Cable Operators Unified on Several High-Profile Issues

Cable operators large and small largely are unified on many issues that affect the industry, some of them high profile, that are pending before the FCC, our survey of executives found. Retransmission consent deals, where pay-TV operators contend broadcasters force them to pay unfair carriage fees, are the latest example of a unified message across operators of all sizes (CD May 20 p4) and the NCTA, representing big operators and programmers, and the small-operator lobbying group American Cable Association (ACA). Concern about FCC Chairman Julius Genachowski’s plan to reclassify broadband transport under parts of Title II and a desire to use cheap HD set-top boxes with integrated navigation and security features are shared by many cable system owners.

Some telecom issues have seen areas of agreement in the industry, including changing the Universal Service Fund so it will pay for broadband, making pole attachment rates uniform among service providers and easing the process for cable operators who are selling VoIP to interconnect with phone companies, cable executives said. Operators of all sizes and the ACA and NCTA also share a concern that federal broadband stimulus money not be spent to overbuild existing operations. The main division between big and small operators, also reflected in the different policy stances of the ACA and NCTA, remains on cable programming costs. Small operators think a cable channel ought to charge a similar rate per subscriber for operators of all sizes to carry it, while NCTA hasn’t advocated for changes. That split has been borne out on the subject of Comcast’s plan to buy control of NBC Universal, which the ACA wants curbs on.

"I think all cable operators would agree that cable programming costs too much,” said CEO Bob Gessner of Massillon Cable, with about 45,000 video subscribers in Ohio. “The only problem is we disagree about how we should make it cost less. Those with size and leverage and I guess an ownership interest have one way of doing it, and that’s by charging different rates” for different tiers of service, he continued. Profit margins for selling video are dwindling, which “creates a real concern about the viability of the business,” said lawyer Mark Palchick of Womble Carlyle, representing Massillon, an ACA and NCTA member. For CEO Amy Tykeson of Bend Broadband, with about 35,000 subscribers in Oregon, “we have a real margin crunch on the video product,” she said.

Many parts of the FCC National Broadband Plan have drawn agreement among big and small operators, said Lisa Schoenthaler, NCTA vice president of rural affairs. “Large or small, many of the concerns raised in the plan are common to both large and small operators.” There is a “slight difference, more of a difference in approach than philosophy,” on USF reform within those constituencies, she said. That’s because the ACA doesn’t want USF funding eliminated for phone service provided by companies with 100,000 access lines or less, said President Matt Polka. His group and NCTA agree that “if there are competitive providers seeking to serve a market, then USF funds shouldn’t be available for those markets,” Polka continued. In general, the groups’ stance on USF is the same, he said. “On the big issues, for the most part, we do see eye to eye on things."

On retransmission consent, ACA and NCTA both “have focused on the fact that the existing retransmission consent regime is broken and needs to be fixed and that the regulations are weighted in favor of the broadcast industry,” said Schoenthaler. Throughout the industry, “we all think there is the need for reform and greater transparency” in multichannel video programming distributor (MVPD) deals with TV stations, Polka said. “In terms of differences, we are essentially talking about remedies.” But “even in the retrans proceeding, where there is some collective effort,” ACA is focused on getting non-discriminatory treatment so small cable operators will pay a similar rate as large ones, he said. A spokesman for the NAB, which along with members has said the retransmission consent system works, said that “broadcasters will be equally unified in pointing out the fallacies of the cable argument on retransmission consent."

On cable programming, ACA has “some concerns there that I know are not shared by the larger companies,” Polka said. “That issue for us really boils down to big versus small in the sense that small MVPDs have to negotiate with very big content owners and our members lack of size, market share, ability to negotiate what would be a non-discriminatory price.” Executives of small cable operators agreed that’s the case. “The major difference between the small and the large operators is scale, and the scale issues come into play with regard to programming and vendor relationships,” said Bend’s Tykeson, an ACA and NCTA member who is chairman of NCTA’s small and rural operators committee. “That impacts the cost models and everybody’s working hard to keep their prices as low as possible and its unfortunate that there is pricing disparity in some of those areas."

Video devices are another area of commonality for large and small operators, executives said. They said operators of all sizes hope to use digital terminal adapters (DTA) -- non-CableCARD-compliant and inexpensive set-top boxes that let subscribers get HD channels. The NCTA has “been supportive of cable operators obtaining waivers for low-cost set-top boxes to make it more economically efficient and effective to deploy new services,” said Schoenthaler. DTAs “are a commonality and we strongly support that,” said Tom Simmons, senior vice president of public policy for Midcontinent Communications, with about 250,000 video subscribers in the Dakotas and Minnesota. “We just simply need to protect our real estate -- analog just takes up too much space” and “it would be very helpful to make sure we have the availability of DTAs and devices that can do that -- sooner rather than later,” he said. An executive of the CEA, which has opposed such devices, declined to comment.

For retransmission consent, “the problems that we experience are exactly the same,” said Simmons. “There is a lot of commonality between all sizes of operators when it comes to retransmission consent issues and the interruption of service that causes to customers,” said Tykeson. “There’s a lot more in common between large and small operators” than not, and “there always has been,” she said. “The industry is grappling with some pretty significant issues right now relative to regulation and I think it’s really all hands on deck.”