Genachowski has announced his proposed response to the Comcast case. This is precisely the result Comcast and the other carriers feared since the DC Circuit panel signaled at oral argument they would slam the FCC. In my latest “5 Minutes With Harold Feld,” I give a short (at least, as short as I can) explanation of what this “Third Way” (also referred to as “Title II Lite”) means and what happens next from a process perspective. Some additional analysis, laughing at Wall St. analysts, and reference to a Dilbert from 1992 below . . .
D.C. Circuit Affirms Inside Wiring In Fairly Broad Opinion. Terrestrial Loophole Next? And What About Time Warner's TV Anywhere?
While folks in the suburbs sometimes forget this, a lot of people live in what we call “multiple dwelling units” (MDUs) — which is a fancy way to say things like apartment buildings and condos. One of the problems for people trying to switch from one provider to another for cable (for example, from Comcast to RCN) is that a cable operator may already have an exclusive deal with the landlord to provide cable services to everyone in the building. Competitors asked the FCC to ban such practices. In 2003, under Michael Powell, the FCC refused to ban such exclusive deals because “regulation is always bad, mmmmkayyy.” In 2007, as part of Kevin Martin’s
attack on cable market power evil vendetta against the helpless cable industry, the FCC reversed this determination and found that under Section 628(b) of the Communications Act (47 U.S.C. 548) it needed to prohibit cable operators from entering into or enforcing such exclusive deals because Verizon can’t sell FIOS w/out being able to offer triple play. Predictably, this was widely denounced by the cable companies and their cheerleaders as not merely unwarranted, but a violation of law and certain to be overturned on appeal.
Turns out, not so much. In fact, in a rather broadly worded opinion, the D.C. Circuit affirmed the 2007 Order. Indeed, the language affirming the decision opens the door to the FCC tackling other cable issues, such as the terrestrial loophole (which Verizon wasted no time in pointing out to the FCC). Mind you, it remains unclear at this point whether the new FCC will have any interest in cable market power or not.
Still, there are a number of important aspects about this case, especially its implications for the FCC to regulate Time Warner’s TV Anywhere strategy, aka “how cable operators plan to preserve their existing business model and fight off Netflix.” I discuss this in more detail below . . . .
Reposting a recent blog entry of mine from the Public Knowledge blog. As Time Warner expands out its usage cap pilot from Beaumont, TX to somewhat more populated and user-intensive communities, users are starting to notice and complain. Hopefully, with the FCC getting the ball rolling on the National Broadband Plan mandated by the broadband stimulus package, we will start to probe into the whole bandwidth cap issue a little more deeply.
More below . . . .
To update on the question of whether cable companies think they are above the law. According to this piece by Ted Hearn in Multichannel News, all 13 cable cos responded to the FCC’s letter of inquiries (LOIs) issued in response to the consumer complaints. The FCC is apparently now reviewing the adequacy of the response.
Mind you, according to the article, we are still likely to find that the cable cos responded in a less than thorough way, and will necessitate the FCC coming back with another request. But this is merely the usual fun and games by which large companies avoid obeying the law, rather than an outright statement of defiance that the law simply doesn’t apply to them.
I suspect the cable cos will do their best to run out the clock, in the hopes that the next FCC will be more tolerant of their exercise of market power. Whether that is true or not (and it will certainly NOT be true if either Adelstein or Copps is chair), I would hope that all the FCC Commissioners, but especially the two Democrats, back Martin on this investigation and make it clear to the cable cos they will not tolerate any efforts to run out the clock.
As President-elect Obama observed at his first press conference: “The United States only has one President at a time.” Similarly, the FCC has only one Chairman at a time. Certainly when it comes to investigating consumer complaints, all FCC Commissioners need to stand united in making it clear to industry that a time of transition is not a time when you can get away with screwing consumers.
Stay tuned . . .
I may occasionally (O.K., more than occasionally) have some snarky things to say about the free market philosophies of my opposite numbers at places like CATO and Progress & Freedom Foundation. But what distinguishes them in my mind from industry shills and sock puppets is their ideological integrity. When they want everything deregulated, they really mean it. Not so the industry and its true sock puppets, who can spin on an ideological dime without the least regard for even the vaguest notions of consistency with their previous statements.
