Interview Date: November 29, 2000
Interviewer: Jim Keller
JIM KELLER: This is the oral history of E. Stratford Smith, Esquire. An early employee of the Federal Communications Commission. The first General Counsel of the National Community Television Association and perhaps, in fact no doubt, a man who knows more about the history of cable television and regulation both before the FCC and the Congress than any man currently living.
As a note and aside the viewer to this is recommended to look at and read in conjunction with this report the audio history that Strat did in March 31 through April 2nd of 1986. We will not be going over that function of those statements at this time but we will take a different tack as to Strat’s history. In his earlier history, they went into great detail about his background, his family, his thoughts about the regulation, how we were involved in it. We are going to do it a little bit differently and we are going to look at the history of the industry through Strat’s eyes in the concept of things that happened. We’re going to be talking about the copyright. We’re going to be talking about retransmission consent. We’re going to be defining these terms and what part Strat played in the overall development of an industry and an industry definition of itself. We will then eventually end up to what is the industry is today and he played a part in the development through the FCC rulings, the Congress to where the regulation and currently the status of where the industry is today. The date today is November 29, 2000. We are at Western Show in Los Angeles, California. We are currently in the Westin Hotel in downtown Los Angeles. My name is Jim Keller, the interviewer of Strat. Let’s start out by giving us a background of how you envisioned the communications business in the very early days.
E. STRATFORD SMITH: Well, when you say the communications business, are you referring more specifically to the cable business, what we called then the community antenna business?
KELLER: No I’m referring to even before that to your theory of how the telecommunication business developed through the telegraphy, telephone and the cable and how the relationship between those were in the very early days. In the 1930s and 1940s.
SMITH: Well, that’s a little difficult for me to respond to because at the time you are talking about I was relatively new to communications. It was when I was initially on the staff of the Federal Communications Commission and I didn’t know too much about communications generally then. Since then at the College of Communications at Penn State, I have designed and have been teaching a course in telecommunications history including cable and that’s where I have developed my more current understanding of the communications industry. I can only say this – at the time I went on the staff of the FCC, to me the idea of communications had to be terribly, terribly important and I thought that it was probably… the FCC was probably the most important government agency at the time. Now this of course was at the beginning of WWII and it did seem like it had to be terribly important.
KELLER: I should have mentioned the fact that you currently hold a chair in — what do they call it — Broadband Cable at the University of Pennsylvania State in State College.
SMITH: We call it that now. It’s the Cable Television Center Endowed Chair, initially Endowed Chair in Cable Television, then in Cable Television Studies and now we’re beginning to call it in Broadband Communications Studies.
KELLER: How did you become involved in what we will in the early stages of this discussion call CATV?
SMITH: I was on the staff of the FCC and at the time I was the Chief of the Telephone Services and Facilities branch of the Common Carrier Bureau of the Commission and while in that position, I had a letter come over my desk, sent down from one of the commissioner’s offices. This letter had been written by a man by the name of Leroy Parsons, who is often credited with having built the first CATV system. Mr. Parsons had written to the FCC and told them about a community antenna that he had built to receive signals of the only television station that was coming on the air in the state of Washington, KPRC and he wanted to know whether he was doing something that he needed the FCC’s permission and nobody had ever even heard of him in the CATV sense and nobody knew what it was he was doing. But the letter was sent to me because I had done some common carrier television work and it was thought that perhaps I could go look at it and when I read the letters and saw what was involved, I became interested and suggested to my superiors that we probably should take a look at it because if it developed beyond that particular situation, it might be something the Commission would be interested in.
KELLER: And you wrote a report at that time much to your consternation, you felt that developing industry was a common carrier and subject to the authority of the Commission, did you not?
SMITH: Well, I will slightly correct that. It makes for a nice anecdotal story at any event. Yes, I did. There were two possibilities under the Communications Act that existed at that time. One could either argue that the community antenna type of operation was part of broadcasting and therefore might be subject to the Commission’s regulatory control because it was the end product in certain areas of broadcasting. And the other argument would be that it was a communications common carrier for hire because the users of the service paid a fee to the company for receiving television signals and relaying them to the subscriber and that had some of the implications of being a communications common carrier for hire. So either one of them was in a sense a plausible argument and in my first memorandum that went on up to the General Counsel and eventually to the Commission, I said that it could be argued that CATV was a common carrier of communications because it was interstate communications. Broadcasting is interstate by definition. So all signals are interstate and therefore it might be an interstate communication service for hire and thus subject to the Commissions’ jurisdiction. I didn’t say it was. (Laughter)
KELLER: You’ve figured an awful lot of ribbing about that over the years though.
SMITH: Yes, I have.
KELLER: When you became the General Counsel of the National Community Antenna Television Association currently referred to as NCTA, what were some of your early, early problems?
SMITH: There were a number of them because the industry’s basic underlying problems all existed right from the very first day and I can just name a number of them. If you want me to explore any of them I can do that for you. But I mentioned Mr. Parsons and his CATV system was at Astoria, Oregon and Mr. Parsons had written to the television station and told them what he wanted to do and wanted to know whether he needed any permission from them. The television station wrote back, the manager did and said we’re very interested in what you’re doing and we would be happy to give you permission to receive our signals but we cannot give you any permission with respect to the programs themselves because the programs are copyrighted and we don’t own the copyrights. We’re just licensed to broadcast them. We can’t give you permission. Now there’s a provision in the Communications Act as you well know, Jim, that prohibits a radio or television station from rebroadcasting the signal of another radio or television station without first getting permission from the originator. That’s the retransmission consent provision. So both of those issues came up right then at the beginning. Was this a rebroadcast service subject to retransmission consent or was it a copyright infringement with liabilities to the copyright owners? Now there were other issues that would come up, for example, is the CATV system a public utility? It had some of the trappings of a public utility without going into detail and could the state public service commissions come in and say we have jurisdiction to regulate you as a public utility.
KELLER: Which they did subsequently.
SMITH: Well, they did subsequently do it and we had several cases. One of them that I’d like to talk about if you get to it later on but the public utility issue was there. Then we knew there were basic tax issues for example, federal tax issues. One, there was a communications excise tax, basically intended to apply to telegraph and telephone service and the government insisted on applying it to CATV and that was a case which was partially responsible for the organization of the National Community Television Council at the very beginning. Another tax case that existed right from the beginning flowed from the heavy connection charges that CATV systems would collect. For example, the economic price structure was a monthly charge of $2.50, $ 3.50 maybe $4.50 a month for this service but a whopping connection fee ranging anywhere from $100 a connection to in some cases to $175. Most of the CATV operators in those days, as you would expect, were not wealthy men. They were appliance store dealers and radio technicians and people who were running small businesses and saw an opportunity to make some money and a need for television reception. They couldn’t get money to build the system except these heavy connection fees and many a system was built — the next few hundred feet was built out of the next $100 or $150 they got on a connection fee and a very competent accountant in Philadelphia advised the early operators – maybe you could use the theory of a contribution in aid of construction. In the utility industry and that was a no-no for me anyway, in the utility industry, telephone and power companies used to be able to collect payments like that and they would treat them for tax purposes as contributions in aid of construction. They were not operating income and that way they didn’t have the income tax on them. And many cable operators followed that practice in the early days and built their systems out of those connection charges. The government didn’t like it and the government brought a case against the industry and over several years, it was finally decided against the industry.
KELLER: I want to get back to the distinction between carrying a signal and carrying the program because this has to do with the continuing battle about copyright issues over the next 20 years or so that you were involved in. The whole thing, including right up to the final disposition of the Fortnightly case.
SMITH: Well, that is correct. That was a fundamental issue and as I pointed out to you earlier, it came out right at the very beginning at the Astoria, Oregon situation. The fundamental distinction is this: that television signals are broadcast under the provision of the Communications Act and are intended to be received by the public for use in their homes, for their private pleasure and so on. That retransmission consent provision got in because that was a possible play to block CATV system from doing this without making some sort of fee payments to somebody else. The question that came to my attention very, very early was how that retransmission consent issue could be handled? To me it was a very same issue as to whether copyright in television programs was something that was being infringed on by delivering the signals with the programs. Now you noticed how careful I am. I can never get over that because right from the beginning I said to the industry and if you can call it an industry in those days – it was very, very small – I said to the people that I represented that “Look, you cannot be in the program business because if you are selling programs, then the probability is you’re infringing copyrights.” The words to the law is you cannot make a public performance for profit of copyrighted materials without permission of the copyright owner. Getting a license from him and paying for that license. So to me retransmission and copyright were essentially the same thing. Although they were two different provisions of law. What answer could you possibly have to retransmission consent, not wanting to pay a fee or copyright, not wanting to pay a royalty? And the only real answer that I could think of – and it didn’t take a genius – I’ve been given a lot of credit for it but anybody could have come up with it, the answer was you are an antenna service and nothing else. The public has a right to receive those programs in their home and the fact that they lease an antenna service instead of putting their own up because it’s a more efficient way to do it, doesn’t make a bit of difference. It’s still bringing the television signals into the home where they have every right to be and that was our fundamental legal concept from the beginning and we used it in virtually every legal issue that came up.
