Transcript: Community Broadband Bits Episode 202

This is Episode 202 of the Community Broadband Bits Podcast. Matt Polka of the American Cable Association explains what the marketplace is like for small- and medium-sized providers. Listen to this episode here.

 

Matt Polka: Really, the reason we fight is to continue to give our members, as smaller providers, an opportunity to compete in the marketplace and to at least be one competitive voice in that market.

Lisa Gonzalez: Welcome to Episode 202 of the Community Broadband Bits Podcast, from the Institute for Local Self-Reliance. I'm Lisa Gonzalez. It's common knowledge that big corporate Internet service providers, such as Comcast, CenturyLink, and AT&T have armies or lobbyists meeting the state and federal officials everyday. What do smaller, local providers do when they anticipate an impact on their business due to proposed legislation, new rules, or changes in regulations. They joined forces to make their opinions heard. Today, Chris shares his conversation with Matt Polka, President and CEO of the American Cable Association. The ACA represents cable, phone, and fiber to the home operators and municipalities who describe themselves as small- and medium- sized independent operators. These entities are vital in bringing service to smaller markets and rural areas. Check out their website at AmericanCable.org. Here are Chris and Matt, discussing the organization, some of the member's policy goals, and a few of the pros and cons of working as a smaller provider in today's market.

Chris Mitchell: Welcome to another edition of the Community Broadband Bits Podcast. I'm Chris Mitchell. Today I'm speaking with Matt Polka, the President and CEO of the American Cable Association. Welcome to the show.

Matt Polka: Thanks Chris. Great to be here with you today.

Chris Mitchell: Well, I was excited to run into you, in Iowa, for the Iowa Association of Municipal Utility Conference. I always meet great people down there. I've long known about the ACA, but I wasn't sure if all of the people who listen to this show have heard of it. Why don't you tell us what the ACA is?

Matt Polka: Sure, and thanks again for having me today. Not a surprise that you and I met at the IAMU event not too long ago, because within the American Cable Association, we do have quite a few municipal members. The American Cable Association has approximately eight hundred smaller companies, smaller independent broadband phone and video providers. We're in all fifty states. Our eight hundred and fifty members represent about 7.5 million video subscribers. Within our membership we have, of those eight hundred companies or so, forty percent of our companies are traditional telephone based companies, and we have more than a hundred municipally based entities, as well, that provide voice, video, and broadband in their marketplaces. Within our ACA membership, of eight hundred companies, eighty percent of our companies have five thousand subscribers or fewer and half of our members have a thousand customers or fewer. We're talking about very, very small entities, that are providing voice, video, and broadband, primarily in small markets, rural areas, and in a number of competitive situations where our members take on the big guys, Comcast, DirecTV, Verizon, AT&T, U-verse, et cetera.

Chris Mitchell: One of the things that I found interesting about ACA is that, your headquartered in Pittsburgh. I'm originally a Pennsylvania boy myself, although on the other side of the state. I love a trade association that is not located within Washington DC. I have a strong bias, I don't hide it too much. You all must do things other than just lobbying the federal government.

Matt Polka: We were founded as a volunteer organization back in 1993, a year after Congress had re-regulated the entire cable industry, and the FCC had imposed significant regulations upon all cable providers. I was General Counsel of a small cable company at the time, a company called Star Cable Associates. My company, along with about a hundred and fifty other smaller companies, got together and said, "Look, the big companies that were representing our interests as an association in Washington, they weren't really focused on the unique concerns of independent providers in small markets and rural areas." Right then and there we created an association, at that time, called the Small Cable Business Association. We worked as a volunteer organization for four years. Then, after four years, our Board, and I was a member of the Board at the time, we said, "Look, Washington is a full-time job. We have to be thinking about our work on a full-time basis, so let's go hire someone to run the association." After looking around for a while, the Board came back to me and said, "Well, you're a cable guy, you're a lawyer, you've been working in Washington here for us for four years, would you do it?" I said, "I'd be happy to do it," but I had small kids at the time and didn't want to move from Pittsburgh, plus we didn't have any money, so we stayed in Pittsburgh. We've been there ever since, although we have quite a few folks that help us in Washington. I think it does represent who we are as an association that our members, while we work in Washington on policy matters before Congress, the FCC, and other agencies, we're not based there, and our members are out in their marketplaces, day in and day out, providing service. It's nice to be outside of the beltway and for all that it suggests.

