That 70s Show: Martin's Plan Has Many Scratching Their Heads

Once again, the FCC chmn has turned to the media to leak a plan to go after cable. Sat’s NY Times interview in which Kevin Martin pontificated on opening cable up to further regulation reminded us of the chmn’s USA Today leak of the FCC’s annual price survey around the same time last year. In that case, Martin was using the price data to support his plan to streamline video franchising rules for telcos. This year, Martin’s using the Communication Act’s 70/70 litmus test to justify leased access at low rates, imposing a 30% cable ownership cap (which Comcast is near), implementing a la carte and possibly forcing ops to carry independent nets, such as NFL Net. Under the rule, cable must be available to 70% of homes (which it is), but cable must also have reached 70% penetration of those homes—a percentage that some argue it’s nowhere near. FCC staff estimated that figure at 56.3% in the Commission’s 2005 Price Survey and 54% in the 2004 annual cable report. "We don’t believe any study could conceivably satisfy the 70/70 rule," Sanford Bernstein’s Craig Moffett said Mon. Nonetheless, the FCC’s video competition report currently on circulation to the commissioners concludes that the 70/70 test has been met (wonder if that was determined before or after cable’s 3Q earnings came in?). The positive news for cable is that several analysts have doubts about Martin’s plan. The bad news is the regulatory question mark created for the industry at a time when share prices are suffering. "Ultimately, we would be surprised if the FCC’s new approach to regulating the cable industry was enforceable," Oppenheimer’s Thomas Eagan concluded. "It is unclear whether Kevin Martin is using the threat of these new rules to negotiate cable industry concessions on programming, such as a la carte or on retail pricing controls. Regardless, the regulatory risk for the cable operators will likely get worse before we know the answer." Deutsche Bank’s Doug Mitchelson sent off a report Mon titled "Ferocious FCC’s Bark Worse Than Its Bite," saying any significant rule changes are unlikely. Mitchelson argued, like NCTA, that the 70/70 rule was primarily intended to limit the programming power of vertically integrated MSOs, given that cable was the only video distributor at the time. "The only rules he could promulgate in theory would be those that address relief related to this issue, such as making sure programmers have access to those vertically integrated cable MSO subs on fair terms, and making sure the programming owned by vertically-integrated cable MSOs was accessible to others on fair terms," Mitchelson wrote. NCTA will no doubt mount an aggressive lobbying campaign against the plan—reminding us again of last year’s video franchise battle that has resulted in a pending court challenge by NCTA. "We find it surprising the FCC would propose to re-regulate cable given increasing competition (DBS, RBOCs and over time, Web Video)," Bear Stearns’ Spencer Wang said Mon. "In fact, cable basic subs have been flat to down since ’00. The FCC’s action also comes in stark contrast to its support of RBOC mergers."