KELLER: And fortunately or unfortunately, depending upon how you look at it, this concept that changed the evolvement of the industry to where we currently are paying copyright and we have for some time. Paying copyright because we are now programmers.
SMITH: Well, that is correct and I’d like to comment. You say fortunately or unfortunately.
KELLER: Depending on what side of the issue you stand on.
SMITH: Well, that is true and I happily can say have lived through both and during the first years, right up until 1968 when the copyright case was decided.
KELLER: That was the Fortnightly case?
SMITH: That was the Fortnightly case. I constantly was on the backs of the operators in the industry – you are not in show business. You are not selling programs. You are not delivering programs. Now understand it because if you are, then the copyright owners are going to own your industry and by the time the copyright case was finally completed, people were beginning not to like me because I was holding them back from moving ahead to do something that was perfectly logical and that is to originate their own programs. Get programs from other sources. Why rely on the broadcasters for everything? We could go in the program business and what I was saying to them “Look, the day the legal issue is decided, do whatever you want but if you want to lose the case and maybe lose your properties in damages as a result of it, you’re going to stick to this master antenna concept” and they did. But it was a struggle. But see, I’m not unhappy that the industry pays copyright fees. The fact what we did was what put the industry in a position where the broadcasters and the copyright owners could not take them over. We put the industry in a position where they could deal from strength. If they wanted to go into programming, I was all for it. I was really intellectually not against it. So but wait, just wait until the right time. So today where there’s a powerful strong industry which is now a programming industry, is not a hard wire transmission industry. I think it’s great. It was a natural evolution and its part of the convergence. Cable sort of converted into the broadcaster’s area in the sense that they went into furnishing the programs. Now cable is converging into the telephone area and that’s a long story that hopefully I’m preparing a book about.
KELLER: We’ll get to that also but I’d like you to talk about the Fortnightly case and your absolute insistence on the master antenna theory based on the fact that, you alluded to it, the triple damages for all past infringements would have completely bankrupted the industry and in effect turned it over to the copyright holders. Would you go through the Fortnightly case just a little bit please and through the two court decisions and finally the Supreme court decision?
SMITH: Surely, I would be happy to. The Fortnightly case was filed against United Artists, which was an organization that had the rights to a very, very large library of television programs that they had hoped and planned to contract out and license for use by UHF broadcasting at the time. And the broadcaster’s, right from the beginning and the copyright owners, including the baseball clubs for example, took the position that any reception of their baseball games or their programs and transmission as an antenna service was copyright infringement. Actually when we were first facing the issue, I didn’t realize in my own mind what an important issue it was and what the conceivable consequences of being wrong were. We didn’t feel that we had any choice. It was an antenna service but here I was advising cable operators, CATV operators all over the country the way to protect yourself is to stay out of programs. Just be an antenna service and nothing else and if I were wrong, then they were all going to be subject to triple damages. Triple damages for violating the copyright laws and that meant whatever each individual infringement of every program that you ever received, every right in every program that existed was going to be multiplied by three and the millions, hundreds of millions of dollars would be involved are something that you can’t pay. Your ability to go out and negotiate all these individual copyrights by yourself, you know, you can’t do it. You don’t know what programs are going to be broadcast. You don’t know who the copyright owners are and it’ll just shut the industry down. I used that to scare them to death all of those years to make them understand how important it was and we did feel, very honestly, that if the case was lost, the copyright providers could take over the industry if they wanted to do so.
KELLER: And you lost the decision in the lower court, in the trial court.
SMITH: Yes, I didn’t finish answering the question did I? I let myself go astray. Yes, the complaint was filed in 1966. I think that’s kind of important because it wasn’t decided finally until 1968 and that’s quite a while. It’s a number of years and all of that time, went in preparation for the case – discovery and interviews and all sorts of things. And we finally got to trial in New York City and the District Court for the Southern District of New York. Our opposing lawyers were a firm of Philips, Nizer, Benjamin and Krim, one of the best known law firms in the United States and particularly in the entertainment industry and Louis Nizer was the star of that firm with the national impression that he never lost a case. We tried the case, as you implied, and the single judge in the Southern District of New York ruled against us. Said it was a public performance for a profit. That, of course, was a blow. We appealed it for the Circuit Court of Appeals for that circuit. I think it was the Third Circuit but I’m not sure right now and argued the case. Didn’t try it but argued the case on the basis of the record before a three judge court and in due course, the three judge court, all three judges voted against us. Said it was a public…sustained the lower court. Put it that way. We petitioned the Circuit Court of Appeals for a hearing en banc before all of the judges — justices in that circuit which was maybe as many as 13, I think it was 13 and the whole panel of judges heard the case and due course, they sustained the three judge court. So there we were at the end of that and this was early 1968, there we were having lost the case in two lower Federal courts without a single judge supporting us.
KELLER: So then you petitioned the Supreme Court?
SMITH: Yes, we did.
KELLER: Amidst great controversy as I remember.
SMITH: Okay, you’re at … that’s the story you want me to have to tell, to go into it. Of course, the board of directors of the National Community Television Association, which was its name by then, was desperately concerned and they were also — there were some members of it who felt that the case, maybe we shouldn’t take the case to the Supreme Court because that was going to cost quite a bit more money and what reason did we think…did we have to believe that we might win in the Supreme Court? It was – I’m not going to say bitterly debated because I don’t think it was a bitter debate but it was thoroughly debated at a board meeting at which Robert Barnard, the head of the other law firm, the New York law firm of Cleary, Gottlieb, Stein and Hamilton. He and I spent the entire day before the board trying to argue why at this stage of the game they should go ahead and appeal it and they authorized the appeal. So, we filed a petition with the court for a hearing and with really considerable doubt as to whether the Supreme Court would even agree to the hearing because they have a right to say we’ve read your briefs and it’s not worth having an oral argument and so on. We were very worried it would just be thrown back in our laps and it would be over but something happened. Something was going on that we didn’t realize at the time. Became apparent to us; there was another case going on involving the FCC’s rules regulating cable television.
We haven’t talked about FCC jurisdiction yet. We’ve jumped ahead to this and I think this is the appropriate place to do it. The FCC had adopted rules and regulations to protect the broadcasters against alleged competition from CATV systems that were freezing the industry to a standstill and the rule that was…that I’ll use for illustration was the so-called Distant Signal Rule. A cable system could not take the signal of a television station outside of its predicted Grade B contours into another. Into one of the top 100 markets without getting permission from the Commission and the Commission wasn’t granting any of those permissions. And in one case out in California, it had granted without hearing a petition by a broadcaster in San Diego to prohibit the reception of the television stations from Los Angeles, who believe it or not, their signals – San Diego – was within the Grade b contours of their stations because their transmitters were up on Mount Wilson and covered a much larger area than the same power would go in many other areas.
KELLER: Strat, as we ended the first tape, we were discussing the relationship between the Fortnightly copyright case and the Southwestern case which had to do with the FCC’s rules against the importation of distant signals and you talked about the contours of the Los Angeles stations falling over the San Diego area, would you define a contour please and take it from there?
SMITH: Well, yes, actually it’s a technical concept that even a lay person can understand. In the FCC’s rules and regulations they have a predicted Grade A contour coverage area.
KELLER: Virtually, is it what, 85% of the people in that area can receive? Is that it? It’s a high percentage I guess.
SMITH: Yes, it is.
KELLER: And a B is lesser.
