NCTA'S Sachs Tackles Data, HDTV and More

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Over the last few years, National Cable & Telecommunications Association president Robert Sachs has enjoyed a benign regulatory environment in Washington. But some in the cable industry — and the federal government — fear that cable's run may be over. In
March, the Republican-controlled Federal Communications Commission refused to bury the Internet-access issue. One month later, FCC chairman Michael Powell offered a digital transition plan that pressures cable to carry local broadcasters' high-definition
TV signals. In the months ahead, the FCC might even rewrite a rule so that cable would be required to carry multiple broadcast digital-TV signals. Sachs addressed these issues and others in an interview conduced April 5 and April 23 with
Multichannel News Washington News Editor Ted Hearn. An edited transcript follows.

MCN: The FCC has rolled out a new DTV plan sponsored by chairman Michael Powell. Were you surprised? Do portions of it give you concern?

Sachs:
Chairman Powell had met with the NCTA board in February, so a lot of the ideas pertaining to cable that emerged in the plan that he announced in early April had been previewed during that discussion. And since that time, we've seen Comcast [Corp.] and Charter [Communications Inc.] announce the launch of high-definition tiers. We've seen Discovery [Networks U.S.] announce that it's going to be launching a 24-hour HD channel in June.

So I think the announcement by chairman Powell in early April reinforced what he said earlier. But the industry was already well under way in responding to some of those ideas.

MCN: I was told NCTA was quite surprised by the Powell plan. True?

Sachs:
Again, I would say the ideas were similar to those he had articulated a couple of months earlier, so I don't think those took anybody by surprise. The fact that he put forward a proposal that had ideas for the cable industry, the broadcast industry and the consumer-electronics industry was news to us, as to the other industries, but the content of it as it pertained to cable was less surprising.

MCN: The NCTA's initial reaction was that it neither favored nor opposed the Powell plan. What is the NCTA's position now? Do you have your own ideas to augment the FCC plan?

Sachs:
We are seeing quite a lot of support from the companies as we discuss this with them. So I would hope that by the time of the National Show, we are able to put forward a broad statement of endorsement.

MCN: Are there any specific elements of the plan that you are willing to embrace right now?

Sachs:
The way NCTA operates, we look to our board for guidance. Certainly, the call for cable operators to provide up to five HDTV channels that commit at least 50 percent of their primetime schedule to high-definition programming is very consistent with the business plans of companies in our industry.

MCN: Isn't the FCC putting pressure on industries to do things that they normally would not do? Shouldn't it be adopting rules, rather than applying pressure and jawboning?

Sachs:
I happen to think it is perfectly appropriate for him [Chairman Powell] to make suggestions to our industry and to other industries. And he himself has been very clear that what he is suggesting [are] voluntary initiatives on the part of industries. We have taken those recommendations in that spirit, and I think what you will see is that the cable industry will respond very, very positively to these ideas.

MCN: I heard an FCC official [Media Bureau chief Kenneth Ferree] say that if the cable industry doesn't go along, there will be an effect on its relations with FCC officials on other issues. If that's the case, is that good government or is that
The Sopranos
?

Sachs:The Sopranos
is a very fine television program on HBO. I know the comment you are referring to, and I think in a way it was perhaps not quite tongue-in-cheek, but Ken Ferree is a very outstanding public official and I think he recognizes quite clearly that this is a voluntary plan. So I don't attach a whole lot of significance to what might have been an off-hand comment at the end of a press conference, and which I am sure he said with a smile on his face.

MCN: Under the Powell plan, cable can offer HDTV from cable networks or broadcasters. Will cable offer a mix to avoid pressure to not favor cable networks?

Sachs:
I think you will see cable operators offer a mix. It will include the best HD programming that's available on broadcast and cable.

MCN: Are you concerned that broadcasters' efforts to get cable operators to carry multiple digital video streams, rather than just the primary video stream, seem to be gaining ground at the FCC?

Sachs:
The FCC has before it the NAB's petition for reconsideration of its preliminary ruling that carriage of the broadcasters' primary signal means one signal, and we're talking here about the period after the digital transition, after the time when the broadcast industry returns its analog spectrum to the government. It's perfectly appropriate for the commission, particularly given the fact that there are three new commissioners who were not members of the commission at the time the commission considered this matter over a year ago, to take a complete look at this on reconsideration. We believe that the commission's interpretation that it made a year ago was the correct one, that primary means one as a question of statutory interpretation here.

