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Cable: Fit to Be Untied?

FCC advances toward next cable regulation battleground 1/11/2008 07:00:00 PM Eastern

The issue of program access is still very much a political football in Washington. Just before Christmas, Sen. John Kerry (D-Mass.) threatened to initiate hearings on the issue of access to TV programming. The move was Kerry's last-ditch effort to get wider availability for the NFL Network-exclusive game between the undefeated New England Patriots and New York Giants.

Hearings were avoided when the NFL allowed the game to be simulcast on broadcast networks.

The FCC is considering measures that could provide more avenues for Chairman Kevin Martin to regulate the cable industry and perhaps broadcasters, as well. The proposals, involving retransmission issues, would give programmers and viewers—as well as some smaller cable operators—more control over cable content.

Martin has opened numerous fronts in his push for increased cable regulation. Among them: reimposing the 30% cap on cable subscribers, tightening leased access rules and preventing exclusive contracts between cable operators and apartment and condo owners. But program access has the added potential of remaking the way cable service is sold.

Last September, the FCC renewed for five more years a rule that prohibits vertically integrated cable programmers—those that own both cable systems and networks—from striking exclusive deals for that programming with their owned systems.

But the commission pushed the issue forward by considering whether it should force networks to sell channels individually to operators. Martin at the time said he was “particularly pleased” by the inquiry into wholesale unbundling, adding that, “If a cable operator only wants one channel, it should not have to take 10 or 20 channels in order to get that one.”

Martin has also pushed for some form of arbitration for programming deals that aren't getting done.

70/70 on the Front Burner

The chairman tried to further justify new cable regulations last November. He invoked the “70/70 rule,” which states that when cable reaches 70% of TV households, and 70% of those households buy the service, it has sufficient market power to trigger additional FCC guidelines. The amount and type of regulation that benchmark creates remains a point of contention.

But data claiming cable had reached the 70/70 threshold was quickly called into question, leaving the issue in limbo while the National Cable & Telecommunications Association (NCTA) provides the FCC with more information. The FCC might still be able to make the figures stick, which would encourage Martin, and two supportive commission Democrats, to flex regulatory muscle.

Martin has often cited rising cable rates and the need for parental control over basic cable content—concerns he echoed last week at the CES show in Las Vegas and at a minority investment conference in New York—to argue that the cable industry has too much market power. Another concern is the ability of cable operators to control access to so-called “must-have” programming, particularly sports.

Cable operators large and small oppose a la carte at the retail level, arguing it is an unworkable business model, at least as mandated by the government. The industry is not in lockstep on wholesale unbundling, however, which could provide Martin with some leverage in pushing for FCC action.

Retransmission Changes?

Changes to retransmission consent—in which broadcasters negotiate payment from cable for their signals—are also on the table.

In a filing at the commission two weeks ago, the American Cable Association, representing more than 1,000 smaller cable operators, played to Martin's key talking points. ACA President Matthew Polka told the FCC that unbundling those negotiations, as well as wholesale channel deals, would lead to “more choices and better value. When broadcasters use federal retransmission consent rules to deny choice and raise costs, it's the consumer that pays the price.”

Disney, for one, doesn't think the FCC has the legal authority to unbundle cable programming. Its lawyers told the commission as much, and added that it always gives operators a chance to pay cash for its networks and only moves to a package deal of channels in lieu of cash if the operator doesn't want to pay. The ACA argues that the price is inflated to force operators into the bundled deals.

The NCTA calls the drive for additional video programming regulation “difficult to understand,” insisting the wholesale programming market is competitive and growing.

Citing claims of superior programming and service by satellite and telco competitors, the NCTA argues that “when the marketplace has reached a point where new and established competitors claim they have better existing programming than incumbent cable operators, it is almost impossible to justify retention of the existing regulation of cable-affiliated programming, let alone expansion of those regulations.”

Martin's push for capping cable subs, untying its bundles of programming and continuing to circumscribe its programming contracts also has Randolph May, president of The Free State Foundation, a free-market think tank, scratching his head. “It seems to me that with a Republican FCC with three commissioners who all profess to be market-oriented, it ought to be clear to the chairman and the others that the market is now sufficiently competitive so that the costs of regulation are unlikely to outweigh the benefits,” he says.

And yet Martin appears to be trying different cable regulation doors, looking for the one leading to lower prices and less edgy content. As May puts it: “He does seem to me [to be] casting about for various means of regulating cable operators.”

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