Tales of the Sausage Factory

Why Verizon Should Give Away FIOS Connections and Get People Addicted to Speed.

I just got a postcard from Verizon telling me FIOS will soon be available in my neighborhood. While I’m probably one of the last residential CLEC subscribers in the United States, I’m a firm believer in the idea that fiber is better and have been waiting for FIOS to become available so I can look at switching.

Then I saw the prices. Yuck. Verizon prices its FIOS as “competitive” with cable and other providers in my region — for a premium service. But it takes more than competitive to get me to go through the hassle of switching, especially when I am reasonably comfortable with my service right now. Switching doesn’t just mean spending several days going through hook up Hell and having Verizon install some super duper power pack on my premises. It also means changing a whole bunch of things tied to my (or my wife’s) current email address. That’s no small deal.

Meanwhile, as everyone knows, the cable operators did better at gaining new broadband customers in Q2, although uptake for broadband was generally anemic. Not surprisingly, Verizon defends its performance on its policy blog. Besides the usual (when you do poorly) inveighing against looking at a single quarter. Verizon points to a number of indicators that its FIOS system is the top dog system in the U.S., with possible top speeds of up to 50 MBPS and usually providing its advertised speed (I love that as a selling point!). Still, analysts argue that Verizon is pricing itself out of the market, and should go back to DSL.

I have a different take. I think VZ needs to get people addicted to speed.

More below . . . .

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Tales of the Sausage Factory

Mr. Moffett, I Thought You Said Cable Was Vibrantly Competitive?

In an interesting turn of events, industry analyst Craig Moffett takes a look at the growth of cable broadband and overall subscriber growth, as compared with that of telcos and satellites, and comes to this interesting conclusion: Cable is a natural monopoly in the making — and has been on course to do so since about 2005.

What is interesting to me is this is the same Craig Moffett who, during the fight last year on whether cable penetration had triggerred the 70/70 rule that would enable the FCC to significantly regulate cable by reaching 70% penetration, rushed to Commissioner Adelstein (the swing vote in last year’s fight) to explain that cable penetration remained stuck at 60% and would never reach 70% because of all the amazing competition.

Mind you, we all make bad predictions (I still remember with considerable heartbreak my Great Google Prophecy). But Mr. Moffett has a habit of telling Wall St. what a great investment cable stocks are while telling Washington how wildly competitive the market is, how cable can’t possibly exercise market power, and how in no way shape or form should anyone even think about regulating this market.

With Kevin Martin repeatedly saying he is unlikely to act on a proposal by small cable operators to unbundle expensive cable programming and retransmission rights for broadcast signals at the wholesale level, the coast no doubt looks clear to start explaining why cable is such a great investment and will crush its competition. But I will be curious to see what happens if, for example, Congress holds hearings on the FCC’s decision in the Comcast complaint and asks whether we need to regulate broadband. Will Mr. Moffett stand by his “natural monopoly” analysis — even if he argues for deregulation for other reasons? Or will he suddenly discover new life in FIOS, WiMax, and other potential broadband competitors?

Stay tuned . . . .

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Tales of the Sausage Factory

Broadcast Flag Through The Back Door — Yet Another Episode of “Outsourcing Big Brother.”

The Motion Picture Association of America has asked the FCC to give it a waiver of something called the “selectable output control” rules for cable boxes. As usual, this apparently minor request for a waiver of an obscure FCC regulation of unknown origin, governing a highly-technical and mind numbingly boring set of rules about cable set-top boxes, hides a bold power grab designed to rip off every owner of a Tivo, VCR, or other perfectly legal recording device available to consumers to engage in the legal practice of recording television programs to watch them later (“time shifting”).

For details on this latest effort to circumvent limits on government by outsourcing the process to an industry cartel, aka “outsourcing Big Brother,” see below . . . .

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Tales of the Sausage Factory

Leased Access Reform Hits A Major Speed Bump.

I had hoped to be able to tell all my friends at the National Conference on Media Reform in the beginning of June about the fantastic opportunity to put independent progressive programming, minority-oriented programming, and local programming on cable when the new rates and improved rules for cable leased access became effective June 1. Unfortunately, due to a decision by the Federal Court of Appeals for the Sixth Circuit granting the cable request for a stay pending resolution of the challenges to the rules, that won’t happen. While not a total loss (the Sixth Circuit rejected the NCTA’s motion to transfer the case to the D.C. Circuit) and not preventing programmers from trying to take advantage of leased access now, this is a serious bummer for a lot of reasons — not the least of which is the anticipated crowing by the cable guys (ah well, we all endure our share of professional hazards).

