Witness Testimony

Mr. Matthew M. Polka
President
American Cable Association
One ParkWay Center
Suite 212
Pittsburgh, PA, 15220

Oversight of the Satellite Home Viewer Improvement Act
Subcommittee on Telecommunications and the Internet
March 10, 2004
10:00 AM

I. INTRODUCTION

Thank you, Mr. Chairman.

My name is Matt Polka, and I am president of the American Cable Association. ACA represents more than 1,000 independent cable businesses. Collectively, ACA members serve more than 8 million customers, mostly in smaller markets and rural areas. ACA's constituency is truly national; our members serve customers in every state and in nearly every congressional district, particularly those of this Committee.

Our members are keenly interested in SHVIA. Each of the 1,000 small businesses in ACA competes daily for their livelihood. Their principal competitors: the two national DBS companies - EchoStar and DirecTV. DBS interests are advocating changes to SHVIA. That concerns us, and we think it should concern the Committee.

ACA members are fundamentally different than the major media and communications companies you often hear from. Foremost, ACA members do not rule vast media empires, and do not aspire to. ACA members focus on serving modest customer bases in smaller markets. And our companies are doing a great job. ACA members are leading the industry in delivering advanced services like digital cable and broadband Internet access. Our members have launched DTV and HDTV programming, and they are doing their part to advance the DTV transition. ACA members are actively exploring VOD, VOIP and other advanced services. Because we live and work in these rural communities, we know how important it is to have advanced communications services available, and our members are working hard to deliver the promise of broadband to smaller markets.

As a result, when the Committee is concerned about mergers, media consolidation, indecency and other important policy matters, ACA members are not part of the problem. When the Committee is concerned about localism, broadband deployment and the economic health of rural America, ACA members are an important part of the solution.

These companies are great examples of what entrepreneurial spirit and hard work can accomplish.

At the same time, our members increasingly compete in markets dominated by vastly larger players. The average ACA company in your state serves 8,000 customers. One-half of all ACA members serve less than 1,000 customers. These are truly small businesses. Compare this to our main competitor DirecTV, with more than 12 million customers. Or EchoStar, with about 10 million customers.

This is why we are very concerned about SHVIA. When you hear that DBS needs changes to the law to better compete, you need to ask two questions: Why does DBS need more competitive advantages in smaller markets? And what would the consequences truly be for competition and consumers in smaller markets?

I hope my testimony today will help you answer these questions.

II. ACA Does Not Object to Reauthorization of SHVIA.

The Satellite Home Viewer Improvement Act granted the DBS industry in 1999 the right to retransmit local broadcast signals on carriage and copyright terms similar to those of cable operators.

One purpose of the law was to promote localism - a key tenet of this country's communications policy. Localism ensures that customers in local markets receive local programming and messages from diverse voices. Historically, local broadcasters have been a key source of local programming. In our view, media consolidation has fundamentally changed this, but we will save that for another hearing.

SHVIA also aimed to help a young DBS industry better compete against cable. For instance, concerning broadcast signal carriage SHVIA gave DBS substantial regulatory advantages over cable.

Despite the regulatory advantages given to DBS, ACA and its members would not object to the reauthorization of SHVIA in its present form. Reauthorization would maintain the status quo and avoid skewing the law further in the direction of DBS.

But if Congress considers changing SHVIA, we ask that you proceed with great care, especially considering the potential impact on competition and consumers in smaller markets.

III. DBS Should Not Be Allowed to Lighten Its Regulatory Load Under SHVIA.

First, the Committee should be skeptical of those advocating reduced regulatory obligations for DBS. DBS has already achieved substantial market power, especially in smaller markets. The DBS industry has long outgrown the need for a legislated competitive boost.

In five years since SHVIA was passed, the DBS industry has become a maturing, successful business and a powerful competitor to cable. This is especially true in smaller markets and rural areas where DBS has gained substantial market share. In some smaller markets, DBS has become the dominant provider. And when you consider competition at the local level, it is not hard to see why.

The average ACA member company in your state serves 8,000 customers. DirecTV serves almost 12 million more customers than the average ACA member. Similarly, EchoStar serves almost 10 million more subscribers than the average ACA member. It is self-evident that these companies benefit from far greater economies of scale, access to capital and bargaining power over programmers and other suppliers. As the FCC found, the acquisition of DirecTV by News Corp. enhances those competitive advantages. As a result, DirecTV and EchoStar cannot seriously maintain that they need the government to help them compete in smaller markets.