MCN: In March, the FCC said cable-modem service is an information service. Are you troubled that a sort of free-market-oriented, Republican-controlled FCC didn't put this data-over-cable access issue to rest once and for all?

Sachs:
No. The commission did a number of things that helped to provide some clarity here. The commission established a national policy framework for cable modem service, so rather than having cable operators subject to a patchwork of local regulations, there will be a national policy that governs the offering of this service. It was important that the commission resolve the question as to what is the appropriate regulatory classification.

And by designating this as an information service — and explicitly rejecting the idea that cable-modem service is a telecommunications service — the commission made a strong statement that traditional common carrier-type regulation of this service would be inappropriate.

With that said, the commission has left open a number of questions as to exactly what it means, from a regulatory standpoint, to be an information service. And we take nothing for granted as to the ultimate outcome of this proceeding. You might liken this to halftime in a football game, and while there has been a good first half, there's still two quarters left, and it's important that the industry remain focused on this proceeding to its conclusion.

MCN: Do you think this FCC will impose some sort of access requirement on cable operators generally?

Sachs:
I think it's way too soon to speculate on the outcome of this proceeding.

MCN: Is it telling that this FCC, which came in espousing a lot of free-market doctrines, hasn't so far been persuaded that the market should be allowed to work in the arena of cable access?

Sachs:
I think that a lot of outside observers may have ascribed to this commission a philosophical approach which would drive outcomes of various proceedings. I think that's unfair to the members of this commission. These are a group of very intelligent and thoughtful people, and I don't believe that some overarching philosophy is going to dictate the outcome of any proceeding.

This proceeding, like others, is being considered on the merits, and I believe that the eventual outcome as to what, if any, requirements are placed on the cable industry, the cable industry has a lot of influence over, in terms of what operators do in the market. And so the commission has said that it would like to get this proceeding concluded in a reasonable period of time, with the suggestion being that that might be before the end of this year.

So we fully expect the commission is going to be looking to our companies to see whether there are more deals done with independent ISPs.

MCN: Some people are saying cable has to worry about being surrounded politically by the National Association of Broadcasters, the Consumer Electronics Association, ISPs and the Baby Bell phone companies, leaving it with few allies in some big fights. What's your reaction to that kind of analysis?

Sachs:
It's very difficult to generalize. There are commercial issues that color relationships between various industries, and the cable industry, because we're in a number of different businesses — we're in video, we're in high-speed data, we're in telephony — we intersect with a lot of other industries. So the fact that there may not be perfect agreement on all issues with every other industry is not surprising, given the complexity of our business and the many other industries that we intersect with.

MCN: You don't sense a burgeoning coalition that wants to isolate cable in political fights that could surface at the FCC or on Capitol Hill? I'm thinking about this in terms of the coalition that formed prior to the 1992 Cable Act.

Sachs:
Well, pre-1992, the marketplace was quite different. Cable was the only game in town with respect to multichannel video. Today, you have nearly 20 million consumers who are getting multichannel video service from direct-broadcast satellites. Our high-speed-data business — we are going head-to-head with the phone companies and the DSL offerings in a majority of the country today.

As we offer cable telephone service, we are not the incumbent. The Baby Bells continue to control 90 to 95 percent of the residential telephone market. So I think the conditions are quite different. There is a recognition on the part of public policymakers that the cable industry faces competition in virtually every aspect of our business today.

MCN: I've heard from people that the NCTA has really got to think strategically about how it's going to deal with HDTV and ISP access, that it has to start moving in that direction quickly and in a manner that protects its business model and, at the same
time, fends off regulators. Do you see it that way?

Sachs:
I think that companies are thinking strategically, and in the case of HDTV the impetus here is competition from satellite. The NCTA Executive Committee and the CableLabs [Cable Television Laboratories Inc.] Executive Committee had occasion to go out to the [International] Consumer Electronics Show in Las Vegas in January, and had the opportunity to meet with the senior executives of a number of consumer-electronics companies. [The committee] had the opportunity to walk the floor of the show and see the various plasma screens and other HD displays, and had the opportunity to observe that many of these displays were using DirecTV [Inc.] or EchoStar [Communications Corp.] as a signal source.

