Martin: CableCARD Waivers Will Be Hard to Get; Cable Caps Important

“It’s time for the FCC… to find a way for CE makers to make a TV that consumers can take home and plug into any cable system,” Martin said in a Q&A with CEA Pres. Gary Shapiro. He said the FCC has a batch of cable waiver requests to determine, but “I don’t think we should grant blanket waivers… It’s time for us to try to move forward.” Martin didn’t say whether a majority of FCC commissioners agree.

Hours after Martin’s CES appearance, the FCC acted on a slew of CableCARD waivers. As Martin foreshadowed in his speech, Comcast’s waiver was denied. Comcast can file an amended request seeking exemption for inexpensive set top boxes. Granting Comcast’s request would have exempted a wide swath of the boxes, the Media Bureau said: “Comcast failed to demonstrate that grant of the waiver would have a direct and immediate impact on its migration to an all-digital network.” Comcast vowed to appeal the action.

Cablevision was perhaps the biggest beneficiary of the CableCARD exemption actions. The company’s SmartCard can be used until July 1, 2009 - 2 years after the set-top box security and integration ban takes effect, the Media Bureau said. Bend Cable won a waiver on the condition it operate an all-digital network by 2008, the Media Bureau said: “The Bureau noted the difficulties that small cable operators may face in complying with the July 1, 2007, deadline for separate security because manufacturers prioritize orders from the largest providers.”

A group of several other small cable operators won a victory. The Media Bureau said Beyond Broadband’s product is one way cable operators can meet the integration ban rules. Beyond Broadband met recently with 8th floor aides to tout its product. Martin is believed to have used the group’s plan as a way to address small cable operator concerns while standing firm on his reluctance to grant waivers, said a Commission official. Martin criticized cable and CE for not agreeing on a downloadable security solution but saved most of his wrath for cable. “The issues addressed today did not begin several months ago when cable operators filed these requests,” he said in a written statement: “Ten years later, cable operators have never fully implemented the Commission’s set-top box requirement… The inaction has served to hinder innovation, deter competition and harm consumers.”

Comcast was the first cable operator to say it would seek a reversal of Media Bureau decisions. The company said it will “immediately” appeal to the full Commission. “We are very disappointed in this regrettable FCC Media Bureau decision,” Exec. Vp David Cohen said in a written statement: “This amounts to an FCC tax of hundreds of millions of dollars on consumers with no countervailing benefits.” Cohen didn’t say if Comcast will amend its waiver request.

The FCC will be “sympathetic” to some waiver requests, Martin indicated, speaking at CES. He cited, for example, small cable operators that might have trouble getting the needed equipment, as well as those moving toward all-digital operations. But for others, Martin said, “it’s time for use to move forward to meet congressional expectations.”

A “bigger challenge” for the FCC will be moving toward 2-way cable-TV compatibility, which would make DTV “fully functional,” Martin said. Repeating his own phrase, he said industries “have to find a way to move forward.” On other issues, Martin said: (1) The DTV transition is going slower than expected but is accelerating. (2) This year, the FCC “will be spending a lot of time” on the 700 MHz auction. (3) Consumer issues will include taking a look at early- termination fees.

Martin’s stance won’t deter industry from pushing integration ban waivers. “We'll continue to make the case that the integration ban is an unnecessary equipment mandate,” a cable industry official said: “The integration ban will in fact slow down the digital transition for cable customers, and foist unnecessary fees on cable customers at a time when the FCC has expressed its concern about cable prices.” After Martin Wed. criticized rising cable bills, NCTA said a wealth of new media announcements at CES is proof of a competitive market. “The marketplace is working,” an NCTA spokesman said: “There is no indication that the [product] developments will slow down, so consumers are benefitting from a plethora of options for watching TV.”

The set-top box integration ban is outdated, said analysts with think-tanks prone to favoring less media oversight. The ban “is a relic of a ‘managed competition’ regulatory mindset,” Progress & Freedom Foundation’s Tom Lenard wrote: “The integration requirement will divert resources from the rollout of advanced broadband, video and voice services.” It’s hard to gauge chances for waivers that Verizon and large cable operators other than Comcast want, said the Free State Foundation’s Randy May. Martin’s attitude is “hard to understand,” May said: “This seems like a pretty clear case for a deregulatory-minded chairman to be sympathetic to granting regulatory relief.”

Telco video likely would come under the same ownership limits as cable operators, FCC Chmn. Kevin Martin said. Video is unique among communications services, many of which don’t have national ownership caps like the cable industry’s, he told investors at a Citigroup event in Las Vegas. Telecom providers “are selling capacity,” Martin said, hours before he spoke at CES. “You're not selling content… Cable operators could distort that market” for programming if they became too large, he said. Martin’s remarks were his latest criticism of the cable industry, a target of his at other such investor conferences (CD Sept 15 p2) for raising prices at a time when wireless and other services’ bills are dropping.

