Broadband Cable Association of Pennsylvania


January 6, 2014

Few products or services are free in America.

But since the dawn of TV time, the broadcast networks NBC, CBS, and ABC have been free to viewers who grabbed their signals out of the air with rabbit ears. Later, those networks were distributed freely - at least, without a cash fee - to subscribers as part of basic cable-TV packages. Now, after several years of TV blackouts and hardball negotiating tactics, the Big Four networks (including Fox) are being paid substantial new fees by cable- and satellite-TV companies for the rights to distribute their entertainment and news programs over local stations. These retransmission fees are being passed on to many of the 100 million U.S. pay-TV subscribers and will add billions of dollars to TV bills, according to the research firm SNL Kagan.

This month, Comcast Corp., the nation's largest cable operator with 22 million subscribers, will itemize for the first time a $1.50 monthly broadcast-TV fee on bills in the Philadelphia area. The charge will be levied on subscribers nationwide as part of its annual rate-increase cycle. Comcast says the charge covers only part of the retransmission fees to pay for the local broadcast-TV stations, though the fees will likely escalate in future years. Top-rated CBS Corp. reportedly sought $2 a month per household for local TV stations in recent negotiations with Time Warner Cable, the nation's second-largest cable operator. Time Warner Cable relented last summer after CBS withheld content from subscribers. Over time, ABC, NBC, and Fox could seek similar fees, resulting in $6-a-month-per-household fee for broadcast-TV stations. Seemingly small, those fees spread over all pay-TV households add up to billions of dollars.

Comcast has itemized the broadcast-TV fees "to be more transparent with our customers about the factors that drive price changes," company spokeswoman Jennifer Moyer said. Comcast has said that it is not boosting the price of its two most popular Xfinity packages, limited basic and digital preferred, in 2014 and that adjustments to other video-service prices will be lower than they would have been without the broadcast-TV fee, according to Moyer. The changes will increase the typical Comcast bill 2 percent in the Philadelphia area, company spokesman Jeff Alexander said. Comcast serves about 65 percent of the pay-TV market in the area.

The broadcast-TV industry says retransmission fees help finance local news and allow stations to air quality content. Executives also view the fees as part of their potential revenue growth as they transform TV stations into double-stream media properties, earning revenue in both advertising and fees. Traditionally, TV stations have earned revenue only through advertising. Stocks in public companies that own TV stations have soared. But pay-TV industry officials and consumer advocates say the fees harm consumers and are a consequence of the outdated 1992 Cable Act. Comcast, which owns NBCUniversal and benefits from retransmission fees paid for NBC's TV stations, has been silent on the issue, for the most part.

"The networks have abused the rules to the point that they are overly abusive to consumers," said Matthew Polka, head of the American Cable Association, a group of small cable operators. "It's a situation that is absolutely getting worse." The retransmission fees pay for broadcast-TV sports-rights contracts - retransmission fees have inflated TV contracts for the NFL and Major League Baseball in recent years, analysts say - and boost corporate profits at television networks, Polka said. The American Television Alliance, an organization of 30 pay-TV companies, content providers, and organizations, lobbies for reform of retransmission-fee rules. Members include Time Warner Cable, DirecTV, Dish Network, and Starz Entertainment. The alliance was formed as an alternative to cable TV's traditional lobbying organization, the National Cable and Telecommunications Association, whose largest member is Comcast.

The American Television Alliance says content companies that own broadcast-TV stations have forced the pay-TV industry into higher retransmission fees by withholding TV channels during carriage negotiations. Periodically, the content companies - CBS, Walt Disney Co. (which owns ABC), NBCUniversal, and Fox - negotiate new carriage agreements to distribute their entertainment on pay-TV systems. When TV channels go dark on one pay-TV service, subscribers tend to drop that service for a competing one, making blackouts an effective negotiating tactic. Pay-TV companies pay the retransmission fees to avoid the bad publicity and subscriber drain, executives and analysts say. In 2013, there were 127 such blackouts, the American Television Alliance says; there were 51 nationwide in 2011, 91 in 2012. "It's obvious that the retransmission consent system is broken," said Brian Frederick, spokesman for the alliance.

Retransmission fees are central to the legal dispute over Aereo Inc., the New York technology company that streams broadcast-TV stations over the Internet. Because Aereo grabs TV signals out of the air with small antennas and then streams them, it says it does not have to pay retransmission fees. NBCUniversal, Fox, and others have said Aereo must pay the fees and have sued in federal court to stop the company, which says it is following the law. The case could be decided by the U.S. Supreme Court. Lawmakers have heard complaints. In September, Rep. Anna G. Eshoo (D., Calif.) introduced the "Video Consumers Have Options in Choosing Entertainment Act of 2013," which seeks to unbundle cable channels from broadcast channels. On Friday, National Consumers League vice president John Breyault said consumers should not be caught in a "game of chicken" between the pay-TV operators and broadcast-TV companies. The question, Breyault said, is whether "consumers are getting a fair deal for what they are paying for with their cable bill."Philadelphia Inquirer

Colorado lawmakers and industry officials are dialed in on plans to overhaul a program that reimburses carriers more than $50 million annually for providing land-line phone service in rural areas. A revamp of the so-called High Cost Support Mechanism is expected to rank among the top business issues this coming session after efforts over the past three years failed. The federal government and other states have already restructured similarly outdated subsidies, shifting the money toward broadband expansion. Though competing measures are floating around, the consensus is that Colorado will also aim to repurpose the funds for broadband rather than eliminate the subsidy, which is backed by a 2.6 percent surcharge on land-line and mobile phone bills.

