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Powell warns cable TV industry to tread carefully

Jun 11, 2001  •  Post A Comment

When it comes to cable TV, Michael Powell, the Bush administration’s new Federal Communications Commission chairman, is no heavy-handed regulator.
In fact, at first blush he sounds a lot more like an industry guy than a representative of the federal government.
But in an exclusive interview with Electronic Media, Mr. Powell warned that cable could lose its regulatory insulation if industry officials insist on taking too hard a line on such issues as digital must-carry for broadcasters and providing access to their broadband facilities.
An edited transcript of the interview follows:
EM: Some activist groups are complaining about cable rate hikes. They’re calling for government intervention. Do you see any prospect of that happening?
Mr. Powell: While I am certainly sensitive and cognizant that rates have been increasing for consumers, I don’t know that I believe that they’re at an order of magnitude that would justify reregulation.
Cable stock used to be the most laughable stock in the industry. At one point they were the most highly leveraged companies. I think you’ve really got to ask yourself, do you want to risk that again-particularly when at the same time we’ve got the same collection of people who scream, `We’ve got to get broadband to everybody yesterday’?
Well, you know what? These [cable operators] are at the forefront of those services, and they are very capital intensive. I don’t know that hanging over the financial market the specter that these rate increases ought to be regulated is particularly positive if we care so much about greater investment in broadband.
Capital markets will not go where risk is, and [the] government talking about something that is as invasive as rate regulation is the kind of thing that could put a cold chill over an investment decision. Also, it’s not uneconomical to have rate increases over inflation if they’re justified by increases in costs or investment.
We can’t deny that programming cost increases have been significant in certain core products, and we can’t deny that [cable operators have not] been investing heavily in infrastructure upgrades. I also know that cable penetration continues to grow. What is too high [when it comes to rates]? I don’t see consumers walking away from cable in droves.
EM: Some cable operators are blaming rate increases primarily on escalating costs for sports networks. To keep rates down, they want the government to require that sports networks be pulled off basic tiers and offered on an a la carte basis. Do you see the government taking an interest?
Mr. Powell: I would have lots of doubts about government micromanaging channel lineups and tier placement at that level.
Let me have at least a caveat that I am not a master of the cable business. I don’t know where the costs are. I don’t know what the balances or the tradeoffs are. But I’ll tell you one thing I’ve often heard is that a lot of channels that survive on cable also survive because they are anchored to marquee products that allow the support of other networks that really wouldn’t be ready to stand alone.
If you did an a la carte thing purely, what you would do probably is kill a significant amount of diversity, because there would be a whole lot of channels that were not able to viably stand alone on a per-purchase basis.
EM: The broadcasters say if the FCC wants to expedite the rollout of digital TV, the agency must require cable operators to carry the digital and analog signals of broadcasters during the transition to digital. What are your thoughts on that?
Mr. Powell: I do think the government has nontrivial concerns that there are constitutional implications.
I understand must-carry.
We have made [it] very clear that cable companies have to carry the digital signal [after the transition is complete-but not before], so you’re going to be able to reach that percentage of the population-whether you’ve got some transition challenges from one to the other, no question.
That said, if I were the cable industry, I would be looking for commercially viable, constructive ways to help facilitate the transition. I think ultimately it’s in the interest of cable television to be a partner in the digital transition. I think it’s important for them not to be perceived as the problem.
I mean, I’m not overly anxious to mandate these kinds of relationships. But I’ve seen time and time again that industries can overplay on principle. I just think there’s room for mutual accommodation there, and there’s part of me that really hopes that will be recognized.
EM: What are your thoughts about The Walt Disney Co.’s campaign to win rules requiring cable operators to accommodate the interactive TV offerings of competitors?
Mr. Powell: When you’re talking about something that’s in its experimental, innovation phase, you get lots of straw men about what might be possible. It’s very difficult in a tangible way to get your hands around, because you don’t really know what it is yet.
There’s a long way to go before we really know what [interactive TV] is exactly. Everybody has an idea. I’m all for taking a look, building a record, trying to see what we see and learn what we learn. I don’t know whether it will or won’t justify a government role.
EM: What do you foresee happening with AT&T’s effort to relax the cap on cable ownership, which in its most recent form barred cable operators from acquiring interests in systems reaching more than 30 percent of the nation’s multichannel TV subscribers?
Mr. Powell: The court told us there was a failing in what we had done [in setting the 30 percent benchmark]. It is not completely discretionary, because there’s a statute on which the action was based. The court struck down the rule, but it did not strike down the statute. So we continue to have a legal obligation to develop a principle or rule of some sort that implements Congress directive and can pass the parameters set by the court. I think it’s fair to say it’s a tall order.
It’s way too early for me to say what I think will happen. It’s everything from a new cap to something more case-specific.
EM: What do you see as the cable industry’s biggest challenges?
Mr. Powell: I think cable is an outstanding industry. I think it’s very well positioned for the future. I think it has many and most of the pieces it needs to be a good, strong, healthy, viable competitor as we move into advanced digital markets. I can also see that if they get too much hubris about that, there could be consequences, particularly for an industry that’s had a rocky road with us already.
EM: Are you saying you see some danger signs?
Mr. Powell: For them, there’s a lot of stuff that I would navigate carefully, including open access, including interactive TV, including must-carry. That’s not to say that there’s some immediate government problem presented. But those are all places which, if played wrong, could raise anti-competitive concerns.
EM: What do you see happening with the FCC’s inquiry on broadband access?
Mr. Powell: The only thing that’s certain is there is a proceeding and that the record is going to be
examined.
We will have at least three new [commissioners at the FCC], and we may have more by the time that really matures. When we get near the end of that road, if most companies have found pretty viable commercial terms and conditions for access in the market, then clearly we wouldn’t need to be bothered with it. On the other hand, if in the interim we have seen deeply concerning, dangerous anti-competitive activity … it would certainly raise the concerns.