Through its nearly 60-year history, the cable industry has had its occasional fights with the federal government. But at no time in that span has cable had so many simultaneous arguments with regulators on so many different issues. And never before have the regulations interfered so directly with the development and deployment of new technology, nor had a greater effect on operations as they have in the last year. Many of those same regulatory fights will continue being problematic in the year to come.
The story of the FCC versus the cable industry is so grand, with so many unexpected plot twists, pitting two adversaries so evenly matched it almost begs to be related in the terms of a medieval tale: two boys grow up with dreams of greatness; one tries to lay waste to cable, the other – almost inadvertently – becomes cable’s champion. CED’s Man of the Year is cable’s knight-errant, Kyle McSlarrow.
Just less than three years ago, in March 2005, on the day Kyle McSlarrow became president and CEO of the National Cable & Telecommunications Association (NCTA), he had to fend off indecency charges leveled against the cable industry by Sen. Ted Stevens. Cable’s sword-carrier has been scrapping while learning on his feet ever since.
|U.S. Department of Energy Deputy Secretary Kyle McSlarrow presents checks to the state Office of Community Services Executive Director Sam Aiona, Department of Business, Economic Development & Tourism Deputy Director Ray Jefferson and Governor Linda Lingle.|
Source: Hawaii Governor’s E-Newsletter,
May 24-30, 2003
In his second year on the job, he had to joust (okay, that’s the last of those metaphors) with the integration ban and CableCARDs, a la carte programming, statewide and national franchising, and network neutrality. All of those issues continued to be contentious into 2007, during which several more issues arose, including subscriber caps, the invocation of the 70/70 rule, and must-carry rules associated with the digital transition scheduled for early in 2009.
McSlarrow’s temperament and pedigree combine to make him particularly suitable for the job. He has a high level of energy amplified by a competitive streak, and career experience that made him a perfect fit to lead the NCTA, even if landing at the NCTA was far from an obvious turn for him.
The combination manifests itself in a desire to quickly master a subject and then find a way to win. But his work experience has taught him that winning doesn’t mean the other guy necessarily must lose. McSlarrow has learned the art of compromise.
McSlarrow graduated from Cornell University and earned a law degree from the University of Virginia. He joined the Army, and spent his career in the service as a lawyer at the Pentagon, where he was tossed into a sink-or-swim situation negotiating international R&D agreements.
He quickly learned, he said laughing, “how to fake knowing something about something you know nothing about.”
While he was working at the Pentagon, he said, the Army for the first time became subject to U.S. environmental law. McSlarrow became involved in that subject.
After concluding his stint as an Army lawyer, McSlarrow joined the D.C.-area law firm of Hunton & Williams as an associate, specializing in environmental issues. There he became involved with negotiations over Superfund clean ups.
Previously with environmental suits, when single companies were assigned responsibility for an environmental hazard, those companies typically fought their judgments with every ounce of lawyer they had on retainer. Superfund liabilities could be measured in billions of dollars.
|Calif. Governor Arnold Schwarzenegger, left, closes a disconnect switch as part of the commissioning ceremony while Deputy Energy Secretary Kyle McSlarrow monitors the action.|
Source: “Closed Circuit,”
Western Area Power Administration
When Congress passed the Compre-hensive Environmental Response, Compensation, and Liability Act (CERCLA; better known as Superfund), it attempted to create a situation where, if multiple companies were responsible, no single company would be on the hook for cleaning up an environmental hazard. The new law was supposed to ease the way toward quicker clean-ups by the fairest possible distribution of responsibility among all parties involved.
That opened up a different can of worms, however.
“There is nothing quite so complex as 20 lawyers from 20 different companies trying to assign greater liability to each other,” McSlarrow observed. Between the Army and Hunton & Williams, McSlarrow said, he learned how to negotiate.
“Then I got the crazy idea to run for office,” he said.
In 1992, Kyle McSlarrow was the Republican candidate for the U.S. House in the 8th Congressional District in Virginia, running to unseat Jim Moran, then a first-term Representative. McSlarrow lost.
