Washington

Powell: Gearing Up for Change

One year into his tenure, the NCTA president is approaching shifts in policy with renewed vigor 4/09/2012 12:01:00 AM Eastern

On April 25, National Cable & Telecommunications
Association president
Michael Powell marks his first
year atop the cable trade association.

As the association preps for the NCTA Cable
Show May 21-23 in Boston, Powell spoke with
B&C Washington bureau chief John Eggerton
about the challenge of getting regulatory certainty
in a divided Congress, and an FCC that
is sometimes reluctant to
act definitively.

Powell says he thinks
his members share his
excitement about the
direction the NCTA is
headed. Patrick Esser,
chairman of NCTA’s
board and president of
Cox Communications,
certainly sounds like it.

“Kyle McSlarrow did
a great job at NCTA and
was a tough act to follow,
but Michael didn’t miss
a beat,” Esser says. “He
jumped in and put his
own leadership stamp on
an already highly respected
organization. Michael’s
experience and thoughtful approach have helped
direct strategic thinking and continue to steer the
industry on a positive path. High marks for him
in his first year; we have a bright future ahead.”

“Michael is a terrific leader for our industry,
and he has more than met the high expectations
we had for him,” says Brian Roberts, Comcast
chairman/CEO and NCTA board member. “He
quickly mastered the critical issues unique to
cable and has filled the role of the industry’s
chief advocate with passion and vision.”

While Powell does not see major FCC reform
making it through Congress, he says it
is time for Washington regulators and policymakers
to start connecting more with the digital
present and future. As a former chairman
of the FCC, Powell speaks with some authority
about trying to regulate a moving target.

He says cable is doing well, but could do
better, on the diversity front, and he is doing
his part at NCTA to make that organization
more diverse.

Powell, who manages to look unrumpled
and unruffled even as he fields tough questions
in shirtsleeves while parked in a comfy
corner-office chair, talked about the challenges
and opportunities of
the future in an industry
he thinks is kicking into
an extra gear.

How do you assess your
first year atop NCTA?

At a personal level, it has
been enormously satisfying.
It has exceeded expectations.
I think that
we knew we were coming
into an excellent association,
but it still was a
place poised, much as the
industry is, to find a fifth
or sixth gear, and look for
a more challenging and
bolder vision of itself.

We’ve had a really
exciting time putting in place our strategic
planning and focus, and the team here has
responded extremely well. We’re all very
excited about where we are, and I think the
leadership of the industry is really excited
with what we’re doing.

On the policy front, we do fairly well. I
think we still benefit from the process we
talked about last year, of being very practical
and very focused on the things that concern
us. And I think we get greater respect and
attention as a consequence of it. We had our first
[Cable Show] with me and we didn’t blow it.

I really do think the industry is on the
cusp of another generation of pretty exciting
change. So there is a sense of renewed excitement
and vigor that is really rewarding.

You said “fairly well” on the policy front.
Why did you qualify it?

My parents [Colin and Alma Powell] taught
me never to say “never,” and never to say
“always.” Someone will find an exception. I
wouldn’t make too much of that. I think there
are things we always wish there was less of in
terms of the regulatory state.

For example?

I fundamentally remain anxious that Washington
has not fully caught up with the extraordinary
and dynamic way the communications and
entertainment marketplaces are unfolding, and
how in some ways radically different they are
from the original predicates on which so many
of the rules today are still built. If you look at
every cable rule—maybe not every one—but
there are two enormous buckets that reflect
1992 [the year the Cable Act was passed].

One was that cable was this big, vertically
integrated monopoly. There were no DBS
providers; there was no telephone video competition;
there were no over-builders; there
were no alternate pay platforms. And at the
time most cable operators shared ownership
of almost 60% of programming.

That number is way down on the vertical integration
front. On the horizontal integration front,
we’ve had the arrival of lots of other choices,
and that is before we had the layer of dynamism
that comes with what the Internet makes possible,
whether it’s Hulu or Netflix or others.

Yet we still spend our day with provisions
that I think re" ect judgments that are increasingly
incongruous with reality.

Program access rules being one of them?

I think so. Things
in the program access/program carriage space are fundamentally premised on that
predicate: "Oh, this is an industry that must be vertically integrated, will
favor its own, is the only path to reaching a consumer." I am not an
anti-regulatory guy. I understand the value of good government policy. But I do
think these things are products of an assumption that isn't really true
anymore.