SMITH: And then the Grade B contour which is less and by and large that was considered by the FCC. We hardly ever hear of it anymore but that was considered – the Grade B was the really the limit of the assigned coverage area. Not that they weren’t happy because the signals didn’t stop at the Grade B. They went on but the percentage of people who could receive them beyond that was relatively small and it was not considered to be the coverage area of the station. Well, San Diego, while it’s quite a distance from Los Angeles, was within the Grade B coverage of the Los Angeles stations simply because their transmitters were up on a mountain top and therefore the signals were not impaired or inhibited in terms of their ability to travel out to the horizon, like they would have been if they were down at a lower elevation. So the San Diego cable systems weren’t even violating the FCC’s rules. The FCC said never the less to the cable systems “Do not connect another subscriber in San Diego to your cable systems” and the owners of the cable systems down there immediately went to the Court of Appeals for the Ninth Circuit and got a ruling that the FCC didn’t have any authority to regulate the CATV systems. And of course that was a blow to the Commission and the Commission immediately petitioned for a writ of certiorari for the Supreme Court to hear the case and reverse it. Now, the point that I have to make, a lawyer’s point and a legal point was that the Commission based those rules that I’ve been talking about, on a doctrine that they made up of unfair competition.
KELLER: That wasn’t unusual for the Commission in those days?
SMITH: No, no, they made up anything they had to, in order to justify their [?] cable television.
KELLER: Protection of the broadcasters?
SMITH: Right, protection of the broadcasters and they said that CATV systems unfairly compete with broadcasters because broadcasters have to pay license royalty fees for the programs and CATV systems in the same communities take the programs off the air and transmit them to their subscribers and they don’t pay any royalties. And therefore it’s unfair competition. Now, there’s lots of things wrong with that. For one thing, competition, CATV didn’t compete for the same money in the community as the broadcasters. They wanted connections, enough viewers to watch their programs but they didn’t get any of the advertiser’s money and so, CATV would say we’re not engaged in unfair competition because this isn’t business competition. But the FCC said unfair competition and we’re going to have to level the playing field in effect and have these regulations to restrict your impact on the television broadcasting industry.
KELLER: So, Southwestern, which was the San Diego-Los Angeles case was in the Supreme Court at the same time that your Fortnightly case was tried.
SMITH: That’s right. I was going to say that Bob Barnard and I woke up one day and discovered it was there. It really wasn’t that casual. We became aware because of the publicity that was granted to it, that that case was in the Supreme Court and we took a look at it and it was so obvious to us – look, the FCC’s rules are based on unfair competition, we don’t pay copyright. Yet all of these judges in these courts who said we’ve got to pay copyrights. Now you can’t have it both ways. The FCC cannot found its rules ultimately on copyright if we don’t have to pay them. So we filed a revised petition. We already had our original petition on file with the court and we invited the Supreme Court’s attention to the fact that they had this case and it couldn’t be both ways — if the Court decided that the FCC’s rules were justified because we didn’t pay copyrights. This is an issue that you’re going to have to decide anyway. I don’t have to complicate it. The Court saw it immediately. Granted our petition for certiorari and I’ll tell you today, it would never of… if it wasn’t the petition for certiorari but the Court would never have granted it if it hadn’t been for the Southwest case that had a fundamental concept different from what we were trying in our case.
KELLER: Well, at least Mr. Justice Stewart recognized that initially. He wrote the opinion as I remember.
SMITH: He wrote the opinion.
KELLER: Now why did three justices not involve themselves in the decision?
SMITH: They don’t tell you. They never announce it. One can assume…
KELLER: It was four to one as I recall, is that correct?
SMITH: Five. I think it was five to one.
KELLER: Was it five to one? Five to one with three justices just didn’t…
SMITH: Yeah, I think it was 5 to 1. That would have been 3 abstaining or recusing themselves I think is the term. Normally that will be done by a justice when he feels that the issue he’s got to rule on may involve a conflict of interest that he has. For example, a justice… a member of his family might have owned stock in a cable system, CATV system and anything as close as that. A justice may say “well I can’t be accused of a conflict of interest because I’ve got a family member here” or the justice, you know, that things like that and they never tell you. They never tell you what it is. At least they normally don’t.
KELLER: So, you now referred to the fact that both Southwestern and Fortnightly were in the courts at the same time, you won in the Supreme Court on Fortnightly. Southwestern was decided how?
SMITH: Well, I’d like to tell this.
KELLER: Then I want to go back and pick up the history of the FCC’s involvement in cable but I’d like the answer to that first of all.
SMITH: Okay, we’ll do that. I’m happy to do it. Both cases the Supreme Court designated both cases for argument before the court on the same day. One right after the other because they saw how closely related the issues were.
KELLER: Now again, I want to point this out. Go back to the two concepts of whether we were producing programs or that we were receiving signals.
SMITH: Now that was the issue. Oh yes, that was the issue.
KELLER: This is a common thread that runs through this whole area of regulation either through Congress, courts or the FCC for that matter.
SMITH: Essentially that’s true. Yes, that was the issue before the Supreme Court as far as we were concerned and the Southwestern case was argued first and then came our turn and we presented our case. Our case was purely we are a master antenna and that’s it. We don’t do anything else and the signals are broadcast for reception by the public and they simply lease this service that we provide. And they have the right to have the signals and we do not sell the programs. We do not perform the programs and therefore we do not infringe and then of course, the Court asked several questions. One justice sounded like he was sympathetic to our point of view and the same justice slapped opposing counsel around a little bit because he was pretty arrogant. Mr. Nizer was quite arrogant in his presentation as if who were all these fools to be up here sort of thing, but in any event, you never know when the Court’s going to make a…hand down its decision. So after a few weeks when we thought enough time had gone by, Barnard and I went to court every Monday morning because that’s when they handed down their decisions for that day. We went for maybe 3, even 4 weeks before any decision was handed down and on this particular morning, the first case to be decided was the Southwestern case and they upheld the Commission’s regulations and they upheld them on the ground that they were reasonably ancillary to the Commission’s responsibilities for the development of television broadcasting. No word about copyright. At first, we were so upset with the decision, it took a little while, a few minutes to sink through Bob’s mind and mine that maybe the judge was telling us something right then and there, but our case was not decided that day. So the next week we were back again very tense.
KELLER: Having already lost Southwestern? The industry had lost Southwestern.
SMITH: Yes, but of course, we weren’t a party to Southwestern. We didn’t argue in that case. We just argued our own case but essentially it looked like we might have lost our case because the Commission’s rules were upheld. Maybe 3 or 4 sentences into his decision, Justice Stewart said something about it being not programs but in the nature of a receiving antenna and man, we knew we had it. You will never appreciate the relief that I felt.
KELLER: I’ll bet.
SMITH: And of course, my co-counsel too, when I say my co-counsel, he wasn’t my co-counsel, we were co-counsel and the relief we felt and as soon as we could gracefully get up and run for the telephones, we did and I must tell you, if you’ve never been in the United States Supreme Court building, the floors are marble and they are slick. And you have not better be running too fast, unless you’ve got sneakers on. (Laughter) We couldn’t get to the telephones fast enough to telephone our client, NTCA. Fred Ford was its president at that time and the decision was out on the wires almost immediately. By the time I got back to my office, I had telegrams from friends in the industry, congratulatory telegrams.
KELLER: I wanted to follow through on that later as to how the industry finally got back into paying copyright but I want to right now get into the history of the FCC’s involvement with cable television and how they made some of their decisions and why they made some of the decisions they did. Let’s start back with the Belknap case, which I think was the very earliest case.
SMITH: I need to take you a little earlier than that if you don’t mind.
KELLER: Not at all.
SMITH: The question of the FCC’s jurisdiction was unofficially — well it was actually before the Commission when I was still in the Common Carrier Bureau but they never did anything with it because they were in the middle of the freeze on licensing television, broadcast stations that lasted from 1948 to 1952 and they weren’t paying any attention to anything else, including CATV. But broadcasters, particularly small television broadcasters, located primarily in the western states like Wyoming and Nevada and Montana in particular, the state of Washington, areas like that where small televisions were being built, where the economics were severely in doubt because they couldn’t connect the television networks. The networks didn’t have facilities out there and they had to get by by using tapes. We called them kinescopes in those days, the programs. They were a very rocky business and when CATV systems started asking to go into their communities and build where there was already a local station, they had a fit and the thing that began to create the problem was we persuaded the FCC to allow the use of common carrier microwave facilities to bring distant signals to the headends of the cable system so that they could be brought in to the communities that the cable system served.
