Policy

Mad Money

10/20/2006 8:06 PM Eastern

Washington— On a cold evening in February, cable and telecommunications lobbyists packed the second floor of restaurant Bistro Bis on Capitol Hill to salute Mitch Rose’s decision to leave an executive lobbying post at The Walt Disney Co. and go into business for himself.

Rose was a hot property because everyone in the room knew his old boss, Senate Commerce Committee chairman Ted Stevens (R-Alaska), was drafting a telecommunications bill that would affect the fortunes of practically every cable, phone and Internet company in the country. And those gathered recognized that Stevens and Rose have an almost father-and-son closeness.

Probably not by chance, Stevens was in attendance, ensuring that Mitch Rose Strategic Consulting got off to a flying start.

As November arrives, Rose is now on course to earn more than $1 million in lobbying fees in 2006, according to congressional records. Part of that intake consists of retainers paid by the National Cable & Telecommunications Association, Comcast and Time Warner Cable.

Such cable-industry spending is part and parcel of a flood of industrial-strength efforts this year to influence laws being written by Congress to open up video markets to more competition — and to determine whether cable operators or telephone companies can charge rival content providers for moving their video signals and other complex data to subscribers over the World Wide Web.

NINE-FIGURE EFFORT

All told, cable, phone and Internet companies in the first half of the year have spent more than $110 million on lobbyists, consultants, ad hoc advocacy groups, Web sites, billboards, print and TV advertisements trying to sway the voting and thinking of members of Congress. That nine-figure number does not include millions of dollars in campaign contributions doled out to House and Senate incumbents.

“The spigot that’s open for this kind of lobbying is just incredible,” said Celia Viggo Wexler, vice president for advocacy at Common Cause. “People have rarely seen this kind of lobbying. We may be reaching some historic highs this year. A lot is at stake.”

Whether all the spending will actually result in new legislation won’t be known for a few more weeks as Congress is expected to return the week of Nov. 13 for a post-election session. A Democratic takeover next January of the House or the Senate, or both, likely dooms any reform bill in the pending lame duck session, a senior Republican Senate Commerce Committee aide said.

CALLING ON CONGRESS

Major phone companies led the money race, ramping up spending in 2006 for the purpose of passing a law that would eliminate the need to negotiate cable franchises with thousands of local governments in order to deliver video services in any given community.

AT&T, Verizon Communications, BellSouth and their trade group — the United States Telecom Association — and Qwest Communications International spent $30.3 million in the first half of 2006, according to lobbying expenditure reports that must be filed every six months with Congress.

The $30.3 million was a 50% increase over the previous six months, when the legislative battle on Capitol Hill was just beginning to take shape.

The NCTA, Comcast, Time Warner Inc., and Cox Enterprises spent nearly 60% less than the telephone industry in the first half of 2006. The big cable entities combined spent $12.2 million in the first half of 2006, a 37% jump over second-half 2005 spending.

Cable companies increased their spending to counter the phone-industry lobbying on cable franchising. The fact that the NCTA, Comcast, Time Warner Cable and Cox spent less than the phone companies may play to the maxim that it is less expensive to stop a bill than to pass one.

“I think we spent, invested and lobbied appropriately. I think we put the resources that were required into the battle,” said Comcast executive vice president David Cohen, the company’s top lobbyist. “If you array the tech-company spending and the Bell company spending against cable spending, you’re going to find that we were dwarfed in spending in every category.”

NCTA president Kyle McSlarrow and other organization officials declined to comment for this story.

Although cable and phone companies spent plenty to fight each other, they also had to spend in the common purpose to thwart an attempt by major Internet companies to prohibit owners of communications pipes from charging premiums of any kind to move TV shows, movies, short clips and other video content that will require much greater bandwidth than do simple text and still images. Establishing a regime of non-discriminatory treatment of all data that moves across the Internet became known simply as net neutrality.

Google, Yahoo, eBay, Microsoft, Amazon.com and Vonage Holdings led the campaign to impose net-neutrality requirements on high-speed Internet access providers — cable companies such as Comcast and Time Warner Cable, and phone companies such as Verizon and AT&T.

