“Let LUS join cable cooperative”

The Advertiser opines that the National Cable Television Cooperative (and by implication Cox cable) should let LUS join the coop. They’re right. Some of the highlights from the editorial:

LUS is seeking membership in the cooperative, a body created by the federal government to leverage the purchasing power of small cable TV companies.

…the lawsuit was just another punch thrown in the fight between LUS and its private competitors. The court was right to reject the lawsuit and to allow LUS’ attempt to join the cooperative to proceed.

…Denying LUS membership in the cooperative is fundamentally unfair.

…Originally, the membership applications of LUS and city utilities in Wilson, N.C., and Chattanooga, Tenn., were ignored. Wilson and Chattanooga eventually were granted membership, but not LUS.The private competitors of the other two systems are not members of the cooperative. Cox is. There’s nothing subtle about that.

Indeed, there is nothing subtle about what is going on here. Cox is playing bully-boy with its more than 6 million subscribers (vs. Lafayette’s 52,000 Total households) to keep Lafayette out of a buying coop that is chartered precisely to allow small guys like LUS to compete with the likes of Cox. —Leading to the conclusion that is also the title of the editorial:

Let LUS join cable cooperative.

“Hardly Cooperative”—Dissent within the NCTC

In response to my last post loyal reader Jeff has pointed to a very interesting story in Multichannel News that focuses on dissension in the ranks of the NCTC following recent changes in membership that give large national cable companies influence over what had been an alliance of small, local companies. There’s plenty of meat on the story but what really caught my attention was the suggestion that the larger companies subscriber numbers don’t necessarily add as much weight to contract negotiations as one might think and the even more interesting revelation that the coop already has a number of large overbuilders, including Verizon, as members.

Big cable and little systems:
One of the complaints that the older, smaller members of the coop have is that the larger members don’t really add their numbers to the common pool in a way that makes everyone’s prices cheaper:

By its own account, the NCTC said that typically, about half of the co-op’s subscribers — between 10 million and 12 million — participate in most of its programming agreements.

The rest, mostly the larger MSO members such as Cox, Charter Communications and Cablevision Systems, cut their own separate arrangements with programmers, save for a handful of deals through the co-op. That, according to smaller operators and programmers alike, diminishes the value of the scale those larger members bring. (Cox, Charter and Cablevision represent about 14 million subscribers, or more than half of the 27 million claimed by the NCTC).

No doubt the smaller companies do benefit to a degree. But the big guys still usually get better deals. So why do the big guys bother? Apparently so that they can have a fallback if they get in too big a tousle with a stubborn content provider:

The latest example of that was Cablevision Systems, which joined the co-op in 2009 essentially to take advantage of its agreement with Tennis Channel. Cablevision had been in a heated battle with Tennis for months over its placement on a sports tier, which the programmer had resisted. The MSO was able to circumvent that resistance by joining the NCTC, which already had a deal in place that allowed members to put the channel on a tier.

That Tennis Channel agreement is set to expire next year and according to people familiar with the situation, the network is likely to seek to remove that tier provision from their NCTC agreement.

So Cablevision, which seldom actually adds its numbers to the deal-making in a way that benefits the rest of the NCTC, does uses the NCTC’s contract when it can’t get a benefit any other way. The logical response of the content providers is to no longer give the smaller NCTC participants a better deal than they’d give the better-heeled big cable companies. Not an ideal outcome for the little guys.

The NCTC has no policy against competing members joining the coop
Since the NCTC has pretty much refused to say publicly why it won’t allow LUS to join by far the most reasonable idea has been the one the city of Lafayette has consistently put forward: Cox has used its new influence as the largest single member of the organization and its seat on the board to keep LUS out. I’ve assumed the NCTC were unwilling to say that because that motive is so blatantly anti-competitive.

But it turns out that they may not want to say that they won’t accept new members who compete with established members because they know that such a claim would be transparently false. There is apparently no policy, official or otherwise, that bars competing members of the industry from belonging to the NCTC. It is, in fact, common practice:

The NCTC counts the three largest overbuilders as members — RCN, WideOpenWest and Knology — and WOW even has representation on its board (WOW vice president of programming Peter Smith is NCTC vice chairman). The largest telco competitor, Verizon Communications, also is a member (through its ownership of the former overbuilder, GTE Ventures). Missing from the ranks is AT&T, which has a competing video service, U-Verse. The reason: AT&T has stressed on several occasions that because U-Verse is an IPTV service (its programming is delivered via broadband and at the demand of the consumer, not in a continuous stream), it should not be considered a cable-TV service by regulators.

