Cable Operators Unhappy About Proposed Title II Internet Regulation; Effect on Satellite Seen As Unclear

“Forbearance is a rulemaking, and last time I checked, nothing gets done at the FCC quickly," Polka said. Investors are unlikely to commit money to an industry on the basis of forbearance to come, Polka said. But some cable stocks rose Wednesday, with analysts saying the rules may not be as bad as feared.

Forbearance isn't a permanent safety valve, said Mediacom Group Vice President-Legal and Public Affairs Thomas Larsen. “Sure, you’ve got a commission willing to forebear from rate regulation now, but the long term is our biggest concern,” Larsen said. “Once you’re in Title II, you’re in.” The proposal would confer on the FCC “sweeping discretion to regulate rates and set the economic terms and conditions of business relationships,” said the NCTA in a news release, voicing its concern about the proposal’s “far reaching and troubling consequences.”

Several cable operators criticized the net neutrality proposal for ignoring a form of Internet blocking occurring now -- content companies blocking ISPs during contract negotiations. Internet subscribers to Ohio’s MCTV and Rhode Island’s Full Channel are currently blocked from access to all of ESPN’s Web properties because those ISPs don’t want to pay a per subscriber fee for ESPN’s TV Everywhere offering, those cable companies told us. “Any content owner can discriminate against an ISP and their subscribers, and these rules don’t touch that,” said MCTV President Robert Gessner. “We need an open network that allows for free exchange of ideas and traffic and prevents any form of blocking," said Full Channel Labs President Levi Maaia. “This is the opposite of net neutrality.” ESPN had no immediate comment.

The proposed rules could lead to higher taxes, an increased vulnerability to complaints, higher pole attachment fees and other regulatory difficulties, cable industry officials said. Higher taxes caused by cable operators having to contribute to the USF under Title II would certainly be passed on to consumers, Gessner said. A Title II distinction between pole attachment rates in urban and rural markets is likely to disproportionately affect smaller and mid-sized cable operators, Larsen said. Title II also could lead to an increase in burdensome FCC complaints against cable operators, which are a larger problem for smaller cable operators without in-house lawyers, Gessner said. Though the proposed rules are only an item on circulation and still open to being changed, Polka said he’s not optimistic about concessions for cable. “This feels like a train barreling down the tracks right now," he said.

One concession several industry officials mentioned is an exemption for smaller companies. “Our members don’t have the authority and leverage to hamper the interests of bazillionaire companies like Netflix,” Polka said. “How would we become gatekeepers?” The proposed rules are “one size fits all” and treat companies like Mediacom as though they had the same capability to block traffic as much larger companies, Larsen said. The proposed rules favor companies like Google “in the guise of protecting garage innovators,” he said.

The FCC has authority to regulate satellite broadband because satellite uses IP packet transfer, said Jon Peha, a Carnegie Mellon University engineering and public policy professor who served as the agency's chief technical officer. “The FCC has the authority to impose very different rules on satellite, or wireless or wire. I would expect the FCC would have the same authority for those rules on satellite. That doesn’t mean they will.” The rules could “complicate things” for direct-broadcast satellites and VOD services, said Roger Entner, a telecom analyst at Recon Analytics. The FCC’s fact sheet Wednesday on new rules to protect the open Internet is broad, he said. “Like everything, the devil is in the details.”

Entner said the FCC seems to be taking a “blanket approach” to broadband services by including “other network medium” in its fact sheet. This means the commission could treat satellite broadband the same as other networks, he said. If satellite broadband falls under the same rules as broadband with Title II, “it certainly makes their life more difficult,” Entner said. Adding capacity is relatively easy for fiber but becomes more difficult for wireless or satellite because it involves more spectrum, he said. And putting new satellites in orbit is expensive and time-consuming, he said.

The reasonable network management exception might apply to satellite broadband, as well, but there could be differences in what is considered reasonable, Entner said. “I expect net neutrality rules to allow what the FCC calls 'reasonable network management,' and it is likely that the standard for reasonable network management will depend on the type of network,” Peha said. “That means rules for satellite networks could be somewhat different.”

Historically, it hasn’t been easy to forbear from enforcing sections, Entner said. “They’re trying to get around the process. Usually there’s a notice of proposed rulemaking and a hearing about what is being forborne from. This is the first time that I’m aware of where they came out at the starting block and said we’ll do forbearance, without the traditional hearing process,” he said. Forbearing on rules could depend on the level of competition, Peha said: The FCC "could conceivably make different forbearance choices for different kinds of networks, although so far the Chairman has indicated that he does not want to treat wired and wireless networks differently,” Peha said in an email.