Cable Operators Have Video Prices as Big Concern, as FCC Says 2011 Rates Rose 4.8 Percent

No industrywide solution has emerged for how the FCC and/or Congress should tackle the issue, with differences between operators that also own channels and those that aren’t integrated, said some respondents to our informal survey. “If we had an industry solution, it would have been proposed” and gotten some consensus among operators, said Midcontinent Communications Senior Vice President-Public Policy Tom Simmons. Retransmission consent “is in transition,” he said. “We need to come up with a better solution than we have now, because right now we're holding customers hostage in this battle” between broadcasters and operators, said Simmons, noting his company has renewed a retrans deal recently and is in talks to renew another one. “That problem isn’t going to go away,” he said of rising costs.

Addressing broadcast and cable programming costs is the top priority of operators that aren’t vertically integrated, said Fletcher Heald cable lawyer Paul Feldman. But he said he’s unaware that that industry has congealed around a solution. “Pushing the ball forward on video and retransmission consent reform” is a priority for Time Warner Cable in the coming year, said Chief Government Relations Officer Gail MacKinnon, who runs the operator’s Washington office. Other priorities are “spectrum-related issues and unleashing more unlicensed spectrum to support the growing use of WiFi, and we are also watching cybersecurity and corporate tax reform closely,” she said by email.

Cable bills haven’t risen when the number of channels is accounted for, said the bureau’s report. Price per channel for expanded-basic service fell 0.4 percent in 2011 to 51 cents a channel, it said (http://fcc.us/11Kv6sw). “From 1995-2012, the increase in price per channel was less than 1 percent per year (0.2 percent) on an annual basis.” The price of expanded basic has risen 6.1 percent annually during that 17-year period, the bureau said. The Consumer Price Index rose 2.4 percent yearly during that time, it said. NCTA had no comment on the report, and other member companies declined to comment for this story on their legislative and regulatory priorities.

On cybersecurity and privacy, operators of all sizes are more unified than on broadcast retrans and cable programming costs, generally backing the way those issues have been addressed, said industry lawyers. But there are worries about whether in sharing data with other entities to increase cybersecurity, operators could open themselves up to hacking or other security breaches, said Simmons. Some security experts at Midcontinent, an NCTA member with systems in the western U.S., have voiced this concern to Simmons, he said.

How the Cyber Intelligence Sharing and Protection Act addresses information sharing, though, appears to be on the right track, said Simmons and lawyers representing other cable operators. The House passed CISPA (HR-624) in April over the White House’s threat to veto it (CD April 19 p6). “Operators from a global standpoint were favorable to CISPA -- in fact we were lobbying our members of the House to support that legislation,” said Simmons. “Our security guys still have concerns about it, however.” The fear is some of the information that CISPA envisions being shared could wind up in criminal or other unauthorized hands, said Simmons.

"The cable industry has a pretty good consensus on where it would like to go with cybersecurity,” said cable lawyer Christin McMeley, who recently left Charter Communications and now works for the Davis Wright law firm. “They are interested in information sharing in a bill similar” to CISPA “with some sort of indemnification,” she said. “There’s a concern that they want to be protected for any information that they share that’s related to a threat.” Cable ISPs “want to be careful, or they should be concerned, about the costs associated with some sort of heightened government expectation” from companies in this area, said McMeley.

Cable operators hope Congress and agencies like the FTC continue to watch stakeholder privacy negotiations, such as those being led by the World Wide Web Consortium working group on do-not-track standards, instead of acting through legislation or regulation, said McMeley. Cable operators, which have been subject to privacy rules through the 1984 Cable Act and longer than any other industry, seek “technology neutral language” in any code of conduct or self-regulatory program, she said. Cable ISPs’ goal is to be “on a level playing field with the edge providers and the search engines and the mobile apps, since they're already going to be restricted to what they can do by Section 631” of the 1984 act on how they collect and use customer information, said McMeley.

A “big objective” of cable ISPs is “shutting down any serious consideration of Title II if Verizon wins the net neutrality case,” said analyst Paul Gallant of Guggenheim Securities of the common carrier section of the 1996 Telecom Act. MacKinnon was among industry panelists at an event last week that opposed reclassifying broadband as a Title II service from a Title I information service (CD June 5 p5). But “cable’s biggest target in Washington is retrans,” said Gallant. “They would really like to see Congress do something as part of” renewing the Satellite Television Extension and Localism Act, he said. “I also expect them to try to get Tom Wheeler to rethink the agency’s position on retrans, particularly given the Supreme Court’s Arlington ruling,” Gallant said of the FCC chairman nominee.

The bureau’s cable price report said costs rose more in 2011 in areas where it deems operators to face effective competition -- by 5.3 percent to $62.49 -- than in areas without competition, where it grew 4.3 percent to $60.99. But prices per channel were 6.1 percent less in effective-competition communities, “which reflects that operators in effective competition communities carry more channels on expanded basic service than operators in noncompetitive communities,” it said. “That result is counter-intuitive,” said Free Press Policy Director Matt Wood by email. “But I think it shows just how INeffective competition really is when you measure it according to the FCC standard. Having DBS with 15 percent of the market, or the mere presence of a telco competitor no matter how big its market share may be, just isn’t good enough to discipline prices,” he said of a threshold of satellite service which the bureau uses to approve operator petitions to no longer be subject to franchise oversight of basic-video prices.

Otherwise, the report shows “nothing much has changed” from what Free Press has observed before of rising prices, said Wood. “We can always count on cable prices rocketing up faster than the rate of inflation, for almost two straight decades now. That won’t change until the FCC gets serious about increasing choice and promoting competition -- both between cable, telco and satellite providers, and from viable over-the-top distributors.”