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Powell: Gearing Up for Change

On April 25, National Cable & Telecommunications Association president Michael Powell marks his first year atop the cable trade association.

As the association preps for the NCTA Cable Show May 21-23 in Boston, Powell spoke with B&C Washington bureau chief John Eggerton about the challenge of getting regulatory certainty in a divided Congress, and an FCC that is sometimes reluctant to act definitively.

Powell says he thinks his members share his excitement about the direction the NCTA is headed. Patrick Esser, chairman of NCTA’s board and president of Cox Communications, certainly sounds like it.

“Kyle McSlarrow did a great job at NCTA and was a tough act to follow, but Michael didn’t miss a beat,†Esser says. “He jumped in and put his own leadership stamp on an already highly respected organization. Michael’s experience and thoughtful approach have helped direct strategic thinking and continue to steer the industry on a positive path. High marks for him in his first year; we have a bright future ahead.â€

“Michael is a terrific leader for our industry, and he has more than met the high expectations we had for him,†says Brian Roberts, Comcast chairman/CEO and NCTA board member. “He quickly mastered the critical issues unique to cable and has filled the role of the industry’s chief advocate with passion and vision.â€

While Powell does not see major FCC reform making it through Congress, he says it is time for Washington regulators and policymakers to start connecting more with the digital present and future. As a former chairman of the FCC, Powell speaks with some authority about trying to regulate a moving target.

He says cable is doing well, but could do better, on the diversity front, and he is doing his part at NCTA to make that organization more diverse.

Powell, who manages to look unrumpled and unruffled even as he fields tough questions in shirtsleeves while parked in a comfy corner-office chair, talked about the challenges and opportunities of the future in an industry he thinks is kicking into an extra gear.

How do you assess your first year atop NCTA?

At a personal level, it has been enormously satisfying. It has exceeded expectations. I think that we knew we were coming into an excellent association, but it still was a place poised, much as the industry is, to find a fifth or sixth gear, and look for a more challenging and bolder vision of itself.

We’ve had a really exciting time putting in place our strategic planning and focus, and the team here has responded extremely well. We’re all very excited about where we are, and I think the leadership of the industry is really excited with what we’re doing.

On the policy front, we do fairly well. I think we still benefit from the process we talked about last year, of being very practical and very focused on the things that concern us. And I think we get greater respect and attention as a consequence of it. We had our first [Cable Show] with me and we didn’t blow it.

I really do think the industry is on the cusp of another generation of pretty exciting change. So there is a sense of renewed excitement and vigor that is really rewarding.

You said “fairly well†on the policy front. Why did you qualify it?

My parents [Colin and Alma Powell] taught me never to say “never,†and never to say “always.†Someone will find an exception. I wouldn’t make too much of that. I think there are things we always wish there was less of in terms of the regulatory state.

For example?

I fundamentally remain anxious that Washington has not fully caught up with the extraordinary and dynamic way the communications and entertainment marketplaces are unfolding, and how in some ways radically different they are from the original predicates on which so many of the rules today are still built. If you look at every cable rule—maybe not every one—but there are two enormous buckets that reflect 1992 [the year the Cable Act was passed].

One was that cable was this big, vertically integrated monopoly. There were no DBS providers; there was no telephone video competition; there were no over-builders; there were no alternate pay platforms. And at the time most cable operators shared ownership of almost 60% of programming.

That number is way down on the vertical integration front. On the horizontal integration front, we’ve had the arrival of lots of other choices, and that is before we had the layer of dynamism that comes with what the Internet makes possible, whether it’s Hulu or Netflix or others.

Yet we still spend our day with provisions that I think re" ect judgments that are increasingly incongruous with reality.

Program access rules being one of them?

I think so. Things in the program access/program carriage space are fundamentally premised on that predicate: "Oh, this is an industry that must be vertically integrated, will favor its own, is the only path to reaching a consumer." I am not an anti-regulatory guy. I understand the value of good government policy. But I do think these things are products of an assumption that isn't really true anymore.

And, so, I think you do get these kinds of anomalous and worrisome results when you are applying them to the dynamism of today.

