Federal and state regulatory policies are impeding consolidation of rural telephone lines, growing movement led by mid-sized companies such as CenturyTel and Citizens Communications, panelists said at Legg Mason investment conference in N.Y. on rural telephony Thurs. From regulators to rural operators, speakers said consolidation is latest trend in rural phone business, stoked by divestiture of lines by Bells such as Verizon and Qwest. Verizon has divested hundreds of thousands of former GTE lines throughout country, many of them acquired by consolidators, while others such as Qwest continue long-time trend to eliminate unprofitable exchanges. In addition, consolidators buy up small telcos run by families that no longer want to be in business. Consolidators generally can make more money from rural lines than Bells can because they have more access to universal service funding and their smaller size enables them to act more flexibly, panelists said.
Notable CROSS rulings
Leading media company executives predicted ownership restrictions would crumble in coming year in both broadcast and cable. On panel at Precursor Group conference in Washington Wed., Shaun Sheehan, Tribune vp-Washington office, said FCC’s newspaper-broadcast cross-ownership restrictions and other ownership rules were “very much in play.” With Tribune properties in L.A., N.Y.C., Hartford, and Ft. Lauderdale-Miami, at risk, Sheehan called his company “the poster child” of FCC rule. NCTA Pres. Robert Sachs said horizontal ownership rules in cable got lots of attention, but most NCTA members probably were affected more directly by pending FCC decision on broadband access. Reason horizontal rule of 30% audience cap would have less impact, Sachs said, is that, as practical matter, no company is in danger of bumping up against limit. Proposed AT&T Broadband-Comcast merger would involve 22 million subscribers, which is only 25% of multichannel video programming services users, Sachs said. Only area where proposed merger could become “dicey” is if federal govt. assigns more subscribers to merged company because of minority stakes it would hold in other companies, such as AT&T’s 25% of Time Warner Cable, Sachs said. “The FCC really needs to be taking a comprehensive look at attribution rules across the board,” he said. NCTA wants those rules overhauled so companies aren’t credited with subscribers they have no control over. Current rule attributes subscribers if company holds 5% or more, even though it may not have board seat or otherwise have role in making decisions.
Regulatory trends will help Bells and cable industry further cement their dominant positions in telecom this year, Legg Mason said in annual look at upcoming telecom and media regulation. “Other industry groups may achieve modest gains through their own policy agendas,” analysts Blair Levin and Michael Balhoff said, but none appear “likely in the short term to challenge the Bell/cable company dominance in voice, video and data.” Longer term, regulatory proceedings “affecting wireless innovation and the ability of AOL Time Warner and Microsoft to capitalize on their installed base to offer new services have the greatest disruptive potential.” Trends cited in report: (1) Regulatory constraints on horizontal and vertical acquisitions will be relaxed, leaving antitrust law as main constraint. “We view this as positive for the [Bells], large cable companies, wireless industry and large broadcast networks.” Report said that’s “mixed” benefit for long distance companies and “negative for most equipment manufacturers, independent broadcasters and the CLECs.” (2) Analysts expect govt. to take deregulatory steps to provide Bells with greater freedom to deploy broadband, “though not as far-reaching as the Bells wish.” (3) Wireless industry could have greatest ability to “disrupt markets” if host of policy battles were resolved, such as NextWave and search for 3G spectrum. (4) Broadcasters are likely to gain scale through consolidation when ownership restrictions are eased “but they still are vulnerable because of their dependence on advertising as their only revenue stream.” Independent broadcast affiliate groups “are in the worst position to improve” their standing through regulatory initiatives, report said: “While they are likely to obtain some relief through changes in the newspaper-broadcast cross- ownership ban and in the TV duopoly rules, the gains are likely to be more than offset by rule changes that facilitate the growing strength of cable and the major broadcast networks.”
Although he signed FCC filing on Transportation Dept.- funded research on ultra-wideband, Stanford U. Prof. Bradford Parkinson said he wasn’t involved in conducting study, meaning his corporate ties to GPS developer Trimble posed no conflict. In Sept. 2000, Parkinson, who is widely viewed as “Father of GPS,” jointly submitted to FCC ex parte filing with other Stanford researchers outlining preliminary results of UWB tests conducted by GPS Research Lab at Stanford and funded by DoT. “We urge the Commission to proceed with great caution and deliberation,” said filing by 4 professors, including Parkinson, that described research challenges of analyzing UWB-to-GPS interference. But Parkinson said Mon. his role in research, which had been among studies cited by federal agencies concerned about potential of UWB emissions to cause harmful interference to GPS, was to evaluate results after test phase was complete. He said Assoc. Prof. Per Enge oversaw research itself.
LAS VEGAS -- Fox TV Network Pres. Tony Vinciquerra wants antitrust exemption from Justice Dept. to permit all TV stations in one market to negotiate jointly with cable systems on retransmission rights. Speaking at deregulation panel at NATPE convention here, he said waiver was needed because of cable’s monopoly in many markets and “we have to be able to deal with that monopoly.” He said pending merger of AT&T Broadband with Comcast would make that monopoly even worse. Young Bcstg.’s Debbie McDermott immediately endorsed Vinciquerra’s proposal, but panelist Jay Ireland, pres. of NBC TV stations, said network didn’t have position on issue.