In 1994, he decided to go up against Moran a second time. This time around, McSlarrow was a seasoned campaigner, he had name recognition and, he figured, second time’s a charm. “1994 was a great year for the GOP,” McSlarrow recalled. “Everywhere except in my district.” He laughed again. “I would’ve preferred to have won.”
Still, he took something away from those campaigns. “I learned that I like people. It might seem strange, but when you’re in a position, campaigning, where you’re forcing yourself on strangers, you quickly discern whether you like that or not.” The experience, he said, made him a better public speaker, another skill the future representative of the cable industry would find useful.
And even in losing, McSlarrow still won the attention of the Republican leadership. He was invited to serve on the Senate staffs of Bob Dole, then Trent Lott, then Paul Coverdell. He became a policy wonk.
In 1999, McSlarrow signed on as Dan Quayle’s campaign manager for the former vice president’s bid to win the Republican nomination in the 2000 election. Quayle didn’t make it out of Iowa.
McSlarrow next went to work for the organization now known as Grassroots Enterprise, an operation that helps build advocacy campaigns. In 2002, he accepted the job of Deputy Secretary of Energy, with responsibility for running operations under Energy Secretary Spencer Abraham.
“Every one of those jobs gave me experience with advocacy, with making deals,” McSlarrow said. “I got to know a lot of people. And I saw how the sausage was made, which makes this job easier,” he said, referring to a remark attributed to Otto von Bismarck: Laws are like sausages, it is better not to see them being made.
Another thing about the DOE job – that’s when McSlarrow first got interested in broadband. One of the energy-related technologies that began maturing during his tenure at the DOE was broadband over power line (BPL). McSlarrow was intrigued.
When the NCTA job opened up, he recalled a piece of advice from a former law professor, John Jeffries, currently the dean of the University of Virginia law school: always go with the people.
What that meant, McSlarrow explained, was “it hardly matters what you do if you have a good boss and you work with good people.”
The NCTA had a good reputation as an effective organization that never asked Congress for anything but fair treatment. The board members were all savvy, and the head of the board, Decker Anstrom, had once held the job, and was thus an invaluable resource. The staff was smart and experienced.
“Some of them have been here for 20 years,” McSlarrow said. “The institutional knowledge is great. And they’re just as passionate and proud of the industry as I am. Give due credit to the staff and the board.”
|From the pages of CED, April ’06: A sampling of who’s on which side of the debate: Neutrality (from left): Jeffrey Citron, chairman & chief strategist, Vonage; Vinton Cerf, VP and chief Internet evangelist, Google; Lawrence Lessig, professor of law, Stanford Law School. Diversity (from right): Ed Whitacre, CEO, AT&T; Ivan Seidenberg, chairman & CEO, Verizon; Dr. Christopher Yoo, law professor, Vanderbilt University; Kyle McSlarrow, president & CEO, NCTA.|
GOOD BOSS; GOOD PEOPLE
That’s not to say leading the NCTA is just a job for McSlarrow, though. He’s become a True Believer in cable.
“I can’t do a job well unless I believe in it,” he said. “It’s odd to say you believe in an industry, but it’s a great industry. I’m proud of it. We’ve wired 80,000 schools for free through Cable in the Classroom. Why do we have residential broadband? Because cable decided to roll it out.
“For me, that’s why I do it. It’s why I can fight like a tiger. I think cable should get the recognition for what it’s accomplished,” he said.
One of the great things about the NCTA, in McSlarrow’s view, is that it has never fought for any privileges; it has always fought for what’s simply fair.
McSlarrow may be competitive, but that’s not the same as being combative. He’d rather steer a conflict away from its most contentious elements, and guide it to some common ground, where a win-win solution is possible. Fair is fair.
He tried his preferred approach in responding to FCC Chairman Kevin Martin’s proselytizing for a la carte.
A LA CARTE
The a la carte programming issue might be completely moot if it weren’t for the fact that one of its few advocates is Chairman of the FCC.
|McSlarrow chatting with Ron Duncan (president and CEO, GCI) on the right and Greg Chapados (senior vice president, Federal Affairs and Business Development, GCI) on the left.|
Photo courtesy NCTA
The idea is to let subscribers order only those networks or channels they want, and pay for them directly. The key attraction of the idea lies in the prospect that a la carte would lower cable prices. Most economic analyses say precisely the opposite would happen, though. It’s an article of faith that imposing a la carte would lead many of the lesser-viewed networks to fold.