As the FCC has observed, multichannel video competition is local. DBS and ACA members compete head-to-head in Bloomingdale, MI, Braintree, MA, Parkdale, OR, Ramsey, IL, and many other towns represented by this Committee. Compounding this challenge is the fact that for our members each new customer and mile of cable must be financed by a loan from the local bank signed by the local owner, while our mega-competitors are financed by Wall Street.

As a result, any changes to SHVIA here in Washington will have the potential of skewing that competition in smaller markets all across America. For these reasons, a simple SHVIA reauthorization will avoid unintended consequences in smaller markets. We have no objection to that.

IV. DBS Enjoys Significant Regulatory Advantages Over Cable, Particularly Over Independent Cable in Smaller Markets and Rural Areas.

We become very concerned when DBS calls for changes to SHVIA. These changes are advocated to "help DBS compete." For a smaller market cable company squaring off against DirecTV or EchoStar, to say the least, these claims are audacious. To us, DBS already enjoys a major competitive advantage through favored regulatory treatment. On the other hand, small cable businesses with far more limited resources bear a much greater regulatory load. Consider the following comparison:

 

REGULATORY BURDENS
	DBS (DirecTV - 12 mil.; EchoStar - 10 mil.)
INDEPENDENT CABLE (Avg. 8,000 Subscribers)  Must-Carry in all Markets Mandatory Carriage of Broadcast on Basic Full Public Interest Obligations Retransmission Consent Emergency Alert Requirements Tier Buy-Through Franchise Fees Local Taxes Signal Leakage/CLI Rate Regulation Privacy Obligations Customer Service Obligations Service Notice Provisions Closed Captioning Billing Requirements Pole Attachment Fees Public File Requirements	Must-Carry in selected markets Limited Public Interest Obligations Retransmission Consent

Before tinkering with SHVIA to help DBS compete, Congress should examine the existing regulatory disparity. With vibrant competition as the goal, why should the heavy hand of government weigh on smaller cable companies? To ensure that local communications businesses continue to deliver advanced services in smaller markets, Congress should consider reducing, or at least equalizing, the regulatory burdens on smaller cable.

As DBS continues to mature and gains even greater market share against cable, this regulatory DIS-parity threatens to grow. The consequences for competition and consumers should concern us all.

V. If SHVIA is Reopened, Then Significant Modifications are Needed to Ensure Meaningful Competition in the Local Marketplace.

ACA and its members do not advocate the modification of SHVIA. We understand, however, that DBS interests are calling for changes to the statute. The Committee should dismiss these calls to protect consumers in smaller markets and rural areas and to preserve competition by independent cable businesses with the giant satellite duopoly.

Still, if the Committee decides that changes to SHVIA are appropriate, we have some suggestions that will advance competition and localism in smaller markets.

• Access to Local-into-Local Signals - Some rural cable systems cannot receive good quality broadcast signals off-air. In local-into-local markets, these systems can receive good quality signals from DBS, and our members are willing to pay reasonable rates for this service. The DBS providers have refused. To ensure the widest possible distribution of good quality local broadcast television signals in rural markets, Congress should require DBS to provide smaller cable systems with local-into-local television signals on non-discriminatory rates, terms and conditions.

• Broadcast Basic - To encourage wider carriage of local broadcast signals and achieve greater regulatory balance between DBS and CATV, particularly in smaller and rural areas, Congress should require DBS to provide a broadcast basic level of service to all customers where DBS provides local broadcast signals.

• Cable Standing - Grant cable operators standing to file notices or complaints against DBS for violations of SHVIA's broadcast carriage requirements.

• Good Faith Negotiation Rules - SHVIA contains the retransmission consent good faith negotiation requirement. This portion of the statute sunsets on January 1, 2006. To ensure fair retransmission consent agreements that benefit consumers and to encourage carriage of local broadcast signals, Congress should extend the good faith negotiation requirement.

• Retransmission Consent Exclusivity - SHVIA prohibits exclusive retransmission consent agreements. This provision sunsets on January 1, 2006. To prevent the loss of important broadcast signals in local markets, Congress should make this provision permanent.

VI. Conclusion

SHVIA has provided a framework for DBS carriage of local broadcast signals. It is not perfect, but all players know the current rules. Congress should maintain the status quo with a straight reauthorization. However, if the law is changed, then the impact on consumers and competition - particularly in smaller markets and rural areas - must be considered and balanced.

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.

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