Cable industry head says FCC is 'broken'

The cable industry is gearing up for battle against the Federal Communications Commission, as the head of its trade group calls the federal regulating agency "broken."

Kyle McSlarrow, president of the National Cable & Telecommunications Association, stopped short of saying that FCC Chairman Kevin Martin is picking on the cable industry, but he made it clear during a conference call with reporters Wednesday that he views the FCC's handling of cable-related issues as biased and hurtful to the industry. He also accused Martin of pushing his agenda on a la carte cable pricing at the expense of consumers.

Specifically, he said that the FCC was broken in two ways. For one, the commission seems to favor one industry over another, he said. For example, he accused the chairman and the commission of dragging its feet on cable mergers while expediting proceedings for telecom mergers.

And secondly, he said the process by which the FCC operates is flawed. He said that rules are often proposed through press leaks rather than through official notices. And he said that reports are promoted or suppressed based on how they fit into the chairman's agenda. He cited a Martin-backed report favoring a la carte that was issued to refute a previous report opposing it.

While McSlarrow wouldn't go so far as to accuse Martin or anyone else at the FCC of legal wrongdoing, he said the way the agency has treated the cable industry is simply "wrong as a matter of policy and it's wrong in how you conduct business."

McSlarrow posited that all this stems from Martin's personal crusade to bring a la carte cable pricing to the market. Since taking over as chairman, Martin has pushed the cable industry to sell individual TV channels instead of entire packages of channels that he claims forces people to pay for channels they don't want to watch. The cable industry says that opening up the pricing model in such a way would increase prices for consumers.

McSlarrow said that if the cable industry had voluntarily adopted this new pricing model from the beginning, it wouldn't be facing the long list of issues it faces now in front of the commission.

"There is no question in my mind and (Martin) has been very clear that his primary agenda is a la carte," McSlarrow said. "He doesn't have the ability to change it directly. But there is no question in my mind that the array of items that have been brought before the commission are designed to pressure the cable industry."

The FCC issued a statement after the conference call defending itself. The commission said that it is simply looking out for the best interest of consumers, who have seen cable prices increase over the past 10 years while pricing for telecom services has declined.

"Our focus is not on the welfare of a particular industry but the welfare of consumers and ensuring they receive the benefits of competition in the form of lower prices, more choice and better services," the statement said. "Consumers have not seen those benefits from cable. The average cost of cable has almost doubled from 1995 to 2005, increasing 93 percent, while the cost of other communication services fell. The cable industry needs more competition and we will continue to act to bring more competition and its benefits to consumers."

In a statement issued after the FCC released its own, McSlarrow said the FCC's analysis is flawed.

"The chairman's office continues to offer a tired and false analysis of price and value for cable video subscribers, based on surveys 10 years ago when consumers only paid for an average of 45 analog channels," he said. "A real analysis of cable prices shows that consumers are watching more and paying less for that viewing time."

All of this back and forth comes as the FCC is set to release its yearly report on the state of competition in the pay television market.

Newspapers, such as The Wall Street Journal, have reported that sources say that the next review will show cable crossing a critical threshold in penetration that will give the FCC sweeping power to regulate the industry to ensure sufficient diversity on the airwaves.

The Wall Street Journal has reported that Martin plans to use this authority to argue for a steep decline in the rates the cable industry is permitted to charge programmers. Martin has said that he would like to see rates lower to allow minority and women groups the opportunity to access airwaves.

The threshold that could be crossed is called the 70/70 rule. And it refers to a section of the 1984 Cable Act that states if 70 percent of U.S. households have access to cable systems with 36 or more active channels, and 70 percent of those households actually subscribe to cable, then a threshold has been reached and the FCC can take action to promote diversity on the airwaves.

The cable industry says that the threshold has not been met. McSlarrow pointed to the FCC's report from last year that concluded the threshold had not yet been met. He also pointed to the growing number of households now getting their TV service from satellite providers.

McSlarrow said on the conference call that if the FCC deems it has passed this threshold that it could open the floodgates for even more trouble for the cable industry.

"What we're worried about is that it would be used as a justification for any new regulation," he said. "And the FCC would have roving authority to do whatever they wanted."

The FCC report is expected within the next month.