Cable Show ’08: NCTA’s McSlarrow Speaks

National Cable & Telecommunications Association President Kyle McSlarrow Discusses State of the Cable Industry with B&C’s John Eggerton
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The cable industry goes into The Cable Show ’08 in New Orleans this week facing continued regulatory threats. They may call the town the Big Easy, but for a cable industry that keeps being hammered by Federal Communications Commission chairman Kevin Martin over its size and power, nothing has come particularly easy.

On the eve of that convention, National Cable & Telecommunications Association president Kyle McSlarrow talked with B&C’s John Eggerton about the biggest regulatory threat to his industry (network neutrality) -- the recent flood of lawsuits against the FCC and the cable industry’s biggest growth opportunity -- and it’s not video, at least not in the traditional sense.

Q: What are the biggest regulatory threats to the cable industry?

A: You don’t have space enough. But I think the issue that looms largest is clearly net neutrality, both because it is the type of issue that can morph into every facet of the provision of broadband service, but also because there is clearly interest on the Hill and at the FCC. And the debate goes right to the core of what it means to invest and innovate and provide broadband service.

Q: FCC chairman Kevin Martin said in a recent Hill hearing that the FCC has not concluded yet whether Comcast violated its network-neutrality-principles policy statement. How would you characterize the chairman’s approach to that issue and the complaint?

A: I don’t want to characterize his approach. But I will answer this way: Without getting into the weeds of any particular operator or anybody else who manages their network, I will defend the right of any broadband provider to manage their network to see fit when their focus is on ensuring that all of their customers have a superior customer experience.

Q: Does the FCC need to come up with a clearer definition of “reasonable network management?”

A: I actually think they captured it correctly in the policy statement. They provided goals that we supported and that we view as reflective of our practices. And they acknowledged that these goals were all subject to reasonable network management. And I think it is very difficult for any agency to attempt to try to craft a specific rule or guidance for every occasion and every management technique that could possible be thought of. You would be spending all of your time trying to do that and to anticipate the kind of dynamic activities that are taking place with broadband that are going to change from day to day, let alone from year to year.

Q: Is the FCC empowered to enforce those principles?

A: This is a tough question. The FCC’s policy statement itself said it was not a rule and the chairman’s contemporaneous comments said it was not a rule and not enforceable. So, that is one issue. And the FCC has already answered that issue. The broader issue, which I think the legal types will argue around, is whether or not the FCC has some ancillary authority, and I think the answer has to be that they have broad but not unlimited authority. In a rulemaking or in some other fashion, they can answer that question. It is not clear how they might exercise whatever authority they have. But it is clear by the FCC’s own statements that the policy statement isn’t an enforceable rule.

Q: The chairman has come out with some issues for determining reasonable management, which include whether the content or action is legal or illegal, application-specific and disclosure of the management techniques and how they could impact the service contracted for.

A: I am not entirely certain what any of those mean. I am not trying to be flip: I just don’t know. And that is one reason why you have rulemakings -- because you need to test and examine and put out for public comment specific ideas for what rules might be enforceable. If the question is: How can we get the government to micromanage how people manage their networks? My view is that this is a really horrible idea. Interestingly, once you walk down that road, everybody professes that they don’t want to do that. Well, it’s kind of hard to tiptoe into this and then back out.

Q: How concerned are you about the FCC’s program-tying inquiry?

A: It is not clear to me what proposals specifically are out there. We have all seen [Martin’s] public comments about using a pricing strategy to determine regulatory advantages or disadvantages. I just think that, across the board, it is a bad idea for the government to say that if certain programming costs a certain amount, they will be treated one way, and another way below that amount. I don’t believe there is a justification in a competitive market for discriminating in that way.

Q: Does the chairman have enough time or votes to push through either retail or wholesale program unbundling before he leaves office, or is that a bullet you are going to dodge?

A: I can’t tell. At the moment, I don’t see traction for these kinds of ideas. Most observers and most commissioners understand that this will be a huge leap into a competitive marketplace. Caution is probably the order of the day right now. But I have been around long enough now in this job to know that just because I see it that way doesn’t mean that we can be anything other than vigilant and continue to make the case that we have a competitive marketplace. It isn’t a perfect marketplace, but it beats price controls.

Q: Where does the NCTA stand on retransmission-consent reform?

A: We believe that is a system that ought to be reformed. But since I obviously have members with many different perspectives on this, it is my job to try to fashion what a sensible solution might be. This is probably something that will have to come up and have to be addressed in the next Congress. The marketplace is evolved, but I’m not certain that the thinking about retransmission consent in 1992 reflects the marketplace we actually have in 2008.

Q: But reform can be a double-edged sword, since some smaller operators say program untying could be part of the solution.

A: I think part of the confusion is that often people are mixing up wholesale unbundling with retail a la carte with retransmission consent. It is sort of a witch’s brew of issues. The NCTA has had a long-standing and merited position of inviting the government in to regulate. What is different about retransmission consent is that this is an instance where it is not a completely free market. There are government rules that shape the contours of those negotiations. I think it is completely fair to say that given that the government has already intervened in the marketplace, I think we should take a look at whether or not those rules are working for consumers.