NCTA has tended to stay out of the retrans fight.

We have played in it up to a point. The question always intrigues me. There is a proceeding at the commission. We filed in the proceeding. But this commission has expressed, somewhat forcefully, that they think there are real limitations to their jurisdiction to do something that might dramatically move the needle.

Now, that doesn't mean there is nothing they can do, it doesn't mean that it might not make some impact on some providers. But I don't put a lot of confidence in the idea that the commission is going to change the challenge of the relationship between programming costs and operator costs. I think that problem, if it is a problem, is a set of issues that is substantially bigger than will be fixed with what Julius Genachowski says, or the bounds of his authority.

We are more interested, at least at the NCTA, in trying to understand what the future era of television regulation might be post-1992 Cable Act.

We do have operators who very strenuously work on this issue, and we have programmers of course who very strenuously don't want us to work on this issue. But I think that they have done a lot with each other on the business level to try to keep, on behalf of the public and consumers, this thing in relative balance.

Do you think anything will happen in Congress on retrans?

Certainly not in 2012. And I think Congress is increasingly trying to look at the issue the way I am suggesting, which is that if we are going to have a conversation about any one of these elements, lets have a conversation about an entirely new regulatory marketplace.

My own guess is that after this election, 2013 will be the year where there is much more serious conversation about the post-1996 [Communications Act rewrite] world. Everyone says at different times "what's wrong with the Act," but I do think the moment is slowly maturing in which the people's representatives are going to have to accept that we increasingly have a tired and out-of-date regulatory foundation. I think that conversation is healthy.

I think the idea that any one of these industries is well positioned to get some little piece to their liking, while the other pieces remain the same-I am just very doubtful that that will prove compelling.

How important to cable broadband is mobility and is Wi-Fi the answer?

We have all these incredibly fascinating-sounding phrases that become quickly trite. Like "anytime, anywhere" and "what you want, your way, when you want it." But the truth of it is is that that is just a reflection of the reality of the device and technology marketplace.

I have sat here now in my modest adult life and there is almost an annual cycle of delight. There is another thing with another screen with dramatically more capability. Wireless is what a lot of people understood to be what Sprint and AT&T and Verizon and T-Mobile do. But the reality is that it has become the connective tissue of our devices.

I don't know what my house would be like without Wi-Fi. I don't know how many devices in my house are operating and connected just because there is a Wi-Fi connection driving stuff into the broadband. It's also good for the ISPs because it took what you're paying for your broadband service-that used to be something that could go to one machine. If I have to pay $50 for broadband and its one computer, that's one thing. But if I am paying $50 and it is seven computers, I will argue that the value is exponentially higher. If for that $50 dollars I get my seven TV's, my Sonos music system, my Samsung Smart TV and a net thermostat, now you are talking about the entire digital operations of my home. And it lets device manufacturers invent things without permission that they know are going to run on that mobile standard.

So, when you get to the second part of your question, at least in my view, and I think the cable industry is increasingly coalescing around, Wi-Fi as an absolutely critical part of extending the cable experience and Internet experience for consumers in their regions, and I think most are focused on that. I think that is the real story of the cable company/Verizon deal. I think that after years of trying to figure out the right place to be in mobility, they have started to think they know where it is now, and they are going to be moving much more expeditiously in the Wi-Fi direction. 

Should the country be afraid of Verizon buying cable spectrum?

I'm not their advocate per se, but if I went to Congress and was testifying one day and I looked up on the dais and I said: "All of you who currently have a Verizon, phone raise your hand," I'm pretty sure you would get a decent cross-section of those people who are enjoying apps and services and want improvement, and better connectivity. They want faster [service]; they want more apps. There is a voracious appetite by consumers for mobile services. And "big" to a public interest advocate may mean bad or evil, but it also means they are serving a huge number of consumers who want improvement and innovation in their service. You can't forget that.

And whether we like it or not, the government controls this input. It is a difficult input. It's not like Verizon can go drill spectrum. It can't go dig up where the dinosaurs died and find new reserves. This is something that has a restraint on it. I don't know an analyst on the planet who does not suggest some ruthlessly scary rollercoaster of demand in this space.