An “Overbuilder” is what LUS is—someone who comes in and builds a new system over an area in which there is already one. If anyone were going to be excluded simply because they are competition to established members of the coop it would be these larger overbuilders whose business model is to seek to expand by building new systems in established territories when the industry standard is to expand not by competition but by acquisition. With both long-standing overbuilders and Verizon’s new fiber to the home system both accorded a place at NCTC table it is all but impossible to figure out a (consistent, rational) reason for LUS to be excluded.

Just exactly what is left but Cox’s simple spite and a blind determination damage the one community that has defied them?

Consider that the next time you notice Cox claiming to be “your friend in the digital age.”

LUS wins first round with NCTC re FCC (But what about the FTC?) —Updated

LUS has successfully argued that the National Cable Television Cooperative (NCTC) was wrong to attempt to use the Federal Courts in Kansas to prevent LUS Fiber/LCG from complaining to the FCC (or the FTC or, well, anybody they want to) about the NCTC blocking their bid for membership. The case has been thrown out of court with the Federal Court in Kansas stating that it had no jurisdiction and, further, that the planitiff the NCTC was really trying to use the courts as an inappropriate battleground or as way to try and establish a decision before a case is actually brought—neither of which is legitimate:

The timing indicates that plaintiff is attempting to use this declaratory judgment action for purposes of procedural fencing or to provide an arena for a race to res judicata.

Backstory:
Folks who’ve followed the long fiber fight in Lafayette (currently in its seventh year) will recognize this as the latest iteration of the incumbents using the court system to delay LUS Fiber from moving forward. The consistent result for any case pursued to final appeal has been for the final decision to find in LUS’ favor. This is simply the latest instance in which the real result, and likely the only really intended result was to cause delay and expense for the people of the city.

The immediate backstory for this instance is that LUS and two other municipal fiber to the home providers had been denied entry to the NCTC which provides their coalition of small cable firms with prices for content that are competitive with those the large multi-system cable companies are able to get. LUS had to wait during a two year moratorium on new members was put in place during 06 and 07; the moratorium was extended multiple times. LUS Fiber then immediately applied for membership when the NCTC lifted the moratorium on new members. But the NCTC quickly inducted two very unusual new members completely at odds with their previous membership: large cable corporatons Charter and, yes, Cox Communications. LUS and other muni providers were put on indefinite hold—their applications simply not responded to—far in excess of the organizations own deadlines for acting on applications. LUS and the other muni providers finally signaled their intent to ask the FCC for relief on the grounds that this exclusion from the cheaper prices available through the “small provider” coop amounted to anti-competitive behavior. The NCTC quickly offered to admit the other two cities on the condition that they drop their complaint. Neither city faced competition from either Cox or Charter who now had members on the board of directors. They agreed. LUS, who does compete with the largest (brand new) member of the NCTC was not offered membership and the basis for refusal to act on LUS’ application has yet to be explained. Except, of course, by the Lafayette utility which unambiguously points to Cox. No denial or confirmation has been offered by the NCTC.

(If that recounting was too condensed or abridged please take a look at the account on “Stop the Cap” What makes their take even more interesting is the fact that the author has a prior, at one time supportive, relationship with the NCTC. His judgment is damning.)

The Case at Hand:
The NCTC asked the court for a “declaratory judgment” that would have precluded LUS/LCG from seeking any of the remedies that its FCC filing said were possible. Those ranged from asking the FCC for redress, to asking the FTC to withdraw its letter stating that the NCTC was not in restraint of trade, to requesting congressional review, to seeking redress under Louisiana law. The court walked through each claim by the NCTC and essentially found that the plaintiffs, the NCTC, asked the court to assert an authority it did not have—and to effectively reach a decision in advance of having a case actually presented.

Consequences, FCC:
So the complaint to the FCC will not be blocked. When Lafayette will hear back on that is anybody’s guess but the filings with the Kansas court claimed that they thought that the chance of having to go beyond the FCC to receive satisfaction were small. That sounds like confidence to me. That confidence is reinforced when I realize what a potential “nuclear option” the NCTC is risking if LUS and Lafayette were to go to their second option…

With LUS’ complaint cleared to go forward what the NCTC has to decide is what they’d risk by allowing their pro-Cox position to be struck down by the FCC. Mainly it would seem to be that they’d lose their much of their current ability to arbitrarily deny an applicant membership. Their defense would have to put up some sort of reason to deny—something which they haven’t deigned to do to date. Each potential defense, and were Lafayette’s response successful, endangers an excuse which they might want to use at a future date. (For example: it would be risky to try and claim that LUS is using a different, IP-based technology from the rest of their clientle both because that isn’t entirely true—IP is already embedded in much cable tech and they’ve admitted other muni providers using identical tech—but more worryingly because the loss of this excuse would endanger their ongoing policy of refusing to admit small, local telephone companies that are beginning to offer video.) Letting the FCC reach a conclusion on this matter is an open-ended risk for the NCTC; they can’t know how far the new FCC under Genachowski will go. Openly stating that they are excluding competitors of current members would be even more risky, especially if they are successful—where the Federal Communications Commission might let such blatantly anticompetitive activity slide if it thought it served some higher purpose related to its telecom-related mandate it is unlikely that the FTC would be happy to hear that the NCTC had explicitly changed its raison d’être to one that is intends to exclude competitors in order to gain an advantage for its members. The central purpose of the Federal Trade Commission is to prevent collusion in restraint of trade..more on this below.