Q: You are not into inviting the government into the marketplace, but you are also busy disinviting them. Remind me how many lawsuits the FCC has filed against FCC rules lately.

A: I’ve lost track, but I think it is eight or nine.

Q: Why so many, or is that not a lot?

A: Oh, it’s a lot. The people who have been here longer than I say that this is the most intense period for lawyers -- not that they are complaining about the billing opportunities. I think it reflects the fact that we have had a highly regulatory agency make decisions that are either statutorily unsound or have huge implications for the Constitution. When you take something to court, it is always a role of the dice and it is always a last-ditch effort. But I think it is important that if we have strong, principled beliefs about our views, then we follow through on them, and that sometimes means litigating, though that is not the preferred outcome.

Q: You personally supported Sen. John McCain (R-Ariz.) for the Republican nomination, even though he has been a cheerleader for a la carte. Why?

A: We’ve had a friendship for 15 years and, on most issues, I am entirely in synch. And there are other issues like a la carte where we have to agree to disagree. I will point out that even in the case of a la carte, I think he has made clearer that while he would like to see the industry move toward that model, he is much more reluctant than maybe he was earlier to mandate it. To me that is not an insignificant aspect of this issue.

Q: Has he gotten more reluctant to hammer cable over rates?

A: Oh, no, I think he is perfectly happy to hammer us on rates. It seems to be a cottage industry.

Q: Which candidate would be best for the cable industry?

A: I don’t think I can say. My view about telecommunications policy generally is that it is generally nonpartisan. Our approach with any new administration is that you have to work with everybody. Sometimes they are with you, and sometimes they are not. But I don’t see a great divide among Democrats and Republicans that directly affects our industry.

Q: Kevin Martin favors the telcos. True or false?

A: True.

Q: Why?

A: Can’t say.

Q: Poorly worded question. Why do you say that?

A: It’s not even a question of being pejorative about it. It’s just a fact that given a fork in the road between supporting policies that the Bells favor, most of the time, on most of the issues, he will support that agenda.

Q: Speaking of telephone, given cable’s quadruple play of bundled video, voice, data and, now, wireless, what do you see as the big growth area?

A: The broadband platform generally, and I include voice as part of that platform. And there may be others attached to that including emerging ideas in the wireless space. Video is probably, relatively speaking, a low-margin product even though it is core to the business. But I think the broadband platform probably offers the greatest opportunities for growth both for the high-speed-Internet service itself, but also interactive advertising and phone. And growth in broadband isn’t just an operator issue. It is also ultimately a platform that I think will be an emerging growth area for programmers, as well.

Q: Could video become another part of that platform’s growth -- a sort of broadband triple play of data, voice and streamed or downloaded video?

A: Absolutely. That’s why, getting back to the network-neutrality issue for a moment, it’s a little bit frustrating that people do not understand that our view of broadband is that people want to use their broadband service to do a million different things, including many different manifestations or a video service. This is not good for our business. This is not something we are fighting. We are enabling all of that.

Q: Could your video model move entirely to the Web?

A: I suppose it is possible, but I think people too quickly assume that Internet video is a competitor. I think the evidence so far is that it complements traditional video offerings. There are lots of very complex technical questions about how video is delivered on the Internet. It clearly could be a different model we evolve to, but that is not going to happen in a short period of time. But if there is a different model emerging, we are going to be best-positioned to embrace it.

Q: Was cable in on the planning of the FCC’s digital-TV test in Wilmington, N.C., and should it have been?

A: We indicated a couple of months ago that we were willing to explore some markets. We [along with FCC commissioner Michael Copps] actually looked at Lexington, Ky., and proffered that [to the FCC]. We had some operators, Time Warner Cable and Insight Communications, that were willing to take a look at that, but then I guess they had already zeroed in on Wilmington. I myself was not contacted. But once we saw the press about Wilmington, we talked with a couple of operators down there who basically said: ‘Yeah, if they are going to do a test down here, we want to be part of the solution.’ A test probably makes sense to shake out some of the bugs.

Q: What would you consider regulatory successes of the past year?

A: Not that it is over, but we have had a lot of success in getting policymakers to realize how much investment is taking place in this industry and how short-sighted it would be to engage in a massive reregulation of the industry. We have successfully argued that multicasting (government-required carriage of broadcasters’ additional digital channels) is not just unconstitutional but self-defeating and unfair to other programmers that compete for carriage. And when it comes to the DTV transition, the FCC both in the dual-carriage order and public-service-messaging order largely adopted the kinds of things we said we were prepared to do anyway, which was a clear victory. But as I have discovered, issues never die. They just keep reappearing, so you just have to get ready for the next round.

Q: So there is no silver stake that can be driven into its heart?

A: That’s just the nature of the beast of regulation. People always come up with new and novel reasons why it should be re-energized.

Q: You’re returning to New Orleans, but you are doing more than just coming back. You are giving back.

A: What we are doing through the Cable Cares project is emblamatic of an industry that gives back to the industry. We are building playgrounds, refurbishing high schools, book drives. Hundreds of people coming to the show have signed up to volunteer in these activities. It is a great thing, but it is not unusual.

Q: Was Martin invited to come to the convention and see all of the good works first hand?

A: I haven’t heard from him, but I don’t think he’s coming.

For more on The Cable Show ’08, click here.

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