And if any encouragement was needed, it was seeing the competition being the source of that HD programming, and given our platform and our newly rebuilt channel capacity, it is natural for our industry to be the leading provider of high-definition programs. As I said recently at an NAB conference that I was invited to speak at, the largest companies in our industry have embraced high definition television, and, I think, you will see over the months ahead other MSOs launch high-definition programming in their markets.

As to the question of multiple ISP access, again, here you are seeing the industry leaders in AOL Time Warner [Inc.] and AT&T Broadband and Comcast [Corp.] offering multiple ISPs over their systems. Obviously, those companies represent about half of the industry today. Other operators are studying their efforts, and I believe you will see further developments here.

MCN: It seems there is a perception out there that cable is not moving fast enough on multiple ISP carriage. Is that perception wrong?

Sachs:
That perception is nurtured by competitors, like phone companies, like some of the consumer groups and by some ISPs who are seeking to negotiate carriage arrangements. EarthLink [Inc.] is not the perfect poster child for seeking regulatory intervention. They are a company which has successfully negotiated carriage agreements with AT&T and Time Warner [Cable], the two largest companies in this industry. So I don't disagree that there is a perception.

But if you look at the fact that up until January of this year, AT&T and Comcast and Cox [Communications Inc.] and other Excite@Home [Corp.] affiliates were bound by terms in an exclusivity agreement, you've seen a lot of activity in the first three months of this year, and I believe we will continue to see such activity.

MCN: In fairness to EarthLink, though, weren't they able to leverage the AOL Time Warner merger? It looks like they've also been able to leverage the AT&T-Comcast merger.

Sachs:
No, I think your presumption is wrong with respect to the recently concluded AT&T agreement. If you talk to [AT&T Broadband CEO William Schleyer], he will tell you that that's an agreement that they have been working on for many months. He got fully engaged in it in November, shortly after he took the reins at AT&T. That was a month before there was even a deal with Comcast.

These are, by their very nature, complex negotiations, and it took several months for them to conclude it, but I don't believe that that agreement had anything whatsoever to do with the later announced merger with Comcast.

MCN: I heard some MSOs were upset that NCTA remained silent while ads for the Tauzin-Dingell telephone-broadband deregulation bill were running in the D.C. market and pounding away at the cable monopoly. That sort of violated a standing rule since 1992 against letting other people tell the industry's story.

Sachs:
The NCTA board unanimously supported the position that the trade association took on the Tauzin-Dingell bill. The Tauzin-Dingell bill, whereby is not our hunt; we have wanted to maintain a deregulatory environment for the rollout of our high-speed-data service; and we were not seeking to impose regulations on anybody else's broadband service offerings.

So early on, I met with [House Energy and Commerce Committee] chairman [Billy] Tauzin [R-La.] and Congressman [John] Dingell [D-Mich.], and we discussed our posture on it. And I made clear to them that NCTA did not oppose their legislation, which I later said in the letter to them, and that we were really neutrals in this fight. Consistent with that representation, we did not get involved in the ad wars, which were coming from both the opponents and proponents of the Tauzin-Dingell bill.

Sometimes it's very difficult to be a nonpartisan, to be a neutral, but that position served the cable industry well, because at the end of the day in the House, there was no forced access or cable component of this legislation.

MCN: NCTA's position is to fend off regulation of cable and not to advocate regulation of its competitors. But AT&T likes the idea of no regulation for cable and is very aggressive at the FCC about maintaining a full range of regulations on the Baby Bells. What's your reaction to people who say the optics of that situation are not very good?

Sachs:
My reaction is that the "optics" will be solved before the end of this year, when the Comcast-AT&T merger is completed.

I don't disagree as to the optics, but I think it is clear that anybody who looks into this issue, that the AT&T position on Tauzin-Dingell was not driven by, nor did it even involve, AT&T Broadband. This was the position of AT&T long distance, and that's what has driven AT&T both as to its advocacy in Congress and at the FCC, and I believe that that is recognized by most people who are closely involved with these issues.

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