Case in point, this FCC complaint by the cable companies against Verizon for “retention marketing.” Mind you, these are the same folks that complain whenever the FCC even thinks about interfering with the “vibrant and competitive telecommunications market,” and who protest that enforcing the laws passed by Congress to require interoperable set top boxes and set a numeric limit on the number of subscribers they can have constitutes a “vendetta.” But, as usual, consistency is not exactly a strong point for industry. As I continually remind folks, industry does what is best for its bottom line, period. And here, it means using the big bad evil FCC to slap the telcos around.
Which brings me to the point I expound upon below. Too often, the industry gets to win by making this a fight about process and “level playing field” and confusing the issue. But what we really need to care about is what our actual policy IS. If we want to encourage competition because we prefer it to regulation of monopolies, then we damn well better make sure competition actually happens, which means subjecting the incumbents with market power (at least initially) to a very different set of regulations than the new entrants. For many years after the break up of AT&T, the FCC subjected AT&T to a set of regulations designed to keep it from using its position as the dominant long-distance carrier to prevent the new entrants like MCI and Sprint from attracting customers. The FCC did not worry if that was “fair” to AT&T to have different rules that prevented exercise of market power by a dominant firm. It said “hey, we want competition! That’s about economic policy, not about being fair.”
Mind you, I don’t expect my opposite numbers to agree. But they will at least have the virtue of consistency.
More below . . . .
Yesterday was the day for companies interested in bidding in the 700 MHz auction to file their “Short Form” applications with the FCC. While it will still take a few days for the FCC to process the forms and for companies that made errors to correct the forms and give companies a chance to correct possible errors, we are seeing a few interesting developments already — notably in cable land. It is also interesting to see that MetroPCS and Leap never did get together before the auction.
On the cable side, no real surprise that most cable cos are sitting this one out. (Back in August, I already doubtful they’d want to play.) Actually, the mild surprise is that Cox is going it alone. I have not expected Spectrum Co. (the Comcast/Time Warner/other cable co joint venture) to bid, despite winning big in the 2006 and AWS auction and participating in the rulemaking for the 700 MHz auction. For one thing, thanks to the introduction of anonymous bidding, the cable cos cannot effectively target their industry rivals (like the telcos or the DBS guys) to drive up prices or block them altogether, as they did in the 2006 AWS auction. So a big motivator for the cable companies to participate, i.e. strategic blocking outside the value of the spectrum itself, is gone.
In addition, Sprint divorced itself from the partnership and shacked up with Google, leaving the cable cos with an ugly alimony settlement for the AWS auction and no wireless partner to help them build the network. And, finally, the cable guys haven’t figured out what the heck to do with the AWS spectrum they acquired last summer. While that went relatively cheap (45 cents/mhz pop), it still cost $2.5 Billion with nothing to show and a danger that if the cable cos don’t start building out a network they will lose the licenses at the end of the license term for failure to meet the mandatory performance metrics. (Licensees are required to meet build out and service requirements. The aren’t terribly onerous for the AWS band, but they do require you to build something and push a signal through it.) Given that the 700 MHz licenses have the most rigorous build out requirements ever (in no small part to ensure that folks like Spectrum Co. don’t win the spectrum and then “warehouse” it), the cable cos are very unlikely to buy spectrum on the off chance they’ll figure out something to do with it.
Finally, there is the big reason every is pointing to — the cable stock valuations. Cable stocks have declined significantly this year, both as a function of the general decline in the market and because it looks like Verizon bet right on fiber to the home. Competing against FIOS means that cable operators (particularly Comcast, Cablevision, and Time Warner) are in for another round of expensive capital investment to maintain their competitive footing or risk losing customers to FIOS. In this sort of situation, the last thing investors want to see is cable companies spending billions for licenses they can’t use unless they spend billions more to build networks from scratch.