Chris Mitchell: Your membership includes a number of small companies. Obviously a lot of small companies. Some of them I know, some of them are supportive of municipalities choosing to get into this and others aren't. How does the Trade Association deal with that tension between the private and the public models?

Matt Polka: One way we deal with the issues among our members is communicate. We spend a lot of time with our municipal groups, our municipal members, our telecom members, our cable members, and within our Board, within various events that we do, where we're sharing about what our member's interests are and what they want to accomplish from a policy perspective. From a thirty-five thousand foot level, when we look at our policy virtually all that we do from a standpoint of insuring our member's competitiveness, particularly around video issues, which they all share in dealing with purchasing video content from the four or five largest owners of content that are out there, our members are in alignment. All of our members today are trying to provide greater choice to consumers whether through skinny bundles, lower priced tiers, even a la carte, as well as, maximizing their broadband plan to give consumers more choice over it, whether through Netflix, Hulu, Amazon, et cetera. From a standpoint of many of the competitive issues that exist private, versus, public between what you might consider to be our more typical cable members, versus, our more public oriented municipal members, it hasn't been a major issue within our group. One of the things that we have tried not to do, is to interfere or get involved with issues of municipalities and their organizations as they have sought greater funding, although I will say that the one issue that we've been pretty consistent about advocating on that score, over time, has been the fact that we believe, in general, that tax payer funding, in general, should be used to help support the broadband where it primarily does not exist today rather than in areas where it's already been built by private capital. At times, there is some tension but not as much as you would think, because again, of the way we've tried to communicate with members, share, in general, our views, and work together on this and many other issues.

Chris Mitchell: Well, let's talk about some of those shared interests because that's one of the things that the Institute for Self-Reliance really focuses on, that scale. I definitely agree that I think small, privately owned cable companies have so much in common with municipal companies when we talk about the difference between those small actors and the biggest, the huge corporations. Let me ask you a leading question, which is why should we care about small providers? Isn't bigger better, shouldn't we be excited about bigger companies that are forming from these consolidation in the industry?

Matt Polka: Well, that's the theory and that's, often times, what people in Washington think, simply because the interest of larger companies, whether it's multi-video programming distributors, like Comcast, FiOS, Dish, and DirecTV, or big content providers, whether it's Comcast, NBC, Universal, Fox, News Corp, et cetera, Disney, ABC, ESPN, but the truth of the matter is that without smaller providers, and the members that we represent, and others that exist in the marketplace, there really wouldn't be those competitors in smaller markets rural areas and those that choose to compete against the large companies. The fact of the matter is, that the largest companies in the multi-video programming space, Comcast, Charter-Time Warner, Cox, et cetera, they have built businesses that are largely moving away from, if not already moved away, from small markets, rural areas, because there's just simply not enough density. In fact, many of our member companies today that exist, exist because they have purchased systems at the end of the line from some of the larger providers in areas, in small towns where these larger companies did not want to serve. For our members, that's their Times Square, that's their Midtown Manhattan. Those are the big markets that they choose to serve and also to live in, which is pretty common where you find our members living and working in their communities. It's vitally important for these small companies to exist with the municipal telco cable, because if they're not there, then chances are these smaller communities, which have every right to have broadband just like Midtown Manhattan, may not get broadband like they desire. That's why we fight for these smaller interests.

Chris Mitchell: What is the impact on the smaller interests when there's these mergers? We certainly joined you on opposing the Comcast, Time Warner Cable merger, we won on that and now we're seeing that Time Warner Cable is just merging with Charter. What is the impact of consolidation on smaller cable companies that you represent?

