Some Fear Policy Pitfall Looms

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When the Baby Bells wanted to see self-serving broadband legislation clear the House in February, they saturated the Washington market with an expensive TV advertising campaign.

The ad blitz wasn't made up just of feel-good messages about the Tauzin-Dingell bill. Instead, spots took gratuitous swipes — claiming cable systems would become abusive monopoly suppliers of high-speed Internet access — unless the Baby Bells were free to compete.

It wasn't the first time a deep-pocketed foe decided to bloody cable's nose. But what made the event troubling for some within cable's ranks was that — for the first time in recent memory — the National Cable & Telecommunications Association let a hostile ad campaign run without rejoinder.

"Something that concerned a lot of the industry about Tauzin-Dingell was the fierce anti-cable television campaigns that went unrebutted," said a senior cable-operator official, speaking on a not-for-attribution basis.

Since the debacle of the 1992 cable re-regulation law, the NCTA has followed an unwritten rule of not allowing its opponents to tell cable's story to the public.

NEUTRALITY PLEDGE

NCTA president Robert Sachs said politics played a role in the decision to keep quiet. The NCTA had pledged its neutrality on Tauzin-Dingell, he said.

But not everyone in the cable industry was silent. AT&T Corp., the NCTA's largest member, was part of a coalition that strongly opposed Tauzin-Dingell and helped fund tough counter ads.

AT&T's opposition came not in its capacity as a cable-system owner, though, but in its role as both a long-distance carrier and a competitive local telephony provider.

Nevertheless, AT&T's role put the NCTA in an awkward position: It was officially neutral on a major piece of legislation that its largest member had actively opposed.

"AT&T made its own corporate decision to do what it wanted to do, and it was the right thing for them to do," said NCTA's chairman, Insight Communications Co. CEO Michael Willner. "And it was right for NCTA to take the position on behalf of the cable operators."

For some, the Tauzin-Dingell bill scenario was indicative of an NCTA that has not been minding the store as well as it should, and of a trade group that could be on the verge of suffering a serious public policy reversal in the future, if it's not more careful.

With a take-a-pill-and-chill-out tone, NCTA insiders insist the real lesson to draw from the Tauzin-Dingell bill is that the association's strategy worked: The bill cleared the House without a provision requiring cable companies to carry competing Internet-service providers.

"We can't always agree on issues within the organization," said Willner. "And when you can't agree within the organization, companies go off and do their own thing.

"But 80 percent of the time, maybe more, this industry is absolutely in synch on its Washington policy beliefs. And that's why this organization is so strong," Willner said.

FENDED OFF TROUBLE

Willner's comment was on point in many respects. On Capitol Hill, cable has not been the target of unfriendly legislation that has any hope of becoming law. Rate regulation bills, sponsored by Rep. Barney Frank (D-Mass.) and Bernard Sanders (I-Vt.), have gained no traction.

In the courts, cable won its biggest victory in the U.S. Supreme Court in decades when the high court ruled that the Federal Communications Commission could prevent utility-pole owners from gouging cable operators that string wires for the transmission of Internet traffic.

At the FCC, the agency backed cable when Gemstar-TV Guide International Inc. tried to force Time Warner Cable to carry its electronic program guide, when the IPG is embedded in off-air TV signals.

And the agency agreed with cable's view that franchise fees collected on home-shopping and advertising revenues may be passed through and itemized on bills, so subscribers know the full burden of local cable taxation.

The NCTA had a major role to play in all of those victories.

"I think NCTA is doing a very good job. The proof is always in the results," said NCTA board member Decker Anstrom, the president and chief operating officer of Landmark Communications Inc.

But Anstrom — a former NCTA president — and others sense that attitudes in Washington are changing not just about cable, but also about corporate America, perhaps as a result of the Enron Corp. and Global Crossing Inc. scandals.

Some in cable fear the industry might be at the front end of another cycle in which lawmakers and regulators decide to give cable uncomfortably close scrutiny.

DANGER FLAGS

"Sometimes we are more at risk than others," said Anstrom. "I think it is fair to say that we are entering one of those dangerous periods again."

Said another cable company source: "Clearly, the sense of security over the last two years has declined about our position in Washington."

At least three events since March have contributed to cable's unease about the regulatory climate in Washington.

On March 14, the FCC ruled that cable-modem service is an information service. NCTA lobbyists became aware of the agency's decision in December, but failed over the next 90 days to persuade regulators to classify cable-modem service as a cable service, thus eliminating the possibility that any level of government could mandate ISP carriage under existing law.

The information-service classification had plenty of upside for cable, in part because the FCC has historically refrained from imposing access requirements on information-service providers, and in part because local governments would have little oversight of cable's high-speed data product.

