CABLE WANTS PRIVATE AGREEMENTS ON CARRIAGE, INTEROPERABILITY

NCTA Pres. Robert Sachs outlined cable’s policy agenda for 2003, but plan came with hope that federal regulators wouldn’t be involved or would be involved as little as possible. In reviewing accomplishments of industry in 2002 in Thurs. briefing, Sachs called year something of “paradox” because operators had strong growth in new, advanced services but stock prices declined 50%.

Sachs discussed 5 priorities for coming year: (1) Convince FCC and Congress, if necessary, that govt. should adopt regulatory regime recently agreed to in private negotiations by cable and CE industries on one-way, “plug- and-play” interoperability for devices. (2) Continue private negotiations with CE industry on compatibility for 2-way interactive devices. (3) Work to maintain generally “deregulatory environment” for advanced broadband services such as cable modem service. (4) Convince FCC that it should adopt its tentative conclusion that DTV “dual must-carry” mandate would violate First Amendment rights of cable operators and that multicasting or other incarnations of must-carry wouldn’t pass constitutional tests. (5) Continue private dialog with broadcasters that might resolve dual must-carry questions without FCC intervention.

Sachs said digital subscribers grew 26% in 2002, cable modem customers 57% and telephony subscribers 47%, but capital spending was down $2.4 billion because most cable MSOs had completed or were nearly finished with their upgrades. “I think we will continue to see a trend toward reduced capital spending based on the advisories that the public companies have put out, as rebuilds are completed over the next year or so,” he said. There were 287 nationally distributed networks available in 2001, and in 2002 that increased to 308, he said.

In answer to criticism by consumer groups and Sen. McCain (R-Ariz.) over rising cable rates, Sachs said programming costs rose 15% in 2002 to $10.9 billion. Cable operators are mindful that price increases may cause some subscribers to choose other options such as DBS, he said. Rate increases, he said, were caused not only by programming costs, but also by costs associated with being labor- intensive businesses, such as manning 24-hour customer call centers and having installation crews, which also have fuel costs. While idea of a la carte pricing is “superficially appealing,” reality is that most of networks today are niche operations that wouldn’t survive without packaged pricing, he said: “You wouldn’t have C-SPAN or The Weather Channel or BET.”

As for industry consolidation, Sachs predicted that, once AOL Time Warner spins off Time Warner Cable, expected in 2nd quarter, there would be “a settling down of the industry.” NCTA will continue to press FCC to review attribution issues in process of resolving horizontal ownership questions, he said. Assn. believes it’s unfair for company with only 5% interest in another to have all subscribers associated with it when measuring ownership. NCTA also made case in 2002 that FCC should shift regulatory paradigm on effective competition because of inroads by DBS. Under NCTA model, cable operators presumptively would have rate relief unless local regulators proved there wasn’t effective competition in designated market area (DMA). FCC has rulemaking pending on rate regulation issues.

Sachs predicted Commission this year would: (1) Make decision on plug-and-play proposal in first half of year. (2) Detail in 2nd quarter implications of regulatory classification of cable modem as interstate information service. On industry side, he predicted: (1) More cable operators would offer high-definition programming as it becomes available. (2) There would be continued deployment and rollout of cable modem, telephony, video-on-demand (VoD) and subscription VoD. (3) Cable would establish larger presence in retail stores.