Matt Polka: It has a significant impact on potential competition and ensuring that there is competition to the large mega-merged interests. A lot of our fight over the years, whether it's been Charter-Time Warner, AT&T, DirecTV, Comcast, Time Warner Cable, and other mergers down the line, Fox, News Corp, Liberty, it's been focused on control of content. When there are mergers of this type, where you have the combination of essentially distribution providers, companies that own cable operations, coupled with other related interests that own programming that the cable operator provides to its customers, there's an incentive to be anti-competitive. Basically, it works like this, if one of our members is in a market with one of these mega-merged entities and we have to buy programming from them, whether cable programming, sports programming, or even in some cases, broadcast programming with retransmission consent, there is an incentive for the merged entity to either want to jack up the price, raise the price to its competitor, so that its competitor has to pay a higher price for the same content or to insert onerous terms and provisions in a programming contract that make it less attractive to do a deal. Consequently, over the years, with some success, although unfortunately the FCC more recently has been less likely to impose such conditions, we have sought conditions through the FCC to basically require that programming content has to be made available to competitors to the merged entities on fair and reasonable terms. If it's not provided on fair and reasonable terms, to have a right to arbitrate. That certainly was the case in the merger of Comcast and NBC Universal, that was back about six or seven years ago, 2010, 2011. More recently, however, we've been pretty disappointed to see that the FCC did not impose such conditions on AT&T's acquisition of DirecTV, where there is control of important regional sports programming. While the order is still pending, we don't see this happening to any significant degree, at least as it relates to current multi-video programming distributors, to see any kind of programming conditions in the Charter-Time Warner condition. Although, there do seem to be some conditions as it relates to making programming available to online video distributors. That's fine, but by the same token, there will be a number of companies, small companies, that are wire lined companies today that will compete against Charter-Time Warner, who may not have the benefit of the same conditions and we think that's a problem.

Chris Mitchell: Let me ask you what that actually means in terms of the bottom line of these cable companies. I think a lot of people assume that the cable industry, we talk often about the massive profits of Comcast and these other guys, even if the costs are a little bit higher for the smaller guys are you still making out like bandits?

Matt Polka: Quite the contrary, which usually is the case. The reason for that, on the wholesale side of the business, our members are the smallest providers that are negotiating basically with a Comcast, NBC, Universal, or what will be a Charter-Time Warner, or a Disney-ABC, and there's just simply very little scale to try to negotiate any lower volume based price. Consequently, because of that fact, as well as, the practices of these larger content providers, their practices as consumers well know, is to bundle their programming. To obtain one important, popular channel you need to also take and pay for eight, nine, ten or more channels from the same programming owner, whether people watch those channels or not. Most times, consumers aren't watching those programming.

Chris Mitchell: You wouldn't expect a content owner to force content on you that you would actually want, right? That's the whole point of them forcing it on you.

Matt Polka: Yeah. It's basically like a monthly annuity that they receive from consumers through their video providers, cable companies, satellite providers, et cetera, that just goes back upstream to the big content owner who gets paid for their programming, whether a consumer watches it or not. Part of the reason why the large content companies like this bundle practice, which we do not like and are trying to break up, is because they have made other deals upstream to sports leagues, to studios in Hollywood, for other original programming they've agreed to pay. They have to pay people upstream and they just come to us, and they come to our consumers to basically say, "If you want the popular channel, you have to take all of this other stuff whether you like it or not," and that helps them to pay for other programming. The fact of the matter is we're at a point today where the bundle is just not affordable. That's why many of our members, today, are trying to provide more choices through slimmer bundles, to give their consumers more choices through broadband, to try to sell consumers more of a lifeline, basic level of service along with broadband. Ironically enough, while you think that might be something that consumers would like, which they do, we can't really give as much of that programming to our consumers as we like because of the way the large content companies restrict carriage. We can only provide services like that to only a certain percentage, a small percentage of our marketplace or else, if we go over a certain percentage then we're often times forced to pay a penalty and it's expensive. We would like to give consumers more choice, but these big content companies that control the content don't like to give it.