But cable did a double-take when the Republican-controlled FCC — under chairman Michael Powell — pointedly refused to bury the forced-access issue, now in its fourth year before the agency.

Senior FCC officials continue to claim that cable is not out of the woods on this matter.

The second event was the April 4 release of Powell's DTV transition plan, which calls on cable to carry up to five HDTV signals without charge to the programmer by Jan. 1, 2003.

Cable systems are also expected to include local TV stations on their HDTV lineup.

For the first time, the FCC is endorsing HDTV as a policy goal. It's also asking cable systems with at least 750 megahertz of capacity to play a lead role in making it a reality. The top 10 cable operators have officially embraced the plan, which FCC officials insist is voluntary — at least for now.

"I'll be very strident about this. You want high-definition television. Everybody in the country wants it," Powell said at the National Show last week, to a room filled with cable MSO and programming executives.

Release of the Powell plan caught NCTA officials by surprise. The agency kept it secret because it didn't want cable and other affected industries to pick it to pieces before its public release.

McCAIN: ALARMING

The third alarm bell to go off was an April decision by Sen. John McCain (R-Ariz.) to ask the General Accounting Office to examine the causes of rising nominal cable rates. He also asked for a feasibility study on cable's ability to shield basic subscribers from having to pay for expensive programming — such as sports networks — that they have no interest in viewing.

Some within cable looked at these events, and concluded that the industry needs to prepare for a likely battle with an array of opponents, including phone companies, data providers, consumer groups, broadcasters and local governments.

"What we never want to see again is the confluence of opposing forces that we had in 1992, all of which had their own special agendas, all of which succeeded in getting a portion of their agendas out of cable's hide," a cable-company source said. "The concern is, are we moving into that world again?"

Sachs argues that cable's position in Washington is secure because the NCTA is open to dialogue, and committed to showing that the industry is playing its part.

"We do not see storm clouds. We see other industries, with whom we compete, having policy agendas that may conflict with ours," Sachs said.

Some evidence for that was delivered in comments Tauzin made here last Monday to kick off the convention.

"We want to protect you from those that want to regulate you to death," said Tauzin, chairman of the House Energy and Commerce Committee. "We want to create the kind of competitive environment where you can grow."

STEPPED UP ON HDTV

Sachs and other cable officials argue that the industry has it within its own power to appease Washington lawmakers and regulators and avoid punitive legislation and regulations.

Embracing Powell's HDTV plan was step one.

"Cable stepped up big time. You didn't see griping and moaning. You saw cooperation," a cable-company source said.

Cable is also relieving pressure on the Internet-access issue. AT&T Broadband has deals with EarthLink Inc. and Net1Plus; Comcast Corp. with United Online Inc.; and AOL Time Warner Inc. with numerous national and local ISPs, consistent with its merger agreement with the Federal Trade Commission.

The rate and programming issues identified by McCain won't be so easy to solve, as it appears unlikely that either MSOs or programmers are ready for a purely à la carte world.

"ESPN won't move off basic, and a cable operator probably can't move it off basic," a cable-company source said.

Sachs said he does not sense rising anger on Capitol Hill over cable rates.

"Most members [of Congress] indicate that they are not hearing very much from their constituents, either on rates or on service issues," Sachs said.

YES AFFAIR: DAMAGING

A senior House staff member who deals with cable issues said the cable industry had to do a better job explaining rate increases — especially to lawmakers who do not track cable issues as closely as members who serve on Energy and Commerce.

Anstrom said the carriage dispute between Leo Hindery's new Yankees Entertainment & Sports Network and Charles and James Dolan's Cablevision Systems Corp. was damaging. YES — which has exclusive local-TV rights to 130 New York Yankees games — has filed an antitrust suit against Cablevision, claiming that the MSO and its Madison Square Garden Network subsidiary hold a monopoly on televised sports in greater New York.

The stalemate has kept YES, a start-up regional sports network, out of Cablevision's 3 million New York-area households.

"I am deeply troubled by the fact that both programmers and operators seem to feel that the way to go resolve their business dispute is go bash each other publicly," Anstrom said. "I think this industry needs to be very careful about managing its hubris."

If AT&T Broadband and Comcast Corp. combine, as planned, nearly 50 percent of cable subscribers will be controlled by that new company and AOL Time Warner.

Industry sources said they do not expect the big MSOs to break off from NCTA and lobby on their own, though.

The chief reasons given were not new: The industry is more effective when united. If you want to see a trade association harmed by a split within the industry, they said, just look at the National Association of Broadcasters — in recent years, CBS, Fox, and NBC have all quit the NAB.

AOL Time Warner CEO-designate Richard Parsons said he and Time Warner Cable chairman Glenn Britt are satisfied with the NCTA's performance.

"I think they've got their heads on straight," Parsons said.

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