The other rationale for a la carte is that it would allow parents to choose what networks they get – and not get those they don’t want their children to see.
McSlarrow’s approach has been to steer away from intractable arguments and find the common ground.
Everyone agrees that kids should only see what’s appropriate for them, he pointed out as he briefed congressmen and dealt with the public. But a la carte blocks entire networks from getting carried. That will only force a First Amendment argument, and what’s the point of that?
The easiest thing is to give parents the tools they need to manage viewing in their own homes. The tools exist, and the solution would be to spend the time and money to make them better. Instead, Martin keeps bringing up a solution that McSlarrow says simply doesn’t address the issue it supposedly solves.
“It just shows the power of the bully pulpit,” McSlarrow said. “The FCC can’t impose it, and it has no support – on a bipartisan basis – in Congress. But we still have the Chairman of the FCC harping on it, so we have to be on our guard.”
One of the most persistent issues McSlarrow and the NCTA have faced is network neutrality, because the issue keeps morphing from one thing to another. When McSlarrow first signed on with the NCTA, the concern was whether cable operators would block access to applications.
The NCTA’s response was to point out, repeatedly, that cable operators weren’t blocking applications and they weren’t going to start because doing so would be foolish. Subscribers would quit and sign up with competitors.
That died down, but then the argument turned into a concern that cable operators would favor their own content over content provided by others. The NCTA’s response was to ask its accusers to provide an example. Where’s the problem?
The issue flared up again recently, when Comcast was singled out for the common practice of using deep packet inspection (DPI) for network traffic management.
“Three years ago, the supposition was that we have to manage our networks,” McSlarrow observed. “Now that’s called into question.”
The problem, he said, is that network neutrality advocates keep moving the bar, and the scuffle over using DPI is only the latest iteration of the debate.
“These guys keep going, ‘Aha! Finally! Proof!’ But then they learn there’s less than meets the eye there, and they move on, and move the bar again.”
It was a simple question: how do you give consumers the ability to choose and own the TV equipment that goes in their homes?
There was a simple answer: you create a set-top box into which the service provider could download security software to protect the programming from being unlawfully copied.
There was also a complicated answer: create CableCARDs that plugged into TVs, and force cable operators to build and deploy unwieldy, expensive boxes that kept the security module completely separate from the rest of the electronics. That’s the answer the FCC chose, despite the cable industry’s plans to follow through with the simple solution anyway. It was a clear loss for the NCTA and the cable industry.
“That was a real opportunity missed,” McSlarrow said, “due to a lack of leadership from the chairman. CableCARD was a complete waste of money and a diversion. The result is nothing surprising: it slowed down the advance of downloadable security and increased prices.”
But the issue is a bit more complicated than that. The consumer electronics industry agitated hard and bitterly for the integration ban. The CE industry took the position that it was advocating for consumers. But for some CE companies, it was a first step in the battle to wrest control of the program guide from cable. Why? CE companies could use the guide as a portal to services they or their partners provide. Furthermore, they could get into selling advertising for the first time, selling ad space on the guide screen.
|McSlarrow speaks at the Retirement Living Town Hall on the digital TV transition.|
“For some CE companies, that is an issue,” McSlarrow allowed, “and it’s morphing into the 2-way plug and play argument. But for the chairman, it was just an anti-innovation agenda and a simple refusal to hear what we were saying.”
The NCTA may have the last laugh though. McSlarrow has been doing what he has always favored doing to solve an issue – he’s building a coalition, this one around the OpenCable project. “We’ve got the entire cable industry on board, along with all the studios, all the largest programmers, Intel, Microsoft, and many more supporting OpenCable,” he said. “Even TiVo flipped and is supporting OpenCable. It’s because it’s a win-win.”
THE DIGITAL TRANSITION
In February of 2009, terrestrial broadcasters will have to switch off their analog transmissions and relinquish the spectrum long used for analog broadcasts. This has little to do with cable; the transition will have no direct effect on any cable subscriber. But the FCC has decided to make it a cable issue.