The Commission must review cable ownership caps, Martin said. In 2001, a 30% national limit was kicked back to it by the U.S. Appeals Court, D.C. in Time Warner v. FCC. Cable caps seem to be on a back burner at the FCC as Martin focuses on broadcast ownership and other higher-profile media issues, Commission and industry sources said. Asked how Bell video would be treated, Martin said: “We'll treat it exactly the same way as we do in the cable context.” AT&T and Verizon are far from reaching such limits, however, and Comcast is the only cable operator near them. NCTA hasn’t taken a position on the issue because there’s not a proceeding at the FCC, said a spokesman.

When it comes to video franchise regulation, cable wants to have its cake and eat it, too, said Martin. The industry appears to want neither video competition nor regulation, such as a Dec. FCC order meant to streamline franchising, Martin said of cable complaints about unfair treatment. If Martin were an incumbent and regulators were trying to make it easier for new providers to offer service, he wouldn’t like it either, but “you either have to have rate regulation or competition,” he said: “I understand why if you're a service provider you want neither… But from a policy perspective, that is not a tenable position.”

Martin continued to stump for cable a la carte, another cause that has drawn industry fire. He can’t see why cable wants to put expensive sports channels but not other networks on programming tiers, he said. Recent examples of what Martin described - though not cited by Martin - are Comcast’s reluctance to carry Mid-Atlantic Sports Network because of its high cost and Time Warner Cable’s showdown with NFL Network over the cable operator’s preference for that channel to go on a digital sports tier. “I don’t understand… why that same kind of approach wouldn’t apply to any other kind of content, whether it’s a regional sports network charging a dollar or a music channel wanting to charge consumers a dollar,” Martin said: “Consumers shouldn’t necessarily have to pay that.”

Cable operators may not be forced to sell channels individually, Martin said: “I'm not sure whether there will be any kind of mandate in a government respect for a la carte.” Asked how the issue will play out, he cited an instance last year when Sen. McCain (R-Ariz.) proposed an a la carte amendment to the telecom bill. It didn’t get a vote. “It didn’t have very much support,” Martin said, adding that he believes a number of senators wouldn’t block such a bill.

Martin invoked familiar telecom themes at the Citigroup gathering, telling the audience that universal service should be revamped to include a numbers-based approach, with rural subsidies bid on in reverse auctions. He noted that both approaches are controversial, and provided no timetable for dealing with universal service reform.

Martin expanded on earlier criticism he made of some conditions placed on AT&T’s purchase of BellSouth. Special access conditions are unnecessary, Martin said, calling them “a significant step backwards.” Net neutrality rules set a dangerous precedent, he said, urging “a kind of balance” to protect content providers from bias and ensure broadband operators have incentives to invest in data networks.

Net Neutrality Balance Urged

The FCC must be “balanced” on net neutrality and avoid steps limiting carriers’ ability to fully recover investments in broadband networks, Martin told the Citigroup conference.

“If you're the network operators, you should be able to differentiate your services based on quality of service and should be able to sell tiers of service,” he said: “If you purchase a speed that doesn’t allow you to download high- definition video, you're not being blocked… There is no guarantee that you should be able to access that content.”

Martin’s comments built on his joint statement with Comr. Tate about the AT&T-BellSouth merger. In it they said the merger agreement shouldn’t be seen as establishing a new net neutrality principle. Martin said that on the positive side the principles AT&T embraced were appropriate and based on Commission precedent. Comrs. Copps and Adelstein largely negotiated merger principles, including net neutrality provisions, with an AT&T team and little involvement by Martin’s office.

“The negative was that it went beyond that and actually adopted what they would describe as a ‘nondiscrimination principle’ that in reality is a ‘noncharging’ principle,” he said: “You can’t charge content providers [for access] to pipes, and I think that that precedent has the potential to undermine some of the value in deployment of broadband networks.”

Martin said net neutrality “means very different things to different people,” and some net neutrality advocates define nondiscrimination “in a much more aggressive way” than he finds acceptable. “The concern I have expressed is that kind of approach could devalue some of the investment in the underlying network,” he said: “You have to find an appropriate balance.”

“The Commission has tried to articulate the basic principle that… you should be able to get access to what’s available for free over the Internet and people that are providing Internet access shouldn’t be blocking your access,” Martin said. But at the same time, networks’ value mustn’t be undermined, he said.