CHICAGO -- INTX -- Stepping into the lion's den here, Federal Communications Commission (FCC) Chairman Tom Wheeler challenged the US cable industry to live up to its net neutrality commitments and promote more broadband competition.
In a keynote address at the industry's annual spring trade show Wednesday, Wheeler offered up a spirited defense of the Open Internet Order that the Commission passed in late February by a 3-2 margin. Under that order, slated to take effect on June 12, broadband providers will be treated as 21st century utilities under the Title II section of the Communications Act, potentially subjecting them to much stricter regulation than they have faced up till now. Enraged by the move, the cable industry's two main political lobbying groups, National Cable & Telecommunications Association (NCTA) and American Cable Association (ACA) , are now suing the FCC to block and overturn the rules. (See FCC Adopts Title II Rules and NCTA & ACA Petition FCC to Stay Title II.)
But cable leaders did not take kindly to Wheeler's words. In a session immediately following Wheeler's remarks, the CEOs of four major MSOs took turns shooting down the chairman's arguments and defending their industry's broadband track record.
Noting that cable operators have become the nation's dominant broadband providers, Wheeler said the Commission adopted the Open Internet rules to "safeguard the Internet's dynamics," prevent operators from abusing their market power and spur more competition. While today's MSO leaders have pledged not to take advantage of their market power by violating net neutrality principles, he argued that such unenforceable pledges are simply not enough.
"Often people say to me, 'I know you won't do anything crazy, but what about those who follow you?'" he said. "My response is, 'I take you at your word to protect an open Internet, but what about those who follow you?'"
Wheeler urged cable operators to "overcome the temptation to use your predominant position in broadband to protect your traditional cable business." If they don't, he warned, "the Internet will disrupt your existing business model. You can take that to the bank because it has done that to everybody."
The FCC chief also urged the industry not to fight the Commission's efforts to open up the broadband market by letting overbuilders and cities compete in the space. He explained that the agency's recent move to pre-empt laws in two states that ban municipal broadband builds was part of those efforts.
"More competition would be better," he said. "That is why we granted the preemption petitions filed by two communities that wished to expand their gigabit networks into surrounding areas, including where people had no broadband at all."
Wheeler noted that cable's broadband dominance played a key role in the FCC's decision to block Comcast Corp. (Nasdaq: CMCSA, CMCSK)'s proposed buyout of Time Warner Cable Inc. (NYSE: TWC) last month. Unable to overcome the Commission's objections, disappointed Comcast executives scrapped those plans two weeks ago, putting TWC back in play.
"[It] is important to understand that the tipping point from cable to broadband came while the transaction was under review," he said, "We recognized that the industry had changed and we saw concrete evidence of the new competition and business models made possible by high-speed Internet access."
"In other words, we recognized that broadband had to be at the center of our analysis, and that video was, in essence, an application that flows over networks and that could be supplied both by the owners of facilities and by competitors that use broadband pathways to compete against the owners of those broadband pathways." Given those considerations, he praised Comcast Chairman & CEO Brian Roberts's decision to withdraw the company's bid and said that moving on was "a thoughtful response" and "directionally correct."
Wheeler's impassioned urgings, warnings and explanations, however, did not go over very well with most of the five major MSO leaders that followed him to the McCormick Place West stage. In particular, three of the execs -- Liberty Global Inc. (Nasdaq: LBTY) President & CEO Michael Fries, Charter Communications Inc. President & CEO Tom Rutledge and Cox Communications Inc. President Pat Esser -- said they were "baffled" by the chairman's stance and criticized the imposition of Title II regulations.
"It's the most blatant example of punishing success I've ever seen," said Fries, whose company is the largest international MSO in the world but has no cable systems in the US. "It's just terrible regulation." He added that European regulators seem baffled by the FCC's move as well.
— Alan Breznick, Cable/Video Practice Leader, Light Reading