And, so, I
think you do get these kinds of anomalous and worrisome results when you are
applying them to the dynamism of today.

NCTA has tended to stay out of the
retrans fight.

We have played
in it up to a point. The question always intrigues me. There is a proceeding at
the commission. We filed in the proceeding. But this commission has expressed,
somewhat forcefully, that they think there are real limitations to their
jurisdiction to do something that might dramatically move the needle.

Now, that
doesn't mean there is nothing they can do, it doesn't mean that it might not
make some impact on some providers. But I don't put a lot of confidence in the
idea that the commission is going to change the challenge of the relationship
between programming costs and operator costs. I think that problem, if it is a
problem, is a set of issues that is substantially bigger than will be fixed
with what Julius Genachowski says, or the bounds of his authority.

We are more
interested, at least at the NCTA, in trying to understand what the future era
of television regulation might be post-1992 Cable Act.

We do have
operators who very strenuously work on this issue, and we have programmers of
course who very strenuously don't want us to work on this issue. But I think
that they have done a lot with each other on the business level to try to keep,
on behalf of the public and consumers, this thing in relative balance.

Do you think anything will happen in
Congress on retrans?

Certainly not
in 2012. And I think Congress is increasingly trying to look at the issue the
way I am suggesting, which is that if we are going to have a conversation about
any one of these elements, lets have a conversation about an entirely new
regulatory marketplace.

My own guess
is that after this election, 2013 will be the year where there is much more
serious conversation about the post-1996 [Communications Act rewrite] world.
Everyone says at different times "what's wrong with the Act," but I do think
the moment is slowly maturing in which the people's representatives are going
to have to accept that we increasingly have a tired and out-of-date regulatory
foundation. I think that conversation is healthy.

I think the
idea that any one of these industries is well positioned to get some little
piece to their liking, while the other pieces remain the same-I am just very
doubtful that that will prove compelling.

How important to cable broadband is
mobility and is Wi-Fi the answer?

We have all
these incredibly fascinating-sounding phrases that become quickly trite. Like "anytime,
anywhere" and "what you want, your way, when you want it." But the truth of it
is is that that is just a reflection of the reality of the device and
technology marketplace.

I have sat
here now in my modest adult life and there is almost an annual cycle of
delight. There is another thing with another screen with dramatically more
capability. Wireless is what a lot of people understood to be what Sprint and
AT&T and Verizon and T-Mobile do. But the reality is that it has become the
connective tissue of our devices.

I don't know
what my house would be like without Wi-Fi. I don't know how many devices in my
house are operating and connected just because there is a Wi-Fi connection driving
stuff into the broadband. It's also good for the ISPs because it took what you're
paying for your broadband service-that used to be something that could go to
one machine. If I have to pay $50 for broadband and its one computer, that's
one thing. But if I am paying $50 and it is seven computers, I will argue that
the value is exponentially higher. If for that $50 dollars I get my seven TV's,
my Sonos music system, my Samsung Smart TV and a net thermostat, now you are
talking about the entire digital operations of my home. And it lets device
manufacturers invent things without permission that they know are going to run
on that mobile standard.

So, when you
get to the second part of your question, at least in my view, and I think the
cable industry is increasingly coalescing around, Wi-Fi as an absolutely
critical part of extending the cable experience and Internet experience for
consumers in their regions, and I think most are focused on that. I think that
is the real story of the cable company/Verizon deal. I think that after years
of trying to figure out the right place to be in mobility, they have started to
think they know where it is now, and they are going to be moving much more
expeditiously in the Wi-Fi direction. 

Should the country be afraid of Verizon
buying cable spectrum?

I'm not their
advocate per se, but if I went to Congress and was testifying one day and I
looked up on the dais and I said: "All of you who currently have a Verizon,
phone raise your hand," I'm pretty sure you would get a decent cross-section of
those people who are enjoying apps and services and want improvement, and better
connectivity. They want faster [service]; they want more apps. There is a voracious
appetite by consumers for mobile services. And "big" to a public interest
advocate may mean bad or evil, but it also means they are serving a huge number
of consumers who want improvement and innovation in their service. You can't
forget that.

And whether we
like it or not, the government controls this input. It is a difficult input. It's
not like Verizon can go drill spectrum. It can't go dig up where the dinosaurs
died and find new reserves. This is something that has a restraint on it. I don't
know an analyst on the planet who does not suggest some ruthlessly scary
rollercoaster of demand in this space.

