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Cable Groups Consider Effects Of FCC Net Neutrality Proposal

Wednesday, April 30, 2014

By Bryce Baschuk  

April 29 — Cable executives said they are closely watching to see what impact the Federal Communications Commission's proposal to reinstate net neutrality rules will have on the video and broadband marketplaces.

“The entire net neutrality debate is all about video,” said Liberty Global PLC Chief Executive Officer Michael Fries during an April 29 panel discussion at the National Cable and Telecommunications Association's annual conference in Los Angeles. “It is half the consumption on the network today. Whether it is a fast lane or volume-based billing, it's all about video so it has changed very much our relationship with regulators.”

FCC Chairman Tom Wheeler circulated a draft proposal April 24 to reinstate the agency's net neutrality rules that would permit paid prioritization deals that could benefit Internet service providers like Verizon Communications Inc., AT&T Inc. and Time Warner Cable Inc. if they pursue alternate revenue streams from edge content providers like Netflix Inc., Google Inc. and Amazon.com Inc.

The proposal would adopt a new legal precedent that would consider, on a case-by-case basis, any disputes that the FCC considers harmful to competition and consumers. The commission plans to vote on Wheeler's proposal at the agency's May 15 open meeting.

Powell Scoffs at Title II

NCTA Chief Executive Officer Michael Powell urged regulators to embrace light-touch net neutrality principles during a separate speech at the event. Powell said the growth of broadband in the U.S. stems from the government's decision to avoid regulating the Internet as a common carrier under Title II of the Communications Act of 1934.

“Because the Internet is not regulated as a public utility it grows and thrives, watered by private capital and a light regulatory touch,” Powell told attendees. “It does not depend on the political process for its growth, or the extended droughts of public funding. This is why broadband is the fastest deploying technology in world history, reaching nearly every citizen in our expansive country.”

When Powell was the FCC chairman in 2002 he classified cable modem services as Title I information services, which are subject to less-stringent regulations. Many urged Powell to reclassify Internet communications as Title II telecommunications services, which gives the FCC the express and expansive authority to regulate so-called common carrier services.

Wheeler has said he does not plan to seek to reclassify broadband Internet service under Title II but will leave the option on the table.

Netflix Impact Reverberates

“Netflix has already impacted us,” Fries said. “It did reveal a failure of ours. We have a massive functionality gap, simple as that. It was easier, cooler and simpler to access content through Netflix. We are bridging that functionality gap.”

Time Warner Cable Inc. Chief Executive Officer Rob Marcus said he's “highly skeptical” that Netflix's ascent is due to the cable industry's failure to innovate. “Aggregating and reselling other people's content over the cable infrastructure is in no way a failure,” he said.

Over-the-top video providers like Netflix, Google and Amazon.com aren't true threats to the cable business, Marcus said. “Over-the-top video is one of the things that highlights the value of high-speed connections,” he said. “Yes, it is true on the video side that there is the potential for competition but there is a whole lot more out there.”

The increase in competition is a call to action for programmers and distributors to work together, Marcus said. One specific thing that cable operators can improve is the functionality of the password authentication systems that permit users to access video content on mobile devices. “We have to work together to make it easy and consistent.”

Billions of dollars of cable infrastructure investment has helped innovative video platforms like Netflix to emerge, said Jerald Kent, the chief executive officer of Suddenlink Communications. “A lot of companies who are in existence now are [there] because we spent a lot of time and capital building the infrastructure,” he said.

Rising Cable Prices

Powell said cable operators have a responsibility to keep cable prices “reasonable and the value of our services high.” A recent Consumer Reports cover story revealed that cable price increases have more than doubled the rate of inflation in the 15 years through 2012.

Marcus said the industry has to “figure out a business model where our ability to pay for [content] is more responsive to what customers are willing to pay.”

John Skipper, the president of ESPN Inc., said consumer interest in sports content is at an all-time high and sought to defend the high price of his network's programming costs. “At ESPN our job is to create value and sell our products in the market,” he said. “The single greatest buttresser of the cable package is ESPN.”

“I'm concerned we will reach a tipping point where we will price some households out of the market.”

Jerald Kent, Suddenlink Communications

“I'm concerned we will reach a tipping point where we will price some households out of the market,” Kent said. He suggested that cable companies should seek to offer less-expensive tiers of content. “If we don't do that cable companies will increase prices and the government will get involved like in Canada where they are seeking [an] a la carte” model.

It is unlikely lawmakers in the U.S. would seek to pass a la carte legislation in this Congress but that hasn't stopped some from trying. Sens. John McCain (R-Ariz.) and Richard Blumenthal (D-Conn.) have co-sponsored legislation, the Television Consumer Freedom Act of 2013 (S. 912), which seeks to force cable and satellite providers to allow customers to pay for channels a la carte rather than in a bundle.

To contact the reporter on this story: Bryce Baschuk in Los Angeles at bbaschuk@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

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