Rules Aimed at Thwarting Potential Monopolistic Behavior Rattle Industry
In this season of political uncertainty, it’s hard to project what the long-term implications of the current FCC’s actions will be, but things are not looking good for the cable industry.
FCC chairman Tom Wheeler in an appearance at the industry’s INTX show in Boston was dismissive of the apoplexy that’s coursing through cable circles these days, suggesting National Cable & Telecommunications Association president and CEO Michael Powell’s characterization of industry angst at the same event was just what lobbyists do.
When asked about Powell’s comment that cable is “the target of a relentless regulatory assault,” Wheeler, citing his own experience as a lobbyist, said, “I think that the way in which lobbying campaigns tend to work these days is, first, you set up a scenario of ‘There’s too much being done. We’re being persecuted.’ Then you talk about what I call ‘imaginary horribles,’ conceptual things that could happen if they do this or that.’”
As evidenced by comments from Wall St. analysts who addressed the topic at INTX, dismissing what Powell had to say as lobbying gamesmanship misses the impact Wheeler’s FCC is having on how investors view MSOs’ prospects and, hence, on the anxiety level within the industry. MoffettNathanson senior analyst Craig Moffett voiced his usual confidence that operators can come out ahead in the Internet-driven pay TV market upheaval, but he added what he called “a very big caveat:” “[A]s chairman Powell said this morning, there are some very real regulatory questions that have suddenly become much more pressing.”
Another Wall St. advocate for cable, Marci Ryvicker, managing director at Wells Fargo Securities, was more blunt. “This is a government and an FCC that wants desperately to regulate everything,” Ryvicker said. “They’re not just anti cable, they’re anti broadcast. They’re anti telco. They’re just anti.”
Both Moffett and Ryvicker got it right in explaining the motivation behind the FCC’s latest actions, which include the Net Neutrality rulemaking and proposed rules mandating MVPDs’ relinquishment of control over the set-top box and new controls over the commercial services business. When asked by Winfrey what cable might have done to foster this turn in regulatory fortunes, Ryvicker responded, “I don’t think it’s what you did. I think it’s the fear of what you will do as a monopoly.”
She continued: “This ecosystem has thrived with new competitors, with disruption, with consumer choice. And I feel like the FCC wants to make everything happen faster without realizing there is a lot of investment that has to be made for all this content to come out and all the content to be distributed. And if the cable companies and programmers can’t invest, we don’t get any of it.”
Said Moffett: “My suspicion is what the FCC is looking at is, longer term, it’s pretty easy to see that cable is the winner.” Noting that even wireless is only as strong as the broadband facilities that feed cell sites and Wi-Fi hotspots, he added, the FCC is “doing the hard work of putting the stakes in the ground for the ultimate regulation of what will end up being a single network.”
Wheeler himself made the point at a recent appearance in Washington. Speaking at the annual INCOMPAS (formerly Comptel) confab in April, he said, “[T]his golden era of video competition faces threats. Notably, it can be artificially blunted by incumbent pay TV providers, who can play both ends against the consumer in the middle – by supplying broadband connectivity to online video providers while at the same time competing with these emerging video providers for viewers.”
As a result, he added, “The right [regulatory] question is posed from the perspective of the consumer: Is his or her choice being unfairly constrained? If it is, then that consumer would see higher prices, lower quality and less innovation. If it is not, then incumbents and challengers alike will have to compete on the consumer-benefitting merits – with new features, new packages and with access to new programming.”
The existential question facing the cable industry is whether FCC efforts to build a protective shield against a potential cable monopoly will, as Ryvicker suggested, stifle the investments in networks and technology that are essential to sustaining the “golden era of video competition” that Wheeler says has emerged from the old days of the take-it-or-leave-it cable bundle. At minimum he should acknowledge that Powell has a good-faith reason to raise that question.