This last is probably why Cablevision is sitting it out, despite vigorously playing in the AWS auction in ’06, and why Cox, which recently went private, has decided to toss its hat in the ring and play. Cox also has the advantage that licenses that overlap its territories (assuming it does not go for C Block or D Block) also have significant overlap with the area covered by AT&T with its purchase of Aloha. This potentially removes a major competitor for the A and B Block licenses, giving Cox a chance to get coverage of it’s network and offer a package of wireless and wireline services down the road. So Cox can ante up for a chance to catch a bargain without taking a stock hit. By contrast, Cablevision directly overlaps with Verizon for the licenses that cover its region and the adjacent markets into which Cablevision would want to expand. Verizon will fight like a tiger because it wants the spectrum, so the inability to block due to anonymous bidding does not help Cablevision. And, because Cablevision is publicly traded, even anteing for a chance to play will cost it big time.
UPDATE Apparently, Cablevision did file a short form. A Cablevision spokescritter said that Cablevision was reserving the right to bid, but declined to say if Cablevision would bid. Earlier stories I had seen said they wouldn’t bid. Well, I give them credit for trying. Good luck trying to break out of NYC.
All in all, I consider the elimination of Comcast and Time Warner as potential bidders to be a real win for the public interest. As I have written before, allowing cable companies to bid for this spectrum raises extremely serious competition problems and would make it virtually impossible to see a new, independent broadband provider emerge. Given that the 700 MHz auction creates a potential “transformative moment” for wireless broadband, and therefore potentially for broadband generally (especially the much hoped for “third pipe”), I breathe a huge sigh of relief to see the cable boys out of it.
Stay tuned . . . .
Quick On Cable: Martin and Copps Pull Out A Partial Win By Persuading Adelstein To Meet Them Halfway
Well, I’ll have a lot more to say over the next few days. And there were a bunch of very good Orders that came out on other subjects, like Low Power FM and mandatory disclosure requirements for broadcasters. But here’s the summary:
1) The Commission acknowledges that data about the 70/70 threshold remains unclear, and will therefore require that all cable operators must report real subscriber numbers, including all MDU subscribers, for 2006 and 2007.
OK, as regular readers will know by now, I think it was clear that cable penetration passed this threshold long ago. But since we at MAP have been asking the FCC to collect real data on this stuff from the cable operators since 2000, I am pleased with the ultimate outcome. Hell, I was telling Steve Effross of NCTA last night that I’d wait on the result to get real data from all cable operators so that we could do this right.
If I’m wrong on penetration, so be it. This is an empirical question and we should solve it through the obvious expedient of telling cable operators to actually report their subscriber numbers. Three cheers for Kevin Martin for having the courage to stand up to the wholly bought cable subsidiaries in the GOP, and three cheers for Michael Copps for pushing for collecting actual data from cable companies for years now.
As for Jonathan Adelstein. _sigh_ Yes, I’m still disappointed. I get that Adelstein doesn’t like being in the hot seat, that he thinks Martin is a — if you’ll excuse me — martinet who cooks the books, etc. etc. But he is just plain wrong on this one. As noted with copious citations in the MAP filings (see links in comments in previous post) the FCC has always relied on Warrens data and exclusively on Warrens data, which showed cable penetration hovering at pretty damn close to 70%.
And as for the much vaunted Cable 325 Reports that Adelstein and McDowell went on at great length about, I shall refer interested parties to the GAO’s analysis, with the lengthy but descriptive title “Data Gathering Weaknesses in FCC’s Survey of Information On Factors Underlying Cable Rate Changes.” And, as also mentioned in MAP filings, the FCC’s regulatory fees NPRM determined that cable gained 1.5 million subscribers in 2006. If we’re going to include all the FCC data, the fact that everyone (including McDowell and Tate) already voted to find that cable gained 1.5 million subscribers in 2006 should be included in the discussion as well.
But, at the end of the day, Adelstein voted to demand the cable companies provide the data and end this debate once and for all. That counts for a lot. Nevertheless, for me on this, Adelstein comes out of this a lot less like Han Solo and a lot more like Hamlet, spending five acts waffling and causing havoc before finally managing to stab the right villain.
As for Tate and McDowell — hardly a surprise. Given how thoroughly the cable guys appear to own the Republicans, the surprise is not that McDowell and Tate went with the cable boys but that Martin actually went ahead and defied them.