But mostly, I am disappointed that the cable operators will continue to withold the real rates under the new formula. As part of the stay request to the FCC (and subsequently to the 6th Cir.), the cable operators had submitted affidavits claiming that under the leased access rate formula adopted by the Commission, the new rate would be FREE!!! and they would have to drop C-Span and any other programming you like as a result. Since the cable operators always claim that the impact of any regulation is that they will need to charge higher rates, drop C-Span, stop deploying broadband, etc., etc., I am not terribly inclined to believe them this time and had looked forward to either their releasing real rates or putting programmers on for free. But since cable operators uniformly refuse to make the new rates available before the new rules go into effect (another reason I disbelieve the “the rate will be zero” claim), and because they control all the information relevant to the rate calculation, I can’t actually prove they are blowing smoke. Now it looks like we will have to win the court case (which will likely take a year or more) before we find out the real leased access rates.

Mind you, leased access had already hit a few roadblocks, owing to the inexplicable delay in sending the rules to the Office of Management and Budget (OMB). Although the rules were approved in November ’07, released on February 1, 2008, and published in Fed Reg on February 28, the order was not sent to OMB for the mandatory review under the Paperwork Reduction Act until April 28. I might almost think the cable folks in the Bureau were less than enthusiastic about supporting leased access reform. OTOH, since it also took the broadcast enhanced disclosure rules a a few months to get to OMB, it may just be the natural slowness of the process. After all, by federal law, the carrier pigeons used to take the text in little scraps from FCC across town to OMB can fly no more than two flights a day.

But to return to the critical point, what does the court ruling mean for leased access reform and the hope that local programmers, progressive programmers, minority programmers and others could have an effective means of routing around the cable stranglehold on programming?

See below . . . .

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Tales of the Sausage Factory

Cablevision’s WiFi Roll Out — A Wireless Plan B?

As I discussed in the context of the Sprint/Clearwire/Etc. spectrum menage (and discussed a bit more with Gordon Cook on his blog), the reality of the post-700 MHz auction world makes it necessary for cable operators to have some kind of wireless strategy if they want to meet the potential next generation competitive threat from either AT&T and Verizon or possibly from newly en-spectrumed DISHTV. At the same time, cable operators are desperate to avoid the downdrag on the their stock that would come from a heavy investment in wireless licenses and further nvestment in infrastructure — especially when analysts don’t give them a prayer of taking on the wireless carriers in what has become a reasonably mature market. How to resolve this difficult dilemma?

Those cable systems with the combination of resources and forethought to address this have opted for different solutions. Comcast, Time Warner and Brighthouse –through their new partnership with Sprint/Clearwire etc. — have flopped back to the old cable standard of joint ventures and strategic investment. (Anyone else remember @Home Network?) Cox went out and won its own set of licenses covering its cable service area, as did Charter parent Vulcan Enterprises (as have a few lesser systems, such as Washington Post owned CableOne, which captured a bunch of licenses in the AWS auction).

Cablevision tried twice to acquire its own set of licenses: first in the AWS Auction in 2006, and again in the 700 Mhz Auction. Both times Cablevision went home empty-handed, outbid by the wireless giants. With no new spectrum on the horizon, and apparently no invite into the Sprint/Clearwire Happy House ‘o WiMax partnership, Cablevision found itself in need of a spectrum “Plan B.” Happily for Cablevision, there is also such a thing as “unlicensed spectrum” which — as I and other boosters of the competitive power of open spectrum continually point out — is available to everyone and cheap to deploy (relative to building a licensed network from scratch).

Hence the recent Cablevision announcement that it will deploy a wifi network in conjunction with its cable network. As a Plan B, it has some real advantages over using licensed spectrum, as well as some potential disadvantages. But given Cablevision’s unique deployment situation — it is primarily located in New York City and Long Island which gives it incredible population density for its relatiely small footprint — this fall back position may work for it where it would not work for other cable companies.

A bit more analysis below . . . .

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Tales of the Sausage Factory

My Testimony From Today

Well, that was fun. I reprint my testimony as prepared, not as delivered. I also cut a very insider joke. I’d planned to start:

“Mr. Chairman, I understand that this is the open Commission meeting, so it is perhaps no surprise that we are running an hour late. Also, as I have not had time to complete this testimony, I ask for editorial privileges.”

But no one off the podium was likely to get it.

[Editorial note from John (to help search engines and any random Wetmachine readers who stumble upon this): This post concerns Harold Feld’s testimony at today’s FCC hearing at Stanford University.]

Stay tuned . . . .

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Tales of the Sausage Factory

Cleland's “Common Sense.”

“You keep saying that word. I don’t think it means what you think it means.”
–Inigo Montoya, The Princess Bride

I suppose it’s just overkill for me to pounce on Cleland’s over-the-top (even for him) blog post purporting to make the “common sense case” against our complaint against Comcast and Petition for Declaratory Ruling. After all, Dave Isenberg and others have already taken this on. But (a) it helps to restate the facts and focus on the issues, and (b) it gives me a chance to quote Angels by Within Temptation, and I ABSOLUTELY LOVE THAT SONG (In fact, if y’all haven’t done so, scurry to your favorite place to buy music online and download this and their other stuff. I’ll wait . . . .)

Cleland’s claims can be divided into two: whether Comcast’s behavior was “reasonable network management” and whether the FCC Policy statement is enforceable. I shall address each (and get to the music quote) below . . . .

