Policy

Cover Story: Change

11/08/2008 4:55 AM Eastern

On Jan. 20, when President Barack Obama enters the White House, the change that many Americans have been clamoring for will have finally arrived.

Cable-industry players just aren’t sure if that change is good for them.

President-elect Barack ObamaThe appointments and policies of the administration taking shape are certain to have a lasting effect on the country’s cable, broadcasting, telephone, wireless phone, and satellite TV industries.

The agenda is already full. Obama will oversee the nation’s switch from analog to digital television. He will appoint the next chairman of the Federal Communications Commission and influence who fills the seats of departing commissioners. And he will duel and deal with Democratic Congressional committee leaders, many of whom are already aligned with his thinking.

What concerns cable operators more than anything, though, is how the new president will handle the issue of network neutrality, which could have severe repercussions for the industry. Obama’s administration likes the idea that network owners, such as telephone companies and cable-TV operators, should not discriminate against Web-based content providers like Google.

Obama’s support for net neutrality is clear, but how he would implement it is not.

“I will take a back seat to no one in my commitment to network neutrality. The Internet is perhaps the most open network in history, and we have to keep it that way,” Obama said in a speech at Google’s headquarters in Mountain View, Calif., last November.

In the media world, the first and most pressing issue is the digital-TV transition scheduled for Feb. 17, 2009 — an epochal event that affects every TV home in the country, albeit some more than others. According to Nielsen Media Research, nearly 9 million U.S. TV homes are “unready” for the digital TV transition.

Congress and the Obama administration must act quickly to recover the analog spectrum: In March, wireless broadband companies bid $18.9 billion in an FCC auction to take control of those airwaves after the DTV transition.

Although there has been little talk of postponement, it’s possible Congress might order a few TV stations in each market to stay on the air in analog to provide emergency and DTV-education messages for a few additional weeks.

While there’s still much to learn about Obama’s communications policy, one thing is certain: a new administration will mean the end of a caustic relationship between outgoing FCC chairman Kevin Martin and the cable-TV industry. Over the past four years, Martin has waged one battle after another with cable over such issues as ownership limits, broadband network management, and carriage of local TV stations in duplicate analog and digital formats.

“We are looking forward to a change that will be one that is more mindful of our business issues and the impact of those issues on our customers,” said Donna Garafano, vice president of government and regulatory affairs for Atlantic Broadband, a midsize cable company with about 287,000 subscribers.

FCC chairman Kevin MartinObama, once in the Oval Office, can replace Martin as chairman immediately. Martin, however, isn’t required to leave the agency because he still has plenty of time in his term. He can remain a regular commissioner until at least June 30, 2011.

“It’s entirely up to Martin whether he chooses to remain at the commission or not. By tradition, [chairmen] leave right away,” said Andrew Jay Schwartzman, president of the Media Access Project, a public-interest law firm that often sided with Martin against cable.

FCC chairman William Kennard, appointed by President Clinton, resigned in early 2001, making way for Michael Powell just as President Bush was taking power. FCC Republican Deborah Taylor Tate is required to leave the agency no later than the first week of January. Were Martin to join her a few weeks later, the FCC would be controlled by Democrats Michael Copps and Jonathan Adelstein. Robert McDowell would be the only Republican.

Jonathan AdelsteinObama, a Democrat, is expected to name either Copps or Adelstein as interim chairman until he selects — and the Senate confirms — Martin’s permanent successor. It could take months for that to happen. FCC chairman Reed Hundt wasn’t seated until November 1993, 10 months into President Clinton’s first term.

Schwartzman predicted Copps would get the job. “To me, it’s a logical choice. The logic is based on seniority,” he said. Copps joined the FCC in May 2001, seven months before Adelstein.

Eventually, Obama will need to name replacements for Tate and Martin (when he leaves) on the five-member commission. By law, Obama is allowed to name up to three Democrats to the FCC.

Sources close to the administration told Multichannel News that Obama would likely name Washington, D.C., lawyer Henry Rivera, a Democrat, to head a transition team focused on the FCC. Rivera, a partner at communications law firm Wiley, Rein, served at the FCC from 1981 to 1985 under Republican chairman Mark Fowler. Martin worked at Wiley, Rein prior to joining the FCC in the late 1990s as an aide to Republican FCC member Harold Furchtgott-Roth.

“The only thing I can tell you is that there will be a [press] release of the folks involved in that,” Rivera said. “I just can’t comment on anything.”

Many in Washington media circles believe that disappearing with Martin is an issue the FCC chief champions even in his final days in office: a la carte. He has pushed cable to break up its programming packages and sell channels on an individualized or a la carte basis, claiming it would cut cable bills and give parents more choice over content.

