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THE RISE AND FALL OF THE CABLE EMPIRE

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The New York City cable television companies at one time paid the City almost $200 million a year. That number is now less than $125 million and rapidly declining as a result of the trend of “wire-cutting,” that is consumers cancelling their cable TV subscriptions and obtaining their programming over the internet. Significantly, that internet programming is delivered over the same fiber optic or coaxial cable as the cable signal, but the City receives no revenue from the provision of broadband service by cable companies to consumers. 

I remember when cable television came to my hometown, West Orange, New Jersey in the 1960’s. As we lived on the side of the first hill to the west of New York City, with line-of-site to New York City’s broadcast stations antennae on the Empire State Building and in the New Jersey Meadowlands, we got pretty good reception. But, Suburban Cablevision promised the residents of West Orange better picture quality, franchise fee payments to the town for the use of its right-of-way for the stringing of the cables on utility poles in town and a much ballyhooed public access television channel for broadcasting town council meetings, educational programming and other local amazements. 

Cable TV initially came to New York City at about the same time and came into its own in the late 1980’s when Time Warner was created as the successor to early market entrants. As in West Orange, TWC (Time Warner Cable) agreed to pay the City a franchise fee, to provide universal service to Manhattan, brownstone Brooklyn, Staten Island and Queens and to create public access channels for each of those three boroughs. Later, the City obtained from TWC free access for to cable infrastructure for its own telecommunications and internet access needs. 

From its inception, TWC was led by Richard Aurelio, a former Deputy Mayor in the Lindsey Administration, who saw the company’s cable franchise as a public trust and created NY1 News, as a provider as 24/7 local news coverage – much like the then-recently established and highly successful Cable News Network from Ted Turner’s Turner Networks (later also acquired by Time Warner). Therefore, the negotiations between the City and TWC, while spirited and arms-length, were something of a friendly arrangement. The City’s cable franchise negotiations were led from the creation of the franchise by Bruce Regal, a college friend of mine. As a result of this experience, Bruce was for decades the City’s telecommunications expert – and a nationally recognized authority on the municipal regulation of telecommunications. 

Cable television regulations is a hybrid of Federal, state and local regulation, with the Federal Government’s role, under the Cable Communications Policy Act of 1984 (47 U.S.C. ch. 5, subch. V-A), predominant. The Cable Act sets as a maximum franchise fee from a cable provider to the local municipal government 5% of gross revenues from cable television services. The Cable Act also requires cable companies to capitalize and support public access channels for municipalities, and to provide such other services as are mutually agreed to between the provider and the city. Operating support for the public access channels is based on a per subscriber payment negotiated between the cable company and the municipality.

Later, Cablevision, the Long Island cable provider (a predecessor of which was an early cable provider in Manhattan), and an owner of a number of significant content providers, successfully sought a franchise for the Bronx and Brooklyn. Cable TV service was seen as a natural monopoly because the large capital investment involved – and therefore only one cable company could be profitable in any geographic area. Cable companies were given an exclusive franchise in consideration for providing universal service (as well as the other statutory benefits). Under the Cable Act, interestingly, states and municipalities were not given the authority to regulate cable prices, unlike the decades long regulation of telephone pricing by the states of the American Telephone and Telephone Company and its Bell System affiliates (like, in New York City, New York Telephone, later Bell Atlantic, then NYNEX, and ultimately Verizon). It was the City’s position that breaking up service among two providers, with exclusive geographic service would create a certain kind of competition and provide the City with multiple options, in the event of the failure or monopolistic behavior by one of the franchisees. 

As I discussed in my last post, in the 2000’s Verizon sought and received a franchise for the entire city, providing another degree of competition in service (although a recent study by students at Columbia University concluded not significant price competition). 

It is worth noting that when I was the City’s telecommunications franchise administrator, we approached Comcast, one of the country’s largest cable providers (as well as the owner of NBC Universal) about entering the New York City market in order to provide an additional market participant. A senior Comcast executive told me that while Comcast was interested in purchasing TWC, at the time it was sold to Charter Communications, it was not interested in being a fourth player in New York City under any set of regulatory or technological circumstances (for example sharing existing fiber optic cable, so as to drastically reduce the required capital investment) however favorable. 

