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Come October, will the FCC go EASy?

Fri, 05/31/2002 - 8:00pm
Duffy Hayes, Senior Editor

EAS: October 1 is fast approaching,
and a majority of operators have procrastinated

We've all heard it at some time while watching TV or listening to the radio ... the strange, robotic, repeating digital pulse tone, followed by our friendly neighborhood announcer quelling our irrational fears by repeating the mantra, "This is a test of the Emergency Alert System ... this is ONLY a test."

On the surface, it's simply an annoyance. But behind the scenes, the national program for alerting the public of imminent danger is in the final phase of a transition from analog to digital, and cable operators are facing an upcoming deadline to comply with the new Federal program. In this final phase of the new Emergency Alert System (EAS) rollout, it's the small operators–with headends serving fewer than 10,000 subscribers–who are staring down at an upcoming FCC compliance deadline, and many are quickly realizing that EAS is far more than a mere technicality.

EAS basics

First off, what exactly is the new EAS system? Like the old Emergency Broadcast System (EBS) that EAS aims to replace, the system specifically is designed for the President of the United States as a means for him (or her!) to address the entire country in the event of a national emergency. Through a centralized EAS system, the Big Chief would have a national forum via access to thousands of broadcast stations, cable systems and participating satellite programmers to transmit messages to the public.

The new digital system allows for simpler testing, and improves the way information is sent to the public. Now, local and state officials can send important local emergency information targeted to a specific area, even if the broadcast or cable facility is unattended. Also, the new digital signal is compatible with the current signal used by the National Weather Service on its NOAA Weather Radio (NWR). The synergy here should not be understated, especially for rural operators whose customers rely on NWR messages for severe weather information.

But right now, the focus is on getting the new EAS in place at headends and broadcast facilities across the country. Since January 1, 1997, all AM, FM and TV broadcast stations have been implementing and testing EAS. But for cable operators, their first real compliance deadline was December 31, 1998. By FCC mandate, all cable systems that have 10,000 or more subscribers were compelled to have EAS in place by then.

Prior to that deadline, the FCC realized that it wouldn't encounter difficulties with getting EAS deployed in headends that serve more than 10,000 subs. Instead, the real problem was going to be with the thousands of headends that serve far fewer people and are operated by smaller, regional providers. By way of immediate relief, the FCC extended the deadline for headends with fewer than 10,000 subs for four years, until October 1, 2002–less than 120 days from the time this is published.

October 1 is fast approaching and, in true cable industry fashion, a majority of operators have procrastinated and have yet to reach EAS compliance in their systems.

"This is an investment that people have dragged their feet on. They don't really like the idea of spending money (on EAS), even though they've had three-and-a-half years to do it. Now they're getting close to the deadline and they're starting to buckle up," explains Wendell Woody, an EAS consultant who was actually involved in EAS rulemaking from the beginning. "The bigger MSOs aren't fighting it ... they're the ones out here contacting us and having us work up quotations and engineering the application. But some of the smaller (operators) are just going to drag their feet right up to the deadline."

No one really knows how many headends still need to be upgraded to meet EAS requirements, but industry estimates and simple conversations with vendors reveal that there's doubtless a long way to go. The NCTA guesses there are roughly 10,000 headends in existence, and estimates peg just over 1,000 of those as being above the 10,000-sub magic number. That means roughly 9,000 headends are legally bound by the upcoming deadline, and as one vendor put it, "A certain percentage have already (installed EAS), but not a very great one." Still another vendor pessimistically says, "I'd be surprised if 600 of (those sub-10,000 headends) are in compliance." Estimates certainly vary, but the bottom line is that right now, there are thousands of headends in need of EAS gear, and they virtually have no time to get it done.

The cost of compliance

Compared to other headend systems, EAS is relatively inexpensive; system pricing depends on how tricky an operator wants to get in terms of display technologies. A typical EAS system has a few core components: a federally-certified encoder/decoder, either IF or baseband switching, and display technologies that range from crawl generators to comb generators.