Britain’s Independent TV Commission (ITC) published new rules on how broadcasters could promote digital programs, channels, related services. ITC said rules were designed to bring viewers more information through cross-promotions while discouraging “the adverse effects of promotional clutter.” Rules say: (1) Promotions of channels by analog terrestrial broadcasters can’t give “an excessive amount” of air time to particular channel, service or suite of channels and services. (2) Analog terrestrial licensees can’t promote any particular digital platform or platform service provider outside of paid-for advertising. (3) Platform service providers must be mentioned by name only where program or channel being promoted is provided on all main platforms. (4) Promotions outside advertising mustn’t include any information on prices of products or services. (5) Promotions during programs should provide information likely to be of value to viewers but mustn’t become advertising or compromise “the editorial integrity” of programs in which they are placed.
New England Cable TV Assn. (NECTA) said it would appeal to FCC ruling of R.I. Div. of Public Utilities & Carriers (DPUC) that SMATV operator Starlight Communications wasn’t cable operator subject to franchise requirements. DPUC’s interim ruling came on petition by NECTA seeking discovery hearing to determine whether Starlight was protected under 7th U.S. Appeals Court, Chicago, ruling in ECI v City of Lansing (CD Dec 9/99 p3). Court had sided with FCC that Entertainment Connections Inc. could operate without cable franchise. NCTA, National Assn. of Telecom Officers & Advisers (NATOA) and other cities had backed City of Lansing in lawsuit. DPUC Assoc. Administrator (Cable) Eric Palazzo said that under current FCC rules and 7th Circuit rulings, Starlight couldn’t be deemed cable operator. He held in ruling that DPUC had required that Starlight provide affidavit that it wasn’t crossing public rights-of-way and Verizon, whose facilities Starlight was using to provide service, submit affidavit that SMATV operator was using its supertrunks to provide service. He said while DPUC itself wouldn’t take issue to FCC, it strongly encouraged NECTA to solicit FCC opinion on issue. NECTA Exec. Vp William Durand said cable had argued that accepted ECI model hadn’t been accepted in First Circuit that had jurisdiction over R.I. and that ruling in ECI case had been confined to particular factual contexts. One key requirement in ECI is that facilities used primarily by Ameritech to provide service to ECI weren’t built at ECI’s request. In Starlight case, Verizon doesn’t have ubiquitous preexisting common carrier transport network terminating at each multiple dwelling unit (MDU), he said. Company constructs special runs tailored to each customer, he said, and Verizon’s offering is far more similar to custom-built “channel service” that requires cable franchise. Another factor in ECI was capacity to serve several other programming providers, Durand said, and in Verizon’s case Starlight specified and controls access to wires, which were not available for use by competitors. Durand said he got impression following discussions with DPUC staff that division didn’t have resources to launch protracted legal battle on its own but was willing to back cable’s position. NECTA will file petition with FCC in Jan., he said. Starlight provides video programming service to about 13 MDUs.
FCC Wed. turned back petition for rulemaking filed by Public Employees for Environmental Responsibility (PEER) that had sparked strong opposition from wireless, wireline and undersea cable operators. Commission unanimously adopted order, although Comr. Copps issued separate statement saying PEER had raised “important questions” about how FCC carried out environmental duties mandated by Congress. PEER had asked FCC to change how environmental rules were applied to undersea cables, fiber lines, wireless towers. Group of govt. employees concerned about environment wanted agency to conduct rulemaking to ascertain whether it needed to create Office of Environmental Compliance and separate joint rulemaking with other agencies. Companies ranging from Verizon to Global Crossing had balked at PEER petition, telling FCC such action wasn’t needed and unjustifiably would add to regulatory burdens. Commission rejected PEER arguments that due to explosive growth in wireless and wireline infrastructure since Telecom Act, agency should take fresh look at cumulative impacts of spectrum auctions, tower registrations, undersea cable landing licenses, Sec. 214 authorizations. PEER doesn’t offer “rationale for treating all actions as actually or potentially damaging to the environment,” FCC said. “We do not believe that the evidence of environmental harm proffered by PEER reflects any environmental processing failings by the Commission.” Even if PEER successfully pointed to such shortfalls, “a few examples in no way justify the complete overhaul of the Commission’s long-standing environmental rules across all service areas,” it said. PEER had challenged FCC environmental rules that implemented National Environmental Policy Act (NEPA), which required federal agencies to account for environmental impact of projects they oversaw. PEER had urged FCC to require applications for all Commission actions involving submarine cables, fiber lines and spectrum requiring communications towers to file environmental assessment for public utility facility. Private utility would have to file environmental impact statement. PEER defined public utilities as supplying last-mile connections while private utilities would be parts of network needed to transmit over long distances. FCC said its regulations implementing NEPA already identified 9 types of actions that could have significant environmental impact and evaluate through environmental assessment all actions that involved projects that fit into those categories. In its May 2000 petition, PEER had cited growing number of cases in which laying of fiber cable had damaged coral beds and harmed habitat of endangered marine species. PEER said that in other cases, buildings and towers could have significant effect on environment and historic areas. Copps said that “while this proceeding did not provide adequate record evidence for a restructuring of our policies at this time, the Commission should undertake a thorough review of our obligations under the National Environmental Policy Act and the National Historic Preservation Act.” He said that as part of Chmn. Powell’s recently launched review of FCC procedures, assessment of agency’s responsibilities under NEPA and National Historic Preservation Act should be included. Copps said FCC should: (1) Determine whether it had devoted enough resources to meet its environmental responsibilities under those laws. (2) Examine how accessible such proceedings were to “nontraditional stakeholders” such as small businesses. PEER Gen. Counsel Daniel Meyer told us group planned to file petition for reconsideration at FCC by early Jan. “I do take Commissioner Copps’s separate statement as an indication the Commission knows it’s not addressing environmental concerns from environmentalists in an appropriate manner,” Meyer said. He said one example of types of cumulative environmental impacts that FCC must consider involved wireless towers that hadn’t complied with Sec. 106 review under National Historic Preservation Act. Assessing cumulative impacts of towers, Copps said, “the danger is the actual spectrum auction will have to be environmentally reviewed. That would be a nightmare for industry.” Lack of uniformity in compliance and enforcement means that most of industry has been erecting towers without environmental review, he said.