It should also be noted that Charter’s (the successor to TWC) business model, while highly favorable to its investors, is probably not in the best interest of New York City cable customers. Charter is in the business of generating a maximum amount of revenue with the minimum amount of expense from its New York City franchise, and is very good at it. It is not significantly upgrading its infrastructure to fiber to the home, instead relying on its legacy coaxial cable-based system. It has broken the union representing its field employees by hiring non-union contractors to maintain its infrastructure and in-home customer service. At the same time, it controls Spectrum NY1, which has become an essential source of local coverage, where it has also alleged to be an abusive employer by older, female on-air staff. Charter could turn out the lights at NY1 on a whim. 

Each borough of New York City has a public access cable programming provider, set up as an independent not-for-profit corporation, the board of directors of which is appointed by each borough president. As result, channels have become creatures of the borough presidents, who have become among their most prominent supporters. As of 2021, the combined budgets of the public access channels were over $30 million, paid for by the cable companies. Each of the channels, except, perhaps, for BRIC, the Brooklyn channels, has become something a sinecure for its executives, for a service that very few New Yorkers watch or know about. 

At one time, the public access channels, particularly Manhattan Neighborhood Networks, were seen as quirky vehicles of free speech, allowing just about anyone access to the “airwaves.” MNN had its own star in Robin Byrd who as I recall from my youth, who had a talk show where she interviewed guests in a crocheted string bikini. The public access channels claim that they train New Yorkers in video production, provide an alternative news and programming outlet, as well as video coverage of borough events – particularly those sponsored by the borough presidents. Unfortunately, none of the channels has data about how many people watch them – and likely very few people do. In addition, given today’s technology, public access television is at least equally accessible via the internet, and the use of the still valuable cable channels for their programming is not very important or useful, particularly given the lack of viewership data. 

The channels have become minor fiefdoms. MNN has a wonderful, state-of-the-art, but underused facility on East 104thStreet in a former firehouse. The Bronx channels have been aggressive in advocating for an upgrade of all of its signals to High-Definition quality. BRIC, also has an excellent facility in downtown Brooklyn. However, BRIC’s studios, unlike those in the other boroughs, are a beehive of activity, as BRIC has used the payments it receives from the cable companies to broaden its reach to being a community-based arts organization with youth programs and visual and performing arts presentations.  

The cable franchise paradigm, which provided cable programming to New Yorkers for several decades, is breaking down,as a result of wire-cutting, and the migration of cable customers to the internet. Most significantly, the Cable Act does not allow municipalities to charge franchise fees against cable companies’ broadband businesses, so as dollars from consumers switch from cable to internet, the City’s franchise fees decline. That $200 million has been reduced to about $120 million and is declining rapidly. Similarly, funds for the public access channels, levied on a per-subscriber basis, are also being reduced with the decline in subscriber numbers. Worse yet for the municipal coffers, during the Trump Administration, the Federal Communications Commission, which implements the Cable Act, led at the time by the former chief lobbyist for Verizon, used its rulemaking as wish fulfillment for the telecommunications industry under the banner of incentivizing increased private investment in telecommunications infrastructure. The FCC adopted a rule that made the value of the operating income provided by cable companies to the public access channels, as well as the dollar value of all non-cash benefits provided by the cable companies to municipalities as a credit against the 5% franchise fee cap with very few exceptions – potentially further reducing franchise fee income. This ruling has been upheld by the courts, but in New York City, the cable companies have not yet moved to implement it.

All of New York City’s cable franchise agreements with Charter and Altice (the successor to Cablevision) expired in 2020 and are now operating by automatic annual extensions, and Verizon’s agreement expires in 2023. There is little doubt that if and when those agreements are renegotiated, the already declining benefits from the cable companies to the City, in the absence of aggressive changes by the FCC, will be slashed. The City’s capacity in any negotiation has been seriously compromised by Bruce Regal’s untimely passing in 2016 and the retirement of one of its other senior telecommunications attorneys. The most recent two General Counsels at the recently renamed Office of Technology and Innovation are the first ones in the agency’s history without significant prior telecommunications expertise.

Where does that leave the City? Not in a very good place with respect to the regulation of cable television and the provision of internet service. Certainly, it should be a high priority of the City’s Washington, D.C. lobbying office, to lobby the FCC to reverse out of the rule-making favorable to industry adopted during the Trump Administration, and to go further to the maximum extent permitted under the Cable Act to impose franchise fees on internet service providers.