But the Internet companies, for reasons not altogether clear, did not put their money where their mouths were. Despite a combined market capitalization approaching half a trillion dollars, the Internet companies have this year spent only about one-fifth as much as their cable and phone rivals in their efforts to influence thinking in Washington.

The Internet companies reported spending $8.8 million in the first six months, with Microsoft responsible for slightly more than half that total. Second-half 2005 lobbying spending was $7.5 million. Lawyers and lobbyists for the Internet companies insisted that sufficient funds had been devoted to the cause.

That could be. Herschel Abbott, BellSouth’s vice president of governmental affairs, said the phone industry ended up spending more on the cable-franchise issue than on net neutrality. However, lobbying records do not break down spending on a per-issue basis.

“If you analyze the spending by USTA, you’re going to find that 99.9% of it … was spent in the cable national-franchise battle and not on the network-neutrality battle,” Abbott said.

USTA president Walter McCormick and the group’s spokeswoman, Allison Remsen, refused to discuss the lobbying organization’s spending in any detail, particularly the decision to front-load spending in the first half of 2006.

The USTA’s $15.3 million first-half 2006 budget yielded results because the House passed a national cable-franchise bill on June 8 and the Senate Commerce Committee advanced similar legislation a few weeks later. Yet the Senate bill hasn’t gone anywhere since then.

RECORD SPENDING

The money spent on lobbying in itself was significant, but even more was spent on advertising.

Major cable, phone and Internet companies reported spending $51.2 million combined on lobbying in the first half of 2006. Through June, they spent at least another $61 million on mass-marketing campaigns that included $43 million on national and local TV ads and $18 million on print advertisements in national and local outlets, according to the Campaign Media Analysis Group in Arlington, Va.

“From an advertising standpoint, the telecoms and the cables have been the big players,” said Evan Tracey, chief operating officer of CMAG, who declined to provide company-specific data because of confidentiality agreements with clients.

Ads addressing cable and Internet competition appeared in The Washington Post, The New York Times and USA Today, as well as smaller publications like Roll Call, a newspaper about Congress that is widely read by lawmakers and their aides. USTA’s TV ads stressed that easing phone company entry into cable markets would reduce cable rates. Travelers passing through Washington, D.C., airports and subway stations may have encountered billboards with a message about telecom policy.

The telecom-media blitz, Tracey said, was in the same class with big media buys related to controversial healthcare legislation.

“It’s definitely on a par with the prescription-drug debate and it’s definitely been on a par with the old 'Patient’s Bill of Rights’ debate,” Tracey said. “It will probably be the top spender [of the year] when all is said and done.”

Market developments in the form of intensified competition between cable and phone companies and a massive public relations blunder by AT&T chairman and CEO Ed Whitacre helped ignite the big-money contest to shape the terms of a telecommunications bill.

AT&T and Verizon advocated a law that would allow them to seek a single nationwide franchise to offer video services to American households. The push came after cable companies such as Cablevision Systems and Time Warner Cable demonstrated their ability to sign up millions of phone customers a lot easier than phone companies could amass paying video customers. Cablevision, which has slightly more than 3 million TV customers, now has 1 million phone customers.

But attention got diverted to the net-neutrality issue when Whitacre last November declared to Business Week magazine that Web commerce companies should be a new revenue stream for owners of communications networks.

“They use my lines for free — and that’s bull. For a Google or a Yahoo or a Vonage or anybody to expect to use these pipes for free is nuts!” Whitacre declared.

Whitacre’s comments were a wake up call to Silicon Valley, coming as they did just a week after the Federal Communications Commission approved SBC’s acquisition of AT&T Corp. They also came just a few months after the FCC said digital subscriber line (DSL) service offered by Whitacre’s company was no longer governed by common carrier rules.

