April 2005

[[cross-posted from PFF Blog]]

Verizon announced yesterday that it has struck a major deal with NBC Universal to carry all of NBC’s 12 cable networks on Verizon’s new fiber lines. This comes on the heels of Verizon penning deals with cable giants Discovery Communications and Liberty Media’s Starz Entertainment Group to carry the networks produced by those programmers. Now that they’ve got their foot in the door in a major way, expect Verizon to sign waves of programmers up for carriage on their new fiber networks.

Let’s step back for a moment and think about this. Verizon–one of the nation’s largest and most respected telecom operators–is about to become a full-fledged multichannel video operator. Since the mid-90s, telecom operators have been trying to figure out the best way to bust into the video market, but the numbers (or the technology) just didn’t work out right. Now the stars are aligned properly and telcos like Verizon are itching to jump into this market to justify the billions they are investing in those speed-of-light fiber systems. More importantly, the telcos know they have to do this NOW to stop the further hemorrhaging of customers to cable operators, which can now offer a communications “triple play”: voice, video, and data–all over a single line with a single bill.

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Kyle McSlarrow is, by all accounts, a good guy. I even voted for him when he ran unsuccessfully for Congress in my district a few years ago. It was a tough district, against a tough incumbent. That political challenge, however, was nothing compared to the challenges he now faces as cable’s man in Washington. The industry is threatened with regulation on numerous fronts–local governments are fighting for the right to regulate its Internet and telephone services, the new FCC chairman is talking of regulating cable tiering, and Congress is pushing to extend indecency censorship to cable.

Faced with these threats, McSlarrow–in his opening speech at NCTA’s recent annual convention–argued favor of regulation. Moments after making the case for minimal regulation of cable as it moves into the telephony business, saying that “we must avoid reflexively applying the traditional rules of the road” to this new service, he turned around and called for reflexively applying the traditional rules of the road to telephone companies who want to provide video. Specifically, he said, should be “required to make service available to all residents.” NCTA’s VP was even more direct, saying providers “must abide by certain social obligations, including building out entire communities, and not red-lining or cream-skimming.” (Reported in Tech Daily, April 13).

Such requirements, of course, have long discouraged new entrants into cable, and could end prospects for telco’s to provide video. Since telco franchise areas don’t track cable franchise areas, imposing these requirements could add billions to the cost of telco video, making it cost-prohibitive.

NCTA of course, knows that. But the strategy will likely boomerang. By arguing for regulation in this case, it will only encourage politicians to wield a stronger regulatory hand in other areas too–to cable’s detriment. Moreover, if potential competition to cable is thwarted, cable loses its best substantive argument against regulation of its business.

Of course, NCTA’s inconsistency is nothing new in Washington. As anyone who’s followed telecom lobbying for more than a week or so knows, industry lobbyists routinely argue for policies that help them gain a “fair advantage” over their rivals. It’s probably too much to expect industries to support free-markets policies (however rational) when it conflicts with their self-interest. But it is puzzling to see them supporting policies that will end up hurting them.

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