Policy

Martin: A Record of 'Picking on' Cable

3/16/2007 8:08 PM Eastern

Washington — The cable industry can be certain of one thing as the Bush administration enters its final laps: Kevin Martin has been a huge pain in the coax.

After two years in office, the chairman of the Federal Communications Commission has amassed a strikingly large and varied record of hostility toward the cable industry, the leading provider of pay television and high-speed Internet access in the U.S. Time after time, cable operators have come up losers in regulatory battles worth hundreds of millions of dollars. For those setbacks, cable can thank Martin.

The record includes Martin's ongoing attempts to force cable operators to carry digital TV-station programming whether they want to or not; to cap Comcast's growth at 30% of pay TV subscribers nationally; and to exaggerate cable rate increases by failing to adjust the data for inflation or the addition of more channels for the money.

'Regulatory Retreads'

National Cable & Telecommunications Association president Kyle McSlarrow last Thursday called Martin's cable agenda “essentially regulatory retreads,” rooted in an era when satellite TV didn't exist and cable hadn't boldly moved into the high-speed data or digital-telephone businesses.

Cable's Martin problem became clear in November 2005, when he disclosed that he had ordered his staff, in secret, to change the results of an earlier FCC a la carte study to show that in some hypothetical instances, some consumers could save money by buying some channels on an individual basis.

Martin's anti-cable bias has been so pronounced that Rep. Joe Barton (R-Texas) used his time at a House subcommittee oversight hearing last Wednesday to ask Martin whether he had been “picking on” cable. Cable operators had been streaming into Barton's office to complain about the 40-year-old Bush appointee's jaundiced disposition toward them, he said.

“I don't think we are picking on them, but I have to confess that I think most of the industries we regulate complain at one time or another that I'm picking on them whenever we don't end up agreeing,” Martin said.

Martin's use of the royal “we” was telling, because many cable defeats haven't been the result of votes taken by the five-member FCC. Instead, Martin on his own has meted out punishment by using his authority to regulate the flow of activity. A good example: the 404 days the FCC took to conclude Time Warner and Comcast's joint acquisition of Adelphia Communications, a bankrupt cable operator that was bleeding subscribers while the FCC temporized. The agency's unofficial but normal merger review deadline is 180 days.

The chairman's right to schedule action at the agency is “an enormous amount of power, it really is,” said former Democratic FCC chairman James Quello.

Martin's spokesman and top media adviser were unable to comment last Friday. In fairness, other companies have incurred Martin's wrath. Last summer, he forced Verizon and BellSouth to drop a new digital subscriber line surcharge that about equalled in dollar terms the size of an FCC regulatory fee that DSL providers no longer needed to collect.

And Martin has tossed a few bones cable's way. Under pressure from Congress, the FCC began to speed approval of cable petitions that sought price deregulation of the basic tier. The spigot opened not long after the Senate Commerce Committee ordered Martin to testify on Feb. 1.

A few weeks ago, Martin's staff approved a Time Warner Cable petition reaffirming the interconnection rights of telecommunications carriers that have cable voice-over-Internet Protocol services as customers. AT&T, which has benefited from several key FCC rulings under Martin, supported Time Warner's petition.

CEO-TYPE CLOUT

Martin's clout includes the power to staff the FCC's bureaus with loyalists. Bureau chiefs have delegated authority to issue rulings on the agency's behalf. Since Martin hired them, the chiefs do as the FCC chairman says. Although bureau-chief rulings may be appealed to the five FCC members, they are seldom overturned. If Martin thought he would lose an appeal, he could simply refuse to let a vote happen.

Comcast's run-in with Martin on a major set-top box waiver was illustrative of how a chairman's CEO-type functions translate into autonomous clout not shared with the other four FCC members.

On July 1, 2007, cable operators may not deploy new set-top boxes with built-in channel scrambling and access control unless the FCC grants a waiver. Comcast filed for such a waiver on May 19, 2006, with Media Bureau chief Donna Gregg, Martin's former law partner at Wiley, Rein in Washington, D.C.

According to Comcast, the waiver would allow it to save hundreds of millions of dollars on the procurement of set-top boxes that millions of subscribers would need to migrate to digital services. Promotion of a seamless, cost-efficient transition from analog to digital television has been an FCC policy priority for more than a decade.

Gregg sat on the waiver request for 226 days before denying it in early January. Martin announced the denial himself at the International Consumer Electronics Show in Las Vegas to soak up the appreciation of an electronics industry that fought Comcast's waiver.

WHERE'S THE BEEF?

So what's behind Martin's beef?

McSlarrow last Thursday told reporters that the MSO-Martin conflict is rooted in the a la carte debate.

The fight occurred behind closed doors in late 2005, while Comcast and Time Warner awaited FCC approval of their $17.7 billion Adelphia transaction. Martin wanted the operators to offer subscribers the ability to subscribe to channels one at a time. Such a la carte menus would remedy what he sees as one of cable's big ills: forcing consumers to take programming they don't watch, don't want and may consider indecent.

The cable operators resisted and Martin let the Adelphia deal grow mushrooms in the Media Bureau. In late December, Comcast and Time Warner yielded to some extent by rolling out family tiers — small packages of channels that didn't include channels considered potentially indecent.

At first, Martin announced he was pleased but then expressed doubt after the Parents Television Council and then-Sen. George Allen (R-Va.) complained about the exclusion of ESPN, the popular, 24-hour sports channel owned by the Walt Disney Co.

“The family tier was an enormously cynical move. It was designed to fail,” said Dan Isett, PTC's director of corporate and government affairs.

Martin could be far from finished using cable as a regulatory pinata. Among the issues still up for review:

  • Exclusive contracts cable operators sign with apartment building owners.

  • A petition filed by Virtual Digital Cable, a Northbrook, Ill.-based web site operator that wants to stream Time Warner Inc.-owned cable networks over the Internet.

Translation of digital TV signals back to analog at the headend, after the formal end of analog TV transmission. This would keep operators from forcing millions of subscribers with analog TVs from having to lease set-top boxes to view their local TV stations.

Kevin Martin's Cable Scorecard
Revised findings of a report on pricing of a la carte services, in secret.
Let Adelphia merger languish for 404 days.
Effectively doubled cable's payments into the Universal Service Fund, for voice communications.
Used undeflated prices to exaggerate cable rate trends.
Purged data that showed declining cable rates.
Ordered staff to reject Comcast's request for a waiver of rules regarding the installation of set-top boxes without access security built in.
Sought to force cable systems to carry extra digital TV signals.
Source: MCN research

March