Lobbying Log, 2004-2006: The Ante Is Up
Cable, phone and Internet companies spent 48% more on lobbying efforts in Washington in the first half of 2006, compared to two years ago. (All figures in dollars.) Download the chart, with full listings in each category, at http://multichannel.com/contents/pdf/spot_lobying_log.pdf.
Six months ending June ’04 December ’04 June ’05 December ’05 June ’06 TOTAL
CABLE 9,893,700 9,890,000 9,680,000 10,982,000 14,325,000 54,770,700
NCTA 3,540,000 3,810,000 3,340,000 3,740,000 6,540,000 20,970,000
Comcast 1,620,000 1,620,000 1,710,000 2,241,000 2,780,000 9,971,000
Time Warner 2,080,000 1,940,000 1,960,000 2,060,000 1,960,000 10,000,000
TELEPHONE 19,848,818 22,867,986 22,383,251 21,483,471 31,860,046 118,443,572
USTA 4,680,000 10,100,000 11,440,000 5,340,000 15,280,000 46,840,000
AT&T 5,692,350 2,315,986 1,782,196 4,836,422 5,515,269 20,142,223
BellSouth 3,226,468 4,840,000 3,066,055 4,297,049 3,294,777 18,724,349
Verizon 3,230,000 3,280,000 2,580,000 4,260,000 4,600,000 17,950,000
INTERNET 7,770,000 6,610,000 7,324,000 7,863,816 9,454,000 39,021,816
Yahoo 800,000 800,000 800,000 800,000 320,000 3,520,000
Google 80,000 100,000 100,000 160,000 300,000 740,000
eBay 320,000 320,000 400,000 600,000 1,085,000 2,725,000
Microsoft 5,400,000 4,060,000 4,540,000 4,160,000 4,840,000 23,000,000
Amazon 460,000 460,000 460,000 460,000 780,000 2,620,000
BROADCASTING 9,525,000 9,182,000 10,417,000 10,363,000 13,179,524 52,666,524
PUBLISHING 2,711,000 3,202,000 3,440,000 3,230,000 2,888,000 15,471,000
SATELLITE 1,965,000 2,405,000 1,681,000 2,034,000 1,742,000 9,827,000
CONSUMER ELECTRONICS 5,990,000 5,436,000 5,395,000 4,935,000 5,555,000 27,311,000
MANUFACTURERS 4,245,000 5,564,000 6,606,000 8,055,000 8,806,000 33,276,000
WIRELESS 7,585,000 8,538,000 9,132,000 9,602,000 10,992,000 45,849,000
INTEREST GROUPS 4,600,000 5,285,000 28,736,000 9,249,000 12,972,206 60,842,206
FILM, MUSIC, COPYRIGHT 2,384,610 2,684,610 2,900,000 3,085,000 2,966,000 14,020,220
GRAND TOTAL 76,518,128 81,664,596 107,694,251 90,882,287 114,739,776 471,499,038
SOURCE: U.S. Congress, Center For Responsive Politics & Multichannel News research
NOTE: Totals in story reflect lobbying spending by entities not listed in chart.

GIVE ED CREDIT

Those rules required phone companies to provide nondiscriminatory access to competing Internet service providers (ISPs), an open-access policy designed to neutralize the market power of network owners.

“I think you do have to credit Whitacre’s comments” with energizing the net-neutrality debate, said an Internet-company lobbyist who asked not to be identified. “I think it would have been a second-tier issue. It galvanized the attention of the consumer groups. It also galvanized the attention of Silicon Valley.”

Center for Digital Democracy president Jeff Chester — who sued in a losing cause to require cable to share its broadband network with competing ISPs — said Whitacre’s in-your-face audacity energized him and other net neutrality proponents.

“It was key. It made visible what we all knew. Even now, cable has largely gotten off the hook from the activists because their leaders haven’t been so arrogantly honest,” Chester said.

Net-neutrality proponents sought to frame the debate by insisting that the stakes involved — for consumers, for commercial Internet interests and for the U.S. economy — could not get any higher. But the major Internet companies spent about only one-fifth as much as the phone and cable companies in trying to exert influence in Washington. Their defense: Lobbying ain’t us.

“The government relations-lobbying spending culture fits those other companies,” explained a lobbyist for a major Internet company, who asked not to be identified. “I think it boils down to a different culture.”

The six leading Internet companies backing net neutrality — Yahoo, Google, eBay, Microsoft, Amazon and Vonage — had billions of dollars at their disposal to match whatever the phone and cable lobbyists opted to spend, but they didn’t.

Yet, at the same time the Internet companies were being outspent on Capitol Hill, Microsoft began a $36 billion stock buyback and Google founders Sergey Brin and Larry Page found it worthwhile to renovate their 180-passenger Boeing 767.