Now you see the cable system has its headend on a mountain top for example maybe 35, 40, 50 miles from a transmitter at the best but maybe 10 miles farther out or even more greater distances, there is a good signal if we could only get it in to our headend. We got the Commission to allow microwave radio relays to do that under some restrictions and that made a cable system coming in with maybe one station or two stations in addition to the local station. They were afraid of the competition for audience. So they were and most of them were anti-CATV right from the beginning and a group of the western states broadcasters got together and filed a complaint with the FCC. Frontier Broadcasting Company was the name of it. The 288 CATV systems, the total number they could locate at the time and they asked the FCC to adopt regulations regulating the CATV industry – regulating their operators as communications common carriers. And by this time I was General Counsel of the Association and there was a question – should we let Strat represent us in this case, after all didn’t he write that memorandum at the Commission that indicated that common carriage was a possibility and the answer was true but they didn’t know where else to go really in those days although they could have found somebody. But I was confident in the issue and so I filed a brief paid by the Association on behalf of all of its members in which I argued that CATV was not a common carrier because it was unlike the telephone company. For example a telephone company, I as a subscriber provide the communication myself that goes over the telephone and that is received and I pay for it and in the case of CATV, the subscriber was the intelligence, the subscriber was not telling the CATV system that I want this program or that program or so on, I just want you to receive these signals so that I can watch these programs. And I said that’s not a common carriage function and the Commission bought it. They agreed that it was not common carrier in the Frontier case. That was the first decision.
KELLER: That was before Belknap?
SMITH: It started before Belknap. Yes, that was just before Belknap. That started before Belknap.
KELLER: Belknap actually took up the question of the consent to rebroadcast, didn’t it?
SMITH: Yes and no. If I may, I’ll get with that in a moment because I’m trying to follow the jurisdictional tract for the moment.
SMITH: So, the FCC said that it couldn’t see that it had this jurisdiction. Alright. These broadcasters, same group, all got together again and they had considerable political clout in the Congress because the chairman of the Senate Interstate and Foreign Commerce Committee, which had oversight jurisdiction over the FCC and over its legislation and so on, was headed by Warren G. Magnuson, who was a senior senator from the state of Washington and he agreed with these broadcasters that they would institute hearings into the impact of cable television, CATV I should say, on the orderly development of television and broadcasting. Now, Jim, there were some other things, important things going on at the time that I think you’re going to want me to mention. For example, there were around the country, thousands of illegal rebroadcast booster stations and they were also the subject of the Senate committee’s investigation but what had happened was that with CATV systems, there was a limit on where they could go and the available money to invest and so on. And there were many, many small towns, particularly down in the valleys, in mountains, literally all over the state of Pennsylvania and West Virginia and California and Oregon and Washington…
KELLER: And Colorado.
SMITH: And Colorado. There were literally thousands of them and what would happen is that a local television man would go up on a mountaintop, just like a cable operator, CATV operator would do and put up an antenna, standard yagi receiving antenna, tuned for a particular VHF station and receive it and then feed that signal through an ordinary amplifier and then out through another antenna…
KELLER: But rebroadcasting it.
SMITH: And rebroadcasting it over the air and feed it down into the valley and people because they didn’t have any – wasn’t very good but it worked. Of course, cable wasn’t all that good down there either. They just blossomed all over. It was testimony to the fact that Commission’s allocation plan was not enough to satisfy the public demand for television programming for multiple channels and so on. And when I used the term thousands, it was literally true and it was so easy to do. They just sprung up overnight. Scared the devil out of the cable industry just as much as it did the broadcasters and the FCC wanted to do something about it. In fact, they held a hearing out in the state of Washington and I’m going to tell you an anecdote in connection with that hearing.
I attended the hearing. It was held in Wenatchee, Washington and the booster that was involved was one that had been put up in that area and the field engineer for the FCC testified that in accordance with the FCC’s instructions, these were illegal operations. He went up to the little shack where the booster had been installed and padlocked the door so that there would be no access to it, to shut it down. He said he no more than got down the mountainside and he discovered the picture was back on the air. He shut it off and padlocked the door. And when he got back up there, there was a man waiting at the door with a shotgun, literally and told him he wasn’t going back in there and not to come back again. And that was the prevailing attitude. People wanted their television and they weren’t going to lose it if they could possibly do it. This told the FCC something. When the FCC finally decided that case, its hearing examiner came out with a decision and I’d love to quote this. His metaphor was amazing. Came out with a decision “Yes, technically these boosters were illegal but after all they were only tiny, small things. They were like baby buggies on the highways of interstate commerce” and the Commission could allow them. Well, you know, they were radiating frequencies that could interfere with aircraft navigation and all sorts of things. And these things also became the subject of the hearing before the FCC. I’ll try to cut this short because I know it’s getting too long. At the Senate hearing, so I can finish up a story you asked me about, I was asked when I testified along with quite a number of cable operators, I testified over on the overall community antenna concept for the industry and the General Counsel for the Senate subcommittee, who I had met, said to me “Mr. Smith, didn’t you write a memorandum at the FCC some years ago in which you said that common carriage was a way that the Commission might regulate community antennas?” I said “Yes, Mr. Cox, I did but I should say to you that then I thought I was right but now I know I’m right.” And they all laughed and that was the end of that issue but in due course, Mr. Cox prepared a report for the subcommittee which dealt with a number of the problems including the boosters. But it never became a committee report.
KELLER: But this also referred to CATV in his report.
SMITH: Oh, more than anything else.
KELLER: I want to emphasize that because we want to go into detail about the Cox report.
SMITH: Well, the Cox report, it treated CATV mostly. The other things were incidental. The Commission knew that it had to do something about the boosters so it decided to establish a booster translator retransmission service legally. A legal one so that it could bring it under control and that was the answer to that question and even the cable people didn’t fight that at all. So we can set that aside. Most of the Cox report was about cable and there were several fundamental provisions in the report but I want to say to you first that it never became a report of the subcommittee or the full committee of the Senate, the United States Senate Interstate, Foreign Commerce Committee.
KELLER: He was a hired gun by Magnuson right?
SMITH: Yes, he was that and he came in there, I know that he came in there understanding the point of view that he was supposed to represent. You would think that the General Counsel wasn’t supposed to have a point of view.
KELLER: This was before he was General Counsel, wasn’t it that he wrote the…
SMITH: No, General Counsel of the Committee. He was General Counsel of the Committee.
KELLER: As we ended the last tape, Strat, we were just got out the initial Ken Cox report and we were talking about the initiation of the FCC’s Docket #12443.
SMITH: Yes, the FCC instituted that document not too long after this decision in the Laramie case.
KELLER: Which case was that?
SMITH: That was the one where they sued the – asked the Commission to regulate all cable, all CATV systems as common carriers.
KELLER: Was that Belknap?
SMITH: No, that was not Belknap. That was Laramie Broadcasting Corporation against 288 CATV systems that I mentioned early on in which the Commission said “No, they’re not common carriers.” But in the meantime or after that happened, then they went to Congress, as I said, to try to get that hearing going and the Commission said to itself “We’ve never investigated CATV and we can’t have Congress investigating and call us up to be witnesses as they did in the case and tell the Commission that we haven’t even investigated the industry.” So, they instituted Docket #12443 to reinvestigate the industry, so to speak and that was pending after the Cox report came out. And a couple of months after the Cox report was issued the Commission came down with its opinion in Docket #12443 and it said in effect we still don’t think that CATV is a common carrier and we don’t’ see that it is a broadcasting service and in addition we don’t see any reason why we should try to prevent CATV from going into a community to give them additional television services. However, we do see this copyright and unfair competition problem and retransmission consent problem. Mr. Cox, in this report, has recommended we ask for retransmission consent as applied to cable. So they said we will ask Congress for retransmission consent legislation and it did and Congress didn’t give it to them. That’s beside the point but they reiterated at this time for a second time that they didn’t feel that they had jurisdiction over the industry and really said we really don’t see why we should.
KELLER: And that was pre-Cox? Pre-Cox being on the Commission?
SMITH: That was after the Cox decision. Both pre-Cox at the Commission.
KELLER: At the Commission, right.
SMITH: Of course, I haven’t made it clear for the record here. After this was over on Capitol Hill, Kenneth Cox applied for a vacancy on the FCC Commission and with the backing of Warren Magnuson. You know, he was likely to get it but initially there was a vacancy as Chief of the Broadcast Bureau of the Commission and Cox was given that position. I’m almost certain I’m right about that and in lieu of commissionership for some political reason and later on Cox went from that position or he might have even gone on to General Counsel and then on the Commission. My memories not clear but he became an FCC commissioner but as soon as he became Chief of the Broadcast Bureau, he took up the cudgels against CATV on behalf of the broadcast industry.
KELLER: Why? Why do you think he had such an animosity toward the industry? And that became very apparent even before or after the initial report.
SMITH: Well, I can only speculate. Commissioner Cox, one is a friend of mine. Although I haven’t seen him in years and I admired him and respected him. There’s a possibility that he really believed this.
KELLER: But you don’t believe that?
