Policy

Kent : Curb Stations’ Demands

5/22/2005 8:00 PM Eastern

Washington— After clashing once too often with Charter Communications Inc. chairman Paul Allen, CEO Jerald Kent fled the company in late 2001, knowing there could be only one boss.

“Since I didn’t know how to fire a $6 billion shareholder — and God knows I tried, but couldn’t quite figure it out — the only sensible thing was to leave,” Kent said last Monday in a speech to the American Cable Association’s annual summit here that drew about 200 attendees.

Kent now heads Cebridge Connections Inc., a cable company with 400,000 subscribers in rural markets and the largest private portfolio of telecommunications towers in the U.S.

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Though now he is his own boss, Kent said his business destiny largely remains clouded by what he called outdated regulations that give broadcasters and satellite carriers an unfair advantage over small cable.

Consistent with what many small cable companies have been saying for years, Kent urged the Congress and the Federal Communications Commission to take steps to ensure that big media companies can’t exercise too much financial leverage in their relationship with small distributors.

“We aren’t asking for handouts. We’re just trying to survive in as many rural markets as we can,” Kent explained, adding that he had to shut down failing systems that passed 4,000 rural homes. “Something needs to be done or there’s going to be a train wreck by the end of this year.”

In the fall, the window opens for TV stations to demand carriage terms from cable systems. Some TV stations, searching for a second revenue stream, are expected to demand cash for carriage.

That’s unacceptable, Kent claimed, because TV stations provide service to the public for free and obtained their radio spectrum from the federal government at no cost.

If TV stations press for cash, Kent said, “I see broadcast signals being pulled from lineups if nothing is done.”

A realist not a dreamer, Kent said repeal of retransmission consent — he called it “legal extortion” — is politically untenable. Instead, Kent offered a few proposals that he said would help small cable without inflicting too much pain on the competition.

His first idea was support for ACA’s petition at the FCC that would permit small cable companies to import, with permission, network affiliates of ABC, CBS, NBC and Fox if the in-market affiliates demanded cash for carriage.

“Competition is the best governor on pricing,” Kent said. “Let us shop for alternatives just like our customers are allowed to do.”

Broadcasters are fighting ACA’s proposal, saying it would be harmful to the network-affiliate relationship built on local exclusivity.

“Kent’s proposal would destroy the fundamental concept of localism upon which broadcasting is based,” said National Association of Broadcasters spokesman Dennis Wharton. “The real question for cable operators is this: if DirecTV and Dish Network can compensate local broadcasters for our valuable programming, why are small retransmission-consent payments such a burden for cable gatekeepers who routinely raise rates three to six times the rate of inflation?”

In a related idea, Kent said no TV station should be allowed to invoke retransmission consent with a cable system that serves less than 20% of the homes in a designated market area (DMA). The U.S. has 210 DMAs, with the top 100 containing about 85% of all U.S. households.

“We don’t dominate DMAs. Instead, we’re at the whim and mercy of the broadcasters,” Kent said. “It’s a simple amendment that protects the small operators and really should not have a major impact on the broadcasters.”

[Later, Kent told a reporter that under his penetration test, every TV station in his markets would have to elect must-carry, a government mandate he supports as beneficial to his cable company, rural TV stations, and rural Americans.]

To the extent retransmission consent remains in effect, Kent said cable-TV station disputes should be subject to third-party arbitration, during which the TV station would be barred from pulling its signal. This proposal comes from the merger conditions the FCC imposed on News Corp. in connection with its takeover of DirecTV Inc.

“So far, it’s worked. Some of the most cordial and productive negotiations we’ve had of late have been with the various programming interests affiliated with News Corp. and Fox,” Kent said. “As tough as Fox is, I never thought I’d be saying that.”

Lastly, Kent said something had to be done about the inability of rural cable systems to receive a quality signal from TV stations with towers located dozens of miles from cable headends.

He proposed allowing cable systems to retransmit local TV signals made available in the same market by DirecTV and EchoStar Communications Corp. Those signals would have to be made available “at a reasonable cost,” he said.

This proposal, he explained, was akin to the 1992 law that required cable companies to sell their satellite-delivered cable networks to DBS to ensure satellite could offer a competitive service. Cebridge will need to spend $20 million — either on headend upgrades or set-tops boxes — to accommodate TV stations’ transition to digital transmission; retransmission of satellite feeds will cut that cost by $6 million, Kent said.

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DirecTV and Dish Network owner EchoStar dismissed this proposal out of hand when ACA raised it with the FCC, saying rural cable companies were the competition that they didn’t need to subsidize.

The 1992 program access law not only required program sales to DBS but also to unaffiliated cable companies.

When asked by a reporter whether the program-access rules ensured that both Cebridge and satellite cable companies had access, for example, to Time Warner Inc.’s Home Box Office, Kent replied, “We don’t compete with Time Warner, so why would they withhold the signal?”

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