If anything, I am worried that the country thinks the spectrum will solve the problem and it never will. I think there are other ways to get efficiencies in spectrum that get ignored or not treated as seriously because we are already chasing more spectrum. There is never going to be enough spectrum in the closet at the end of the day.

And is that where cable Wi-Fi comes in?

You have to take seriously the cable industry and others who want to provide outside the home, regional Wi-Fi. As any analyst will tell you, if you are a big wireless company, one of the things you are trying to do is get this stuff off the towers and out of the air and into the ground as fast as possible in order to relieve the congestion. Forty percent of cell calls are made in the home, but if all of those calls can be offloaded onto your broadband network, that would save an enormous amount of spectrum.

And so, Wi-Fi is going to be part of not only delivering service to consumers, it is going to be the critical part to helping relieve congestion on the tower-based terrestrial wireless network.

Also, looking at the future of a converged business, cybersecurity is really hot these days. Are we doing any better at protecting what you have called the Achilles Heel of the Internet?

It is a very hard question to answer. We are not privy to all the information. I don't know what is happening at Citibank every day. All I know is I think from a year ago, what I would say is that the awareness level of the nature, type and seriousness of these threats is dramatically higher and much better understood by policymakers and companies.

I do think companies have done a lot to be effective in protecting the consumer experience, meaning most days I go on my Internet connection and nothing goes wrong. I still think that is the case and I don't think it is all just by accident.

The evidence increasingly indicates we are targeted all the time, all day, sometimes by very sophisticated criminal elements, sometimes by hacktivists, sometimes by foreign governments. So, this is not like a terrorist attack that is coming. It is already widely infiltrated. There is a little bit of a war that goes on from morning to night all across our networks of things getting in, being pushed out, blocked, counter attacked. I think, speaking for the telecommunications industry, this is our very bread and butter. We sure as heck better be good at it. We can't afford as businesses to be ineffective in this regard; I think we are doing OK.

Now, when you start talking about law and regulation, it is very complex. These things change by the day. And if there is one thing we know about really prescriptive rules, they can run the risk of being obsolete the day they pass and they don't grow very quickly. A minute ago we talked about an act written in 1992 that governs our behavior in 2012. You can't have a regime around cyberthreats like that.

NCTA was part of the recent agreement on the voluntary cybersecurity code of conduct. Was that an effort to head off regulation?

I think from our perspective it is an effort to head off cyberthreats. I have had the blessing and the curse of being involved in some of the biggest threats to networks in the modern era. I had to manage the Y2K transition in 1999 for the administration, I had to manage the 9/11 attack [impact] on Verizon's network, and I have had other pretty serious network challenges. One of the things I came to see up close is that the model that works is when the government and industry understand that we have a collective need to be in league with a common enemy. That means I am going to have to share with you highly sensitive things and you are going to have to share with me highly sensitive things. We're going to have to protect each other's interests and we are going to have to coordinate an effective response to threats we don't find acceptable.

That requires a breathtaking amount of trust and proposals that try to create a response built on true partnership: "come join my army" rather than "come explain yourself." The minute you introduce an adversarial, regulatory relationship, there is another player in the conversation: the general counsel: "Well. I don't know if we should do this boss, because if we do this it could subject us to this." I have seen it and it interferes at a really fundamental level with getting the job done.

I just know we have assets and knowledge the government can't replicate. They have assets and knowledge we can't replicate. They need us; we need them. We need to join the same army against the same theat.

NCTA supported the piracy legislation that failed to pass in the last Congress. How important is it to get some kind of bill?

I think that is part of what went wrong. We should divorce any specific piece of legislation or any specific approach from the uber-objective, which remains absolutely critical and essential, not just to the companies but to American ingenuity and innovation. This is a big industry. It is deeply beloved by American consumers, but it is also one of our most fundamental creative aspects: the greatest creators on earth with enormous value.

Now, if they blow it in the business market, so be it, let them write it down. But the idea that you might have something great but you lose the value because it was stolen, I think should remain a national concern. I think there is a lot of clumsiness to go around about how this unfolded, but I don't think it should overshadow the valid concern. And to give them credit, the opponent, at least the most credible of them, Google, almost always began their statements with: "We see the importance of this. It is important."