SMITH: Well, yeah, he didn’t have the background I did but he knew who, he certainly knew who politically the broadcasters had the public ear and the public eye of I guess I should have put it that way and he felt that over the long run probably cable, CATV, once television broadcasting really developed like the Commission hoped it would, that it would die out and go away. I don’t know. I’m only speculating as to what motivated Cox but if he was sincere in what he said in the Cox Report then it was logical enough for him to take up the battle for the broadcasters when he became Chief of the Broadcast Bureau.
KELLER: Well, Senator Magnuson was also a great advocate of broadcasting, was he not? Could there have been a relationship there?
SMITH: I think part of the answer to that is why the Cox Report was the Cox Report and not a committee report and that was because Magnuson and the Committee did not want to be saddled with the theories that were in that report because they had thousands of constituents who relied on cable and who relied on these boosters. And they didn’t want to take, even want officially to come out and favor broadcasting over the others. He wanted to stay away from it. So it was Cox’s job to swing the hatchet. I like that.
KELLER: I like that too. Did he win a position on the Commission because of that report?
SMITH: I had never thought so but you’re the first one that’s ever asked me the question. I’m inclined not to think so. I think that he had Magnuson’s support and the Commission doesn’t get to choose the commissioners even when they come up from the staff, the Commission doesn’t get to choose.
KELLER: They’re appointed by the President.
SMITH: That’s right.
KELLER: With the confirmation of the Magnuson’s committee initially.
KELLER: So you don’t believe there was a definite relationship between the Ken Cox report and his appointment to the Commission?
SMITH: I don’t have any reason to think so but you can’t know.
KELLER: But he stayed on the industry’s case for all the time he was on the Commission.
SMITH: For the entire time he was on it. He was essentially the architect of the Commission’s CATV clause. On up through finally taking jurisdiction and going through the litigation and copyright and Southwestern Distant Signal legislation – regulation that I talked about, Cox was the man who did it.
KELLER: I want build this up into a framework that all of this was going on both at the Commission. There was the Commission report. There was the Ken Cox report. There was an indication that the broadcasters might be going to Congress to ask for FCC regulation of the cable industry. Did that at that time trigger the Association to looking toward having a bill of its own that would indicate the FCC’s desire to regulate?
SMITH: There were things before that that really triggered that and I will mention them for you. I told you that the Commission had agreed on the J. E. Belknap case to allow the use of common carrier microwave relay facilities to bring distant signals. This was before the distant signal rules, see – to bring them into a CATV’s headend so that they could supplement the service they were furnishing in a community and as soon as the Commission made that service available a lot of CATV systems, particularly in the mountainous territories, even in the Midwest in the flat plains area, began to jump and go after microwave. And they were very, very anxious to get it. So broadcasters started to oppose before the FCC those grants of microwave applications on the ground of the alleged adverse economic impact that they might suffer. Those original licenses were common carrier licenses and the theory behind common carrier licenses, my best analogy is the telephone industry, was that common carriers are required by law to provide the communication services that they offer to the public. They are required to furnish it to everybody who makes a reasonable request. That really means that the use is lawful and that you can pay a just and reasonable rate for the service and so that’s why we went for common carrier licenses right from the beginning in the Belknap case because the Commission didn’t have a classification of spectrum allocation for CATV to use them and everything had to be in a category. The Commission had to have a specific service for which you would apply and they didn’t have it. So they let us use this common carrier. Well, it wasn’t too long into that when they realized that something had to be done and I’m going to divert to just say, that sometime later the Commission decided this common carrier thing had some implicit problems in it and they set up a category of radio spectrum service, microwave spectrum that could be used by community antenna systems. And the Commission called it Community Antenna Relay Service.
KELLER: For CARS
SMITH: For CARS, C-A-R-S and it was the CARS service and from then on CATV did not have to go through the subterfuge of organizing a common carrier to get eligibility to use common carrier frequency to turn around to serve itself. That bothered everybody, cable and the Commission at the time. So they set up the CARS service but now I’m still on your question, I will go back to the first real efforts of the Commission.
KELLER: Do we want to take up Carter Mountain before we get to that?
SMITH: That’s where I’m going.
SMITH: That’s exactly where I’m going. (Laughter) We’ll go back to the Carter Mountain case. Carter Mountain Transmission Corporation was a client of mine and I had applied for microwave frequencies for their use to bring the signals of the Denver, Colorado 3 stations into several CATV systems in the state of Wyoming. And they were all small CATV systems, like 2,000 and 3,000 subscribers. Even the population of some cities wasn’t even 3,000. So I applied for that and a local television station in Thermopolis, T-H-E-R-M-O-P-O-L-I-S, Thermopolis, Wyoming, a town of maybe 3500 to 3700 people, had a local television station.
KELLER: Operated out of the basement of this gal’s house.
SMITH: Operating out of the basement of the owner’s, Mr. and Mrs. Earnest, Ernst. We used to call Mom and Pop Ernst and nice people of course. And they feared the impact of the CATV system but they were rational people and they came to the Commission and said “Look, we’re not going to object to this, except we want you to order the CATV to carry our station on their system.” Now the system was limited to 3 channels. As you know, Jim, in those days, we didn’t have 12, 20 and 70 and 105 channel systems. It was 3 channels and in addition, we want you to protect us against the CATV system receiving any signals that carry any programs that we are going to broadcast within a span of 30 days before we broadcast it to 30 days after. In other words, giving them a 60 day window there, where they were free of the same program being in the same community. From that point of view, not necessarily something that could be criticized for and the Commission said “All right, we’ll have a hearing.” Came in and we did have a hearing. My law firm was counsel. I was counsel and Jack Cole, who was in with my law firm, was associate counsel with me and we tried the case and the television station did not put in any evidence whatsoever of adverse impact of the proposed grant of the application on the economy of the local station. So the hearing examiner said that “There is no evidence of any injury” and for that reason, the hearing examiner wrote an initial decision in which he denied, he proposed to grant the application and deny the request of the local station and of course, that decision had to be appealed to the full commission. There are other legal procedures but that, that’s enough on that.
But I must say that in our hearing against that before the hearing examiner and in the briefs that I filed with the Commission, we took the position going back to the master antenna concept, we took the position that “Look, the common carrier is obligated to give us the service and the Commission may not lawfully condition our right to use common carrier frequencies on the end use.” In other words, the Commission cannot censor through common carriage what is going over the common carrier. Can’t do it in telephony. Can’t do it in telegraphy or any other type of service and it can’t do it here. And we even tried to get AT&T to come in and join us in that argument and AT&T’s counsel, who I knew, agreed with me in principle but he said we’re not going to get into the case because they had other things to think about in this area. But thus, what the people, what the local television station, incidentally the population of about 3500, if I didn’t say it, were asking for was carriage and non-duplication of their programs. Now carriage and non-duplication still hangs around, you know, as an issue. And my client said “Won’t do it” and it was probably an unwise decision on his part but he only had 3 channels and he wanted all of the Denver stations. He would have been wiser if he dropped the one or tried to add another channel to his system.
KELLER: Were those the Schneiders?
KELLER: Were those the Schneider brothers?
SMITH: Oh no, no.
KELLER: Who were your clients?
SMITH: I’ll come back to that when I remember. It’s one of those quick lapses. I’ll remember. Roy Bliss. Yeah, Roy Bliss was the client. He wouldn’t do it. So we appealed it to the Supreme Court, to the U.S. Court of Appeals for the District of Columbia circuit. I took the case up there and I argued this. I said “The Commission is conditioning the use of common carriage on the end use and the end use is not illegal. It’s a perfectly proper thing.” And the court ruled against me. Shocked me. Really did because the Commission’s Common Carrier Bureau had agreed with me in the hearing before the hearing examiner and when we filed exceptions to the Commission’s decision, the Common Carrier Bureau went before the Commission itself and said “You can’t do this.” And the Commission did it anyway. Well we knew they were somewhat in doubt as to what their jurisdiction was, as to whether they could do that and that was one of the reasons, they established CARS. And the reason for establishing CARS is that they could conditionally refuse on anything reasonable they wanted to because they weren’t impeded by the laws of common carriage. So while this appeal was going on, the Commission issued rule making notices to require that anybody who used microwave, common carrier microwave, to give protection, non-duplication and carriage protection.
KELLER: The first regulation of cable which led to the first report.
SMITH: Yes, that was the first regulation and we appealed to the Supreme Court and the Supreme Court wouldn’t even hear it. They just denied it, pro forma and that was it. And the Commission waited for finalizing its common carrier rules to get the Court to have the legal issue, to have the legal issue settled in the Court and in the meantime, it had started CARS and that was going along. And as soon as the Court ruled in Carter Mountain, the Commission almost simultaneously, instituted new rulemaking to make all of those rules applicable to anybody who used CARS. And again, simultaneously with that and it said “In addition, we’re going to make all CATV systems, whether or not they use microwave, follow the same carriage and non-duplication rules.”