The FCC wants to guarantee that people will be able to continue to receive programming on their analog TVs. Consumer electronics manufacturers have created digital to analog converters, but the FCC wanted the cable industry to continue providing analog signals for an indefinite period.
In September, after months of intense negotiations between the NCTA and the FCC, the FCC agreed to let the cable industry cease distributing analog signals after three years. That’s about the length of time the cable industry was going to voluntarily keep broadcasting in analog anyway, McSlarrow said.
The FCC was also going to make MSOs carry all TV signals from must-carry stations. For some stations, that would have meant three separate simultaneous channels – one in analog, one in standard definition digital, and a third in high definition digital. The NCTA managed to negotiate for at most one analog channel and one digital channel.
Though the decision was made in September, the FCC issued the actual order concerning the matter in early December, and the NCTA was still reviewing it at press time.
THE 70/70 RULE
Late last year, the cable industry managed to fend off an attempt by FCC Chairman Martin to secure greater regulatory authority over the cable industry. Martin intended to invoke the so-called 70/70 rule, a provision in the 1984 Cable Act that increases the FCC’s regulatory power over cable once cable has passed 70 percent of all U.S. homes and achieves 70 percent penetration of homes passed.
While the cable industry long ago passed in excess of 70 percent of all U.S. households, the NCTA pointed out that the FCC’s own data shows cable falls far short of 70 percent penetration. Available statistics are unreliable, but most believe that the cable industry’s penetration is closer to 60 percent. And with competition from DBS vendors and now from the telcos, cable’s penetration rate is almost certainly diminishing.
A group of 22 Representatives of the U.S. House and Martin’s two fellow Republicans on the FCC board, alarmed by the poor case for invoking the 70/70 rule, cautioned Martin to back off.
That win won’t come without a cost. McSlarrow expects the FCC to issue an order that will compel the cable industry to compile more accurate data on homes passed and penetration, and negotiating over that will probably occupy the next several months.
McSlarrow expects the process will be pointless and burdensome, an exercise that will do little beyond confirm that cable does not have 70 percent penetration. “We’ve got red hot competition. Instead we’re on this wild goose chase,” he said.
On November 27, 2002, Kyle McSlarrow is sworn in as Deputy Secretary of Energy.
Photo courtesy of U.S. Department of Energy
In 2001, the FCC tried to place a cap on any cable operator’s market share at 30 percent. It was overturned in court. As CED went to press, Martin won a 3-2 FCC board vote to impose a 30 percent cap on any cable operator’s market share.
The argument over caps was a matter of framing the issue. The NCTA argued on a straight line: the FCC would be imposing restrictions on growth when it had just removed restrictions on the growth of the vastly larger telephone companies. It was simply unfair.
Martin presented it as an issue of programming diversity. If a single company with more than 30 percent market share elected to not carry a network, that would effectively kill the network. The argument was compelling enough for the two Democratic members of the commission to vote with him.
McSlarrow sighed. “It’s just another round for a court case. Five years ago a court rejected it in a pretty harsh way. And that was before dish got big. Now DirecTV and the Dish Network are No. 2 and No. 3 in the video market, plus AT&T and Verizon are getting in, so the argument is weaker still. My expectation is that we’ll get back to the D.C. Court and their reaction will be to ask the FCC ‘what part of no did you not understand?’”
BLACK KNIGHT/WHITE KNIGHT
McSlarrow’s roots are in the Republican Party – he’s run for Congress on the Republican ticket; he’s worked for party leaders. Inter-party acrimony has been at a peak for years, but McSlarrow has managed to avoid getting involved in the bitter partisanship that has gripped national politics during most of his political career.
Under the Bush Administration, the DOE has been one of the few Federal departments to avoid a major scandal. That might have been just blind luck, McSlarrow allows, but it may also have been a product of the way he and his former boss, former Energy Secretary Abraham, deliberately went about their business.
“We never played games with people,” McSlarrow said. “We treated Democrats and Republicans the same. We never blindsided anyone. And we never politicized it. I’m not saying anyone else did politicize other departments – I’m just saying that we didn’t.”