One of the challenges in the area of technology regulation – as we have seen with Facebook and Google – is the inability of Congress to adopt legislation that keeps up with technological changes. This is a problem as much for the telecommunications industry as it is for states, municipalities and consumers. While this regulatory lag is true under the best of circumstances, with a factious, divided Congress and a newly ascendent Supreme Court working to limit the power of administrative agencies, it has made the situation for all practical purposes impossible. The Cable Act has not been substantially revised since 1984 and is seriously antiquated and difficult to apply to current technologies. This is all equally true with respect to municipal regulation of mobile telecommunications (cell phone service), which I hope to write about shortly. But New York City should be in the forefront of looking for opportunities to revise and update the Federal telecommunications regulatory framework. 

In the absence of changes at the Federal level, the City will have to be incredibly aggressive and smart in order to maximize what little leverage it has with the cable companies. While the City has an excellent two person staff to “audit” the cable companies, it should engage outside auditors to review cable company payments for as far back as the regulatory scheme and franchise agreements allowed. Audit firms are prepared to provide these services, in exchange for a percentage of any amounts they might recover from the cable providers. This is a no risk, high return proposition for the City, that is likely to reap tens of millions of dollars in cash, while sending a signal to the providers that there is a new sheriff in town that means business. But at the same time, the City is smart not to begin negotiations with the cable companies to enter into new franchise agreements, because under current circumstances any new agreements can only be on terms inferior to those of the expired agreements which are now being operated under by extension. 

The issue of the public access channels will also need to be seriously addressed. They continue to advocate for increased resources, in a declining revenue environment. Any such increase in resources will have to come from the City budget, particularly given the current situation with FCC rules. With the exception of BRIC, any such increase would be hard to justify without hard evidence of a significant number of viewers that the public access channels might be reaching, and a thorough examination of the governance of the channel operators ([MNN was recent the subject of a Supreme Court decision regarding the first amendment rights of public access programming producers that arose out of the chaotic situation arising out of a fist fight between a disgruntled producer and MNN leadership at an MNN public meeting some years ago (Manhattan Community Access Corp. V. Halleck, 882 F. 3d 300 (2019).)].

In an ideal world, the City would be deriving increased resources from the utilization of its rights of way by the cable company/internet service providers for their cables; it should be able to encourage new entrants into the cable/ISP market utilizing the city’s extensively overbuilt fiber optic network in order to drive down prices; work to make sure that all ISP customers are obtaining the highest quality service from fiber to the home networks; and that all of the city’s low income customers take advantage of the Federal subsidies available to buy down cable and broadband prices to $15 per month.

EXPANDING THE REACH OF THE INTERNET IN NEW YORK CITY

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A sign in rural France announcing fiber optic broadband service

It has become part of the city’s progressive conventional wisdom that there are digital deserts in neighborhoods across the boroughs, and this contributes to a widely assumed “digital divide.” However, like with so much else of the political conventional wisdom, these accepted truths have a problem. They don’t happen to reflect the actual facts.

The truth is that the city has an abundance of fiber optic cable that reaches across the five boroughs. In particular, Verizon is obligated under its franchise with the City to provide internet and cable service to just about every home in town. Altice, formerly Cablevision, which operates under the brand Optimum and is another one of the city’s cable providers also has a growing fiber optic network. The city’s third cable company, Charter Communications, operating under the name Spectrum, offers inferior copper wire internet service to a large number of New York City homes. But in addition, there are about two dozen other companies who have laid fiber around the city for purposes other than selling cable and broadband service to residential customers.

One of those is Transit Wireless, which now has a network providing mobile telephone and Wi-Fi internet service to the MTA’s underground subway stations. Transit Wireless, a division of BAI, an Australian telecommunications giant, owned in turn by Canadian pension funds, has just contracted with the MTA to provide the same services to all of the subway system’s tunnels and above ground stations (https://www.nytimes.com/2022/07/29/nyregion/mta-cellphone-service-subway-tunnels.html). In order to run this service, Transit Wireless will have a high-capacity fiber optic network that mirrors the subway map. 

Another is a company called Zen-Fi, which has been in the business of providing telecommunications infrastructure to the mobile telephone companies – T-Mobile and AT&T (BAI has apparently recently announced its intention to acquire ZenFi). Last year ZenFi entered into a deal with the City of New York to expand its fiber network, which included service to the LinkNYC public Wi-Fi kiosks, to a newly designed sidewalk kiosk that has the capacity to carry mobile telephone transmitters to support the latest iteration of mobile telephone technology called “5G.” Both Transit Wireless’ and ZenFi’s networks could be leveraged to provide more competitively priced home broadband service.