I won’t be surprised if we soon hear that the NCTC has decided to let LUS join provided they drop their FCC complaint.

…Especially if they consider that even a refusal to act in Lafayette’s favor on the part of the FCC might have truly dire results if the city has to go to its second option.

Potential Consequences, FTC:
The second avenue of redress mentioned by the city’s lawyers was asking the Federal Trade Commission to withdraw its “business letter.” That pretty much mystified me until I dug up the latest version of the FTC’s letter. As it turns out what the letter does is to certify that the FTC does not think that the NCTC operating practices constitute an illegal restraint of trade that would lead them to start enforcement proceedings. But reading the letter makes it clear that its all pretty tentative and as I read it I started to wonder if the new size and constitution of the NCTC after it has bulked up and changed its nature by bringing in some of the nations largest cable companies (it now constitutes the largest group of customers in the nation) would change the FTC’s view. And then I hit the final substantive paragraph, reproduced in full with my emphasis:

For these reasons, the Department has no current intention to challenge the NCTC’s proposed procedures for jointly negotiating national cable programming contracts for its active members. This letter expresses the Department’s current enforcement intentions, and is predicated on the accuracy of the information and assertions that you have presented to us. If the conditions you have presented are substantially changed—if, for example, a major MSO or a DBS provider were to join NCTC or there were other significant changes to NCTC’s active membership—the conclusions we have drawn would no longer necessarily apply. In accordance with its normal practice, the Department reserves the right to bring an enforcement action in the future if the actual activities of NCTC or its members prove to be anticompetitive in any purpose or effect in any market.

That has GOT to send a chill through the hearts of the bureaucrats that head up the NCTC. And may well explain the panicky legal response to LUS’ simple notification of intent to take their complaint to the FCC that the court has here so easily dismissed. Perhaps the FTC, not the FCC, is the entity they really fear. The FCC would merely make them play fair. The FTC could destroy them. That they’ve exposed their organization to such a danger should frighten the NCTC membership. And should thoroughly frighten its membership. If LUS/Lafayette were to pursue this it seems very likely that the FTC would have to seriously reconsider its reassurances. After all the NCTC has admitted not one but two major MSOs (mulitple system operators)—Cox and Charter. And it is acting rather transparently in the interests of one of them. That seems like a huge risk for the NCTC take. Playing a game of brinksmanship with LUS could easily lead to the dissolution of the coop. Something which wouldn’t bother Cox or Charter; they’ve always had the heft to go it alone. In fact they’d find it a lot easier to compete with any of the little guys who now take advantage of the better prices the coop offers. It’s win-win for Cox and Charter—either they gain a price advantage over little LUS that competes with Cox or they gain a price advantage over all the little guys when the coop fails to meet FTC standards. It’s hard to avoid concluding that the little guys that the coop was once run to benefit have been snookered.

Conclusion:
At the end of the day the real question remains unchanged; the lawsuit did not serve any real purpose but delay and to drain the resources of the defendant:

With respect to plaintiff’s malicious prosecution claims, a declaratory judgment would not clarify the legal relationship between the parties with respect to the question at issue: whether plaintiff broke the law when it denied defendant’s membership application.

Does LUS/LCG and Lafayette have grounds for claiming that this was frivolous lawsuit? I have no idea. But it certainly has proved, in fact, if not in intent, meaningless.

(Court order link via the inestimable Baller-Herbst List…)

Lagniappe:
The Lafayette legal team has released a press release that outlines their take on the victory in Kansas.

Update:
The Advertiser, the Advocate, and the Independent have all weighed in with responses to the LCG press release.

The Independent Covers LUS Fiber

The Independent published a cover story on the state of LUS Fiber, the first of two in a series. The article, entitled “Waiting to Connect” tallies the issues and missteps of the first two year or so of its service. As you’d expect the story focuses on the dramatic moments—and those are the ones where things did not got smoothly. Those things that worked out exactly as planned…like an ambitous roll-out schedule that for launch and final buildout that many loudly doubted could be done went of with only minor hitches. That’s not “news.”