Under EAS rules, cable operators have to monitor two sources, which are assigned by the FCC and are normally an AM and an FM radio station. Operators monitor these sources, and feed signals to the encoder/decoder in the headend. When you hear that annoying digital "rapping" sound during testing, that is actually data being sent over the air from radio stations to the cable operators, and that data is interpreted by the encoder/decoder. System differences lie in how that information ultimately gets displayed by the operator. That also helps determine a system's overall cost.

"When you get to the smaller systems, you take a little different approach," says consultant Woody. "In the first go-round (with the large headends), we did a lot of crawls, because that's the nicest thing to have because you don't interrupt the picture you're running a crawl across. But that costs more money."

Jim Oldham, national sales manager with vendor/supplier Monroe Electronics, explains further. "Certainly, the solution is a big part of what the cost is," Oldham says. "If you're putting video crawls on 80 channels in San Diego, that's a $70,000 to $80,000 job."

Those thumping sounds you hear are small operators passing out from reading a figure like that.

But in reality, most small operators will be looking to meet the FCC requirements without breaking the bank, and will opt for a far more basic system. On the low end, most basic EAS systems can be installed for around $6,000 to $7,000, according to Woody. That price can be brought down to about $4,000 if an operator already has equipment in place to handle the EAS switching.

But therein lies the problem. Despite massive consolidation of systems across the country, there still remain a large number of small providers operating on increasingly tight margins. To an operator with only 1,000 subs, a $6,000 expenditure is a big deal, and doesn't provide any return on investment.

The number of tiny operators is more than you think, and it's almost comical how small some of these operators are. Woody recalls talking to one tiny operator with just 17 subs. "I told them, I have (an EAS) system for you; it's called the Paul Revere System ... you just get a little bell, and you run up and down the street and ring it every time there's an alert."

Looming deadline

With so many headends still to be EAS equipped, it begs the question, "Will vendors be able to deliver gear by the October 1 deadline?" In fact, most EAS vendors have been planning for a rush of orders in advance of the October deadline, and have been stocking inventories to meet the demand.

"We do have good delivery schedules right now," says Monroe's Oldham. "Those operators that wait until August and September ... well, every vendor is going to have a problem supplying a sufficient amount of equipment at that time. You can only build so many encoder/decoders."

Vela is another EAS vendor in the thick of it right now. Vela is more of a full-line EAS supplier; it makes most of the system pieces but partners with manufacturer TFT for the encoder/decoder.

"We can deliver on orders. Almost anything that comes in right now we can deliver on. Part of it is that we have tried to anticipate a bevy of new orders," says William Robertson, an executive vice president with Vela. "What I'm afraid of is that these guys are going to call us up on September 1 and want delivery and installation by October 1. We have some gear on the shelf, but we also don't want to overpopulate our inventory. Although we've tried to anticipate it, if there turns out to be an onslaught where we have to ship out a hundred systems, it's going to be a crunch."

Another leading vendor, Trilithic, has planned for a rash of new orders, and has focused on providing service and engineering resources for customers as well as product. Trilithic makes each piece of the EAS puzzle, and has an exclusive distribution deal with TVC. Aside from three Trilithic engineers assigned strictly to EAS, TVC has more than 50 people on the street and nine regional engineers to support new customers.

"This second phase is so huge compared to the first phase (in 1998) that we wanted to make sure that we have enough people on the street to both support sales and also to walk people through the technical applications," relates Dominick Maio, sales manager of Trilithic's EAS division.

Woody sees industry procrastination, but also sees some growing momentum toward placing orders for equipment. "The business certainly has picked up after the first quarter of this year," he says. "Most everybody was doing budgets then and planning, and there was very little activity in terms of new orders. A great number started releasing orders after the first quarter, and I think there'll still be another group that has put it off until the second quarter. And there'll be some down to the third."