Fiber optic cable is pretty amazing stuff (in “Fiber,” Yale: 2018, Susan Crawford lays all of this out). Most importantly, the electronic pulses it carries are the backbone of all telecommunications transmissions for the foreseeable future. Phone calls went over copper wires for decades. Now, fiber can carry land line phone calls, cable signals, high speed broadband internet service, commercial data transmission and mobile phone service. While mobile phone service is called “wireless,” for much of its journey, mobile phone signals have to travel along a fiber optic pathway – it could be thousands of miles under vast oceans, or around the corner. But the signal goes from your phone – wirelessly to a receiver, then to a fiber cable, then to a transmitter, and then wirelessly to the destination phone (with lots of switches in between). The infrastructure is mostly wired, despite the nomenclature.

Fiber optic cable, which is made up of a bundle of thin glass strands through which light is transmitted carrying electronic information, has a couple of other nifty features. First, because there is no friction in the transmission of light through the glass strands, it doesn’t degrade. As far as we know now it lasts forever. A fiber cable may get accidentally cut (as in New York City it is either buried under streets or suspended from poles), or the insulation around it may get damaged (from water or heat), but the strands themselves stay calm and carry on indefinitely. Fiber optic cable also has a theoretically boundless capacity to carry information. A tremendous amount of information can be pushed through the fiber at the same time. What the much ballyhooed 5G mobile service is about is changing the way in which the light pulses are organized, transmitted, switched and read in the cable (and wirelessly), so that more data (including voice) can be pushed through the same amount of cable. 

Also interesting is the role that Verizon plays in all this in New York City. Verizon is the successor to New York City’s telephone company, New York Telephone – a part of the old American Telephone & Telegraph Company, the nationally regulated telephone monopoly. In addition, for many years New York City had two cable companies, Time Warner Cable (now Charter) and Cablevision (now Altice) – also somewhat regulated monopolies. The cable companies later used their copper-based cable signal transmission system to provide internet service, as that became a thing (Remember when you used to call AOL over the phone to get on the internet?). The cable companies replaced that function – and over time some upgraded their systems to provide high speed broadband service). About twenty years ago, Verizon successfully petitioned the City to get into the cable and internet provider service. The City made Verizon’s entry into the market conditional upon its providing their service to every home in the city, in order to create some level of competition for Time Warner and Cablevision, each of which had an obligation to provide service to a designated potion of the city (and between the two of them provided service to the entire city). 

Verizon initially competed on internet service with what was called Digital Subscriber Line service (DSL) which used its pre-exiting copper wire phone system to provide internet service. The legacy cable providers transmitted their signals over a coaxial cable system. A coax system still uses copper as the transmission medium, but coaxial cable is specially built with a metal shield and other components engineered to block signal interference and is generally faster than DSL. But neither is a patch on fiber optic cable, and at some point Verizon decided to switch it’s entire system to fiber in order to be able to advertise and provide real broadband service at faster speeds than the cable companies.

That turned out to be a terrific business decision, because of the versatility of fiber. As Verizon expanded its mobile telephone business (a complicated story in itself), it found itself with a competitive advantage because in New York City it was already building the city’s most extensive system of fiber optic cable that could be used as the backbone for its mobile telecom system. Ultimately, it also began eliminating its copper wires and even sending land line transmissions over its fiber cable. Therefore, Verizon is a highly efficient user of its fiber lines. No other competitor is in a position to make such extensive use of its fiber optic network. The gold standard for high-speed broadband service is a fiber network that goes right to a users’ front door (Altice and Charter generally deliver fiber to an apartment building, and then distribute the signal within the building via aging copper wire). Verizon is rapidly attempting to provide fiber to the home over its entire system.

In addition, it is essential to point out that the leading telecommunications financial analyst, Moffat Nathanson (https://www.moffettnathanson.com/research.aspx), has opined that fiber optic networks are natural monopolies and that given their capacity and expense, only one fiber optic network can be profitable in any given market.  New York has multiple such networks, some of which are quite extensive. 

All of that being said, why isn’t high speed broadband service ubiquitous? I have come to the conclusion that there are two reasons. First is the obvious one that many low-income families find highspeed broadband service too expensive. While there are some national programs to provide lower quality service at lower prices to low-income families, those programs have not been widely adopted. Layered on top of that appears to be a consumer preference among low-income families to access the internet via their mobile devices. During COVID, this turned out to be a problem for families with children accessing school via the internet from home. Participating in Zoom and doing homework from a cell phone is far from optimal (particularly with multiple children in the household). Interestingly, just prior to the COVID pandemic, Altice offered families with school age children in their service area (all the of the Bronx and parts of Brooklyn) a free tablet and $15 per month high speed broad band service. Only a few hundred families accepted the highly publicized deal.