Lobbyists for the Internet companies — asked to address why their clients were outspent on an issue with supposedly life-or-death consequences — generally could not explain the imbalance.

An attorney for several Internet companies, who asked not to be identified, said the companies believed that they had put up sufficient funds to win the net-neutrality debate.

“To them, they actually think they have spent a lot of money,” the attorney said.

PASSING THE BUCKS

A lobbyist for a major phone company claimed that MoveOn.org secretly funded the campaign to impose net neutrality, explaining why the records show that the Internet companies were outspent. Started in 1998 as an effort to oppose President Clinton’s removal from office, MoveOn.org has morphed into a major fundraising group for Democratic office-seekers.

MoveOn executive director Eli Pariser said that his group, while supporting net neutrality, did not provide financial backing to its proponents. MoveOn.org. is not a registered lobbying group and has not hired registered lobbyists.

“What you are seeing is a whole lot of people who are individually invested in keeping the Internet free and open, who are putting in their time and energy to the cause,” Pariser said. “We are getting our message out, but I think we are doing it through people instead of trying to buy access and influence.”

Cable and phone companies tangled over the terms of national franchising. The telcos wanted to provide video without permission from local governments and without any obligation to wire every home in a community. Although the NCTA pushed back, the USTA, AT&T and Verizon would come out ahead if either the House-passed bill or the Senate Commerce Committee-passed bill became law.

These wireline video issues, messy for a while, moved to the background once both sides realized that net-neutrality regulation loomed as a common threat they had to confront.

“It was a very tough battle until everyone concluded that the real enemy was network neutrality and that as between cable and wireline everybody being on a level playing field was a reasonable outcome,” said BellSouth’s Abbott.

CROWDING THE ISSUE

With net neutrality threatening his bill, Stevens organized a meeting in June hoping that cable, phone and Internet companies could craft a deal on their own that would expedite Senate passage. The meeting, held in a room near the Senate floor, did not include Stevens or his staff.

“We did have everybody go in a room. We had the cable folks, USTA, Google and that crowd,” said Commerce Committee staff director Lisa Sutherland. “We convened the meeting but we didn’t participate in it. We said, 'We’re not going to get in the middle of this. See what you guys can work out.’ ” The meeting was a failure, forcing Stevens to ram his bill through his divided committee.

“We did not envision that we would go this whole year fighting as hard as we fought. We thought there would be a deal, thought there would be a compromise,” said a lobbyist for one the top Internet companies.

For a brief period, AT&T considered making a deal in which it would embrace in law the Internet “nondiscrimination principle” if the Internet companies agreed to help pass cable franchising legislation on terms favorable to the telco.

AT&T, which soon abandoned the idea, was interested because it didn’t want to end up as the only major broadband-access provider with severe net neutrality burdens that might come as a condition of FCC approval of its merger with BellSouth, still pending before the agency.

“I don’t think it ever got close,” said the Internet company lobbyist. “It seems like the [other] Bells, at the end of the day, were just not willing to entertain that” bargain that AT&T briefly mulled.

With much of its work unfinished, Congress left town in late September to allow endangered Republicans to return home to campaign. Although a lame-duck session is scheduled for mid-November, it’s typically a time reserved for mopping up, not for complicated telecommunications legislation that lacks consensus.

A net-neutrality amendment that would have enshrined the nondiscrimination principle died in the Senate Commerce Committee on a tie vote in late June. At that point, Stevens couldn’t pass his bill with or without net neutrality, the issue having become so polarized. Sen. Ron Wyden (D-Ore.), outraged about no net-neutrality guarantees, immediately placed a hold on the Stevens bill. That launched Stevens on a quest to round up at least 60 votes to overcome Wyden’s objection and debate the bill on the Senate floor.

TERRIBLE PRICE

Convinced net neutrality is a non-issue, Stevens is hoping to reach the 60-vote threshold after the election and pass his telecommunications bill.

“We do not need a net-neutrality provision. And if this bill goes down because of net neutrality, I believe that the people who have blocked it will pay a terrible price,” Stevens said, without explaining what the penalty would be.

Lawmakers and lobbyists have urged Stevens to trim his bill or break it into pieces to see if any can become law this year.