Chris Mitchell: That's actually, I think, a really good point that I'd like to ask you one follow up question on. I wanted to say, I think, Senator McCain has been one of the leaders in terms of trying to make the industry work better for folks like you, is that right?

Matt Polka: Absolutely. Both Senator McCain and also, Senator Blumenthal, of Connecticut, have been champions here. Senator McCain, introduced a bill that would require more a la carte carriage of programming services, and Senator Blumenthal was a co-sponsor of this. We've supported those efforts. We want to see consumers have the ability to obtain programming, whether through slimmer bundles or even on an a la carte basis, for expensive channels. To date, he hasn't been able to garner a whole lot of support of his colleagues. The companies that own content have really pushed back hard. They don't want choice.

Chris Mitchell: That's one of the things that I found amazing, is just despite the ... This is one of those issues that I think ninety percent of the country broadly agrees on in terms of nobody wants to see the cable companies and the big content owners have more power. In fact, I would say ... I'm curious to what extent you would agree, I think it's a little bit schizophrenic for the federal government to pretend that its national policy is one of encouraging competition when, in fact, it allows a market structure in which Comcast and the biggest cable companies can ensure that they're paying just what, seventy-five percent or less in some cases, of what their competitors are paying because they get such an incredible discount on the content. We've dealt with this in the past through robust federal legislation that restricted market power, but we don't see any real effort like that in the country. It's a hobby horse that beat every now and then, I'm sorry to lay all that on you.

Matt Polka: No, no, no. It's something that we've been fighting, as smaller independent providers, for the entirety of our existence. It comes down to small, versus, large, consumer, versus, consolidated media conglomerate, and it has been a difficult issue to address. I think the answer to your question on why it has been difficult is, while on one hand there certainly is, and we agree with this, the desire, as we fight in our industry, to try to give our customers more choices, what has, I think, been a bit of a barrier for the federal government to act more directly on these issues is just the notion of ownership of your intellectual property and that to some degree, the Congress and the FCC, it's not really their role to intervene in a contract relationship between someone that owns their own intellectual property and how they want to sell it. That's where some of the arguments certainly have been by the larger companies who say, "Hey, this is my programming content, it's not up to the federal government to tell me how I'm allowed to sell it." Historically, I think there is some legitimacy to that, but on the other hand as we've argued, at what price to consumers? Even Brian Roberts, not long ago, several months ago, I remember seeing a headline where, with his Comcast hat on said, "We can't reasonably continue to charge consumers what we're charging them for the bundle." It is just at a point now where it really is an economic issue if you live in a small community where you're spending a couple hundred dollars a month on your cable bill or your satellite bill. That's why consumers are demanding more choice. On the video side, we certainly are working feverishly to renegotiate our programming agreements as they come up to try to give our members more choice to create slimmer bundles and bundles that are appropriate for the community. At the same time, I think what's really making the most change, is our member's ability to provide our customers with the best, fastest, highest capacity broadband service that we can, because consumers themselves are finding ways to develop greater habits through video choice and that's what we want to give them, while the market and certainly the larger programmers are not fighting over themselves to try to give consumers more choice. They don't want choice, the availability of broadband to consumers, it is empowering consumers to find that choice and that's what our members are trying to give to our customers.

Chris Mitchell: Just to put a bow around this, this is an issue that the federal government has had to deal with for a long time. I agree with you, I don't think we want to just see the federal government, just arbitrarily remaking markets and that sort of thing, but there is a long history, I think, in particular, dealing with book stores and other kinds of retail, in terms of how wholesalers are regulated and things like that, to try and prevent the kind of deformed market structure that we have today. As we're running out of time, I want to make sure we touch on something that I think is very important to me, and I know that it's important to you, that's how federal regulations, whether it's from the FCC or elsewhere, how they fall differently on small providers than on the larger providers.