2) Leased Access: The Commission adopts a pretty good Order that will lower the rate, require cable operators to be more responsive, and generally force staff to get complaints processed quickly. Surprisingly, it took some convincing to get Adelstein to go along with this one, as the cable operator’s last minute complaint that they didn’t get enough due process struck a chord. (I love it that industry always discovers due process when they are about to get their comeuppance, but when it’s about shafting us the due process concerns go out the window.) Fortunately, Copps and Martin were able to broker a compromise that the FCC will stay operation of the new rate formula until after they process Petitions for Reconsideration. And surprise! Tate and McDowell dissented. McDowell’s comments about how leased access doesn’t work as an economic model run afoul of the fact that the record contains several examples of programmers that do make a go of it even under the existing abominable rules (such as CaribeVision). But when your “Mr. DeReg Guy” a little thing like facts will not figure into your theorizing.
A minor tweak. The Commission will not apply the new rate to home shopping channels, but rolled that over into a separate rulemaking. Given my general feeling on home shopping channels and the public interest, I can’t complain too loudly about this one. I don’t think it’s terribly needful, but I can live with it.
3) Section 616 Carriage Complaint: The process for independent programmers to file complaints with the Commission was up for major reform. It didn’t happen. Score a kill for the cable guys.
That’s the quick and dirty. I’ll try to have more over the next couple of days. But first I gotta take a little nap. It’s been a Hell of a month.
Stay tuned . . . .
So I spent a good deal of time in Part I explaining why 70/70, leased access, and the rest of it are necessary steps to curb cable market power. You can also see the back and forth between MAP and the cable guys on whether the 70/70 threshold is met (for those of us that actually care about the substance) either by going to the FCC’s Electronic Comment search page and pluging in the docket number 06-189. Or you can check out what my friend Greg Rose has written on his blog. Because regardless of what you think the policy is, there is an actual empirical question here that — if we required cable companies to submit real subscriber numbers to the FCC rather than letting them file whatever the heck they want without any kind of verification or standard system of reporting — we would be able to answer.
And, as we head to a vote on Tuesday, Democratic Commissioner Jonathan Adelstein remains the swing vote. As regular readers know, I defended Commissioner Adelstein during the 700 MHz Auction fights when some of my friends in the movement wondered whether Adelstein was taking up the cause of the wireless companies against the consumer. Then, my faith was rewarded when Adelstein came out in favor of wholesale. Even though we ultimately lost that fight, there was no doubt that Jonathon Adelstein was on the side of the people not the special interests.
But now we come to cable. Where Commissioner Copps has always been a clear and unambiguous foe of cable market power, Adelstein has always been more … nuanced. For example, when Comcast and Time Warner divided up bankrupt Adelphia cable, Copps voted against the merger while Adelstein concurred in part and dissented in part. Adelstein used his concurrence to extract a promise from Chairman Martin to reform the cable leased access process. So was this going along with big cable or shrewd realpolitik? At the time, and still, I argued the later, trusting that Commissioner Adelstein’s longstanding support for diversity and strong stand against media consolidation belied the rumors that he was “soft” on cable consolidation.
More troubling was Adelstein’s recent concurring statement with Republican Commissioner Robert McDowell on denying Comcast’s request for a waiver of the 1996 law requiring cable operators to create an open, standard interface for cable set-top boxes. But OK, Adelstein did vote to deny the waiver and was apparently chiefly honked off that Martin was cutting Verizon a break but not Comcast. While I might disagree (giving Verizon two years to develop compliance for a non-cable system when Comcast and the rest of the cable industry got ten years on the same excuse doesn’t seem that outrageous to me — given that there are real honest-to-God technical differences between FIOS and cable systems and CableLabs, which developed the cable card standard, is a cable industry operation), I can at least understand where folks might get peeved at Martin’s apparent favoritism between the telcos and the cable cos (more on that in Part III). And, after all, Adelstein did vote to actually enforce the law against the cable industry.
But still the same ugly rumors persist — Adelstein is soft on cable. Adelstein is looking for an excuse to avoid the vote. Adelstein wouldn’t vote against cable on Comcast’s fight with The America Channel except that Copps voted with Martin and ADelstein didn’t want to look bad. etc., etc., etc.
