Thank you, Mr. Chairman. 

My name is Neal Schnog, and I am the president, general manager and part owner of UVISION, an independent cable business currently serving 8,300 customers in rural Oregon.        

  I also serve as a board member of the American Cable Association, which represents more than 900 independent cable businesses serving more than 7.5 million customers primarily in smaller markets and rural areas across the United States.  In fact, our American Cable Association members serve customers in every state and U.S. territory and also in nearly every congressional district represented by the members of this committee.

Unlike some larger companies you hear about, ACA members are not affiliated with program suppliers, big satellite, cable and telephone companies, major ISPs or other media conglomerates.  We focus on smaller market cable and communications services, often in markets that the bigger companies choose not to serve.  Because we live and work in these rural communities, we know how important it is to have advanced telecommunications services available to us.

Just for the record, my small company is not the "giant entrenched cable monopoly" that others talk about so frequently.  We're simply a small business in cable that happens to serve customers in rural America.  Quite frankly, we're the competitor to what may soon become the "giant entrenched satellite monopoly."

Like other ACA members, my company, UVISION, specializes in serving customers in smaller markets and more rural areas.  Our company today is on the forefront of providing advanced telecommunications services to customers in these markets.  In fact, my small company is now providing digital cable services and high-speed cable modem Internet services to the majority of our customers.

As a first-generation American whose family was given shelter and prosperity by the shores of our great nation, I cannot express how proud I am to take part in this hearing.  I hope my testimony will help you serve your constituents by understanding the critical issues facing the multi-video programming and distribution industry.  These issues will have a significant impact on all Americans and could have a devastating effect on rural communities.  I therefore ask for your consideration and hope you will agree that the industry is in need of congressional and regulatory review.

As you know, most of today's headlines in the communications world are about the large companies - the EchoStar-DirecTV merger, the potential merger of AT&T and Comcast, and the media giants created by the mergers of the 1990s.  Being on this panel, I feel like an extra in the movie, Clash of the Titans.  But, the American Cable Association represents no Goliaths.  We here to speak for the millions of small-town customers who are represented by nearly every member of this committee.

To me, the real benefit of this hearing is the opportunity to highlight the current status of customer choice in the multiple-video services market, because competition really means customer choice.  No choice, no competition.  However, the irony here is that the status of competition and customer choice today, especially in rural areas and small towns, is already significantly limited because it is governed by an unlikely cast of players that do not live in rural America, do not focus on rural Americans' needs, and who have found anti-competitive means to extract monopolistic earnings from all Americans.

Unless there is significant congressional and regulatory review of these issues, the situation is not likely to improve.  Consumer choice and competition may be wiped out in the wake of the mighty merged communications giants.  Let me tell you why.

There are three very important issues that threaten consumer choice in smaller markets and rural America and that will derail the progress to provide advanced services in smaller markets:

• he vastly increasing control of content, pricing, terms, conditions and placement requirements by just a few programming behemoths that truly control what the consumer sees.

• The adverse effect in the smaller, rural marketplace of the proposed EchoStar-DirecTV merger, which will limit current competition in these markets from three current providers (EchoStar, DirecTV, and independent cable) to just one - the merged EchoTV monopoly.

• he disproportionate burden of regulation on smaller, independent cable companies, like mine in rural America, compared to the free regulatory ride enjoyed by the satellite monopoly.

I.                  Programming

So, who does control what your constituents' see on their TV sets?  Surprisingly enough, it isn't a small cable operator like me.  While customers and local franchise authorities don't see it, their choices on what they watch are controlled by five companies, or programming cartels.  I call them America's own OPEC-the Organization of Programming Extorting Companies.  In an unforeseen development, over the past five years we have seen an explosive consolidation in the programming industry that has led to sharply increased prices, less freedom to offer popular content, and little customer awareness as to why they are forced to buy the channels they do. 

For example, ESPN has raised its rates to our members by up to 20% each year for the past five years.  This while their viewership is declining.  Our customers want ESPN.  Fine.  But ABC-Disney will not let us just buy ESPN.  Oftentimes, in order to get the local ABC affiliate, Disney will force us through retransmission consent to take other channels, such as SoapNet.  Same for Fox-News Corp., GE-NBC and CBS-Viacom.

This might not be so bad if we could offer the programming on an a la carte basis to allow the consumer to choose what they want.  But all of the cartel programming companies make independent cable pay for every customer and pay punitive prices if we do not carry many of their services in a bundle, just like they want.

Consolidation has turned retransmission consent into extortion.  These same programming cartels also dictate channel locations and other terms.   Even more appalling is that fact that these programmers also embed into their contracts various "non-disclosure" terms.  These provisions prohibit cable operators from telling any customer, even the local franchise authority, what the terms or rates are for their programming.   Thus, rate increases and unfair bundling practices are kept hidden from the public and even from you, the key federal policy makers who have created this industry.  That is not the definition of an open and fully competitive marketplace.

I am sure you all watched the retransmission consent showdown between Time Warner and Disney over this very issue.  Imagine the odds that a small system like mine has when negotiating with the programming cartels.

The four or five major programming cartels control the broadcast networks and at least 50 other of the most popular stations.  More than 90% of cable systems offer 30 to 90 channels, which, as you can see, are monopolized by the programming cartels.

II.               The EchoStar-DirecTV Merger

Customers will also face less choice as a result of the satellite monopoly that would be created from an EchoStar-DirecTV merger.

