FCC Pursuing Pro-Regulatory Cable Agenda, Analysts Tell INTX

In Q&A with Charter Communications Chief Financial Officer Chris Winfrey, the analysts said cable may face more regulation because of its broadband success. Winfrey acknowledged his industry may bear some responsibility for the heightened scrutiny, asking analysts what cable could have done better. Earlier Monday at the INTX show, NCTA CEO Michael Powell cited regulatory fears (see 1605160033). A commission spokeswoman defended the agency in a later email to us.

“The FCC is already doing the hard work of putting the stakes in the ground for the ultimate regulation of what will end up being a single network,” said MoffettNathanson's Craig Moffett. He said “the cable business now is actually in a pretty good spot” business-wise, but conceded that there are “some very real regulatory questions that have suddenly become more pressing.” Moffett and fellow analysts cited concerns about the FCC net neutrality order deeming broadband a Title II telecom service, the set-top box rulemaking to make it easier for pay-TV subscribers to access encrypted pay-TV content without having to rent a box from their video provider, and the FCC special access or business data services (BDS) proceeding.

It's an “irony” the FCC is concerned with cable broadband prices because higher prices might prompt more competitors in the market, said Citigroup's Jason Bazinet. He attributed some of the regulatory bent of the current FCC to partisanship, saying such agencies in “the good old days” were “largely neutral.” Now, it's “so hyper-politicized that the expert agencies,” not just the FCC, tend to tack politically with each administration, said Bazinet. That “is tragic,” he said. “Yes, it's anti-cable, but it's probably broader than that, it's anti-business.” Earlier in the panel, he described cable as a sector with “not the most robust growth prospects, but it's very stable,” calling cable broadband “a great” business. But DBS "operators are in real trouble without broadband,” said Bazinet: “There is the most concern on the buy side about their growth prospects” among the media industry, he said of investors.

Some analysts can't see why cable would expand business broadband services if success there may mean more FCC regulation, under the agency's BDS approach. “It's hard to see the economic motivation” for a cable operator “to build a lot of that,” said Moffett. “If there is a risk that by building it, you open the door to rate regulation as soon as the first contact ends ... you would choke the opportunity off before it's born.”

“This is an FCC that wants to regulate,” said Wells Fargo's Marci Ryvicker. “They are just anti,” she said, listing several telecom sectors. “I don't think it's anything you did,” Ryvicker said to the audience that included cable lawyers and executives. “It's the fear of what you might do as a monopoly.” Earlier, she described herself as a cable bull who said the industry compares favorably to programmers who may face declining affiliate revenue amid what she called a “multiyear investment cycle.” Cable “with the pipe is where I would want to be,” she said.

“Fast, fair and open broadband networks are vital," the FCC spokeswoman responded by email: The agency's "proposals follow the simple principle that incumbent network providers should not be able to use their gatekeeper position to unfairly constrain the choices of consumers and the ability of innovators." Chairman Tom Wheeler "has been clear: where competition exists, the Commission will protect it," she said: "Where sufficient competition does not exist, the Commission will work ... to create it" for consumers and businesses.

The FCC approach to BDS “seems more of an investment concern as we like to say in the investment business than an opportunity,” said Morgan Stanley's Ben Swinburne. “This FCC wants to bring more competition to cable. Whether that's anti-cable or not, I'll let people decide. It's tough right now” for the industry, with the Title II order and set-top and other proceedings, he said. “To some extent, the success of the industry” may put it at regulatory risk, Swinburne said, mentioning broadband. And cable video prices can result in scrutiny, leading to a regulatory approach to help over-the-top video providers enter that market, he said. The set-top proceeding “makes your head spin,” said Swinburne. “The practical implication of what they're trying to do seems virtually impossible,” he said of the commission. Swinburne said he is bullish on content like sports.

But the bundle has its business merits, other analysts including Moffett said. “Find me a better model than I get $7 a month from every family in America who chooses not to consume my product,” Moffett said of ESPN. Of the U.S. Court of Appeals for the D.C. Circuit's coming decision on the FCC net neutrality order, Moffett sees a win for the agency on subjecting wireline broadband to Title II, a possible loss on wireless and 50-50 odds for interconnection. Whatever the D.C. Circuit decides, “the consensus is that it will be appealed to the Supreme Court,” said Swinburne.