KELLER: The first report in order said that all – tell me if I’m correct – that all systems who use microwave, what common carrier or CARS at that point, were subject to certain regulations of the Commission. The second report in order then took that a step further and said that all cable television systems are subject to the regulations of the Federal Communications Commission.
SMITH: That is correct. That is the way it happened.
KELLER: So all this was going on and the industry decided that they better go and get their own regulation bill before the Congress, is that correct?
SMITH: That is correct. While this was going on and you have to understand, this was almost 50 years ago, it was over 40 years ago and my memory for specific times and details is …
KELLER: You had that in your first oral history in great detail. I’m looking more on the concept of the whole thing.
SMITH: Well, the concept was this – it was clear to the industry that the FCC now because of political pressures more than anything and again because of its developing concern about UHF broadcasting was going to regulate the industry. And the thought was if they’re really going to do it, we might as well propose legislation ourselves and submit a draft so that we can have something to say about what the legislation is going to be like and one of, two of my clients, as a matter of fact, came and made the suggestion to me. One of them was a man by the name of Henry Griffing, who owned a theater chain and some cable systems in Oklahoma in that general territory. A good client. A brilliant man and he suggested that maybe we ought to do it and of all other people, Milton J. Shapp, who was the head of Jerrold Electronics Corporation and a powerful leader in the industry. I call him the Father of Cable Television.
KELLER: And future governor of Pennsylvania.
SMITH: Yes, he became the governor of Pennsylvania later on. Milton Shapp also supported that and these were two of my strongest and more prominent clients and I said “Okay, we’ll draft a bill. We’ll take it before the board of the NCTA and see whether they want to follow this approach.” And whatever had to take place, took place and a draft was submitted in you know, committees looked it over and modified it. And the board unanimously voted yes, this is the way to go it. We wrote a bill that limited the nature of the rules that the Commission could impose on the growth of cable. For example, applying to the extent to which you could be allowed to go into cities that already had one TV station, then into cities that already had two TV stations and so on because the future was becoming apparent to everybody, that man, with microwave you could this and all you had to do was win the battle with you enemies and persuade the FCC and you’re off and running. And we knew that at the time.
KELLER: You said win the battle with your enemy and you felt that the FCC was the enemy of the industry at that time?
SMITH: The FCC had turned into an enemy. They would have denied it. They would have said we have turned into supporting the industry that we have the primary responsibility for regulating and that’s television broadcasting. Now I’m being kind to the Commission.
KELLER: I know you are.
SMITH: But, that was their argument and it’s not without merit, of course and they felt that their first loyalties had to be to the established service. They had been captured by the broadcast industry, as often happens in the regulatory field.
KELLER: It happened in telephony also.
SMITH: Sure, sure it did and from….
KELLER: You had drafted the bill. Approved by the NCTA board.
SMITH: Yeah, we drafted the bill. It was approved by the NCTA board. I registered as a lobbyist and went on up to Capitol Hill and visited various senators, principally, and went in the company of cable operators from their states and told them about the bill and what our position was and explained it to them. And of course we had given the bill to a senator, Senator Kerr of Oklahoma, as a matter of fact, who introduced the bill for us and then we went to the chairman of the Committee. Whoever you had to go to and argued our position and of course, the broadcasters strenuously argued against our position and we finally, after several months, got to a bill, which wasn’t the one we wrote but it wasn’t all that bad. Everything we considered and the NCTA board agreed to support it and so I went back up on the Hill and I told everybody that we had been to but principally the chairmen of the Committees who were involved, the NCTA will support this legislation, S2653. S2653. We will support it and Senator…
KELLER: No reservations, no anything else. We will support it.
SMITH: That’s right. We will support it and Senator Pastore, who was the chairman of the Sub-Committee, was going to move it through Congress. Now, you want the rest of this story.
KELLER: I sure do.
SMITH: Alright. The rest of the story was this. It was maybe 3 or 4 days. I’ll give your 5 at the most before the Senate was due to take up the bill. Now they were taking it first because that’s where our strength was. We hadn’t really worked the House. Before, about 4 or 5 days before they were due to take it up, Milton Shapp, was talking to a lawyer who had formerly been an assistant general counsel of the FCC, a highly respected, capable lawyer, who said to Shapp “You don’t want the FCC to regulate you. My God if they get you, they’ll take you and never let go of you.” And Shapp thought and I’m, this is my own belief of what he thought – well, this is Strat Smith against Harry Plotkin. And Harry Plotkin was the lawyer I was referring to. Highly respected by me, was well as everybody else in the communications practice and if it’s Strat against Harry, maybe we’re wrong. And I think that went through Milt’s mind and he talked to Henry Griffing because they were close and Henry said “Well, okay maybe we shouldn’t do it.” So the two of them together…
KELLER: So your best clients…
SMITH: Two of my best clients told me they were going to withdraw support and Milt sent telegrams throughout the entire industry. Called everybody he could think about. Said come into Washington, we’ve got to defeat this bill. It will destroy the future of the industry, etc. and so on. And he brought them in and they all came in and first, there was a board meeting and the board meeting listened to the two of them and to me and reversed their decision and agreed to…
KELLER: Defeat the bill.
SMITH: Yes. To defeat the bill.
KELLER: Strat, we were talking about the developments in Senate Bill 2653 as that last tape ended, you got to the point where the NCTA had reversed their position of supporting the bill, even though it was indeed their bill and you had given your word and you had given your word that the NCTA would support it. That the cable industry would support it in the Senate. Then because of certain opposition within the NCTA, the board decided to reverse itself and oppose their own bill and it was now the prerogative or the effect of Senator Pastore of carrying the bill through the Senate and what happened then?
SMITH: Well, alright. Actually after the board reversed, then they called all of the operators who had come to town into a meeting. I remember it at the Mayflower Hotel and presented the reasons why to the whole group. Why they wanted to reverse and I attended the meeting and they wouldn’t let me speak at it. Which I’ve always thought a rather interesting development but in any event, then all of these men went up their senators and told them that they didn’t want the bill passed and there were still a lot of senators who were not visited and whose operators had supported the bill. So it came up for hearing in the Senate for passage and the manager of the bill was Senator Pastore, the chairman of the Sub-Committee, and the man leading the opposition, the senator leading the opposition was Senator Kerr from Oklahoma, who had been persuaded to do it by Henry Griffing from Oklahoma.
KELLER: Even though he had introduced the bill?
SMITH: Yeah, well I’m not – my memory doesn’t tell me that Kerr introduced it. He may have, but in any event he was the one that led the opposition and it was traumatic debate on the floor of the Senate and I was up in the Gallery along with a couple of other people in the industry listening to it. And Senator Pastore, of course, was absolutely infuriated because he had the votes. He had the votes to pass the bill and he turned around and he looked up in the Gallery and he pointed his finger up there directly at me and he said “Their General Counsel has recently as such and such a date was in my office and guaranteed me that the cable industry and Association were going to support this bill.” And I don’t recall what his specific condemnation was after that but it was humiliating. It really was and they took the vote and it was a tie vote. Tie vote and the man, the senator who would have been the determining vote was going to support the bill and he wouldn’t come and vote against it but centered himself and he wasn’t on the floor of the Senate and therefore, there was a tie vote and in a bill like that, that meant it goes back to committee and was dead. And it was dead. Went back to committee and it was dead.
KELLER: So now, you are not only humiliated but before the Congress and before the Senate but also from you own constituency, the cable television industry. So you’re in a very difficult position at this time.
SMITH: Oh I was. The immediate reaction was to resign my position as General Counsel and sometimes I criticized myself for not having walked right back up then and handing a resignation right then. But a few friends prevailed on me to be calm for a little while and I didn’t do it. In time…but I knew my ability to lead the Association had been severely impaired at that time and changes were going to have to be made and it was a year or so later that, by I think mutual agreement, I resigned as the General Counsel and remained as Special Counsel and continued to do a good deal of work for the Association in the telephone area and in copyright as Special Counsel. But that case really sounded my death knell as the General Counsel of the Association and it was about time.
KELLER: But there was something else was going on. There were no new systems being built mainly because of the FCC’s rules against the importation distant signals. How did that finally resolve itself?
SMITH: Well, it really didn’t resolve itself. It got resolved over the years but the – we’ve talked about the Commission’s rulemaking proceeding taking jurisdiction over all cable systems.
