Policy

What Would Julius Do?

1/19/2009 5:55 AM Eastern

If President-elect Barack Obama officially names his friend and technology adviser Julius Genachowski to be Federal Communications Commission chairman as expected, the cable industry should breathe easier about pricing and packaging of TV channels, analysts said last week.

Julius GenachowskiBut cable wouldn’t be free and clear of regulation. The 46-year-old Genachowski comes from the Internet venture-capital world, a market segment whose leaders, such as Google, Yahoo and Microsoft, are deeply suspicious that cable and other broadband access providers want to hog the profits by dictating network access terms.

“We would expect Genachowski to pursue the Obama communications agenda (which he helped develop) of promoting greater broadband deployment and access, an open Internet and network neutrality ...” Stifel Nicolaus analysts David Kaut and Rebecca Arbogast said.

Federal Communications Commission chairman Kevin Martin announced last Thursday that he is resigning on Jan. 20, the same day Obama is to be sworn in as the 44th president. Although no official announcement has been made, the nomination of Genachowski, a campaign fundraiser whose friendship with Obama dates to their college years in New York, is expected to be made public soon. His nomination would require Senate confirmation.

Although Obama’s transition team refused to confirm the selection, a Senate source said the transition office had told Senate Commerce Committee Chairman Jay Rockefeller (D-W.Va.) of Obama’s intent to nominate Genachowski. Rockefeller’s panel needs to confirm Genachowski, who would receive a five-year term.

Genachowski attended Columbia University and Harvard Law School with Obama, and the two remained close over the years. In July, Genachowski helped organize an Obama fundraiser in Washington, D.C., that raised at least $1.3 million.

Genachowski has a sterling career background in the law. He clerked for U.S. Court of Appeals Judge Abner Mikva. He also clerked for two U.S. Supreme Court Justices, David Souter and William Brennan.

He worked in Congress from 1985 to 1988 for then-Rep. Charles Schumer (D-N.Y.) and was on the staff of the select committee on the Iran-Contra Affair during the Reagan administration.

He entered the telecom arena by taking a job at the FCC with chairman Reed Hundt during President Clinton’s first term. In his memoir, Hundt described Genachowski as “brilliant.” Last week, Blair Levin, Hundt’s FCC chief of staff, described Genachowski as a “real practical visionary.”

In the private sector, Genachowski was an executive at IAC/InterActive Corp., run by Barry Diller, for about eight years. Genachowski is currently a venture capitalist in Washington, D.C., the co-founder of Rock Creek Ventures and LaunchBox Digital, which directs funds to digital media and e-commerce firms.

Genachowski is unlikely to pick up where Martin left off. In his four years as leader of the national media regulatory body, Martin, a Republican, put pressure on cable to sell channels on an a la carte or individual basis. With a few exceptions, cable channels have traditionally been sold in large packages on a take-it-or-leave-it basis. But cable refused to go a la carte voluntarily, and Martin has imposed a raft of new regulations on the industry, leading to about a dozen law suits and an acrimonious relationship.

“We expect the FCC to be a friendlier place for cable. We do not expect Genachowski to continue Martin’s effort to press cable to unbundle channels in an a la carte fashion,” Stanford Group analyst Paul Gallant said.

After Martin leaves, Obama could select either Michael Copps or Jonathan Adelstein, both incumbent FCC Democrats, as interim chairman until Genachowski is confirmed. The FCC, which normally has five commissioners, will have two Democrats and one Republican until Obama’s new appointees are seated.

“I think [Genachowski] might be able to get to the FCC pretty quickly,” said former Republican FCC chairman Richard Wiley, managing partner of the Wiley, Rein law firm.

On the campaign trail, Obama pledged that he wouldn’t let broadband network owners discriminate against content providers. The then-Illinois senator supported a Senate bill that would impose network neutrality requirements on cable and phone companies offering high-speed Internet access.

“We believe the regulatory initiative is likely to shift some from incumbents — Verizon, AT&T and Qwest, in particular — to new entrants and other non-traditional telecom and media players, including Internet application/content providers Google, Yahoo and eBay,” Kaut and Arbogast said.

Cable could have other problems with Genachowski. FCC Democrats have traditionally opposed media consolidation. Comcast is fighting in court an FCC rule that bans one cable operator from serving more than 30% of pay TV subscribers nationally. If Comcast wins, then the cable ownership fight would return to the FCC.