The Independent does a the community the service of searching out the details on many of the glitches those of us in the community saw occurring but did not understand the background that might explain them. So if you were curious about the set top box debacle–you get a partial explanation here. There’s also mention of why that last small bit of the network isn’t yet complete…contractor troubles. Cox’s game-playing with the NCTC (which reflects very much to the discredit of both Cox and that cooperative) is treated in greater detail. A reason for the larger-than-expected basic tier is laid out plainly and its relation to costs and the NCTC mess clearly shown. It’s good to get these kinds of explanations.

But it shouldn’t need to wait on the local news weekly for supporters to find out these details. LUS needs to be much more open with its constituents-customers. That they are local and trusted is by far their greatest advantage. By avoiding talking about their problems LUS makes the problems “theirs” instead of “ours.” A very large mistake. Look at the support that immediately flared up when the unjust exclusion of LUS from the national cable coop was made public–or even the minor flap when Cox played snit with the “I’m proud of LUS Fiber” signs. Both of those, to be plain brutal, were marketing opportunities. LUS needs to seek the support of its citizens…and can only do that if it is much more open than its competitors.

“Judge asked to toss LUS Fiber suit” [updated]

¿¿ “Judge asked to toss LUS Fiber suit” ??

Uh, no—The suit in question is the National Cable Television Cooperative’s (NCTC) suit. Lafayette Consolidated Government has filed papers further supporting its contention that the NCTC’s lawsuit is merely designed to block an ongoing FCC inquiry into the matter.

So if the headline isn’t actually the news in this story then what is?

Well it is a little hard to tell from the Advertiser story. Especially since important bits that might make it all make sense are missing.

The real timeline involved goes something like this: LUS and two other cities with new FTTH networks who have submitted applications for membership after years of being ignored and then enduring a “moratorium” on new members started proceedings at the FCC asking the FCC to exercise its obligation under the Communications Act to block anticompetitive practices. The FCC requires that complaints be preceded by filings of intent at the FCC and fully informing the interested parties. LUS and its sister cities did so. (This is not fairly characterized as a “threat.”) The FCC’s hope in requiring this is pretty clearly that the two parties will get together and work it out without burdening their docket with the case. Indeed, the two other cities were admitted…and only Lafayette was refused. Why? Well the NCTC simply hasn’t said. But the fact (unreported in this story) is that Cox Communications is the largest member (this is recent—they joined after the successful referendum battle in Lafayette and the “moratorium”) and has a seat on the board of directors. The two other cities don’t compete against Cox or any other NCTC member. (This is not established policy, other places have more than one competitor in the NCTC.) If the point of the NCTC refusing only LUS membership is to stifle competition on behalf its most powerful member—well…on the face of it that would make their action anti-competitive and the FCC would be obligated to act.

Sooo, armed with a more complete picture can we now discern what the real news is?

Why yes, it is contained in the final, trailing paragraphs:

Included in Lafayette’s latest filings is a letter from an FCC official, supporting Lafayette’s position.

“We are extremely gratified that the Federal Communications Commission has taken the extraordinary step of writing a letter for submission to the federal judge in order to indicate that the agency is in full agreement with Lafayette’s position that the FCC should have primary jurisdiction over resolution of the issues under the Communication Act,” City-Parish Attorney Pat Ottinger said in a statement.

Lafayette has garnered the support of the FCC, which is agreeing that the matter falls into its domain. This is a big deal and Ottinger is right to be “extremely gratified.”The court will surely understand that if it allows the lawsuit to proceed it will be in danger of federal preemption—that the FCC will simply exert its right under the Communications Act to rule on such issues and take it out of state courts.

That, actually, is news. And it is good news for Lafayette and LUS

7/28/10, 2:12 pm: I’m Wrong: It has just been pointed out that federal preemption can’t be at stake here because the case is in federal court. That was careless. Thank goodness there was a knowledgeable reporter around to gently set me straight.

It’s still good to have the FCC asserting its authority and that will help sway the court to defer to administrative authority but it is not nearly as effective in a federal court as the implied threat of preemption would be in a state one.

“Cox gives laptops to eighth-graders”

Kudos to Cox. This morning’s Advocate reports on Cox’s latest effort to address the digital divide and offers a brief overview of continuing efforts in Lafayette to address the issue.

The company announced Thursday that it will donate 350 Dell netbooks to select eighth-graders who have no access to the Internet at home. The donation also includes free home Internet service for a year.

This isn’t Cox’s first donation—they did something very similar back in ’08 supporting The Early College Academy. This time through:

[Cox] will donate 350 Dell netbooks to select eighth-graders who have no access to the Internet at home. The donation also includes free home Internet service for a year…

The 350 students will be identified through the district’s GEAR UP program, an early college-awareness program that targets middle-school students.