The merger of EchoStar and DirecTV will create the world's largest multi-video programming distributor with nearly 20 million subscribers and give the merged companies nearly 90% of the full power, full-CONUS satellite transponders that exist. These two facts along with the possible sunsetting of the programming access rules, would give EchoStar the ability to control access to programming, there by limiting customer choice and providing enough forward bandwidth that small cable companies would never be able to compete on an economic basis.

Already, DirecTV has exclusive contracts for certain sporting events, meaning that Americans can only purchase this programming by buying it from DirecTV. Now imagine what would happen after the sunset of the program access rules if the combined DirecTV/EchoStar used its huge leverage to buy hundreds of sporting events and other programming on an exclusive basis. Millions of consumers would be forced to pay higher rates to get the same programming they used to have.

Of course, many would argue that this would not happen because the current programming cartels would not let it happen. After all the programming cartels already control their own distribution arms. But what if the cartels are ready to admit a new member? Deals could be cut so that all the cartel members have access to programming at the expense of small cable. The current cartel members could shut off programming to small cable companies effectively giving our customers to EchoStar/DirecTV in order to bring EchoStar into the cartel. Or worse the cartel could save face by providing access, but charging independent companies usurious rates meaning that there was no real access to programming.

This would give every giant player access to programming but small cable companies and upstart distributors like telephone companies could never again get access to the programming market, further securing the monopolies of the giant communication companies.

The monopoly over satellite slots would further secure EchoStar/DirecTV's new position by allowing them to deliver over 400 channels with no real competition. In order for a small cable company to deliver this number of channels, they would have to spend millions of dollars.  This is not economically reasonable where most of our members have less than 1,000 customers. Without being able to provide the same number of channels, many small operators would soon be out of business leaving only one provider in many rural areas.

III.           Regulatory Parity

In recent days we have increasingly heard representatives of the EchoStar company saying how Congress and the federal government should support its merger with DirecTV because it will help the satellite monopoly compete against the giant, cable monopoly.

However, contrary to EchoStar's story, two facts are clear:

One, as we have already outlined, EchoStar will have a complete monopoly in the direct broadcast satellite industry and will have the ability to leverage this massive power to the detriment of choice, competition and consumers in rural America.

          Second, my company and the nearly 1,000 other small, independent cable businesses in the American Cable Association are not the monopoly in rural America that EchoStar claims.  Rather, we are and will be the competitor to the satellite monopoly that will exist in rural America if the merger is approved.  We will be the "Southwest Airlines" to the merged satellite giant's "United."  And that's why preserving competition in rural markets is vital.

But it's more than that.  Right now direct broadcast satellite enjoys favored regulatory treatment that gives it a great advantage in the rural marketplace.  If the merger is approved, the giant satellite monopoly will have succeeded in rural markets to escape any meaningful regulation that benefits consumers while ensuring that small business competitors to the giant, like my company and the members of the American Cable Association, have to bear it all.  Look at the following list and ask why the following are not required of all providers in the marketplace, particularly if the goal is to promote fairness in competition and the application of fair, public interest regulation to all customers of cable or satellite alike.

Regulatory Burdens on Cable vs. DBS

In smaller markets and rural areas, the regulatory disparity that exists between independent cable and dbs must be addressed if Congress and federal policymakers want to ensure that multiple providers of video service are there to provide choice to consumers.

CONCLUSION

Each one of the foregoing issues directly affect the ability of independent cable companies to (1) provide competition and choice in the smaller markets and (2) to provide advanced new services in the marketplace.  If there is no viable competitor to the new giant entrenched satellite monopoly, then there is no chance for consumers in rural America to receive advanced digital services or high-speed cable service as so many of our companies are providing now.

The irony here is that the impact of these issues, if not addressed, will do exactly the opposite of what Congress wants - providing competition and choice for consumers in the smaller and rural marketplaces from multiple providers of video services, digital, high-speed data and more.  Instead, these markets may be left with just one provider - the satellite monopoly.

The American Cable Association and its members are committed to working with the Committee to solve these important issues.

I would like to sincerely thank the Committee again for allowing me to speak before you today.

Neal Schnog

Neal Schnog is a 19-year veteran of the cable television industry.  Starting out in Kansas City, Missouri, in 1982 as a marketing manager, Mr. Schnog soon started his own cable company by acquiring a 500-customer cable system in Syracuse, Utah, in December 1984.  Since that time, Mr. Schnog has built, owned and operated more than a dozen cable television systems ranging in size from 100 to 100,000+ customers.  Today, Mr. Schnog is president, general manager and part owner of UVISION, LLC, serving 8,300 customers in 16 Oregon communities, based in Stayton, Oregon.  Mr. Schnog is also the majority owner of Teton Media, Inc., the publishers of the Cable Yellow Pages®.

As an active member of the cable industry, Mr. Schnog is a board member of the American Cable Association, a member of the Oregon Cable Television Association, a member of the Society of Cable Telecommunications Engineers (SCTE), and a member of the National Cable Television Cooperative.  Mr. Schnog is a past vice president of the Utah Cable Television Association.

 Mr. Schnog has written articles addressing cable television and the Internet for Boardwatch Magazine, a trade journal for Internet service providers, and has been an invited speaker at trade shows.  Other activities have included consulting projects for Disney, Antec, TCI (now AT&T), and a variety of other cable related companies.

Mr. Schnog is a 1981 graduate from Syracuse University with a degree in economics.