A key Obama goal is broadband deployment in unserved areas, even though 92% of all U.S. households have access to cable’s high-speed Internet access service. Cable is concerned that the FCC’s universal service fund might be used to channel broadband subsidies to competitors, and the industry is watching carefully to see if Genachowski tries to force cable to allow competing Internet access providers to lease capacity on a wholesale basis.

Allan Block, chairman of Block Communications — owner of Buckeye CableSystem in Toledo, Ohio, two newspapers and several TV stations — said after investing in the infrastructure to provide high-speed Internet service, cable shouldn’t be told it can’t control its own pipe.

“If you’re going to punish those that provide the connection, in favor of the ones that need the connection; if you’re going to punish old media that does the news coverage in favor of new media that borrows the news coverage; that isn’t good,” Block said. “It’s time to start protecting old media. It’s time to have a little balancing here.”

But some in cable are ready to embrace Genachowski for the simple reason that he isn’t Kevin Martin. Said Kyle McSlarrow: “I think I would want to wait until the announcement is official before formally commenting. But if Julius was nominated, he would be an excellent choice and certainly has the policy savvy and real-world experience that will be necessary to tackle the complexity of today’s media, communications and technology marketplace.”

Tom Simmons, senior vice president of public policy for Midcontinent Communications, said he’s “guardedly optimistic” about Genachowski.

“The cable industry has been probably not one of the favorite areas of the FCC in general, it seems, and certainly of chairman Martin,” Simmons said. “So that would probably account for the guarded part of all of that. But I think that what I’ve seen so far is that he certainly has the background, he certainly has the orientation, he has been involved at the most senior level of the operations of the FCC in the past.”

Tom Larsen, vice president of legal and public affairs for Mediacom Communications, said that Genachowski “in terms of breadth of experience, he seems like a great fit” for the post, because of his FCC stint and his stint at Diller’s IAC.

“He has exactly the right background,” Wiley said. “The key thing is that he is very close to the president-elect.”

During the campaign, Genachowski, who raised more than $500,000 for Obama in bundled donations, is credited with being the person who urged Obama to exploit the Internet as a fundraising tool and embrace social-networking techniques popularized by Facebook and MySpace. Obama’s innovative use of the Internet seems to have won him a permanent spot in the annals of U.S. election history.

Under Martin, the FCC became notorious for its infighting and conflicts. Martin’s management practices were the subject of a year-long House Energy and Commerce Committee investigation. “The biggest job he has, regardless of what position he takes on the issues, is he has to make the FCC work,” American Cable Association president Matt Polka said. “He’s got to make people work together in a more cooperative, collegial way, where policy gets done.”

Support for Genachowski’s appointment includes groups with diverse ideological backgrounds. “Genachowski is an outstanding choice to chair the [FCC]. He is knowledgeable, experienced, and presumably will have the ear of the most influential people within the [Obama] administration,” said Ken Ferree, president of the Progress & Freedom Foundation, a free-market think tank in Washington D.C.

Ferree, chief of the FCC’s Media Bureau under chairman Michael Powell, was a leader in the regulator’s March 2002 decision to classify cable-modem service as an unregulated information service, and thus not subject to open network requirements that applied then to digital subscriber line service offered by AT&T (then called SBC Communications) and Verizon Communications.

Not surprisingly, Genachowski’s reported appointment won praise from a group that complained to the FCC that Comcast Corp.’s broadband network was discriminating against users of peer-to-peer applications, such BitTorrent.

“As the architect of President-elect Obama’s Technology and Innovation Plan, it is clear that [Genachowski] understands the importance of open networks and a regulatory environment that promotes innovation and competition to a robust democracy and a health economy,” Gigi B. Sohn, president and co-founder of Public Knowledge, a group that defines itself as “working to defend citizens’ rights in the emerging digital culture.

In office, Genachowski’s first challenge will be the national switch to digital broadcast television on Feb. 17. Obama transition team co-chair John Podesta has urged Congress to consider postponing the DTV transition for an unspecified period of time.

House and Senate bill were introduced last week to delay the transition for 115-days to Friday June 12. The House Commerce Committee is expected to approve the bill Wednesday afternoon.

“The next several years will present opportunities and obstacles in the technology and communications industries, including the coming DTV transition and the government’s effort to deploy broadband in underserved areas,” the ACA’s Polka said.

Linda Moss contributed to this report.