This initiative resembles a suggestion made late last year by the cable industry. At that point the NCTA—the industry’s support and promotion arm, suggested that a good way to use some of the broadband stimulus money was to support its “A Plus” program; that program was broader but less generous with Cable’s resources. It suggested that:

(1) digital media literacy training; (2) discounted computers that can access the Internet; and (3) discounted home broadband service to households that do not currently receive a broadband service.

Cox is also renewing support for the Boys and Girls Club, this time donating an expansion of their computer lab to the Jackie Club.

These generous donations join other Lafayette-based efforts to ensure equity in accessing the internet. In ’09 Je’Nelle Chagois’ Heritage School put 200 computers into the hands of students at Faulk Elementary. The Heritage School is also a participant in a $5.3 million stimulus grant request with LUS that has a similar, student-based purpose.—A second grant for $3.5 million has LUS and LCG partnering to build and enhance community computer centers that serve a broad range of citizens.

It’s all good stuff. Kudos to Cox on this one.

UPDATE 7/13/10: The Advertiser logs in with a substantially similar story this morning, except theirs doesn’t discuss other Lafayette efforts to bridge the divide…

Revised LUS Fiber Budget

Both the Advertiser and the Advocate have articles today on last night’s council meeting and LUS’ revised budget. The big news was that LUS will not meet its own revenue projections; in fact they are off by about half…a disturbing shortfall.

Huval’s explanation cites two factors: the lack of initial marketing and defensive budgeting that was designed to make sure that a worse case scenario of having too many customers wouldn’t “break” the budget.

Defensive Budgeting
This is one of those cases where the Advertiser has the better quote:

“We made projections based on the most optimistic approach,” LUS Director Terry Huval said. “We didn’t want to get into a situation where we might have budgeted too conservatively and we don’t have the materials and supplies for the customers.”

To understand what Huval is worrying about requires some background. LUS is in the odd position of having a brand new service that needs to be cautious about growing too fast. Hooking up and initially provisioning each household is a VERY large expense. The labor and materials costs — especially the set of three boxes that sit on the side of the house and the set top box inside the house—are all very costly. It will, in many cases, take several years to recover that initial investment. While the profit margin is good, even with LUS’ reduced prices, you have to invest substantially in each customer. On the books you will typically lose money for a time on every new customer you bring on. As a consequence you might have to look at borrowing more money. For most businesses this would not be something to worry about very much. Any bank could see that you were a better risk for capturing a larger share of your market than you initially anticipated. You’d get your “float” loan.

But LUS is not like other businesses. LUS cannot, practically, go back and get a bridging loan. They have borrowed all their money upfront in the form of bonded indebtedness. Budgeting in this situation is, in part, a way of projecting the “draw” the business will be making against that loan. What Huval is saying is that they originally projected the most “optimistic” draw against the loan so that they would be sure that they had enough money at the ready to buy the equipment they needed to complete the budgetary period without going back to well…So budgeting for the most extreme case was, in this case, “conservative” budgeting. A typical business would typically borrow for its most optimistic realistic case in order to have a little reserve and to avoid having to go back and borrow money again—usually at higher rates. This maneuver is LUS’ equivalent.

The tendency to be conservative here is aggravated by a state law that shapes the way LUS has to assess the risks to its business. And we have Cox and AT&T to that for that: Long-time readers will recall my inveighing against the (un)Fair Competition Act. This is one of the places where that incumbent-written law comes into play. One of the provisions of that law is that LUS is forbidden to loose money for any year. If they do, the law mandates a fire sale of the business. Given that law, you’ll notice that once you understand that LUS is actually investing in each customer that it is entirely possible to be successful too quickly. Suppose LUS took 50% of the market in a single four month period…and then, having saturated the local market it would have to endure a year or two or three of losing money just to pay off that initial investment before the income from the bulge of new customers turned positive. It is far safer to grow at a steady rate as long as you get above the break-even point before the bond money runs out. Losing money too fast is always a problem. But the (un)Fair Act makes being successful too fast a problem too. State lawmakers piously claim that they are just protecting the citizens of Lafayette from losing money. This case makes it obvious that the people that wrote the bill, AT&T and Cox, are the ones being protected. Lafayette doesn’t need or want Baton Rouge’s protection.

Marketing
LUS also acknowledges that it hasn’t run much of a marketing campaign, saying that it doesn’t make sense to gear up a large and expensive campaign if you aren’t yet ready to sell your product to all the people you’re paying to reach. From the Advocate:

Revenues for LUS Fiber this year might have been more in line with the initial projections had the city pushed a more-aggressive marketing campaign, Huval said.

But he said the decision was made to hold back on intensive marketing of the service until it was available to most residents, so as to get the most out of the marketing dollars.