The Colorado Public Utilities Commission has initiated a review to determine which areas of the state have sufficient competition and should no longer qualify for High Cost support. Industry leaders expect that process to free up several million dollars as early as this year. Lawmakers such as Sen. Gail Schwartz, D-Snowmass Village, and Rep. Don Coram, R-Montrose, have held town hall and stakeholder meetings in recent weeks to seek input in shaping proposed legislation. Another town hall is scheduled for Tuesday in Limon. "It's a crime that three or four years have passed and we've done so little to advance rural infrastructure," Schwartz said. "By funding land lines and copper-line phones, we're funding buggy whips with a really important asset of $50 million to $60 million a year."

The High Cost fund was established in the 1990s, before the proliferation of cellular coverage, to ensure that all Colorado residents have access to affordable phone service. Previously, proposals to phase out or phase down the fund have been tied to sweeping and complicated updates of the state's telecom rules and terminology. And broadband expansion hasn't always been attached to efforts to overhaul the program. "The bill that I had last year was wrapped into a larger concept, and that concept failed," Schwartz said. "This year, I'm working on a stand-alone bill that will dedicate the High Cost fund at some level toward infrastructure development, especially in rural Colorado."

Broadband expansion is a top priority for Gov. John Hickenlooper, whose staff members have participated in discussions related to the repurposing of the High Cost fund. "The governor supports broadband expansion to rural and unserved communities," Hickenlooper spokesman Eric Brown said, adding that "details are still being discussed with legislators and stakeholders." The details that could present the most conflict include: whether the broadband funds would cover both unserved and underserved areas of the state, or just unserved areas; whether grant recipients would be required to contribute matching funds; which agency would administer the program; how much would remain for land-line service in areas that are still "high cost" to serve.

Telecom giant CenturyLink receives more than 90 percent of High Cost funds annually and has, in the past, resisted efforts to change the program. The carrier, which acquired Denver-based Qwest in 2011, appears relegated to the fact that the program will shift toward broadband. "We've heard that if there are reductions in the voice support, then that should go to a broadband fund, which we support," said Jim Campbell, a CenturyLink regional vice president. "We support it under the guideline that it goes to unserved areas and not underserved areas." He also said a matching-funds component should be included. "If a company is going to apply for support for broadband funding, they ought to put some of their own investment in," Campbell said. "Industry has to have some skin in the game." Fort Morgan-based Viaero Wireless, which provides cellular service in rural Colorado and draws from the High Cost fund, has drafted a measure that doesn't include a matching requirement. Jon Becker, vice president of business at Viaero, said the company likes the idea of matching funds but didn't want such a requirement to prevent smaller providers from seeking support. "We wrote it without and wanted to have a discussion of 'Does it make sense to have it in there?' " Becker said. "Maybe it's a quarter match."

Viaero's draft bill would limit the use of the High Cost funds for infrastructure build-out and not operating expenses. Becker said the carrier may draw from the broadband fund, but that wouldn't be the only benefit. "If there is high-speed broadband in rural areas, you therefore bring more customers and more need to the table for wireless services," Becker said. "Whether we get the broadband portion or not, any economic growth in eastern Colorado is good for us." As for whether the money would go toward underserved areas, Becker said the money should be available to communities that don't have access to Internet download speeds of at least 4 megabits per second and upload speeds of 1 Mbps.

Becker estimates that the PUC's current review of High Cost areas could free up $3 million to $10 million in funds this year. PUC spokesman Terry Bote pegged the figure at less than $10 million and noted that CenturyLink could still apply to keep the funds for voice service "even in competitive areas if they can make a persuasive case for it." Rural-broadband activist Ken Brenner, a trustee for Colorado Mountain College, has drafted a measure that would shift administration of the High Cost funds from the PUC to the Department of Local Affairs.

The measure also proposes to require grant applicants to form a local technology-planning team that includes at least one community organization, such as a county government, school district or hospital. "It's a local solution crafted by the people who use it every day," Brenner said. Lawmakers are also expected to introduce at least one separate measure to update Colorado's telecom rules, such as stamping into law that Internet Protocol-enabled services are unregulated. The state's existing laws don't currently address services such as Voice over Internet Protocol. "The state of Colorado hasn't updated its (telecom) statutes since 1996," said Angela Williams, D-Denver. Last year, a bill co-sponsored by Williams to exempt IP-enabled services from regulation unanimously passed out of the House but stalled in the Senate. Denver Post

Roku Inc. is launching a line of TVs that play video from services like Netflix without requiring a set-top box. While similar to smart TVs on the market, Roku's Internet streaming platform has some 1,200 apps and offers a more comprehensive selection of niche content. The Saratoga, Calif.-based streaming set-top box pioneer is partnering with two of the biggest Chinese TV makers in the world, TCL Corp. and Hisense International Co. Ltd. on six models. It plans to showcase them at the annual gadget show in Las Vegas, International CES, starting Monday. The Roku TV will also offer users a way to access feeds from regular live TV providers and to connect to other devices such as Blu-ray disc players. Washington Post