If anything, I
am worried that the country thinks the spectrum will solve the problem and it
never will. I think there are other ways to get efficiencies in spectrum that
get ignored or not treated as seriously because we are already chasing more
spectrum. There is never going to be enough spectrum in the closet at the end
of the day.

And is that where cable Wi-Fi comes in?

You have to
take seriously the cable industry and others who want to provide outside the
home, regional Wi-Fi. As any analyst will tell you, if you are a big wireless
company, one of the things you are trying to do is get this stuff off the
towers and out of the air and into the ground as fast as possible in order to
relieve the congestion. Forty percent of cell calls are made in the home, but
if all of those calls can be offloaded onto your broadband network, that would
save an enormous amount of spectrum.

And so, Wi-Fi
is going to be part of not only delivering service to consumers, it is going to
be the critical part to helping relieve congestion on the tower-based
terrestrial wireless network.

Also, looking at the future of a
converged business, cybersecurity is really hot these days. Are we doing any
better at protecting what you have called the Achilles Heel of the Internet?

It is a very
hard question to answer. We are not privy to all the information. I don't know
what is happening at Citibank every day. All I know is I think from a year ago,
what I would say is that the awareness level of the nature, type and
seriousness of these threats is dramatically higher and much better understood
by policymakers and companies.

I do think
companies have done a lot to be effective in protecting the consumer
experience, meaning most days I go on my Internet connection and nothing goes
wrong. I still think that is the case and I don't think it is all just by
accident.

The evidence
increasingly indicates we are targeted all the time, all day, sometimes by very
sophisticated criminal elements, sometimes by hacktivists, sometimes by foreign
governments. So, this is not like a terrorist attack that is coming. It is
already widely infiltrated. There is a little bit of a war that goes on from
morning to night all across our networks of things getting in, being pushed
out, blocked, counter attacked. I think, speaking for the telecommunications
industry, this is our very bread and butter. We sure as heck better be good at
it. We can't afford as businesses to be ineffective in this regard; I think we
are doing OK.

Now, when you
start talking about law and regulation, it is very complex. These things change
by the day. And if there is one thing we know about really prescriptive rules,
they can run the risk of being obsolete the day they pass and they don't grow
very quickly. A minute ago we talked about an act written in 1992 that governs
our behavior in 2012. You can't have a regime around cyberthreats like that.

NCTA was part of the recent agreement on
the voluntary cybersecurity code of conduct. Was that an effort to head off
regulation?

I think from
our perspective it is an effort to head off cyberthreats. I have had the
blessing and the curse of being involved in some of the biggest threats to
networks in the modern era. I had to manage the Y2K transition in 1999 for the
administration, I had to manage the 9/11 attack [impact] on Verizon's network,
and I have had other pretty serious network challenges. One of the things I
came to see up close is that the model that works is when the government and
industry understand that we have a collective need to be in league with a
common enemy. That means I am going to have to share with you highly sensitive
things and you are going to have to share with me highly sensitive things. We're
going to have to protect each other's interests and we are going to have to
coordinate an effective response to threats we don't find acceptable.

That requires
a breathtaking amount of trust and proposals that try to create a response
built on true partnership: "come join my army" rather than "come explain
yourself." The minute you introduce an adversarial, regulatory relationship,
there is another player in the conversation: the general counsel: "Well. I don't
know if we should do this boss, because if we do this it could subject us to
this." I have seen it and it interferes at a really fundamental level with
getting the job done.

I just know we
have assets and knowledge the government can't replicate. They have assets and
knowledge we can't replicate. They need us; we need them. We need to join the
same army against the same theat.

NCTA supported the piracy legislation
that failed to pass in the last Congress. How important is it to get some kind
of bill?

I think that
is part of what went wrong. We should divorce any specific piece of legislation
or any specific approach from the uber-objective, which remains absolutely
critical and essential, not just to the companies but to American ingenuity and
innovation. This is a big industry. It is deeply beloved by American consumers,
but it is also one of our most fundamental creative aspects: the greatest
creators on earth with enormous value.

Now, if they
blow it in the business market, so be it, let them write it down. But the idea
that you might have something great but you lose the value because it was
stolen, I think should remain a national concern. I think there is a lot of
clumsiness to go around about how this unfolded, but I don't think it should
overshadow the valid concern. And to give them credit, the opponent, at least
the most credible of them, Google, almost always began their statements with: "We
see the importance of this. It is important."

