Legal, Consumer Issues Head Digital Must-Carry


Washington -- Buoyed by last year's court decision
that preserved analog must-carry, the broadcasting lobby is starting to pressure the
Federal Communications Commission to extend the same rights to digital signals.

Meanwhile, the cable industry, fearing the involuntary
surrender of scarce channel capacity to the competition, is working the same FCC offices,
urging support for a free-market solution.

Aides to FCC officials said they expect the agency to
launch a rulemaking by the end of June, less than one year before affiliates of ABC, CBS,
NBC and Fox are required to seed the airwaves in the top 10 TV markets with digital

"I think that this thing is headed for a major fight
between the cable folks and the broadcasters," cable attorney Steve Ross said.
"I don't see a reasonable resolution to this problem."

Yet Decker Anstrom, president of the National Cable
Television Association, predicted a peaceful outcome if the FCC forbears from regulating.

"We have discussions going on with the broadcast
networks, and we think that this is going to get worked out in the marketplace among
sensible people," he said.

Attempts at a compromise have been going on for nearly one
year. Some TV stations (no names have surfaced) have apparently used retransmission
consent to secure carriage of their digital signals, making the outcome of the FCC
rulemaking less of a concern.

"I have heard the same thing," said Stephen
Effros, president of the Cable Telecommunications Association (CATA). "I think that
it is experimental."

Ross said he advised cable clients to reject
digital-carriage agreements.

"I crossed it out and advised my clients not to agree
to that in the last round," Ross said. "Most of the sophisticated operators were
not going to buy that."

Inside the FCC, staff said that at least for now, they have
more questions than answers on the complex subject of digital must-carry.

FCC chairman William Kennard has avoided tipping his hand.
Cable sources said Kennard's posture is deliberate because FCC attorneys have advised
him that digital must-carry may be constitutionally problematic.

As a legal matter, The National Association of Broadcasters
claims that Congress, in the 1992 Cable Act, authorized the FCC to impose digital
must-carry on cable operators.

For the next nine years, the NAB would have cable operators
carry both analog and digital signals. Yet the NAB's dual-carriage rules would remain
in effect beyond 2006 in those markets where fewer than 85 percent of households did not
own or lease digital receivers or converters.

"Our position is that cable operators should be
required to carry, without material degradation, everything within the 6 megahertz,"
an NAB source said. "Whether it's HDTV [high-definition television], or
multiplexing, or some data, they should carry everything."

Broadcasting sources said fears that digital must-carry
policies would be vulnerable in federal court were misplaced because the rationale for
analog must-carry and digital must-carry was the same.

"The fundamental issues that the [Supreme Court]
decided in the [1997 must-carry] case were that the cable industry is an important
gatekeeper to broadcast signals and broadcast signals are an important aspect of American
life," said Gerry Waldron, a broadcast attorney with Covington & Burling.

Cable-industry lawyers said the Supreme Court's narrow
holding to affirm must-carry provisions in the 1992 Cable Act pertained to analog signals,
and not to digital signals.

"Congress in 1992 left open the question about whether
of not there should be [digital] must-carry and what kind of must-carry there should be.
It's even more ambiguous than that," said Daniel Brenner, the NCTA's vice
president of law and regulatory policy.

Cable leaders said they were confident that digital
must-carry rules would be viewed by the courts as excessive, especially if a substantial
number of cable networks are bumped to accommodate digital-TV signals that are merely
prettier versions of their analog twins.

"If the FCC imposes a broad must-carry that extends
analog to digital, maybe the whole thing goes down next time," Anstrom said.

When cable tried to topple the analog must-carry rules,
industry lawyers had to cope with an internal flaw in their argument: They told the courts
that must-carry was a burden on channel capacity, while maintaining that must-carry was
unnecessary because cable operators had been carrying 95 percent of local stations before
they were forced to.

This led the courts to ask: How can must-carry be such a
burden on operators when so few stations actually needed its protection?

Effros said cable's assault on digital must-carry
would likely succeed because cable operators have no history of carrying digital TV
stations, and they would have an easier time demonstrating harm to dropped cable networks.

"This is not a mirror of the old must-carry debate,
and the broadcasters don't understand that yet," Effros said.

Cable-industry leaders said they have solid
consumer-protection reasons for allowing carriage of digital-TV signals to flow from
negotiations with broadcasters, instead of from FCC fiats.

Until a cable system with no free channels can integrate
incompatible digital-broadcast and digital-cable-programming services at the headend, a
cable subscriber will lose one analog-cable network for each digital-TV signal.

Under that scenario, cable subscribers in New York and
Washington, D.C., for example, would face losing 14 cable networks.

"The transition to digital should not disenfranchise
existing cable-programming services," said Leo J. Hindery Jr., president and chief
operating officer of Tele-Communications Inc. "There is no way to avoid the fact that
digital must-carry would require cable operators to drop many existing services."

Anstrom said thousands of cable subscribers would lose
multiple cable networks so that a few wealthy cable subscribers could view digital-TV
signals on their $10,000 HDTV sets.

"I think that you would see an uproar. That's
what a [digital] must-carry requirement means in this transition," Anstrom said.

Broadcasters and cable operators conceded that the TV
networks and their affiliates can use retransmission consent to guarantee cable carriage
of their digital signals.

But broadcasters insisted that free-market negotiations
failed to protect independent TV stations prior to enactment of the analog must-carry law
in 1992 -- a lesson worth remembering as the digital must-carry debate unfolds.

"The cable argument that these can be worked out in
private negotiations is baloney. That's why Congress passed must-carry," an NAB
source said. "The idea that every station in a market can work out carriage with the
cable operator to me is really misleading."