Ad rates are no higher in cities where single company owns TV station and newspaper, and those markets have benefited from pooling of newsgathering resources, broadcasters and newspaper owners said in comments on FCC rulemaking on eliminating newspaper-broadcast cross-ownership ban (CD Dec 4 p9). Cox said data on Dayton and Atlanta markets, where it has grandfathered cross-ownership, clearly support claim of no impact on ad rates. Gannett said improved news availability in markets with cross-ownership “overwhelmingly demonstrate… the societal benefits of encouraging local news outlets to pool resources.” ALTV said ending ban also is justified by increasing competitiveness of local markets since neither broadcast stations nor local newspapers remained “dominant giant” in local markets that they were in 1975 when ban was imposed. Given arrival of cable news and Internet, ALTV said, “long gone are the days where the public waits for the 11 o'clock news or the morning paper.” Schurz Communications said local news outlets now must compete against Internet-delivered newspapers from around world, as well as streaming media, so FCC “should not continue to regulate newspaper owners more strictly than any other media enterprise.” Cox said original spectrum scarcity rationale for ban “has vanished” with media proliferation and “for a broadcast ownership rule to pass judicial muster, the Commission must show both that a specific harm actually exists and that the rule will actually fix or prevent the harm.”.. Tribune Co. said Sept. 11 events, in which broadcasters and newspapers pooled resources, showed benefit of easing ownership rules. It said current environment was “megamall” of media outlets: “Never before has the media marketplace been so fragmented and so clearly incapable of domination… This competitive marketplace, not the rule, is the best guarantor of diversity.”
FCC probably doesn’t even have enough evidence to justify notice of inquiry on broadcast-newspaper cross- ownership rules, NAB said in comments on rulemaking (MM 01- 235). Broadcasters said FCC never had been able to show competitive harms from cross-ownership, so burden of justifying retention of rule “clearly lies with the Commission.” Goal of diversity of voices “reflects an outmoded regulatory philosophy of promoting the maximum diversity of ownership at all costs,” NAB said, and burden of justifying rule was increased by First Amendment implications. NAB also said any justification for ban had been reduced by expansion of information outlets and easing of other ownership rules, and that cross-ownership actually could increase news, information and programming options by allowing pooling of resources. Not surprisingly, Newspaper Assn. of America also supported eliminating rule, saying ban “serves no legitimate purpose in the modern media marketplace.” Group said “explosive” growth in media outlets justified eliminating ban and repeal “would lead to significant efficiencies and operational synergies” that would “benefit both consumers and advertisers.” Pooling resources would allow tailoring news content to different media, newspaper group said, and wouldn’t lead to “any material reduction in viewpoint diversity.” Consumer, civil rights and media public interest groups called on FCC Mon. to maintain limits on broadcast-newspaper cross-ownership. Groups cited study that said media diversity was at risk from mergers and acquisitions. They warned of dire consequences if FCC eliminated its long-standing prohibition against common ownership of newspaper and TV station in same market. Filing called for new policies “to open communications wires and the airwaves to more independent voices, in order to preserve our nation’s commitment to maintaining institutions and market forces that promote a robust democracy.” Document, more than 100 pages long, represented views of Consumer Federation of America, Consumers Union, Center for Digital Democracy, Civil Rights Forum, Leadership Conference on Civil Rights and Media Access Project. Filing cited 1945 Supreme Court ruling that First Amendment “rests on the assumption that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.” That principle will be jeopardized if broadcasters are allowed to own or be owned by newspaper in same community, filing said. Claims that Internet was viable news and information alternative ignored possibility that same entities could dominate Internet as well, filing said. “A small number of giant corporations interconnected by ownership, joint ventures and preferential deals now straddle broadcast, cable and the Internet,” filing said.