In addition, we don’t really know how many families don’t have high speed internet service. The information used in the City’s Internet Master Plan (https://www1.nyc.gov/assets/cto/downloads/internet-master-plan/NYC_IMP_1.7.20_FINAL-2.pdf) (all of which was extensively rewritten and edited by me before its publication), comes from Federal Communications Commission data, which I believe to be badly flawed (FCC data is based on aggregated information by census tract from the internet service providers that appears on its face to be inaccurate. The City has an incomplete, but far more accurate, set of fiber optic cable network maps showing the extent of the networks.). I suspect, based on my experience, that the number of families without high-speed internet access is much lower than that advertised in the Internet Master Plan. And this is the source of the apparent misinformation about a digital divide. 

In addition, City Hall in the De Blasio administration had a highly antagonist view of the cable companies, particularly Verizon. In fact, during that administration, the City brought a law suit against Verizon, which failed to fulfill its obligation to provide ubiquitous city-wide service (although is service was quite extensive, there were blocks where it proved expensive to wire including, surprisingly, on the Upper East Side, that Verizon decided not to provide infrastructure for)( https://cdn.arstechnica.net/wp-content/uploads/2017/03/nyc-vs-verizon-complaint.pdf). Two years ago, the City settled that suit after years of unproductive litigation.

The Mayor’s Office of the Chief Technology Officer was focused on doing an end run around the cable companies by creating its own network of internet service providers – ideally through community-based organizations. The CTO’s position was that the cable companies’ internet service was too expensive, unreliable and of insufficient speed. In my opinion, given the already extensive network of fiber optic cable, that was an idea that was both inefficient and impractical. It hasn’t happened, and it is never going to happen. The real solution is finding a way to use the existing network, buy down the cost of high speed internet for low-income families, and engage in an extensive community-based campaign to get broader adoption of high speed home internet.

One example of the combination of misinformation and resistance to adoption was the lack of service in the buildings of the New York City Housing Authority. The CTO’s office went to great trouble and expense to create a high-speed internet service at           Queensbridge Houses, NYCHA’s largest development. That project was a technical, market and economic failure. What my team and I found when trying to get NYCHA wired up was opposition from residents and staff to having Verizon technicians in NYCHA buildings for reasons running from a lack of trust in anyone coming into residents’ apartments to sheer bureaucratic obstructionism on the part of NYCHA facilities staff. Thanks to increased cooperation between NYCHA and Verizon arising out of the settlement of the litigation, most of NYCHA’s facilities will have fiber to the home. But that still leaves the issues of price and adoption.  

However, as a result of the American Rescue Plan adopted by the Federal government in response to the COVID pandemic, that problem should be mostly solved under its Affordable Connectivity Program.

“The Affordable Connectivity Program is an FCC benefit program that helps ensure that households can afford the broadband they need for work, school, healthcare and more. The benefit provides a discount of up to $30 per month toward internet service for eligible households and up to $75 per month for households on qualifying Tribal lands. Eligible households can also receive a one-time discount of up to $100 to purchase a laptop, desktop computer, or tablet from participating providers if they contribute more than $10 and less than $50 toward the purchase price.”

The eligibility for the program includes families receiving a range of Federal assistance, including the widely accessed school lunch program. Almost no low-income family should be left behind.

Unfortunately, as far as I can tell, very few New York families know about the availability of this subsidy. The customer service staff at the City’s technology agency who deal with cable customers and complaints have not been trained to encourage residents to sign up for the program. I frankly fail to understand why the City and State aren’t shouting about this program from the rooftops, and enlisting staff to encourage New York City residents to sign up. It may have something to do with the fact that the program is designed to utilize the services of the disfavored existing cable providers, who will be paid by the Federal government to deliver the service. [The Adams administration just implemented a version of buying down free internet service for NYCHA residents at two of its sites. https://www.optimum.com/big-apple-connect. It does not take advantage of the Federal funds].

While in rural areas, getting fiber optic service into remote homes may be prohibitively expensive, in New York City almost every home has access to at least two internet service providers, one of which has infrastructure that provides high speed fiber to the home in the street. Access to high-speed internet service in New York City for low-income families can be a near-term reality.