That does make a certain amount of sense. But that excuse is already effectively over—LUS is currently finishing off its build-out. The vast majority of the citizenry is now ready to receive service. So we should now begin to see a much more aggressive campaign. —Though, of course, not sooo aggressive as to run afoul of the (un)Fair Act’s penalty on gaining customer share too quickly. (sigh)

In all fairness, LUS also has another reason not to want to sell too much of its cable product too soon. also been wrestling with the set top box software—the initial software was simply not up to snuff…it provided the fundamental functions in that it would change channels and record material but the interface was outdated and it was clumsily designed. It was even worse than most cable providers interface and that is saying something. With the new Microsoft Mediaroom LUS has come out on the other side–the interface is very slick, it works well and there are obvious hooks left for the development of innovative features. But until that mess was settled and LUS knew that Alcatel was going to step up and make good on its promises LUS Fiber was looking at a situation in which it very strongly suspected that each and every video customer was going to upgraded to a new box and software platform in the very near future. They had little desire to put the whole city on a solution that they would have to turn around and dump.

Take-Rates
The most reassuring part of the story is that the Advocate reports that Huval is saying that they are making their break-even rate—that is, they are getting the 23% of the population they need to win over to break-even and pay back the dedicated bonds. That, frankly, is the only important number—

[Huval] said that even though LUS Fiber is not meeting the early revenue projections, he feels confident the venture is building a solid foundation and will be successful.

LUS Fiber can break even with a 23 percent market penetration, Huval said, and that percentage has been “handily” reached in most areas where the service has been available for more than a few months.

What’s interesting is that while LUS will doubtless get some flack for not meeting its defensive budget estimates nobody is asking what LUS achieving its break-even rate means for the other actors in this little drama: Cox and ATT. Leaving aside ATT for the moment since it is not selling a cable product let’s look at Cox. Nationally the take-rate for cable video is supposed to be about 50%. I don’t have any reason to think Lafayette would be much different. If LUS is taking more than 23% of the local market “after a few months” that would imply that in just a few months—without a very credible set top box arrangement and with very little marketing—LUS can take about half of Cox’s well-established cable video market. That makes LUS, by any reasonable assessment, a very successful competitor.

Lafayette, the NCTC, and National Policy

Both the Advocate and the Advertiser have posted stories focusing on the latest move in the Cox/NCTC versus LUS/LCG contest being gamed out in the courts. In this turn Lafayette is has filed suit to dismiss a lawsuit filed in in Kansas by the National Cable Television Cooperative (NCTC). That lawsuit was filed in an attempt to block LUS from pursuing a complaint with the FCC.

So…this is a suit to block a suit which hopes to block a filing at the FCC…there’s a legal logic in there somewhere I am sure. Or in the words of the Advocate:

Attorneys for Lafayette argued in court filings that the cooperative’s lawsuit is an attempt “to drag a Louisiana municipal public utility into court on the plaintiff’s home turf in an effort to avoid being held accountable for its conduct before the Federal Communications Commission.”

The Advertiser:

The FCC complaint by LUS Fiber argued that NCTCS engaged “in unfair, deceptive and anticompetitive conduct that has the purpose of effect of preventing LUS from becoming a member of NCTC and thereby obtaining the huge quantity discounts and other that NCTC negotiates for its members…” “We have stated in our pleadings filed today that the court should dismiss NCTC’s complaint in deference to the jurisdiction of the Federal Communications Commission, or alternatively suspend any further proceedings until the FCC has decided the case initiated by the Lafayette complaint,” city-parish attorney Pat Ottinger said.

The story closes, appropriately, with the note:

NCTC’s largest member is Cox Communications, LUS Fiber’s primary competition.

That Cox is engaging in anti-competitive behavior through its influence at the NCTC is the core of Lafayette’s public relations case; and, given Cox’s behavior here in Lafayette, it seems entirely likely. The fact that the other two cities that had initially joined Lafayette in its complaint, but were after filing suit admitted to the membership process, did not have the NCTC’s largest member as competition is damning. That these cities’ corporate competitors do not belong to the NCTC tends to clinch the argument.

In fact, that those other cities had competition that does not belong to the NCTC is a strong argument that more is at stake nationally than simply the interest of a mid-size, aggressive city somewhere along Louisiana’s cost and its huge corporate competitor. As I’ve pointed out previously, other members of the NCTC have engaged in the sort of anti-competitive blocking that Cox has used in Louisiana.

The NCTC used to be a mechanism for small, locally-owned cable networks and municipalities to get relatively fair programming prices for their customers. Over the years the market has changed and single-system mom and pop operations have all but disappeared as large and medium size “mulitple system operators” (MSOs) cable companies have grown by leveraged buyouts of smaller competitors—not by successful competition with other cable companies. Successful head-to-head competition requires building a better network and providing better services. (The route, incidentally, that Lafayette has chosen.) Buyouts only require taking on large debt burdens…burdens in fact so large that they can make finding the money to make major service upgrades very difficult.