Democrats and Republicans have their differences concerning telecommunications policy, but telecommunications, he said, has never been a partisan battlefield.
And then he got to the NCTA and started butting heads with Martin. Absolutely no one is suggesting that the friction between the cable industry and the FCC has any basis whatsoever in individual personalities, but the warring between the two organizations has become embodied in two men who through their respective careers have been moving along remarkably parallel trajectories. Both are lawyers, and both advanced their careers by furthering the aims of the GOP.
As a lawyer, Martin specialized in telecom issues. Even so, he briefly assisted independent counsel Kenneth Starr in 1997 in the Whitewater probe investigating former president Bill Clinton and his wife, Hillary, who is now seeking the Democratic nomination for president in 2008, according to the Wall Street Journal.
In 1999, Martin joined then-Texas Governor George W. Bush’s presidential campaign, and was involved in the Florida recount in the 2000 election, according to several reports. In 2001, Bush appointed Martin as an FCC commissioner. The President promoted Martin to FCC Chair in 2005.
Many believe Martin is positioning himself for his own run at Congress.
Martin is half of a Washington power couple. His wife, Catherine Martin, worked for Vice President Dick Cheney for several years. After providing public information that seemed to undermine some of the Vice President’s assertions about the leaks about Valerie Plame’s status as a CIA agent, Martin moved to the White House’s communications office.
Partisanship is something McSlarrow might have anticipated, but he’s facing off against someone who, given his pedigree, could reasonably have been expected to be an ally.
Instead, Martin is straying from Republican doctrine to wage what looks like an unremitting war against cable, and the cable industry is taking it personally. McSlarrow, as the industry’s representative, and as a true believer in both the industry and in Republican philosophy, cannot contain his frustration with Martin.
“More often than not, he’s a regulator,” McSlarrow said. “He thinks his job is to second-guess the market. That’s totally inconsistent with free market philosophy – it’s at odds with the Bush Administration. It’s a lurch away from the policies of Michael Powell – another Bush appointee.” Powell was Martin’s predecessor as FCC chairman.
“If there was a real market failure, with evidence that it was a failure, then maybe all of this would be an appropriate regulatory response. But that’s not the case. With cable, satellite, and telco, we have red-hot competition,” he said. “Martin is widely off the mark.”
Much of what the cable industry sees McSlarrow and the NCTA doing in recent years is reacting to the FCC. His plan is to turn that around, however.
When he first got to the NCTA, he initiated a strategic review. “My conclusion was I felt we had to go on offense. Advertise in D.C. and around the country. We needed to build relationships, not just on The Hill, but with other organizations and think tanks.”
Cable has a great story to tell, and it needs to tell it. It’s a tremendous success, and it has become a success without asking for special treatment from Congress or doing anything in D.C. aimed at hindering the competition.
“We’ve instituted a lot of that,” McSlarrow said. “We’re not where we want to be, but we’re working on it.”
McSlarrow has been making the case for reforming the FCC, and has been methodically building support for doing so. He has been leading the NCTA to establish relationships with as many members of Congress as possible, and the effort seems to be paying off; his call for FCC reform is gaining resonance on The Hill.
Meanwhile, Martin is only stoking the sentiment for reform with his recent behavior. Various members of Congress have voiced alarm at recent actions, including using shaky data in his attempt to invoke the 70/70 rule, scheduling meetings and votes in a manner that seems to be purposefully limiting public input and scrutiny, and trying to ram through his agenda with little support beyond whichever two of the other four FCC board members he can enlist to vote with him.
The NCTA’s next confrontation with Martin might be the ultimate offensive maneuver – clipping the FCC’s wings.
OFF THE CLOCK
McSlarrow guards his private life, but then again, perhaps there’s less and less to guard. He used to play soccer; he was long a striker, but as he got “longer in the tooth” – his phrase – he moved back to defense. He gave it up a few years ago. Now with two young sons, he laughs, his hobby is chauffeuring. “It seems like all I do when I’m not at work,” he said.
Now he watches a lot of TV, recorded on the DVR, mostly science fiction, but also “House,” “The Closer,” and he professes to be a “CSI” junkie.