Critics poke holes in math behind Wheeler's set-top proposal

Critics are taking to task the math behind FCC Chairman Tom Wheeler's plan to "unlock" the pay-TV set-top leasing business.

"Imagine you wanted to launch a campaign to garner public support for a technology mandate that will steer profits to a politically favored class of companies," said Hal Singer, senior fellow at the Progressive Policy Institute, blogging on Forbes. "Publishing an eye-popping statistic that stokes the anger of the masses would be a very effective tactic."

Working for a non-profit organization that describes itself a "think tank backed by New Democrats," Singer said the stats quoted by Wheeler and an FCC fact sheet come directly from a survey of the major pay-TV operators conducted last year by Sen. Ed Markey of Massachusetts and Sen. Dick Blumenthal of Connecticut. In many cases, operators supplied little, if any, data. 

Still, Wheeler leveraged many of the figures. For example, he said U.S. cable, satellite and telco TV subscribers pay, on average, $231 per year to lease set-tops. Operators take in around $20 billion in revenue from leasing set-tops, he added, and make anywhere from $6 billion to $14 billion in profit. Customers are paying 185 percent more to lease set-tops than they were in 1994, adjusted for inflation, Wheeler said. 

Also citing numbers that are now part of an FCC fact sheet, Wheeler said that U.S. pay-TV consumers are paying, on average, $7.43 per month to lease video set-tops. 

Thumbing through the various responses given to Sen. Markey, it's difficult to understand these conclusions. In its response, for example, Comcast (NASDAQ: CMCSA) said that its 22 million customers who lease video set-tops pay between $1 to $2.50 a month. But when asked: How much does an average customer spend per month to lease set-top boxes for their household from your company?, the MSO responded: "This information is not publicly available because of competitive sensitivity."

Likewise, DirecTV, Dish Network, Time Warner Cable, Charter Communications, Verizon FiOS, AT&T U-verse, Cablevision and Bright House Networks all refused to answer the question regarding average leasing costs, citing competitive issues. Some responses, such as those issued by DirecTV and Cablevision, delivered few answers with any numerical relevance to any of the questions in the survey. 

"The cable providers held this information close to the vest, and the answers they did provide doesn't permit one to compute an average price for STBs," Singer said. "While the answers to [the question of how much each operator charges to lease set-tops] serve as a useful rate card, they would need to be married with data on how many customers take each flavor of STB to be helpful. How the Senators used these datapoints to arrive at an average monthly price of $7.43 is a mystery."

Representatives from Sen. Markey's office did not respond to FierceCable's inquiry for comment. Neither did representatives for the FCC.

However, Shiva Stella, a spokeswoman for the non-profit public interest group Public Knowledge, which further extrapolated Sen. Markey's data into set-top leasing profit figures, said: "The numbers are based on what the cable companies provided to the offices themselves, and have not been questioned by those providers. Also, there are similar numbers in FCC reports."

For more:
- read this Forbes article

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Public Knowledge: Pay-TV customers overpaying on set-tops by $6 billion to $14 billion