KELLER: In the second report and order.
SMITH: Yes, in the second report and order and the rules, the non-carrying, Jim, protection were onerous but the Commission hadn’t stopped there. They kept on going with more and more rules. Leapfrogging rules and so on, that we don’t have to go into the details but the Commission kept adopting additional restrictive rules to make certain that they throttled the industry and it got to the point that coming up on the 1970s, they were aware of the fact that their UHF television allocation plans were not developing the way they wanted them to. And change was taking place in the broadcast industry. Remember how I emphasized that it was small television broadcasters in small towns like Laramie, Wyoming; Casper, Wyoming; Butte, Montana; Thermopolis, Wyoming – places that could hardly afford to support a television station anyway – they were the ones that the Commission was adopting these rules to protect. And come along the 1970s, 71, something else began to happen. UHF was suffering and the capability of CATV to bring signals, distant signals in to the coverage area of the bigger stations was very apparent and the 3 petitions were filed with the Commission within months of each other. One of them was filed by ABC, American Broadcasting Company. I think that was the first one. A very detailed petition telling the Commission that it should regulate CATV and impose all the restrictions that it ever imposed on broadcasters and on common carriers on CATV. And it was a powerful piece of paper and a few months later, I think I’ve got it in the right order, the Association of Maximum Service Telecasters; they might have been the second one. They filed a very similar petition and it was essentially again directed against extending any cable delivered channels into the contours of the existing large market, television stations. The Association of Maximum Service Telecasters as I recall now, was the last organization. That was a group of UHF broadcasters that had been organized independently of the National Association of Broadcasters to represent UHF stations.
Then the second petition was filed by Westinghouse Broadcasting Corporation. Now in those days, Westinghouse was very big in radio and television and their petition was essentially the same as the others. They all asked for the same thing but they all were filed by top rated Washington communications counsel. They all came in one right on top of the other and to – I can be forgiven for suggesting that it was a conspiracy and other people agreed with me and as a matter of fact, most people don’t know it, but the industry filed an anti-trust suit against them a few years later. But that was dropped and never really amounted to anything but the FCC then came out with its most devastating set of rules in the early 1970s and based them on unfair competition because we were destroying the progress of UHF. And of course, the Commission instead of taking, assigning the UHF to cities that didn’t have VHF channels, in other words, the intermixing of the channels had put both UHF and VHF in the same communities leaving the old VHF where they were. And that was the error that was made. Cable wasn’t adversely affecting them at all. In fact, cable was helping UHF and anybody looking back at it today and a lot of people then will think cable was delivering the audience for UHF stations that it wasn’t otherwise going to get. And it was serving UHF, it wasn’t hurting it. That it wasn’t the way the FCC wanted to look at it.
KELLER: Now we were talking about what we celebrated last night which was the anniversary of the first delivery of the satellite signal which changed the entire scope of the industry as well as our look at any adverse regulations of the Commission. Although those rules are still on the book, they don’t have a major impact as of today, is that correct?
SMITH: Well, some of the rules still are on the books. Others are gone and the FCC gradually, beginning in the 1970s, saw that CATV systems really had a service to perform. Now, not that they didn’t see it before because they authorized microwave, but they began to understand that they were restricting a potential that they perhaps they should not. And it took a number of activities, investigations, actually by the Commission itself, reports, studies done by the Office of Telecommunications Policy.
KELLER: By Whitehead?
SMITH: Yes, Tom Whitehead and other very prominent people in the, not just in the cable industry but in communications generally, were beginning to get on the back of the Commission and the Commission was beginning to ease up. But it took a long time to do it and you know, when we won the copyright case, the Commission was not willing to accept that and that’s when it really turned and used the unfair competition argument to sustain its rules. And it hung in on them until these other pressures that I just talked about began to force them to change and then referring to that wonderful oral history panel that we talked about last night, the potential of satellite communications to make networking of programs to cable systems was realized by young entrepreneurs. To the point that they became willing to invest large amounts of money for the time and for the sizes of their business into demonstrating that this could be done. And that it could be done on an economic basis. And they did it.
And as everybody knows in the cable industry today, it is no longer community antennas, it is no longer just a transmission service, it’s a program business pure and simple. And those of us who were in it when it was a hardware business are anachronisms in a sense but it did put an end to the bonds. The prison that the cable industry had been put in by the government together with its opponents, the broadcast industry and the telephone industry and I haven’t talked about the telephone industry, it began to come out. And it did and there’s no point in my elaborating. My most productive days for the industry were up to the 1970s and I don’t purport to be an intimate source of information about what transpired afterword except to say this – once copyright as a matter of law was decided in favor of the industry, the industry could then afford to try to negotiate itself a position which would relieve them from the restrictions on going into programming and it was simply a matter of battling in negotiations, battling the broadcast industry and they didn’t own the copyrights but they didn’t want CATV, cable to have its freedom to extend its operations. So we battled the broadcasters, battled the copyright owners and they battled the FCC until Whitehead, finally, and he was the head of the Office of Telecommunications Policy…
KELLER: Under Nixon?
SMITH: Yes, and he started, got the thing going and ultimately knocked enough heads together that they all agreed on an amendment to the copyright laws that give CATV, cable, a compulsory license to receive local broadcast stations. And they would not have to pay copyright fees before any distant signals, which were you would bring one outside of its Grade B contours into the contours of another station. If you were going to do that, you had to pay for them. Even if you didn’t bring them in to the contours of another major market station, you had to pay for distant signals and the fee was to be a license fee that would be negotiated and re-negotiated from time to time. And the industry settled on that and quite properly so. They pay for the local programs. They don’t pay for the local programs that they clearly had a right to receive and they are willing to pay for the distant signals and it opened the door to the 100+ cable television networks that exist today that now have really knocked the foundation out from under the broadcast networks but have severely impinged on their operations. Fascinating thing, I learned about 2 or 4 years ago, in reading an article in which the chairman of ABC told an interviewer that ABC made more money out of ESPN than the entire American Broadcasting Company network put together.
KELLER: That doesn’t surprise me.
SMITH: Yeah, it did me at the time but it shouldn’t have and now it’s infinitely more. And now with the competition of 100 odd cable networks and a few very, very good ones, primetime is as close to belonging to cable almost as it is to broadcasting.
KELLER: Now this, much of this occurred because of the 1982 Cable Act, which was when the industry agreed with the legislation to pay copyright and to be subject to the regulations of the Commission. It also had complete rate deregulation at that point. It also pre-empted local regulation of the industry by local city councils and so on. That was the Cable Act of 1982.
SMITH: That Cable Policy Act, that was 1982?
KELLER: I thought it was 1982.
SMITH: I thought it was 1984.
KELLER: You’re absolutely right. It was 1984. Then we get into an entire different subject after that. Then we get into the relationship between the industry and our current vice president and then the 1992 Cable Act which then relieved everyone of everything that had occurred prior to that.
SMITH: Yes, that is correct and those things I am familiar with but I am not the original authority about those as I pretend to be with respect to 1948 to 1972.
KELLER: And I don’t think anyone will dispute the fact that you are. There is no pretense there. The recognition of what you’ve just told us today is enough of that but then we got up to 1996 Cable Act which did away with all lines of differences between telephony, broadcast television in effect and cable television and put them all into a single ball of wax under telecommunications and that’s where we are today. And I think you pretty well described in the past two hours of how we got to where are today. We started out by talking about how you still felt that there was even in the early days a common thread between telephony, telegraphy and wired television, which now has come to fruition. Where do you see it going from here?
SMITH: To tell where I see it going from here, I must tell you if I may…
KELLER: Please do.
SMITH: A little bit about the relationship with the telephone industry. I’ll be as brief as I can. I’ll only speak generally. In the early days, telephone companies didn’t want CATV on their poles because they considered that that was their business, carrying voice, music, like that. That was their business, not cable. They really couldn’t get away with that position because it was the end of World War II when the television broadcast industry really started to develop and cable, I’m going to call it cable from now on…
KELLER: I think the satellite made that the difference.
