FCC Sees Bells Boosting Video Competition; Price Hikes, Programmers Eyed

The 12th annual video competition report to Congress held off on tackling the threshold issue because of disagreement among companies, said Media Bureau Chief Donna Gregg at an FCC meeting here. Those whose comments were included in the report were divided on the so-called 70-70 rule, Chmn. Martin told us. Cable operators may face additional rules once their systems pass more then 70% of U.S. homes and at least 70% of people buy the service. “Some commenters [were] not sure the second prong was triggered,” said Martin. He declined to elaborate and FCC officials had no further comment by our deadline.

The Media Bureau is seeking public comment on which statistics best measure whether the cable threshold was passed last year, Gregg said at the meeting. The FCC competition report said cable’s share of the multichannel video audience fell to about 69.4% in 2005 from 71.6% in 2004, “according to the FCC’s traditional measure.”

“Data submitted in the record this year raises questions,” said an FCC document. It said comments are also sought on “what action might be warranted to achieve” statutory goals “to promote diversity of information sources,” if the thresholds have been met. Comrs. Adelstein and Copps said the video report, while more comprehensive than in previous years, needed improvement. “The report is better than it has been, I agree with my colleague, Commissioner Copps,” said Adelstein. But, he said “it needs to be improved… There is more that can be done.” He said the Commission must determine whether to “promulgate additional rules” if the threshold has been reached. Copps said he wants “independent, verified data… I also believe we have to conduct some audits of the information we received.”

Cable rate hikes and programmers were subject to criticism. “I think the Commission is obviously concerned” about cable rates, Martin said at a media briefing: “We need to remove the barriers to entry and let companies take advantage of technological advances.”

“We are also increasingly seeing the ability of IPTV to deliver TV over DSL,” Martin said at the meeting: “Eventually it is going to fundamentally change the way that video services are delivered.” But there are roadblocks to the increased consumer choices possible from products including AT&T’s Project Lightspeed IPTV and FiOS fiber TV from Verizon. Programmers are hindering video providers’ ability to sell individual channels, something Martin has pushed for, said Comr. Adelstein: “This new technology can deal with the a la carte issue… But the problem is with programmers themselves.” Those firms “simply are not interested in offering [channels] on an a la carte basis to the distributors,” said Adelstein. An FCC report backed by Martin advocated steps toward unbundling networks offered by cable providers (CD Feb 10 p2).

Most of the Keller meeting was devoted to a debate over video franchising. Although FCC officials have said that issue will be taken up at a separate field hearing, speakers from the cable and phone industries used the occasion to try scoring points. Remarks on local govt. franchise procedures came 3 days before a FCC deadline for comments on the subject. Verizon Video Solutions Senior Vp Marilyn O'Connell elaborated on the firm’s previous complaints about the process. “In some locations we have faced unreasonable buildout requirements,” said O'Connell: “They create an unlevel playing field for new entrants with no market share who must compete against an incumbent.”

Adelstein was skeptical, citing recent remarks by Verizon CEO Ivan Seidenberg to investors that the company doesn’t face impediments to introducing FiOS, which includes faster broadband service as well as TV. “Why are you telling us something different than your CEO is telling Wall Street?” asked Adelstein. O'Connell responded that, while the telco can build fiber networks for broadband without a video franchise, it’s preferable to get such approval. Martin’s questioning also elicited a timeframe for cities to decide on franchises. National Assn. of Telecom Advisors & Officers Pres. Lori Panzino-Tillery agreed with Martin that 6 months was a reasonable period to make a decision, saying “I could agree with that.”

NCTA Senior Vp-Legal Daniel Brenner used the site of the meeting to point to Verizon’s success in getting franchises. Verizon started FiOS TV sales in Keller Sept. 22 with a kickoff at the community meeting and fitness center where the FCC meeting was held. “My takeaway from Keller is really that this is a community that managed with a franchise system before the change in laws” in which the state streamlined the process, said Brenner: “The franchise process worked for Verizon.”

Telco entry into video “could bring the most substantial new competition into the video marketplace that this country has ever seen,” Adelstein said in his statement. The report repeatedly notes Bell plans to enter video, but shows little evidence of significant actual impact to date. It said broadband service providers (BSPs) had about 1.4 million subscribers in June 2005, about 1.5% of all multichannel households.

DirecTV and EchoStar have 28% percent of the pay TV market, up 3% since 2005, the FCC said in THE report to Congress on video competition. Cable operators have parried DBS growth not by cutting prices but by offering more service, the FCC said. Efforts against DBS have brought more channels and bundling of cable with Internet or voice service, the FCC said. In return, DBS is offering local broadcast channels, more sports and international programming and advanced set-top boxes with DVR capabilities, the report said.

The FCC report also noted that new compression technologies such as MPEG-4 and VC-1 will reduce the amount of bandwidth needed for each video channel, increasing the potential for competition. It also said Internet-delivered TV is becoming a more significant factor.

Martin and Copps said the FCC should facilitate telco entry into video, each saying it not only improves video competition but promotes the deployment of broadband. Copps said the report “shows an enormous potential for increased competition in the video programming market.”

In addition to the “substantial new competition” in video, Adelstein said the rapidly escalating competition will mean “a more robust exchange in the marketplace of ideas.” He said he has been concerned about media consolidation, but “vast new distribution networks promise to limit the ability of any vertically integrated conglomerates” to impose “an economic, cultural or political agenda on a public with few alternative choices.”

Comrs. did continue to express concerns about the lack of media competition. Adelstein noted that the top 4 MSOs have 63% of all multichannel subscribers, up 5% from a year ago, and that a significant number of cable channels are vertically integrated with large cable operators. The report said there were 531 satellite-delivered program networks in 2005, with 21.8% affiliated with a cable operator, and 51.6% not affiliated with any other media firm. Of 96 regional program networks, 45.8% were vertically integrated with cable operators, as were 45.9% of the 37 regional sports networks, it said.

The FCC report “confirms that the home video marketplace has never been more competitive and, continues to provide consumers with increased choice, better picture quality, and greater technological innovation,” NCTA Pres. Kyle McSlarrow said: “As even more providers enter this competitive market, it is important that government policies continue to promote such investment and innovation, and treat all providers equally.”