I don't know
that I expect another legislative effort anytime soon. I think there is a lot
of "lessons learned" that ought to go on and a reevalution of the best approach
because I think you can believe so much in the big mission that you can be less
rigorous about the right way to go about it, and we probably all should go back
to the drawing board and think hard about a better approach.

So, I don't
see it coming real soon, and I'm not so sure that it should. I think that it
should include more people and be more innovative. But I don't think the
country should blink one iota about the idea that the protection is necessary
to the country's well-being, not just these industries.

The idea that
we sort of separate too easily the interests of the country from the interests
of an industry I think it is a mistake.

There seem to be a lot of bipartisan
issues that both sides agree on, like piracy, and privacy and FCC reform, until
they don't and nothing gets done. Is that an incorrect assumption?

I don't know
that you are wrong. I think sometimes you probably don't bank the successes.
The memories are more focused on the negatives. But yes, I think there is
something to it.

Twin thoughts
that I have that I think at the end of the day are really important: one, you've
gotta be decisive and make a decision, and you gotta mean to make a decision,
not mean to make an amalgamation that tries to please two-fifths of who is
complaining and then call that good policy.

I think that
happens in Congress. I think that happens in regulatory agencies. Right or
wrong, make a decision. Make it on the merits, make it clear, let us understand
it. Business is very adaptable. If it really understands the rule and rationale
and believes it was fairly treated, it will move on.

The other
thing is finality. It is almost like there is never an end to anything, and
when you finally do get it done, there are always these constant collateral
attacks.

I will give
you an example of something we have tried very hard to be consistent about even
though I don't know at the end of the day if it is always in our best
interests. We told the government that while we don't like it, we will find a
compromise on net neutrality and we will live with it. The betting in this town
is the commission may very likely lose the case [Verizon and MetroPCS have
challenged the net neutrality rules in the D.C. federal appeals court]. We're
not in the case and we're not going to renegotiate what we said. Now, if the
whole thing gets changed again because the court says something, we will
reevaluate that. But, the value of finality is better than uncertainty in the
business world. Proceedings that don't get finished, that's uncertainty. Things
that sit in court for three or four years, that's just painful uncertainty.

In the court
system they are very cognizant of the value of finality. They make it very hard
to change something they've decided. The policy world increasingly feels like
it does not matter what you decide because next week they are going to come in
the back door and attach a rider.

One thing I am
very complimentary of the commission on is walking the line on [the Universal
Service Fund]. Did we get everything we wanted? No. But am I really proud of
what they did? I am, because I know how hard that decision was. And sure as we're
sitting here there is a whole collection of people on the Hill trying to slip
things in and renegotiate. OK, and I am not saying our hands are always clean
on this kind of stuff, either.

But the
commission did the hard thing. It found the balance. It is an issue where they
did not do the kind of "I'm just satisfying people," which they do do sometimes
and deserve criticism for. This time they didn't and I thought they got it
mostly right. But then there's the idea that it doesn't end, like we're still
going to talk about [Rural Utilities Service] because somebody won't accept the
result.

Sometimes we
just have to accept the result and move forward.

Like the FCC moving forward to close the
Title II docket?

Look, I'm not
going to go out of my way, but I have said it to them. I am critical of this
particular commission for the ambiguity and the uncertainty created by
proceedings that get opened to examine things and they stay open. They lumber
along and everybody interprets it to their own self-interest.

I am actually
quite honest about this. Shoot me, or let me go. I have recourse. I'll fight
you. I'll go to court if I think you're wrong. But if you're right and you have
made a clear decision, we'll adapt and move on. But what can anyone do when you
are just in stasis, some perpetual state of floating ambiguity because we can't
make something get voted.

And this is
what is taking over this city. We don't know that is happening in the judiciary
because we can't ever confirm a judge.

Or FCC commissioners?

Or Jessica
[Rosenworcel] or Ajit [Pai]. Your life is on hold. It is a terrible way to
live. It's just a terrible way to run a business. I have heard from healthcare
CEOs to cable CEOs to automaker CEO's who say, "For me to move forward, I just
need to know what the deal is."

I felt very
strongly about that as a regulator and that is still my pet peeve with
regulators. You owe the country a decision.