“I think Stevens is going to have to put his bill on a diet before it goes to the Senate floor. It’s just too controversial,” said Rep. Rick Boucher (D-Va.), who voted for the House bill despite seeing a net-neutrality amendment he favored go down to defeat.

Gary Lytle, Qwest’s senior vice president of federal relations, said he was unwilling to concede the legislation is dead as long as Stevens hasn’t given up.

“I don’t think you can ever underestimate the guy. So I’m not sure I’d agree that this is over,” Lytle said. “[Stevens] is a dogged legislator. If he says he’s going to push this thing in a lame duck, we’re with him.”

A lobbyist for a major Internet company agreed that it was unwise to write the year off, especially if the Democrats fail to gain control of either the House or Senate in the Nov. 7 elections.

“We’re operating as if they could decide to come back in a lame-duck session and try to move telecom reform,” the lobbyist said.

A cable lobbyist claimed telecom legislation was dead largely because House Majority Leader John Boehner (R-Ohio) and Senate Majority Leader Bill Frist (R-Tenn.) do not consider it a priority for the lame-duck session.

Senate Commerce staff director Sutherland said Stevens would fight to the last second.

“We will leave no stone unturned and do everything we possibly can do up until the second the majority leader gavels this Congress closed,” she said.

NET WORTH

Assuming telecom legislation is dead — for this year, anyway — which industry will have gotten its money’s worth out of trying to influence the outcome?

Cable-operator executives won’t be heard complaining if national franchising and net neutrality efforts fizzle in the waning moments of the 109th Congress in November or December. But it will mean that cable will need to rely on the FCC to ensure that the Baby Bells and rural phone incumbents accept cable’s voice over Internet-protocol traffic on commercially reasonable terms.

AT&T and Verizon, if they do come up short on national franchising in Washington, D.C., did obtain statewide video relief in populous states such as Texas and California, making the previous 13 months somewhat productive. Along with cable, AT&T and Verizon can claim victory on net neutrality.

“We do certainly have common ground with our cable friends in that we think it’s a problem that doesn’t exist. We are on the same page as [cable] on net neutrality,” said Qwest’s Lytle.

Asked if failing to reach a deal had been an error, many net-neutrality proponents had a common rejoinder: No deal was better than a bad deal.

“Sometimes it is better to say no. Something weak is worse than nothing, because actually now it remains a live issue that Congress could address in the future,” said a lobbyist for the Internet companies.

“What was in the [House] and Stevens bills lacked the single most important and fundamental principle of network neutrality, which is nondiscrimination,” Ben Scott, policy director at Free Press, a net neutrality proponent that sponsored the Web site Savetheinternet.org, said. “It’s like saying, 'Take the Bill of Rights but don’t take the First Amendment. Isn’t nine good enough for you?’ ”

The House bill, sponsored by Energy and Commerce Committee chairman Joe Barton (R-Texas), gave the FCC authority to enforce its broadband principles, field complaints, and fine violators up to $500,000 for each violation of the principles, which call for allowing subscribers to access lawful Web content or run applications of their choice.

Although the Barton bill banned the FCC from explicitly writing and enforcing nondiscrimination rules, it would not have banned the commission from creating them in a de facto sense through the adjudication of complaints. Stevens, however, included language that would have barred the FCC from using the complaint process to create a nondiscrimination principle.

But the net-neutrality coalition was not totally unified, as one of the pioneers of using Internet protocols to move voice traffic, Vonage, broke ranks with the Web giants. CEO Jeff Citron testified in February that the absence of net-neutrality regulations exposed consumers and Internet applications providers to predatory conduct by network owners.

In his bill, Stevens met Citron halfway by including an Internet consumers’ bill of rights, which enumerated nine specific guarantees, including one that guarantees the right to “access and run any voice application, software or service.”

In July, Citron sent Stevens a letter endorsing the bill.

“From where we are sitting, we’ll take the half a loaf, because I don’t see anything that brings the Bells back to the table next year,” said Vonage vice president of government affairs Chris Murray.

Vonage compromised because it did not believe that telecommunications legislation should die this year because it lacked the nondiscrimination language.

“It’s enormously important that all of the telecom reform bills have addressed net neutrality. It would be a shame if we let the perfect be the enemy of the good here,” Murray said.

September