Washington is a cynical town. It’s always easier to believe that people are acting because they are owned by this special interest or owe favors to that industry than to believe that people are trying to do their best in a complicated world. I am an oddball in starting from a position that I give those on the same side as me and those on the opposite side the benefit of the doubt until I see something that puts it beyond doubt that a person is favoring a private interest or industry over the public interest no matter what.
So we come down to the wire on cable. I’ve fought the cable industry on these issues for the last 8 years, and I am a newbie compared to some of the folks in the movement that lived to see the vote on Tuesday. I believe that, as an objective matter, the 70/70 cable penetration benchmark has been met — and was met at least as early as 2005. I continue to believe that cable exercises market power over programming and subscription rates and that the FCC needs to address these problems.
And I believe that Commissioner Adelstein, like Commissioner Copps, cares about diversity of programming and protecting consumers from cable market power. At least, I believe it now. And I hope I’ll still believe it after Tuesday.
Stay tuned . . . .
GOP To America: All Well In Cable-Land! Skyrocketing Rates and Lousy Customer Service All In Your Mind! Forget What We Said Last Summer About Needing COPE!
I must applaud the Republican House Commerce Committee members for their willingness to stay bought. Why else would 23 of the 26 Republicans on the House Commerce Committee send this letter celebrating the perfection of the cable industry in the United States and opening a can of whoop-ass on Kevin Martin for daring to suggest otherwise? Because if that letter came in response from hundreds of constituents complaining that their cable service costs too little and the service is too good, I’ll eat my lap top.
God knows, with the number of issues on their plate and with their party’s standing plummeting in the polls, you’d think Republicans would decline to publicly defend the cable industry. What with rates consistently rising faster than inflation (and despite increasing profits-per-subscriber until the last quarter or so), cable operators have raised rates every year – whether they need to or not. As if that were not enough, the customer service records of the major cable companies are abominable (or why would Mona “The Hammer” Shaw have attained folk-hero status?). So with us heading into an election, and the Republicans weighed down by all the baggage of the Iraq War, corruption scandals, accusations of cronyism and mismanagement, and a general anti-special interest sentiment in the electorate, you wouldn’t think the Republican party would rise up en mass to defend the cable industry from one of their own?
And yet that is precisely what 23 Republican members of the House Commerce Committee just did. Upset that Kevin Martin has proposed several items for the next FCC meeting that limit cable market power, the Commerce Committee Republicans have leaped to the defense of the cable industry. “Shame!” They have cried to Kevin Martin. “All is well in cable-land! The industry is intensely competitive, prices are low, service is wonderful, and consumers are bursting with happiness! How can you even think of regulating the cable industry?”
Mind you, these are the same Republicans who in the summer of ’06 were so gosh darn concerned about the lack of cable competition that they were all set to completely rewrite the Telecom Act to help phone companies get into video. Because God knows if we didn’t deregulate phone companies we couldn’t get any competition for cable, and Lord knows we needed competition for cable. But when you are a member of the Republican Party and you see a special interest and regular campaign contributor in need, you don’t worry about such fiddlin’ details as consistency with your past positions. Either that, or we should assume Mr. Barton, Mr. Upton, and the rest that championed the “we must deregulate the phone companies to bring competition to cable” bill in 2006 believe that the whole competition thing worked itself out, so that is now — in the words of the 23 Commerce Committee Republicans — “significant competition in the video programming marketplace.”
So now we see the delightful sight of Mr. Barton, Mr. Upton, and the rest of the Republican Cable Commerce Cheering Squad, who last summer couldn’t vote fast enough to deregulate because we needed cable competition, taking FCC Chairman Martin out to the woodshed for daring, DARING to suggest that cable has market power and that therefore the FCC should take steps to address this problem, or at least bloody recognize the reality. (Apparently, flip-flopping is not a problem if it is bought and paid for flip-flopping.)
So rest assured America, in the fight between your personal well-being and the profit margins of GOP campaign contributors, you can always count on the Republicans to stay bought and stand up for special interests.
Stay tuned . . . .