Debate Continues Over Whether Cable Crossed 70/70 ThresholdMedia Access Project, Consumer Federation of America Say Yes; Sanford C. Bernstein analyst Craig Moffett Says Impossible 11/26/2007 08:40:00 AM Eastern
Representatives from Media Access Project and the Consumer Federation of America told Federal Communications Commission member Jonathan Adelstein cable has indeed passed the 70% subscribership threshold that triggers potential new FCC regulations, while a Wall Street analyst continued to maintain that this was essentially impossible given the figures offered up by cable companies under severe penalties for misreporting.
The assertions by MAP and the CFA came in an e-mail over the Thanksgiving holiday from the anti-consolidation activists solicited for their input on the Wall Street analysis by an Adelstein aide, according to Media Access Project senior vice president Harold Feld.
According to the Wall Streeter in question, Sanford C. Bernstein analyst Craig Moffett, Adelstein reached out to him last week for "an independent view of cable subscribership."
The FCC concluded, based on data from Warren Communications, that cable had reached 70% penetration (an uncontested assertion) and that at least 70% of those subscribed to cable (a hotly contested assertion).
The issue came to a head after FCC chairman Kevin Martin told The New York Times cable reached that 70/70 threshold. Once that test is met, the FCC is permitted to adopt some new regulations on the industry to prompt competition and program diversity, although just how broad that power is was also disputed. The commission at press time was still scheduled to take up the video-competition report that includes that 70/70 finding at its monthly meeting Nov. 27.
Martin has proposed various cable regulations, including limiting leased-access rates, boosting the government’s role in resolving program-carriage disputes and unbundling cable programming at the wholesale level. The FCC already has the power to regulate in many of those areas, but the 70/70 threshold would buttress its case for regulation. Martin has also pushed cable operators to unbundle at the subscriber level via a la carte, but he has conceded that the FCC’s authority in that area is limited.
In his letter, dated Nov. 21, Moffet said that it was "mathematically impossible" for cable to have reached the 70% subscriber figure.
Moffet wrote, "Based on public filings with the SEC [Securities and Exchange Commission] and other public data sources,” he estimated that subscriber figure at 63.5 million. "In order to satisfy a 70% penetration test,” he wrote, “one would need to therefore assume that there are no more than 90.7 million homes passed by cable in the United States. As we demonstrate below, publicly reporting cable operators alone span more than 105 million homes passed. This implies a cable-adoption rate among the issuers of public securities of just 52%.”
He continued, "We do not believe that it is mathematically possible, even after adjusting for vacancy rates and subscribership among other privately held cable operators, to arrive at cable adoption rates materially in excess of 60%."
In a letter to Adelstein -- buttressed by a second from CFA's Mark Cooper -- Feld argued that Moffett "severely underestimates" the number of cable subscribers added in 2006.
Feld cited accounting practices that "systemically undercount millions of subscribers in [multiple-dwelling units], condo associations and housing associations,” saying it was a matter of different accounting systems rather than a question of lying by the cable operators.
Moffet was preparing his response to the MAP letters at press time, but he did tell B&C that he still could not find a way for cable to get to the 70% figure.
He conceded that he was "in no position to reaudit the audited financial statements of the largest cable operators," saying that he had to rely on their public filings. But he said there are stiff penalties for misreporting and "the charges that these companies systematically underreport their subscribership are a curious claim from the perspective of a Wall Streeter like myself given the importance of subscribership to public equity."