Any worries about cord-cutting?

I don't like
the term because I don't think it reflects the depth of the question because
our guys are broadband providers. If cord-cutting means that there is a new set
of applications and services that consumers find compelling, some of which have
the same qualities of stuff delivered in the cable system, and they match more
of this and a little more of that-If that is cord-cutting, anyone who is
selling broadband is going to get some benefit of that, too.

People love
the idea of disruptive conflict. I think this thing really gets out-argued a
lot of times. If I am a CEO, do you worry about it because [your business] is
mortal? I don't know that I would worry about it because it is mortal. Would
you worry about it because it is change? Change is always risk and opportunity.

Look, there is
a change and it could be a risk to my business if I don't adapt to it well. But
it also may be an opportunity. The consumers are telling me something. They're
telling me that they have new preferences and new ways they want to consume.

A lot of people
used to argue that the music industry wouldn't get off the album when the
consumers were telling them they wanted to. And I know a lot of people of my
son's generation who have no empathy for the music business-not because they feel
like they should steal other stuff, but that they feel like, if you had just
served me in the way we were looking to be served...

So, if I am a
CEO in the cable industry, I sure as heck think I would be paying attention to
these changes. I do think the sort of "are we dumping massive numbers of
subscribers," I don't yet see that. I think that every three months it becomes
this big story that proves to overly exaggerated. Almost every comparable
company in quarterly earnings year-over-year have dramatically improved those
loss numbers. If you really look at the charts, the only place cable customers [switch]
in any meaningful way is not to cord-cutting but to other competitive MVPDs who
are doing well. Now, hats off to DirecTV and DISH TV and FiOS TV and U-Verse TV
and other services that have entered the market in the last decade and taken
share from us.

And overall,
the total number of MVPD subs has been relatively steady since ‘08, ‘09. So,
what is really happening is competition. There are a hundred million video subs
and our share of them has declined. And why shouldn't it? At one point, back in
that 1992 predicate, we had them all.

And when we
have robust competition, you are bound to lose some of those. So, most of our
customers are not hopping off to Google TV, they are hopping over to DirecTV.

Any concerns that rather than going away,
must-carry is extended to over-the-top services?

I think that
is another way of saying at some point you are in Alice's Wonderland: laws that
were built around one picture of the universe that isn't anymore. I think the
courts would have a lot of problems if you tried to expand must-carry to the
world of the abundant Internet. I think at some point all of this starts
falling apart.

Which brings
me to the second bucket of cable regs. A whole bunch of cable regs was premised
on the idea that the government was going to protect the economic model of
local broadcasting. No ifs, ands or buts about it. There are a lot of things we
do not, because we are anticompetitive. A lot of what we do is, we are told to
subsidize the broadcast industry by the government because they have this
public trustee model that they said has all of this value.

You do see
cracks in that that I do think are going to increasingly raise questions. When
the government goes to Congress and says it thinks there is a higher, better
use for spectrum than broadcasting and it's broadband-In my lifetime, that is
the first time I have heard the government state that so emphatically.

And, broadcast
networks provide very valuable, highly sought-after content. But you start to
ask yourself, when are you really just another cable network because, if only
14% of Americans are getting their content over the air, and the vast majority
are getting it over pay platforms, and more and more of those providers are
getting paid no differently than Discovery or ESPN, apparently the free, over-the-air
compact that leads to this government protection of interest seems to be to be
cracked, if not intellectually unraveling.

I have all the
regard in the world for broadcasters, but if you are Julius Genachowski or any
future regulators who care about mobile, you are going to keep looking at a
number like 14% over the air and all that spectrum invested in distribution
that isn't really used by consumers; I gotta believe at some point, if I were
advising them, I would say, over time, they are going to keep coming for that
spectrum.

How is cable doing on the diversity
front?

Well, but it
needs to do better. Certainly here at NCTA we increased our own commitment to
hiring. I think we are quite a bit more diverse. I find it remarkable that we're
an industry that goes to New York for an entire week to provide workshops and
opportunity, and study and celebration and fund-raising all around this topic.
Now, you still want the results. We're OK; we're not world leading yet. But no
industry should get a higher mark for dedicating itself to working on it. I
think we are doing much better, but what we really gotta do is make sure all
that effort gets hooked up to real production.

E-mail comments to
jeggerton@nbmedia.com and follow him
on Twitter: @eggerton

 

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