom-and-pop operators and grassroots, shoe-leather approach to lobbying.

“When we agree, our cooperation makes us stronger,” Polka said.

He believes the industry’s “appreciation” of the ACA has improved of late, and he said McSlarrow “has a lot to do with that.”

McSlarrow stressed that that the NCTA doesn’t just represent big cable companies, that it has a diverse membership of small and large cable operators alike, as well as programmers. He said that small operators have a big voice at the NCTA, and that of its 34 board members, 10 of them small cable operators and nine are large ones.

In addition, the NCTA has a unit devoted to small operators, which is headed by Lisa Schoenthaler, vice president of association affairs and the Office of Rural/Small Systems.

“The reason I’m involved with the NCTA is that group has the political muscle to really get things done,” said Gary Shorman, president of 20,000-subscriber Eagle Communications and an NCTA board member. “And Kyle has always been accessible to listening, to hear, to communicate on ideas that we have as small operators.”

The NCTA and ACA scored big wins this year from teaming up on two issues: Reform of a federal broadband-loan program and securing an exemption from digital must-carry for smaller systems.

On the loan issue, the NCTA and ACA had sought changes in rules regarding loans that the U.S. Department of Agriculture’s Rural Utilities Service granted to broadband providers. The RUS had been subsidizing companies that were providing broadband in rural areas already served by cable companies.

In May, a massive farm bill included RUS reform, limiting loans in areas where competition exists and targeting loans to areas without wide access to broadband service.

“We fought hard to say it’s not fair to use taxpayer dollars against multiple providers who have already provided broadband service with their own capital,” Polka said.

The NCTA and ACA often arrange for small operators to meet with lawmakers on the Hill to explain the potentially harmful impact of a current or pending law on a small company, McSlarrow said. Shorman made such visits to lawmakers on the RUS funding,

The two industry trade groups also worked in tandem for a year to get a waiver from digital must-carry rules from the Federal Communications Commission for smaller operators. In August the FCC adopted the must-carry exemption order.

“The NCTA put a lot of political capital into that, and a lot of muscle on the line — in the background,” said Dick Sjoberg, an NCTA board member and president of 8,000-subscriber Sjoberg Inc. “And the ACA took a lot of the leadership on it. And that’s an area where both worked together, got something done. One good strength that Kyle has is he’s not somebody who has to have the stage.”

In recent months, McSlarrow has also been speaking out, and talking to the National Association of Broadcasters, regarding changes in retransmission-consent, an issue that the ACA has been vigorously championing for years now.

“Under Kyle, the NCTA has made some significant steps on illustrating and raising the harms of retransmission consent — how it is a regulatory and legislative regime that is broken clearly in 2008,” Polka said.

The NCTA’s members include companies that have cable and broadcast holdings, which has made retransmission-consent a touchy issue for the trade group.

“When I first came into the job, essentially what I was told was, 'You’re probably not going to be able to deal with retransmission consent, it’s just a very divisive issue,’ ” McSlarrow said.

Now, he’s come to believe it needs to be addressed at the legislative level, not by the FCC, and that there should be a win-win for consumers, cable and broadcast. But McSlarrow concedes he doesn’t have a solution yet.

In addition to the ACA, McSlarrow has established a relationship with Jeff Abbas, an Adelphia Communications veteran who in November 2005 was named president of the NCTC, a buying co-op for small and medium-sized operators representing 17 million subscribers.

“His predecessor I didn’t work that closely with, but Jeff and I have worked together,” McSlarrow said. “Jeff, having come from Adelphia, knows the programming side of it. That’s been actually very useful for me, because there are times where I’ve picked up the phone and called Jeff and just said, 'Explain to me how this actually works.’ ”

The NCTA, NCTC and the Association for Maximum Service Television, a broadcast group, have been setting up meetings between cable systems and TV stations to coordinate the transition to all-digital broadcast signals next year.

“The more people you can get paddling in the same direction, the better we’re all going to be on that one,” Abbas said.

There is one controversial item that divides the NCTA and ACA: Going to the government for help in programming issues, particularly the unbundling of programming on a wholesale level.

The ACA argues that cable operators are being forced to take lightly viewed channels in order to get popular marquee networks.

“We’re not talking about retail a la carte [allowing customers to pick and choose channels]. I want to make that clear,” Polka said. “We don’t want that. But what we are seeking is some more flexibility in the marketplace.”

The ACA doesn’t ask for government intervention “willy-nilly,” Polka said, but it isn’t “squeamish to seek redress by Washington if necessary.”

“Larger operators generally don’t want to see a solution that comes from Washington, whether it’s the FCC or Congress,” he said. “And that’s because they’re larger and have leverage, have market presence … compared to our smaller operators, who still lack leverage, lack negotiating strength and need Washington’s intervention to help balance what is a broken marketplace.”

But the NCTA, and even some small operators and ACA members, believe it’s a mistake to go to the government to intervene on programming issues such as wholesale unbundling.

In fact, the hot-button issue of seeking redress from Washington has proved so divisive that even smaller operators don’t agree on it. Earlier this year Midcontinent Communications, Bresnan Communications and Atlantic Broadband quit the ACA after it petitioned the FCC to adopt rules regarding wholesale unbundling, to require that programmers offer their networks to distributors on a standalone or tiered basis.

“Fundamentally, I don’t believe the FCC has the authority,” the NCTA’s McSlarrow said. “I have always been reluctant, and of course particularly in this environment with this FCC, to presume that we go ask for something that we think makes perfect sense. We may end up with some monstrosity that we all regret.”

The fear is that the FCC will go beyond wholesale unbundling, perhaps mandating retail a la carte.

Sjoberg said it’s “a slippery slope” to ask the FCC to step in, while Shorman added, “We feel it’s better to have free-market choice versus to have things legislated in our direction that we end up not being able to get out of, or can’t work around, because it is government mandated.”

McSlarrow and Polka have agreed to disagree on seeking government assistance on wholesale unbundling.

“Where we can work together, we should,” McSlarrow said. “If there are places where we have to disagree, that’s life.”

Said Polka, “We agree to disagree. And when we disagree, it doesn’t mean we’re anti-cable.”

September