Even if vendors cannot fill all of the orders in their pipeline, operators who have placed orders but still haven't received their EAS gear should be OK in terms of FCC compliance. Say you're lucky enough to have an FCC inspector visit some time in October. What he will likely be looking for with regard to EAS compliance will be "good faith" efforts toward meeting the regulations; the FCC has already given signs that an invoice for EAS gear not yet delivered will be enough to avoid a fine. However, the FCC has also given indications that orders placed at the very last minute may not constitute compliance. From its perspective, operators have had a full four years to become EAS equipped.

"I think there's a little leeway," says Steve Grossman, a product manager with Mega Hertz. "If you've got your order placed two or three months prior to the deadline, and you don't get delivery, it will be hard for them to say it's your fault."

Running late?

Inevitably, still others will procrastinate beyond the October 1 deadline. For some of these operators, their strategy will be to file for a waiver with the FCC–an issue of contention within some industry groups. Some people have disseminated faulty information regarding waivers, unfortunately, and some operators are clinging to the hope that an FCC waiver will exempt them from compliance. The FCC has clearly stated that it will grant waivers for the October 1, 2002 deadline for small systems that can demonstrate financial hardship. That commitment is clear, but some operators are interpreting this to mean they are exempt from EAS completely, which certainly is not the case. The waivers likely will be granted for a 12-month period, but at some point ALL headends must eventually gear up for EAS.

"You can apply for relief from anything levied by the FCC, whether it be a broadcaster or cable operator," explains Dave Halperin, vice president of encoder/decoder manufacturer HollyAnne Corp. "But any waivers that might be sought for exemption from EAS can only be temporary, because it takes Congressional action to remove that requirement."

Halperin, who also was involved in the creation of the EAS regulatory framework years ago, sees cable's waiver process as analogous to what the broadcast industry went through.

"It would be hard for me to understand why the Commission would refuse to grant a waiver to a broadcaster and yet grant one to a cable company who might be in better economic shape than that small town broadcaster."

Woody adds, with regard to the process of filing waivers: "By the time you pay your lawyer and maybe were written up or received a little fine, you could have already bought your system."

However, it is clear that many operators will be filing waivers, claiming financial hardship. Jim Gleason, president of Cable Direct, a regional operator serving roughly 40,000 subscribers in six Midwest states from Indiana to Oklahoma, is a case in point. For Gleason, meeting EAS requirements will mean equipping more than 300 headends with EAS gear. At an estimated $7,500 per headend, Gleason is looking at shelling out more than $2 million.

"That is our entire year's capital expense budget, for a service that will get us no more customers and no more revenue," he complains.

Gleason is also the chairman of the American Cable Association, a group whose membership includes many operators in a similar situation. The ACA, under the leadership of President Matt Polka, has set up legal resources to help with the waiver process, and has spent quite a bit of time with Washington lawmakers seeking remedy.

Other small-town operators may not have as many headends to worry about, but they have waited, nonetheless. Gary Shorman, president and CEO of Eagle Communications, a provider in rural Kansas with just three headends, hasn't yet placed his EAS order. "We're not procrastinating ... we're just not jumping on too early," he says.

He says he's waiting for a bit more price erosion from EAS vendors, before making a purchase. But when he does get his EAS up and running, he's hopeful that an advanced warning system can be marketed as a differentiator between his company and local satellite competition.

"We obviously are looking for a system that provides compliance with FCC rules, but if we can find a better way to add to that and differentiate between us and the satellite providers, then all of a sudden it's something extra we can do for our customers."

Despite that subtle competitive advantage, still other small ops wonder exactly why they should be required to carry EAS at all. Count Martin Brophy, president of single-headend system Shen-Heights TV Associates in Northeast Pennsylvania, a member of that club.

"On September 11, we didn't even use the EAS system. I think it's a duplication of services ... Most people found out about 9/11 by CNN, Fox News or ABC/NBC/CBS."

Brophy argues: "Leave it at the broadcast level, where it should be. Why put the extra burden on cable operators? We carry broadcast channels, The Weather Channel and other channels that have emergency capability."

Unfortunately for Brophy and his brethren, that decision has already been made.

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