“I think [the a la carte issue] certainly subsides with the departure of Kevin Martin and the fact that we’re not going to have Sen. McCain coming in [as president],” said Rebecca Arbogast, a telecommunications analyst at Stifel Nicolaus. “McCain supported cable a la carte, but never by government fiat.”

Paul Gallant, senior vice president of telecommunications and media at the Stanford Group, agreed that Martin’s absence would redound to cable’s benefit. “Even though Democrats shared some of chairman Martin’s interest in a la carte, I doubt they will actively push that starting in January,” Gallant said. “I think they recognize that helping carriers fund the next broadband upgrade is an essential government priority.”

But few are as certain about how the new administration will deal with net neutrality, which would, in short, prevent Internet-service providers from blocking content based on its source. Some think Obama’s FCC chairman might even resurrect old open-access rules and apply them to broadband networks. Born in the monopoly copper-phone-network era, open-access rules allowed America Online and others to offer dialup Internet access to nearly 25 million customers, giving them their first taste of e-mail, instant messaging and Web surfing over phone lines owned by the Baby Bells.

Powell junked access mandates for broadband, insisting they reduced the incentive to spend billions on high-speed networks. But Obama supporters rave about Japan, which developed the cheapest and fastest broadband networks guided by government-imposed open-access regulations.

“I think, in general, there’s just an increased commitment to that concept, and I think the Democrats in particular have confidence in that concept being useful,” said Arbogast. “I think the trick is going to be figuring out what it really means and how you apply it in any given situation.”

Google could have a leg up in this debate, given that CEO Eric Schmidt just finished campaigning for Obama on a tour with Julius Genachowski, Obama’s Harvard Law School classmate considered a shoo-in for FCC chairman if he wants the job.

The trajectory of telecom policy on Capitol Hill after the DTV transition isn’t clear because some familiar players could be on the move.

Sen. Jay Rockefeller (D-W.Va.) could become Commerce Committee chairman, replacing Sen. Daniel Inouye (D-Hawaii). Senate Democrats are considering removing 91-year-old Sen. Robert Byrd (D-W.Va.) as chairman of the Appropriations Committee and giving that job to Inouye.

In the House, Rep. Henry Waxman (D-Calif.) is challenging Rep. John Dingell (D-Mich.) for chairmanship of the Energy and Commerce Committee, a panel that oversees the FCC. Dingell, 82, who becomes the longest-serving House member in February, and Waxman have been bitter rivals for many years.

Rep. Edward Markey (D-Mass.), chairman of the Subcommittee on Telecommunications and the Internet, could leave the House if he wins a special election to fill a vacant Senate seat. Sen. Edward Kennedy (D-Mass.), 76, is battling brain cancer, and Sen. John Kerry (D-Mass.) is reportedly interested in serving as Obama’s secretary of state.

If Markey stays in the House, his agenda includes broadband deployment and affordability; privacy protections for Web surfers; and limitations on the FCC’s ability to deregulate phone companies without a majority vote.

One issue Markey’s panel must address may spark Congressional interest in retransmission consent. A provision in the Satellite Home Viewer Extension Reauthorization Act (SHVERA) allows DirecTV and Dish Network to provide New York City feeds of ABC, CBS, NBC and Fox programming to rural viewers and expires on Dec. 31, 2009.

Cable hopes such a must-pass bill could become the vehicle to get Congress to focus on retransmission consent, the legal right of TV stations to demand cash and other consideration from cable companies in exchange for carriage.

“It has been our goal and our commitment to bring this issue to Congress and seek reform of the issue for the sake of consumers across the country,” said Matt Polka, CEO of the American Cable Association, the lobby group for independent cable operators. “It’s our goal to move forward on that effort.”

As much as net neutrality promises to be an issue, cable also has to worry about its Achilles’ heel: rate hikes. To be sure, the industry faces far more competition than it did in 1992, when Congress ordered the FCC to put a lid on increases, but both parties have shown a willingness to clamp down on cable, especially in a down economy.

Just last week, Martin ordered his staff to send letters to Comcast, Time Warner Cable and 10 other MSOs, asking for rate information after they moved channels from analog to digital packages (see page 2). Martin is partly concerned that analog rates were not lowered after channels were removed.

“Ever increasing cable prices is one of the most significant issues consumers face today,” he said. “They are getting less and being charged the same or more.”

National Cable & Telecommunications Association spokesman Brian Dietz complained that the FCC was out of bounds. “The [FCC’s] actions,” said Dietz, “are clearly contrary to the FCC’s own policies encouraging the rollout of new digital services.”

March