Now the NCTC is run by debt-heavy MSOs, not mom and pop, local, cable companies. Cox is merely the biggest. Many other NCTC members are no doubt in the same structural position as Cox cable—heavily in debt—and many of those are in the smaller locales that may be actually losing population. These smaller municipalities could reasonably feel that they’ve lost the local businesses to which they felt loyalty to faceless corporations who do even fewer network upgrades than the small local businesses did. Those small cities and towns are the ones that, nationally, are most likely to consider investment in a fiber network an investment in their future.

The NCTC has a legitimate national function…lowering cable prices for the customers of small cable companies and thereby allowing local alternatives to enormous international telecommunications corporations to exist. The outcome of the current conflict over Lafayette’s membership will be a decision-point for the nation. Either the NCTC will provide that service for all small operators or it will turn itself into an exclusive cartel that uses its purchasing power to push out all competition.

That is a national problem; it is not simply a small side fight down in some damp part of Louisiana.

Correction: It’s been pointed out that Lafayette has not really filed suit in response to the suit. They’ve merely responded to the NCTC’s Kansas suit. Point taken. That is actually clear in the press release. I let a fun line get in the way of a close reading…mea culpa.

LUS Files Suit, Sorta…(updated)

LUS, for a change, has initiated a lawsuit. Or at least an FCC proceeding. Close enough.

In a press release issued today LUS outlined its case for the public. That release underlined the basic irony of the situation that LUS finds itself in: fighting for admittance to a coop whose reason for existence is to help small guys, like LUS, somewhat level the playing field with big guys, like Cox. It’s outrageous that Cox is in a position to try and block LUS. From the press release:

The concept behind the establishment of the NCTC was to allow small cable providers to aggregate their collective buying power for national programming, therefore providing an opportunity for more competition in the cable TV marketplace.

In a move that is reminiscent of the angry days of the fiber fight here in Lafayette Joey Durel blasts Cox’s willingness to block fair competition:

It is a sad day for the free market economy when a corporation hundreds of times the size of a small, community-owned enterprise will use every means necessary to snuff out competition so that they can go back to charging outrageous prices for services.

That’s from the press release, and really that’s pretty much all you need to know. But the complaint to the FCC is only marginally less caustic in its lawyerly way. A reader who’d like to savor the full flavor of this story is encouraged to read it through. But if you’re not in that group, I’ll be happy to replay some of the highlights…

I was intrigued to see that the complaint to the FCC had a politically timely overtone…the introduction begins by emphasizing that LUS depends upon video revenues to “provide ultra-high-speed broadband services.” Devising a high-speed broadband plan is the project of the moment for the FCC and Lafayette’s LUS received much favorable attention in Washington during the plans proceedings, serving as the national poster-child for local initiative for having provided ultra high-speed broadband at a shockingly low price.

The complaint outlines the history of the conflict; and a very suggestive history it is. Congress. The NCTC, the complaint alleges boasts of its inserting a clause into the 1992 Telecommunications Act that assured that the coop would be treated like a cable company by content providers by convincing legislators that this was the only way to insure fair competition between the little systems it represented and the mammoth national cable companies. But, a two-year “moratorium” on new members the NCTC opened up their membership…to Cox and Charter; two of the nations largest multi-system operators. Since that time they’ve apparently quit admitting new members that would compete with their present (expanded) membership.

[The NCTC and its dominant members] are now undermining Congress’s pro-competitive intent by using denial of membership in NCTC as an anticompetitive device to insulate NCTC’s existing members from competition by new entrants.

A footnote offers evidence that Cox and Charter aren’t the only members who have fought against local municipal competition…MediaCom, SuddenLink, Bridgewater Telephone have also engaged in their own versions of the anti-competitive behavior Cox has practiced in Lafayette.

Lafayette wasn’t the only municipal provider caught in this trap. Chattanooga, Tennessee and Wilson, North Carolina were similarly denied membership–right up to the moment that they demonstrated they’d bring a complaint in conjunction with LUS to FCC. Then, suddenly, they were notified that the NCTC had reconsidered. LUS and its lawyers draw the obvious conclusion and urge the FCC to do the same:

NCTC’s discrimination against LUS cannot be explained on legal or factual grounds. In fact, the only significant distinction between LUS and Chattanooga/Wilson is that LUS’s major rival, Cox Communications, is NCTC’s largest member as well as a prominent member of NCTC’s Board of Directors, whereas Chattanooga’s and Wilson’s major competitors, Comcast and Time Warner, respectively, are not members of NCTC.

…NCTC’s continued flat rejection of LUS’s membership application, despite LUS’s offer to join under the same terms and conditions as Chattanooga and Wilson, underscores the arbitrary, discriminatory, and anticompetitive nature of the Defendants’ practices. Indeed, to keep LUS out, the Defendants are even willing to go so far as to harm the membership of NCTC as a whole, as the addition of another qualified member would increase the bargaining power of the whole group.

