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Cable Dodges a Bullet

Industry breathes sigh of relief as FCC rebuffs Martin's regulatory plan 11/30/2007 07:00:00 PM Eastern

FCC Chairman Kevin Martin's efforts to more tightly regulate the cable industry were soundly crushed in the face of an invigorated cable business and questions from lawmakers and fellow commissioners.

Martin appeared to have the votes necessary only a couple of weeks ago, telling the press that the FCC's latest Video Competition Report would establish that more than 70% of viewers who could get cable were buying the service, a market power benchmark that could justify regulatory initiatives from capping ownership to unbundling programming, both potentially on the chairman's to-do list.

Capping ownership is apparently still on that list. The chairman circulated an agenda for the Dec. 18 meeting among the other commissioners that included establishing a 30% cap on a company's cable subscribers; Martin has been proposing this since March. That doesn't mean it will be on the agenda, but Martin may want to package ownership items together. He is still looking to vote on loosening the newspaper/broadcast cross-ownership ban.

Given the commission Democrats' long-standing concerns about cable market power, he appeared to have lined up a bipartisan majority even if he could not convince one of his Republican colleagues to sign on to what could be a heavily regulatory move.

Instead, the FCC's reliance on a single source for that data, rather than the multiple sources used to support previous reports, drew objections from legislators and Republicans and Democrats on his own commission. There were also rumblings about not giving commissioners sufficient notice about the items on the FCC's monthly agenda meeting, or the public sufficient time to comment on them. Martin said he had given the commissioners at least three weeks to vet the items.

Those criticisms of FCC process have been leveled before, and often, but primarily by commission and Hill Democrats and anti-consolidation activists. This time, Republican Commissioner Robert McDowell and Commissioner Deborah Taylor Tate added their criticism of the way the commission's processes were being handled.

A C-SPAN camera crew came Nov. 27 to capture the 9:30 a.m. FCC meeting start time, given the half-dozen important media items slated for commission votes, but the start time came and went as Martin tried to wrangle a majority that has become the equivalent of cat-herding. Items were dropped or modified in what Democratic Commissioner Jonathan Adelstein described as “complete chaos.” The meeting actually started at about 9:15 p.m., leaving observers scratching, or nodding, their heads, and commissioners to complain about how it made the FCC look.

The biggest change in the agenda was to the so-called “70/70” test in the annual—in this case nine months behind schedule—Video Competition Report to Congress. The finding could have been the shotgun Martin could use to get cable over the threshold triggering regulation, giving him better justification for regulatory or legislative efforts he has argued will lower cable rates and give viewers more control over programming. The move backfired, with McDowell joining with Democrats to suggest the chairman had omitted information, or perhaps even suppressed it, to reach the conclusion he wanted.

Martin countered that data from Warren Communications was used because it was considered the most comprehensive, reliable and to the point, since it was collected from systems with 36 or more channels, which are the ones whose sub figures the 70/70 test is based on.

The other commissioners pointed out that of the four sources the commission has traditionally relied on to gauge whether cable had reached that 70% figure—Nielsen, Kagan, Warren and the FCC's own data collection—only the Warren data was included in the latest report, and it was the only data that suggested cable subscribership had topped 70%. This was a case, McDowell said pointedly last week, of “statistical prestidigitation.”

Adelstein said he would not hesitate to regulate cable if he were convinced it had indeed passed the 70/70 threshold, but suggested the chairman had cherry-picked the data that supported regulating cable—and suppressed dissenting data—which was the wrong way of arriving at what might ultimately prove to be the right finding. “We can't cook the books to serve a political agenda,” he said.

McDowell also complained that there had been an effort to omit, “or as some have suggested, suppress,” data from the FCC and elsewhere, in favor of a study that was inserted into the record only several weeks before, without scrutiny or comment, because it was the only data that would justify a “cascade of unnecessary regulation of the cable industry.”

Martin also came under fire for not supplying the other commissioners with the FCC's own data, which showed that 54% of homes passed subscribe to cable, much less than the 71.4% the Warren data had found. Both McDowell and Adelstein pointed out they had not even seen those figures until 7 p.m. the night before the meeting because the original draft had “mysteriously redacted,” as Adelstein put it, all but the Warren numbers supporting the 70%-plus finding. Martin countered that they had not asked for that data before then.

So, instead of saying cable has met the regulatory benchmark, the report says the Warren data alone is not sufficient. The FCC will require all cable operators to supply data on subscribership and homes passed, even operators smaller than the 36 channel-plus systems, within 60 days of the orders adoption, and withhold the release of the competition report until it has those numbers and can make a final determination.

Cable attorney Burt Braverman of the law firm Davis Wright Tremaine said that any additional reporting requirements will be a hassle for cable, particularly for smaller operators, but he thinks at the end of the day, the numbers will show that cable subscribership is going down, not up.

McDowell was concerned that some smaller operators simply would not be able to come up with the data, and wondered whether the commission would then use that information gap to justify a finding that the 70/70 test had been met. “Stay tuned,” he said pointedly.

Rep. Marsha Blackburn (R-Tenn.) said she would introduce a bill to repeal the FCC's authority to regulate cable under the 70/70 benchmark, calling it an anachronistic law that invited abuse.

National Cable & Telecommunications Association President Kyle McSlarrow said the industry was ready to make its case to the FCC. “As we have repeatedly made clear, our industry welcomes the opportunity to supply and rely on the best available data,” he said. “As already required by law, cable systems representing more than 75% of all subscribers annually report to the FCC total subscribers and homes passed. Additional data will confirm that the commission was correct in rejecting the 70/70 finding.”

E-mail comments to jeggerton@reedbusiness.com

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