I don't know that I expect another legislative effort anytime soon. I think there is a lot of "lessons learned" that ought to go on and a reevalution of the best approach because I think you can believe so much in the big mission that you can be less rigorous about the right way to go about it, and we probably all should go back to the drawing board and think hard about a better approach.

So, I don't see it coming real soon, and I'm not so sure that it should. I think that it should include more people and be more innovative. But I don't think the country should blink one iota about the idea that the protection is necessary to the country's well-being, not just these industries.

The idea that we sort of separate too easily the interests of the country from the interests of an industry I think it is a mistake.

There seem to be a lot of bipartisan issues that both sides agree on, like piracy, and privacy and FCC reform, until they don't and nothing gets done. Is that an incorrect assumption?

I don't know that you are wrong. I think sometimes you probably don't bank the successes. The memories are more focused on the negatives. But yes, I think there is something to it.

Twin thoughts that I have that I think at the end of the day are really important: one, you've gotta be decisive and make a decision, and you gotta mean to make a decision, not mean to make an amalgamation that tries to please two-fifths of who is complaining and then call that good policy.

I think that happens in Congress. I think that happens in regulatory agencies. Right or wrong, make a decision. Make it on the merits, make it clear, let us understand it. Business is very adaptable. If it really understands the rule and rationale and believes it was fairly treated, it will move on.

The other thing is finality. It is almost like there is never an end to anything, and when you finally do get it done, there are always these constant collateral attacks.

I will give you an example of something we have tried very hard to be consistent about even though I don't know at the end of the day if it is always in our best interests. We told the government that while we don't like it, we will find a compromise on net neutrality and we will live with it. The betting in this town is the commission may very likely lose the case [Verizon and MetroPCS have challenged the net neutrality rules in the D.C. federal appeals court]. We're not in the case and we're not going to renegotiate what we said. Now, if the whole thing gets changed again because the court says something, we will reevaluate that. But, the value of finality is better than uncertainty in the business world. Proceedings that don't get finished, that's uncertainty. Things that sit in court for three or four years, that's just painful uncertainty.

In the court system they are very cognizant of the value of finality. They make it very hard to change something they've decided. The policy world increasingly feels like it does not matter what you decide because next week they are going to come in the back door and attach a rider.

One thing I am very complimentary of the commission on is walking the line on [the Universal Service Fund]. Did we get everything we wanted? No. But am I really proud of what they did? I am, because I know how hard that decision was. And sure as we're sitting here there is a whole collection of people on the Hill trying to slip things in and renegotiate. OK, and I am not saying our hands are always clean on this kind of stuff, either.

But the commission did the hard thing. It found the balance. It is an issue where they did not do the kind of "I'm just satisfying people," which they do do sometimes and deserve criticism for. This time they didn't and I thought they got it mostly right. But then there's the idea that it doesn't end, like we're still going to talk about [Rural Utilities Service] because somebody won't accept the result.

Sometimes we just have to accept the result and move forward.

Like the FCC moving forward to close the Title II docket?

Look, I'm not going to go out of my way, but I have said it to them. I am critical of this particular commission for the ambiguity and the uncertainty created by proceedings that get opened to examine things and they stay open. They lumber along and everybody interprets it to their own self-interest.

I am actually quite honest about this. Shoot me, or let me go. I have recourse. I'll fight you. I'll go to court if I think you're wrong. But if you're right and you have made a clear decision, we'll adapt and move on. But what can anyone do when you are just in stasis, some perpetual state of floating ambiguity because we can't make something get voted.

And this is what is taking over this city. We don't know that is happening in the judiciary because we can't ever confirm a judge.

Or FCC commissioners?

Or Jessica [Rosenworcel] or Ajit [Pai]. Your life is on hold. It is a terrible way to live. It's just a terrible way to run a business. I have heard from healthcare CEOs to cable CEOs to automaker CEO's who say, "For me to move forward, I just need to know what the deal is."

I felt very strongly about that as a regulator and that is still my pet peeve with regulators. You owe the country a decision.

