Cable's Broadband Tipping Point Means Responsibility, Wheeler Tells INTX 2015

CHICAGO -- Cable companies are now principally broadband companies, and the importance of their product means they have bigger obligations and responsibilities, FCC Chairman Tom Wheeler said at INTX 2015 Wednesday. The industry deserves “straight talk” about the net neutrality order, Wheeler said. "I take you at your word to protect an open Internet, but what about those that follow you?” he said in defense of his Internet conduct rules, a focus of his talk. Wheeler's speech also included a brief mention of the Comcast/Time Warner Cable transaction review and indications that the FCC might act to keep cable companies from suffering higher pole attachment rates.

Audience members were mostly quiet during Wheeler's speech, but applauded loudly during a subsequent panel of cable CEOs when Liberty Global CEO Michael Fries reacted to Wheeler's words. “It's terrible regulation,” Fries said of Communications Act Title II regulation. “There's a presumption of guilt and a punishment of success that I have never seen.” Charter Communications CEO Tom Rutledge nodded at Fries' words, but demurred when asked to comment, saying U.S.-based cable operators suffer from “Stockholm syndrome.” “We have to be careful of our captors,” Rutledge said. Wheeler's speech and admonishing tone were similar to his 2014 Cable Show talk and largely expected by his audience, cable industry executives and attorneys told us Wednesday. Several of those interviewed said they agreed wholeheartedly with Fries.

Wheeler pointed to a “tipping point” of cable broadband subscribers exceeding video subscribers, and suggested the transition was related to FCC rejection of Comcast/TWC. Though he said the industry should follow Comcast CEO Brian Roberts' frequently repeated directive to “move on” from the failed deal, Wheeler said cable carriers should understand that the industry's tipping point occurred while regulators were considering the deal. ”We recognized that broadband had to be at the center of our analysis, and that video was, in essence, an application that flows over networks,” Wheeler said.

Though Wheeler's point about the industry's transition appeared to echo NCTA President Michael Powell's denigration of the word “cable” Tuesday (see 1505040059), Rutledge and other cable CEOs seemed to think Wheeler's point was overstated. “People want to call us a broadband company, and we are, but our cost of programming exceeds our broadband,” Rutledge said. Wheeler's belief that there isn't enough broadband competition makes it seem as though he lives in a different world, said TWC CEO Rob Marcus. Broadband is “incredibly competitive,” Marcus said. The higher costs to cable companies created by Title II regulation will inevitably be passed on to customers, Cox President Patrick Esser said. He was echoed by a cable company official who told us after Wheeler's speech that higher rates are nearly the only way cable companies can defray the costs of Title II.

Despite Wheeler's words and the recent dissolution of Comcast/TWC, the cable CEOs expressed some cautious interest in future merger and acquisition opportunities. Cablevision CEO James Dolan told Marcus on stage that he would like to make a deal with TWC, and Rutledge said lots of opportunity for efficiency and scale have yet to be realized. The other CEOs on the panel were more coy. “I feel like I'm updating my relationship status in front of millions of people,” Esser said.

Wheeler did offer cable what several audience members later described as a “bone” -- he said a public notice issued Wednesday by the Wireline Bureau seeking comment on leveling cable and telecom rates for pole attachment (see 1505060055) is likely to lead to a “recommendation to the full commission to take any action it can to further align cable and telecommunication rates.” That could provide relief for cable companies in rural areas that could otherwise see their attachment rates rise after Title II classification takes effect, said a cable company executive. The move may not be altruistic, the executive told us. The expected harm from the raised rates provided a strong argument for an injunction against the net neutrality order, the executive said. With that issue removed, court attacks on the order have slightly less ammunition, the executive said.