Matt Polka: It goes to why we exist as an association to represent these smaller entities in these areas. We basically have fewer customers per mile, compared to the larger providers in major cities. Regulations typically have the same cost per mile regardless of whether you're Time Warner Cable in New York City, or one of our members in a small rural community. If you have fewer customers per mile, you have a higher cost of regulation per customer and a longer return on investment. Basically, the impact of regulation, at times, can be disproportionate on smaller companies. One of the things that we try to do is balance that regulatory impact out for our members through our advocacy efforts, which often times, would mean a longer transition towards compliance, in some cases based on financial hardship, maybe a waiver or an exemption, but to try to encourage the federal government to understand that one size regulation does not always work. Particularly on smaller companies who are trying to provide the the best in broadband, phone, and video service in smaller markets, but have unique circumstances compared to Comcast, AT&T, Dish, and DirecTV. Really, the reason we fight is to continue to give our members and smaller providers an opportunity to compete in the marketplace and to at least be one competitive voice in that market. Hopefully, they can continue and be viable entities that can at least provide a robust wire-lined service for phone, video, and broadband.

Chris Mitchell: I was just speaking with a small public utility district out in Washington State. They were talking about, in particular, the questions that they had to answer on the special access proceeding. Which is a proceeding that, frankly, I'm supportive of and I think there's significant problems in that market, but I understand through talking with them that just the FCC's, the questions that they asked every operator to answer didn't make sense for a lot of small providers. Does that scenario, does that come from just people at the FCC having a mindset of who they're dealing with? What causes those sorts of things to happen?

Matt Polka: Well, I think it's a lack of focus on the impact of regulation on smaller markets and smaller providers. The FCC's efforts, whether you look at Title II or you look at the set top box rule making your special access, in my view, are targeted more to address what they consider to be anti-competitive concerns of larger MBPD's, Comcast and other ...

Chris Mitchell: In the case of special access, even ... I wouldn't say primarily telephone companies, two of them, three of them maybe, but certainly not a hundred of them.

Matt Polka: Exactly. Exactly. Where I think the FCC can do better for consumers in these smaller markets is to recognize, through its rule making processes, that more time needs to be taken to determine the impact of its regulations on smaller providers that frankly didn't cause the problems that they're trying to address. Typically, the FCC will, at least in a cursory way, look at the impact of its regulations on smaller providers, smaller communities, but at the end of the day, it pretty much ends up to be a one size fits all. Frankly, it just comes back to our point of view, which is, "Look, we understand that we live and work in a regulated environment, and we're okay with that, but we would like our regulators to just be mindful of the fact that we're not all AT&T, or we're not all Comcast, or we're not all DirecTV, and we need to be treated differently in some of these smaller markets, because it makes a difference. If regulations, at the end of the day, force a small entity to cease doing business because it can't afford the regulatory impact, and that competitor is lost in a smaller market, then that's not good public policy. We're trying to balance the need to act in what is a regulated environment with the impact on competition on smaller markets.

Chris Mitchell: Right, well thank you so much for coming on the show to tell us more about the American Cable Association, Matt. Especially, for helping us to better understand, I think, the differences between small businesses and massive global entities.

Matt Polka: Happy to do it and great to talk with you today, and I look forward to talking with and working with you soon.

Chris Mitchell: Sounds good.

Lisa Gonzalez: That was Chris and Matt Polka, President and CEO of the American Cable Association. Remember you can access the transcript for this and other Community Broadband Bits Podcasts at muninetworks.org/broadbandbits. Send us your ideas for the show. E-mail us at podcast@muninetworks.org. Follow Chris on Twitter, his handle is @communitynets. You can also follow muninetworks.org stories on Twitter, where the handle is @muninetworks. Thank you to the group, Forget the Whale, for their song, I Know Where You've Been, licensed through Creative Commons. Thanks for listening to Episode 202 of the Community Broadband Bits Podcast.

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