By updating old laws and regulations, Congress can put a stop to media conglomerates that are taking advantage of consumers served by small, independent cable operators while also ensuring that programmers' abusive contracting practices do not become the norm and destroy the promise of an open and affordable Internet, Patrick Knorr, Chief Operating Officer of Sunflower Broadband, said in testimony before a House subcommittee.
"We hope you will take advantage of this unique moment in time to consider how to improve the rules that govern our marketplace that are nearly two decades old and pre-date the emergence of the Internet," Knorr said in written testimony. "Consumers deserve better services than can be provided under today's regulatory regime. We are also concerned about the future of a free and affordable Internet that is being threatened by the emerging business model that compels consolidated and dominant content providers to leverage their video content in anti-consumer ways."
Knorr, immediate past chairman of the American Cable Association, appeared Oct. 22 before the House Subcommittee on Communications, Technology and the Internet, a panel that has jurisdiction over cable operators, broadcasters, satellite TV companies, vertically integrated cable programmers, phone companies, and the Federal Communications Commission.
Based in Lawrence, Kan., Sunflower Broadband provides a full suite of services to about 30,000 customers, including cable television, digital cable, high-speed Internet, local phone service, digital video recorders and other advanced services.
In his remarks, Knorr described a marketplace being distorted by outdated laws and regulations that unfairly supply media conglomerates with powerful leverage to take full advantage of consumers served by Sunflower Broadband and nearly 1,000 other small and mid-sized cable operators represented by ACA.
By way of example, Knorr described how retransmission consent laws, combined with FCC network exclusivity rules, provide local network affiliates with a monopoly that enables them to charge vastly inflated prices to small cable operators. Because small cable operators typically serve just a small fraction of the local viewing audience, they have no choice but to accept the broadcasters' take-it-or-leave-it approach to retransmission consent.
"ACA members should have at least some right to shop for retransmission consent in neighboring markets to see what kind of rate they can get for their customers," Knorr said. "Providing a vital service for the areas they serve, small cable operators should not be discriminated against because of their size."
In addition to calling for greater transparency in all programming contracts -- especially deals involving expensive sports channels -- Knorr warned that the cable industry's business model of requiring consumers to buy programming they do not want is beginning to migrate to the Internet. If the trend continues, Knorr added, Congress should not be surprised to see broadband prices go up on a regular basis, making it harder for those on the lower end of the income scale to afford a broadband subscription.
Specifically, Knorr pointed to ESPN360, which has the technological ability to provide its Web-based sports content directly to subscribers for a fee. Instead, ESPN360, owned by the Walt Disney Co., blocks a consumer's access to its Web-based content until the consumer's broadband access provider has paid ESPN360 a wholesale license fee based on the provider's total number of broadband subscribers.
"We believe that attempts to ‘cable-ize' the Internet by making everyone pay for access to a Web site that only a few will visit is contrary to the public interest," Knorr said.
On behalf of ACA members, Knorr proposed a number of ideas and solutions designed to build a communications marketplace where small cable operators can offer their consumers options and alternatives that are unavailable today. According to Knorr, consumers would be better served under rules that would:
* Prohibit any party, including a broadcast network, from preventing a broadcast station outside of the local market from granting retransmission consent to a smaller cable company outside of a broadcaster's protected zone;
* Broadly apply the News Corp./DirecTV merger conditions related to retransmission consent, which include a streamlined arbitration process, the ability to carry signals pending dispute resolution, and the automatic retransmission consent for smaller cable;
* Address the challenge of providing local digital signals for rural markets by granting cable access to local-into-local DBS television signals on non-discriminatory rates, terms and conditions;
* Ensure that all programming should be provided to all small cable operators with non-exclusive, standardized rates, terms and conditions;
* Authorize a confidential review of retransmission consent and cable programming rates, terms and conditions and release aggregate data and trends yearly, similar to what is done on overall cable rates by the FCC;
* Ensure that all sports programming prices, terms and conditions charged to cable operators are made publicly available to Congress, the FCC and consumers;
* Provide parity with DBS that would permit small cable operators to offer local broadcast programming in its own tier as an optional consumer purchase;
* Ban providers of Internet content, services and applications from blocking consumers' access to their products simply because ISPs have not signed contracts with these companies; and
* Allow ISPs to pursue consumption or metered billing to prevent the network's heaviest users from transferring their costs to light and moderate users, and to ensure that network upgrade costs do not need to be recovered from all subscribers equally.