Policy

Dual-Carriage Red Flags Waving

5/29/2005 8:00 PM Eastern

Washington— One of Capitol Hill’s most vocal opponents of mandatory cable carriage of local TV stations, House Energy and Commerce Committee chairman Rep. Joe Barton (R-Texas), has surprisingly crafted draft legislation designed to snatch $30 billion in spectrum from TV stations, in a power play that could result in de facto dual must-carry — or cable carriage of TV stations in both analog and digital.

Since 2001, the cable industry has twice convinced the Federal Communications Commission to reject dual must-carry as a channel-hogging violation of its First Amendment rights. But Barton is apparently willing to overlook those concerns if they stand in the way of his spectrum gold mine.

MCSLARROW: SEES PROBLEM

The possibility of dual cable carriage was highlighted by National Cable & Telecommunications Association president Kyle McSlarrow at a four-hour House subcommittee hearing last Thursday where 11 witnesses picked at various parts of Barton’s design.

“As currently drafted, it is, in effect, a dual-must-carry provision,” said McSlarrow, making his first appearance before a congressional committee since taking the job on March 1.

Here’s how dual carriage would work: If a TV station elected must carry for its digital signal and the cable operator on its own downconverted the signal to analog, the operator would have to do the same for all other must-carry stations in the market.

The FCC could sunset the “downconvert one, downcovert all” policy after five years if it found that consumers were no longer relying on analog equipment to view video programming over cable.

Importantly, cable operators that downconverted only retransmission consent stations would not be obligated to downconvert any must-carry stations, a problem for some TV stations.

The network affiliates of ABC, CBS, NBC and Fox generally bargain for carriage. But an important number of commercial stations opt for must-carry. Public stations are required by law to choose must-carry.

To keep millions of analog-only customers happy, cable would want to convert public stations. Independent commercial stations that elected must-carry would likely be down conversion candidates as well if they owned, say, local sports rights. As a result, the NCTA sees dual must-carry essentially occurring by default.

Politely but firmly, McSlarrow insisted that cable should be required to carry a TV station in analog or digital but not in both formats. “What we have urged is: Give us the flexibility,” he said.

McSlarrow conceded that the NCTA’s position was “not the perfect solution” because people with digital TVs might get local TV stations in analog.

McSlarrow said the NCTA’s approach would mean no cable customer would need to acquire new equipment after 2008.

KNORR SEES 'BULLET’

Small cable operators said Barton’s carriage provisions would be punishing. Patrick Knorr, vice chairman of Sunflower Broadband, a Kansas-based small MSO, called dual carriage “the bullet aimed at the head of small operators.”

In the interim, cable preference is to carry some digital stations only in analog because cable consumers have 134 million TVs without digital reception capability. Some MSOs are hoping that carriage of HDTV versions of the network affiliates and big brand cable networks will induce consumers to acquire digital receivers or set-top boxes at their own pace over time.

McSlarrow’s complaints got instant push back from Manual Abud, general manager of a Telemundo Network Group station in Los Angeles. Abud said he feared cable operators would refuse to carry his digital signal in analog. If that happened today, Telemundo would lose 60% of its potential cable audience.

As a result, Abud called for analog carriage of all TV stations in markets where cable had elected to downcovert any TV station. This approach, he said, would prevent cable discrimination between retransmission consent and must-carry stations.

“We prefer to have the same treatment for all broadcasters,” Abud said.

James K. Yager, representing the National Association of Broadcasters, agreed that Barton’s bill could cause DTV stations to lose cable subscribers if not carried in analog. Both Abud and Yager also urged Barton to require cable to carry their digital multicast services, a policy rejected by the FCC in February.

2008 GIVEBACK

Under Barton’s bill, broadcasters would need to yield their analog spectrum no later than Dec. 31, 2008 — a deadline that threatens 73 million analog-TV sets that rely exclusive on free, over-the-air TV. The U.S. has about 20 million homes that are broadcast-only.

Barton had promised that his bill would include a subsidy program to ensure that at least the poor would have ready access to affordable set-tops to keep their analog sets running in 2009. But disagreements with House Democrats over the scope of the subsidy prompted Barton to exclude subsidy provisions. Barton favors a limited subsidy while key Democrats want all 73 million sets insured.

Until the subsidy issue is resolved, Barton will likely have trouble producing bipartisan support.

Letting millions of TV sets go dark would anger consumers and make the “Whiskey Rebellion look like a tea party,” said Rep. Jay Inslee (D-Wash.). “You don’t take people’s TV sets away without dealing with the subsidy issue.”

With support from the Government Accountability Office, Rep. Edward Markey (D-Mass.) argued that a narrow, means-tested subsidy program would be nearly impossible to run efficiently and could have high administrative costs.

“This would be a challenge of unprecedented complexity,” Markey said.

Some lawmakers want to use auction proceeds to fund the set-top subsidy. Depending on the estimate, the 60 MHz of analog spectrum reclaimed from broadcasters would reap between $20 billion and $30 million at auction. Providing a $50 set-top for all 73 million sets would cost about $3.7 billion. Barton’s means-tested subsidy would probably run between $500 million and $1 billion.

“Even [at] the $3.7 billion figure, the subsidy is affordable,” said Rep. Rick Boucher (D-Va.), a means-testing opponent who predicted “a massive political backlash” to anything less that complete coverage of all 73 million analog sets.

But Rep. Cliff Stearns (R-Fla.) said he wasn’t sure any subsidies were needed. “The $3.7 billion to me is a lot of money,” he said.

Barton said all but the Dec. 31, 2008, deadline was negotiable, calling the draft bill “an evolving document.” Barton is pushing to shut down the transition quickly because he wants to sell 60 MHz of analog spectrum to wireless broadband providers and allocate 24 MHz to public safety groups that want to solve crisis management communications problems that frustrated rescue efforts at the World Trade Center after the Sept. 11, 2001, terrorist attacks.

In his testimony, McSlarrow said cable had never taken a position on Barton’s firm deadline to the transition. Earlier in the year, Insight Communications Co. CEO Michael Willner endorsed a hard date in testimony before a House subcommittee. Later, Willner said he was speaking for himself, not the industry.

If Barton’s bill became law with the dual carriage provisions, the impact would not be uniform among cable operators.

SIMULCAST EFFECT

McSlarrow did not explain that Comcast Corp. and Time Warner Cable are planning a digital simulcast of all analog services over the next year or two.

It would seem unlikely that the two MSOs would have a capacity problem with dual carriage if voluntary dual carriage is their publicly announced business plan. After buying Adelphia Communications Corp., Comcast and Time Warner will control about 60% of all cable subscribers.

Barton’s bill could give cable leverage over commercial must carry stations. McSlarrow did not mention that cable operators could skirt the “downconvert one, downconvert all” restriction by convincing would-be must-carry stations that if they want analog carriage, the price is electing retransmission consent.

Cable has another option to avoid dual carriage: supply customers with digital boxes. Asked by Barton for cable’s reaction to such a box-deployment mandate, McSlarrow said, “Not positive.”

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