The FCC-NCTA Throwdown

I wonder what ring name would best suit the FCC's Kevin Martin for a WWE-style Monday Night Smackdown against National Cable & Telecommunications Association CEO Kyle McSlarrow? "The Rowdy Regulator"? "The Bureaucratic Beast"? We may soon find out.

So, the latest volley being fired between the FCC and the NCTA war of words relates to charges that FCC chief Martin used "incomplete data" to present a "deceptive and false" case regarding the rise in average cable prices. The NCTA head sent a letter to Rep. Ed Markey, who chairs the House Subcommittee on Telecommunications & the Internet. It was during testimony in front of this subcommittee on February 13 where Martin – in arguing for tighter cable regulation – said that the cable industry’s prices had grown 100% in the last ten years.

It’s no secret that Martin advocates re-regulation of the cable industry in the name of lowering subscriber prices. For example, we blogged last November about the FCC’s consideration of enacting the so-called “70/70 Provision,” where regulators could step in and force cable operators to reduce the rates that they charge some programmers for access to their networks. And, Martin has been very vocal in advocating a la carte channel offerings, arguing that this will lead to lower costs for subscribers.

Now, acting in an advocacy role for consumers is laudable, and we all know the anecdotal complaints that we hear from consumers about increasing television subscription rates. However, McSlarrow’s letter to Congress points out what the NCTA sees as significant problems with Martin’s testimony:

• Martin ignores the fact that one-third of pay TV subscribers receive their services from companies other than the cable operators, including satellite and the resurgent telcos’ television services (Verizon FiOS and AT&T U-verse).
• In only stating the cable industry figures, Martin failed to note that Verizon’s rates (according to the NCTA) have actually risen faster than cable rates.
• Martin makes an “apples-to-oranges” comparison when talking about cable rates over a ten-year period. For example, in 1995, there was no digital cable service available; it was all analog/basic. As subscribers have moved from analog to digital tiers, their monthly cable rates have certainly increased, but so too have the number of channels they’re receiving, the ability to have a digital video recorder, and the ability to order movies via video-on-demand. Parks Associates’ own data indicates that 18% broadband households use premium VoD at least monthly. So, yes, the average revenues being reported by the major public cable companies certainly reflect a big jump in prices, but there are significant reasons for this that certainly aren’t related to price gouging.

Our analysis of cable ARPU back the NCTA's argument that merely stating the average prices paid by cable customers over a ten-year period fails to take into account all of the potential reasons why rates are rising. As you look at the four major public cable operators, you’ll notice that revenues per basic video subscriber (customers with at least basic service) have grown considerably since 2002. However, in all but one case, the pace of upgrades to digital cable services has also increased. So, too have the number of subscribers choosing bundled services packages, where the monthly cost is going to be higher, but customers are tying two or more services together in one bill. Now, it should be noted that the Cablevision and Charter numbers presented here are from Q3 2007, and the Revenue Per Basic Subscriber figure for Time Warner Cable is our own estimate based on their most-recent financial release.

One more point made by the NCTA was that the FCC is no longer reporting a widely-used metric call “price-per-channel.” The NCTA argues that this figure was in fact declining, but Martin no longer presents this figure to Congress, and in fact “ordered the Media Bureau to suppress this information from the public and from Congress.”

Let’s get ready to rumble.