SMITH: Cable was developing simultaneously and the telephone company had a 10 year backlog on request for order for telephone service. It took them 10 years to catch up with it and it could not devote its resources to building cable systems and they were at first reluctant, very reluctantly to allow cable on their poles and that’s a battle that was very bitter and contentious in the early days because we had underfinanced cable systems trying to pay the costs that the telephone companies wanted. I won’t go into any more detail on that but the time came in the 1960s and the 1970s when the telephone company decided “Well we’re ready.” We’re going to take that industry over again and they started to raise the fees for attachment space on the poles. From a very reasonable $2.50, $3.50 maybe $4.50 a year per pole and some of them were proposing as much as $15 a year a pole and even higher. Then as special counsel to the NCTA, I represented them in negotiations with AT&T to try to get a stop to that. In addition, at the same time, the telephone companies said “We can’t go into cable service.” There were a couple of legal reasons why they couldn’t really do that but “what we will do is we will build cable systems on our poles and offer them as a common carrier service to people who want to operate CATV systems” and in the back of their minds they said “And we will take minority interests in some of those companies that we build the facilities for and ultimately we will take control of them.” That actually was their thinking.
KELLER: Couldn’t work, never did work?
SMITH: Couldn’t work, never did work. Fact of the matter is they couldn’t build a cable system that operated decently but they had over 170 in operation and the cable industry was severely impacted and very, very worried. And the first thing they did was go to the FCC and say to the FCC — look what’s happening. They are going to take the industry over, if they can do it. Now we say to you FCC, they can’t build a cable system if they don’t get permission from you to build it because it’s a facility in interstate commerce and they are offering it’s as a common carrier facility. So they’ve got to go through Section 214 of the Communications Act. File an application with you to get permission to build it and they can’t build it until you give them permission and then we can show you about this common ownership and these other things. And the Commission saw that maybe the cable industry would be taken over by telephony and they didn’t want that. The cable industry by this time was beginning to show what it could really do and the Commission instituted the Section 214 case and ruled that it did have jurisdiction and it told the telephone industry that you don’t build any more of them without coming to us. But it wasn’t that easy because there were exceptions to it.
There was certain case in which they allowed telephone companies to build cable in their own territories or in other territories if there wasn’t going to be a cable system if they didn’t do it. I don’t have to go into that but that became the rule and then it was codified into law by the 1984 Cable Television Policy Act. And in addition when the Commission saw that the telephone industry was taking an interest in some of these what we called lease-back systems. They were taking an ownership interest. The Commission thought that “No, they’re looking to dominate cable, like they do telephone.” So the Commission had another hearing in which it told them that they could not have an ownership interest in cable television systems except to the extent that I indicated a moment ago.
KELLER: Did they also set pole attachment rates at the same time?
SMITH: Yes, that’s another issue. The Commission set pole attachment rates to keep them from getting out of hand and supported legislation in Congress that gave the Commission permission to the…or the state public utilities commission primarily if they wanted to do it, they could but either the state commissions or the FCC could fix pole attachment rates and when they did they were back down to where they were in the beginning. So the FCC stepped in then and perhaps I overstated when I say they rescued the industry, cable industry from the telephone industry. They gave them an opportunity to develop to where they could stand on their own feet and that is now what happened. In time the Commission thought well cable doesn’t need that protection anymore we’re going to ask Congress to amend the 1984 Act and the Commission intended to do it. The telephone industry by this time decided to take the issue in their own hands and they went to the Federal courts in litigation in which they claimed that the cross ownership rules that restricted them from the business were a violation of their First Amendment Rights to communicate and the courts upheld that contention and nullified the cross ownership rules. When the Telecommunications Act of 1996 was passed by Congress they made it clear that national policy was in favor of competition and that meant within the telephone industry and within the cable television industry and any other communications industries and that cable could go into telephone business if they wanted and telephone could go into cable business. And the Congress in that Act encouraged them to come in and compete with each other because they saw it technically that the two industries could converge and they were starting to converge.
The 1996 Act was intended to generate competition in the telecommunications industry within telephony as between long distance and local service and between the cable television industry and telephony, the common carriage industry and encouraged everybody to get into each other’s business if they wanted to do it. And cable had thought “Well if the telephone industry is going to take over us, we’ve got the plant or going to enter our business, we’ve got the plant that we can use to provide telephone service” and the fascinating thing in terms of financial picture was at the time it began, the telephone industry in terms of revenue was a 200 billion dollars a year industry, in terms of revenues. And the cable television industry was a 20 billion dollar industry, in terms of gross revenues and the cable people could sit back and say “They’re going to take 50% of our business. That’s 10 billion dollars distributed among all of those telephone companies and if we could get 10% of their 200 billion, we would double our income from 20 to 40 billion dollars a year.” So what’s this economics? And nobody was really willing to face that but if you look at it today, the telephone industry has started to get into cable by buying cable systems. At first Bell Atlantic was going to buy TCI, the biggest cable organization in the country. Bell Atlantic, one of the biggest regional Bell operating companies. That didn’t pay off but a few years later, as we now know, AT&T did buy them. Lock, stock and barrel. I could hardly believe it. Also Continental Cablevision, once of the biggest cable organizations, sold out to a telephone company. A little later on that telephone company sold them back into the cable industry and now we find out that AT&T is not getting out of cable what it thought it would or at least I think they’re not. They were going to use it in order to by the way, to start local telephone service in competition with the Bell operating companies. We don’t hear about that anymore but now AT&T is going to restructure its operations and put cable in a separate corporation.
The word no longer is cable television. It’s broadband communications and the real question or the people in what we have been calling the cable television industry after we quit calling it the CATV industry, the real question is how far the industry is willing to go in providing broadband communications services. Access to the internet, fast access to the internet because they can do it even better than the telephone company can do it because they have the broadband plant in place and the telephone industry would have to almost essentially rebuild their intercity networks and a lot of their distribution facilities at enormous costs in order to provide the same quality service that is inherent in the cable television operation. And I – nobody can tell you what is really going to happen but we are on the threshold of something very, very exciting. Cable can provide instead of that alleged 500 hundred channel service that they talked about for a little while; they can provide Video on Demand, for example. It will take a while to get to it but they will probably do it in part through the internet. But all of the programming that has been developed in television over the many, many years of its history, all of it that survives can be digitized and put in servers that can be contacted either through internet or by other means by a cable subscriber sitting in his home with a settop box and a keyboard and he can decide “I want to see I Love Lucy that was broadcast on December 15th, 1943” and look in a catalog and see what to key in and get the program. And he can get tonight’s news that was at 6:00 but he missed it, he can get it at 8:00. This is technically feasible. It can be done. The cable industry has, I hope, every bit as much chance to take the leadership in that area as the telephone industry and I think more likely can, if it will.
KELLER: Strat, as we wrap this thing up, I’ve got a question that may be impossible to answer but if you were to come in to the telecommunications industry today, look back over the past 50 years into how the cable industry, today the broadband telecommunications industry developed with all the battles they had to fight against the broadcasters, against the telephone companies, against the regulatory agencies, do you think it would have been feasible to say well that industry could exist as well as its now become a dominate factor in the telecommunications industry?
SMITH: That’s a very good question and the only way I could try to answer it is to try to place myself back in the position of those very early pioneers, the Martin F. Malarkey’s and in fact, the Milton Shapp’s and the George Barco’s, I could go on and name them by the…
KELLER: The Jimmy Davidson’s and all.
SMITH: Yeah, and name them by the dozens. If they had been able to foresee the problems…
KELLER: They’d have quit.
SMITH: Yeah, I think that a large number of them would have quit just as fast as they could have got their butt [?].
KELLER: And many of them did.
SMITH: And some of them did, that’s right. Maybe you’re asking me, I sat there not as an operator but at the time the only lawyer in Washington who even practiced in the field and knew anything about it, did I foresee it happening? No, I couldn’t have foreseen what happened. The greatest Blue Sky prophet in the industry is now deceased – Irving Kahn. Irving was the one who came into the industry back there in 1960s, the early 1960s and said what’s the matter with you guys? This antenna business is for the birds.
KELLER: That’s right.
SMITH: Let me show you how we can connect you guys together and put boxing matches on your systems and he did it. And Irving foresaw the future far beyond what he could do but most of the things Irving ever talked about will come to pass if they haven’t already.
KELLER: I don’t think there’s any doubt about it and one of the men on last night’s panel was his chief engineer and that was Hub Schlafley, who – I think aptly described what they went through on this whole situation over the years and TelePrompTer, who originally was in the business of developing the scanning device that people used and Hub again, invented that. But again Strat, we’ve spent an awful lot of time and you’ve very graciously given us your time to describe from a different perspective than anyone else has given us, what has happened to the industry over the past 50 years and we appreciate it very much. This oral history of E. Stratford Smith, Professor E. Stratford Smith, Esq. — I’ll give you the entire title at this point –was brought to you by a grant, was enabled by a grant from Gustav Hauser for The Cable Center. Today is November 29, 2000 and your interviewer is Jim Keller.