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Tales of the Sausage Factory

Follow Up On MI PEG Lawsuit

So the judge heard the motion for a restraining order by Dearborn and Meridian to keep Comcast from migrating PEG channels to digital. The court issued the restraining order, finding that the towns were more likely than not to prevail on several of their issues, that Comcast would suffer no harm from the delay, but that the cities would potentially suffer irreparable harm if Comcast migrated the PEG channels to where most citizens couldn’t see them. (You can find the opinion, the pleadings, and other useful information here.)

On the question of the definition of “basic tier” I raised in yesterday’s post, the court found:

1) Nothing requires a cable operator to offer the basic package as all digital or all analog, so it is more likely than not that Comcast can migrate PEG to digital while keeping broadcast channels analog.

2) However, cable operators must offer the basic tier on equal terms. Requiring rental of additional equipment to get part of the basic tier therefore is more likely than not a violation of law.

A preliminary restraining order is not a final judgment. The court must make a determination on what arguments are “likely to prevail.” But the court may rule otherwise once the questions are fully briefed and argued. Hence, the “more likely than not” language.

But the courts findings produce some oddball results. By implication, at least so far, the court accepts that the obligation to offer a “basic tier” persists even after the FCC finds “effective competition.” But despite what I would think is fairly straightforward legislative language and strong legislative language, the court thinks it more likely than not that cable operators can treat the elements of the basic package in a different way from each other.

I expect fights over the basic package and the meaning of Section 623(b)(8) to become much more common, as cable operators try to migrate more popular programming to digital and look to stop carrying analog after the digital transition. For me, the real question is: “Will the FCC weigh in?” If so, when, and how? Under NCTA v. Brand X (yes, that Brand X), the FCC can weigh in at any time, since a decision by a court deciding the issue does not alter the deference due to the agency. So there’s no rush for the FCC to assert jurisdiction on its own. Cable operators are rather unlikely to rush in and ask the FCC to start a rulemaking to preempt the states on this issue. So will someone else go to the FCC and ask them to resolve the issue? PEG supporters or local governments would be a logical choice, but they don’t exactly have warm fuzzy feelings about this FCC Chairman given his willingness to preempt local franchise authorities to the detriment of PEG and local consumer protection. Especially given the outcome in Michigan (which buys time) and the possibility of Congressional help, I expect the PEG folks to wait and see what the new FCC looks like before going to the FCC.

Broadcasters might also look to get the FCC involved early, rather than wait for a situation to develop. But that seems unlikely. Still, if folks at PBS or folks representing the independent affiliates get spooked, or if problems develop in the field, we may see the broadcasters come in.

Finally, the FCC itself could wake up and notice the issue. But that also strikes me as unlikely.

Stay tuned . . . .

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Tales of the Sausage Factory

Potentially Much More At Stake In Michigan Than PEG — NAB, PBS and Folks Worried About Bundling of Services Better Wake Up And Pay Attention!

Compared to the primary battles in Michigan, the fight between Comcast and local governments about Comcast’s decision to migrate Public Educational and Government (PEG) channels to digital seems like small potatoes. But potentially, the lawsuit filed by the cities of Dearborn and Meridian in local federal court could have huge impact on how cable operators carry broadcast television and even how they bundle video services with their voice and broadband offerings.

For those just tuning in: Comcast has decided take advantage of Michigan’s franchise reform law and forcibly migrate PEG channels to digital tier, which will require anyone who wants to see PEG channels to get a digital box and will put the PEG channels waaaay up the dial where channel surfers rarely tread. This has prompted angry protests by city officials, and even a reprimand from House Commerce Chair Rep. John Dingell (D-MI). While other cable operators have used such tactics in the past, Comcast appears to be the first operator to do this for an entire state at once.

As a result, Dearborn and Meridian challenged Comcast’s right to move the PEG channels without consent by the localities in federal court. But while this focus remains on PEG, it goes much further. In 1992, Congress mandated that cable operators must offer subscribers a “basic tier” that consists of the broadcast channels and PEG channels. Congress also prevented cable operators from bundling this “basic tier” with any other service or “buy through.”

For reasons having to do with the Telecommunications Act of 1996, cable operators may no longer need to offer a “basic tier.” But if that’s true, what does that mean for broadcasters? Can cable operators forcibly migrate broadcast channels in the same way they claim they can forcibly migrate PEG? And — looking ahead — does that mean that cable operators will have the freedom to change how they bundle packages? Right now, cable operators generally offer their basic video product and then offer all manner of additional services. But what happens if the “basic tier” requirement is really dead? Will we see cable operators get more aggressive, forcing customers to take additional services if they want video programming?

From where I sit (which is really just looking at the plain language of the statutes), it’s a real muddle. I’m glad I’m not litigating. But if I were the NAB and PBS, I’d start paying real close attention here. Otherwise, they may wake up and discover that they are also going on a forced march migration to digital, even if they can keep their channel position and not end up in the 900s.

Analysis below . . . .

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Tales of the Sausage Factory

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 . . . .

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