There’s more in the complaint, including a series of emails between Lafayette’s lawyers and the NCTC’s explaining—or rather refusing to explain—why Lafayette was being treated differently, the text of the first joint draft of the cities’ complaint, and the text of the NCTC’s attempt to pre-empt the three cities legal action.

It’s a surprisingly readable and interesting document. And it will be very interesting to watch this go forward. Lafayette has asked for a quick and frankly pretty brutal judgment against the NCTC and the individuals and companies represented on the NCTC board. I look forward to seeing how these companies enjoy having their feet held to legal fire.

Update: Back during the fiber fight when Cox and AT&T were doing everything in their power to eliminate LUS as a possible competitor each ugly episode made national news. The push polls, lawsuits, and incumbent-promoted petitions were widely reported. No small part of Lafayette’s victory was the result of unremitting bad PR in the national press. Those days have returned and the current fight over NCTC membership has garnered extensive coverage.

Local:
The Advertiser: LUS files FCC complaint
The Advocate: LUS Fiber complains to FCC; Cable TV order asked
The Independent: LUS alleges ‘unfair, deceptive’ conduct by Cox, NCTC

National:
Broadband Reports: LUS Files Complaint With FCC Over Cox Blackballing
Broadband Breakfast: Small Town’s Telecom Drama Continues: Municipal Utility Sues Cable Group For Discriminatory Access To Programming
Telecompetitor: NCTC Membership Fight Stirs Up Controversy, FCC Asked to Intervene
FierceCable: LUS blames Cox because it can’t get into National Cable TV Co-Op

“LUS fights for acceptance”

Richard Burgess of the Advocate’s article is a good overview of one of the issues that have bogged down channel acquisition for LUS Fiber video offerings—a long delay in gaining membership in the cable purchasing cooperative that provides most small, local operators with reasonable wholesale prices for the channels they offer. It’s not just about getting channels at a reasonable price, it is sometimes about getting them at all. (In fact, getting its channel lineup in shape was so arduous that it was the factor cited in the late launch of LUS services in the first place…that, and not any technical or build issue, was the cause of the brief delay in launching the service from January to February of ’09.)

LUS has had an application in to join NCTC, the National Cable Television Cooperative, for a long time now. I had heard they were hopeful and that there was no legal way to deny their participation. There was a long period when the organization simply had a moratorium on new members that only “coincidentally” effected LUS. Other public power utilities with cable arms have joined the organization previously. The NCTC isn’t a small organization with little bargaining power; the alliance of generally small cable companies controlled what was the second largest subscriber base in the nation in 2004, ranking second only to market leader Comcast according to a public power white paper in 2004 (p. 29). The discount the NCTC can command has to be comparable to that which, for instance, Cox can command.

Cox….that brings up an interesting issue raised but not fully explored in the Burgess article. Cox is a member of the NCTC…but is most assuredly not a small operator of the type the coop was founded to benefit, being the third largest cable company in the United States. One would think that Cox would not be a favorite of the little guys…but Cox’s subscriber numbers surely dwarf those of any other member. And those subscriber numbers are an immense help in negotiating good wholesale contracts that benefit its smaller members. If Cox has threatened to withdraw it could be enough to seriously scare the coop. And that would, not incidentally, mean that Cox is seriously afraid of LUS’ competition and even more afraid of what the success of Lafayette could mean for other communities contemplating doing for themselves what the big boys refuse to do for them.

The article makes it clear that Cox is indeed the suspected villain in Lafayette’s version of this story:

City-Parish Attorney Pat Ottinger said in a memo dated May 21 to City-Parish Council members that the cable cooperative’s denial of membership to Lafayette seems to be “a conscious effort to discriminate against municipalities” that are trying to launch their own cable, phone and Internet services.

Ottinger also notes in the memo that Cox Communications, a competitor of LUS Fiber in Lafayette, is among the cooperative’s largest members and has a seat on the board of directors….

Ottinger, in his memo to Lafayette council members on the issue, said the cooperative might be reconsidering its denial of membership for the other two cities “but has continued to refuse to allow Lafayette to become a member.

“It is my understanding that the only distinguishing factor is that Cox is not the competing cable provider in those areas,” Ottinger wrote.

Burgess offers Cox a chance to reply which they decline citing pending litigation but nonetheless piously declare:

…Cox has always embraced competition in Lafayette.

Now that, at least, we know is a bald-faced lie. Cox did just about everything imaginable to keep LUS from starting a competing service—from writing laws to funding an ugly push poll. Cox is not your friend in the digital age if you hale from Lafayette.