Any worries about cord-cutting?

I don't like the term because I don't think it reflects the depth of the question because our guys are broadband providers. If cord-cutting means that there is a new set of applications and services that consumers find compelling, some of which have the same qualities of stuff delivered in the cable system, and they match more of this and a little more of that-If that is cord-cutting, anyone who is selling broadband is going to get some benefit of that, too.

People love the idea of disruptive conflict. I think this thing really gets out-argued a lot of times. If I am a CEO, do you worry about it because [your business] is mortal? I don't know that I would worry about it because it is mortal. Would you worry about it because it is change? Change is always risk and opportunity.

Look, there is a change and it could be a risk to my business if I don't adapt to it well. But it also may be an opportunity. The consumers are telling me something. They're telling me that they have new preferences and new ways they want to consume.

A lot of people used to argue that the music industry wouldn't get off the album when the consumers were telling them they wanted to. And I know a lot of people of my son's generation who have no empathy for the music business-not because they feel like they should steal other stuff, but that they feel like, if you had just served me in the way we were looking to be served...

So, if I am a CEO in the cable industry, I sure as heck think I would be paying attention to these changes. I do think the sort of "are we dumping massive numbers of subscribers," I don't yet see that. I think that every three months it becomes this big story that proves to overly exaggerated. Almost every comparable company in quarterly earnings year-over-year have dramatically improved those loss numbers. If you really look at the charts, the only place cable customers [switch] in any meaningful way is not to cord-cutting but to other competitive MVPDs who are doing well. Now, hats off to DirecTV and DISH TV and FiOS TV and U-Verse TV and other services that have entered the market in the last decade and taken share from us.

And overall, the total number of MVPD subs has been relatively steady since ‘08, ‘09. So, what is really happening is competition. There are a hundred million video subs and our share of them has declined. And why shouldn't it? At one point, back in that 1992 predicate, we had them all.

And when we have robust competition, you are bound to lose some of those. So, most of our customers are not hopping off to Google TV, they are hopping over to DirecTV.

Any concerns that rather than going away, must-carry is extended to over-the-top services?

I think that is another way of saying at some point you are in Alice's Wonderland: laws that were built around one picture of the universe that isn't anymore. I think the courts would have a lot of problems if you tried to expand must-carry to the world of the abundant Internet. I think at some point all of this starts falling apart.

Which brings me to the second bucket of cable regs. A whole bunch of cable regs was premised on the idea that the government was going to protect the economic model of local broadcasting. No ifs, ands or buts about it. There are a lot of things we do not, because we are anticompetitive. A lot of what we do is, we are told to subsidize the broadcast industry by the government because they have this public trustee model that they said has all of this value.

You do see cracks in that that I do think are going to increasingly raise questions. When the government goes to Congress and says it thinks there is a higher, better use for spectrum than broadcasting and it's broadband-In my lifetime, that is the first time I have heard the government state that so emphatically.

And, broadcast networks provide very valuable, highly sought-after content. But you start to ask yourself, when are you really just another cable network because, if only 14% of Americans are getting their content over the air, and the vast majority are getting it over pay platforms, and more and more of those providers are getting paid no differently than Discovery or ESPN, apparently the free, over-the-air compact that leads to this government protection of interest seems to be to be cracked, if not intellectually unraveling.

I have all the regard in the world for broadcasters, but if you are Julius Genachowski or any future regulators who care about mobile, you are going to keep looking at a number like 14% over the air and all that spectrum invested in distribution that isn't really used by consumers; I gotta believe at some point, if I were advising them, I would say, over time, they are going to keep coming for that spectrum.

How is cable doing on the diversity front?

Well, but it needs to do better. Certainly here at NCTA we increased our own commitment to hiring. I think we are quite a bit more diverse. I find it remarkable that we're an industry that goes to New York for an entire week to provide workshops and opportunity, and study and celebration and fund-raising all around this topic. Now, you still want the results. We're OK; we're not world leading yet. But no industry should get a higher mark for dedicating itself to working on it. I think we are doing much better, but what we really gotta do is make sure all that effort gets hooked up to real production.

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