Move To Halt Rise in Cable Rates May Be Running Out of Time
By Juliana Gruenwald, CQ Staff Writer
(CQ, April 11) -- Wilfred C. Menard has had it with his cable television company.
Fed up with rates that have risen 50 percent over the past two years, Menard wrote the Federal Communications Commission (FCC) in January asking it to keep cable companies from using "every excuse in the book to raise prices."
"Every time I pay the bill, I think, 'Bring on the satellite,' " Menard said recently. But the 79-year-old military retiree in Lawrenceville, N.J., has been reluctant to switch. It is not the hassle of putting a dish on his roof to get satellite television service that bothers him. Rather, it is likelihood that the service, bound by a 1988 law, will not be able to send him local channels.
After a decade in which it has alternately deregulated and regulated the cable TV industry, Congress finds itself no closer to the competitive marketplace it has envisioned.
The 1996 telecommunications law (PL 104-104) was supposed to open up the vast market and lower rates. It has not worked as lawmakers hoped.
Local telephone companies were expected to invade the cable television business. So far, they have not moved quickly to provide cable. Direct broadcast satellite service was supposed to be the alternative to cable. It has been hobbled by other federal restrictions.
And cable rates are rising right along with the volume of angry mail to Congress.
"Overall, the rates are too high," said FCC Chairman William E. Kennard in an interview. "Many consumers are very upset about this."
It is, said Gene Kimmelman, co-director of Consumers Union's Washington office, the "Achilles' heel" of he 1996 telecommunications law.
"The fact that cable rates keep spiraling out of sight," Kimmelman said, "is a clear demonstration to the public that [the law] is failing."
Cable companies probably will keep raising prices unless the public rebels, said Bruce Leichtman, director of media strategies at the Yankee Group, a Boston-based company that analyzes the communications industry.
"People are not balking at these increases" by dropping their cable service, Leichtman said. The number of basic cable subscribers increased in 1997 by 1.2 million to 66 million.
Several bills have been introduced this year to ease restrictions on satellite services and make them more competitive with cable. But whether Congress will have time to tackle them in an abbreviated session is uncertain.
Congress is facing another deadline, too -- on March 31, 1999, federal authority to regulate cable rates will expire.
Cable's share of the television market has declined by 2 percent in a one-year period ending in July 1997, but it remained an overwhelming 87 percent, according to the FCC. More than two-thirds of households with a television also have cable.
Because most cable systems were built under franchises and the cost of building a competitor is now so high, most communities have only one cable service.
Critics say cable operators can raise rates without worrying consumers will flock to competitors. Cable Dominates
Cable industry officials are defensive. Price increases are necessary, they say, to pay for programming -- particularly for sporting events -- to add channels and make improvements.
"We are a business just like anybody else," said David Krone, senior vice president for government relations for Tele-Communications Inc., the nation's biggest cable company with more than 17 million subscribers. "We raise rates because costs go up."
When Congress agreed in 1996 to remove price restrictions from the cable industry in three years, it figured that competition would hold rates down.
But local telephone companies have not been as aggressive in jumping into cable as some lawmakers had hoped, focusing more on trying to gain FCC approval to provide regional long- distance service.
"There is no prospect for [widespread] wire-based competition against cable in the next five years," said former FCC Chairman Reed Hundt.
Satellite services that provide channels directly to the home have more than 8.6 million subscribers as of February 1998 -- an increase of nearly 2 million in the past year, according to the industry -- but are not the sort of competition to cable that some lawmakers would like.
The up-front cost of buying a satellite dish and a receiver deters some consumers, although prices have been declining. Some electronics stores offer equipment starting at $99. And consumers must pay programming fees that run as low as $14.99 a month to get the signal.
Some members of Congress say they must remove legal obstacles before satellites can truly take on the cable industry.
One of the problems, they say, is a provision of the 1988 Home Satellite Viewers Act (PL 100-667), reauthorized in 1994, that allows satellite operators to retransmit network television signals to those viewers who cannot receive them from a standard antenna.
The law was written to protect local broadcasters from competing network signals that do not include local advertising, according to Rep. Rick Boucher, D-Va., a key player on the satellite legislation. Beaming Local Channels
Satellite companies such as Echostar say eight out of 10 people who shop for a satellite dish do not get one after discovering they cannot receive local broadcasting.
Howard Coble, R-N.C., chairman of the House Judiciary Committee's Courts and Intellectual Property panel, has introduced a bill (HR3210) that would allow satellite companies to deliver local broadcast stations to any customer.
The bill, approved by Coble's subcommittee March 18, also would make other changes to existing law to help satellite companies, including making permanent the license that allows satellite companies to transmit television programming without getting permission from every program developer. The license authority will expire at the end of 1999. (Weekly Report, p. 745)
Similar legislation (S1720) has been introduced in the Senate by Sen. Orrin G. Hatch, R-Utah.
But some satellite companies have opposed provisions in both bills that attempt to subject satellite companies to some of the same rules now applied to cable, including the requirement that if they carry any local stations, they must carry all.
Satellite companies also worry about a recent increase in copyright royalty fees they pay to retransmit signals of networks and superstations, local stations that are beamed nationwide. Some lawmakers argue that the increased rates put satellite companies at a disadvantage to cable companies, which pay much less.
Over the objections of Coble, his satellite bill now includes an amendment that would temporarily halt the rate increase. Coble said he may not support moving the bill unless he can find a compromise to the liking of television program developers, represented by the Motion Picture Association of America. A separate bill to roll back the rate increase has been introduced.
The Senate Commerce Committee approved one of those bills (S1422) on March 12. Senate Majority Leader Trent Lott, R-Miss., has said S1422 may be considered on the Senate floor in May.
Even with such legislation, there is little evidence that cable will be under enough competition any time soon to drive down rates.
Kennard told lawmakers March 31 that he does not believe "a year from now that we will have competition . . . to constrain rates."
Democratic Rep. Edward J. Markey of Massachusetts, a member of the Commerce panel's telecommunications subcommittee, said that if competition does not develop soon, "the only policy question we will need to answer is, 'Do our constituents prefer their monopolies unregulated or regulated?'"
He has introduced legislation (HR3258) that would repeal the deadline that would end the FCC's authority over cable rates until more competition develops.
While most Republicans say they do not favor continuing regulation of the industry, they also say Congress may be left with little choice.
"Pressure is going to be put on Congress to do something," said subcommittee member W.J. "Billy" Tauzin, R-La. FCC Clout
Markey and others also say the FCC must be more aggressive in clamping down on the industry. "The FCC has rules in place that utterly fail to protect" consumers, Markey said.
The FCC's Kennard does not favor a freeze at this point but is studying cable rate regulation rules.
Kennard said it is unlikely that any changes to the current rules would be in place long enough to have an impact before the FCC's regulatory power over cable rates sunsets. He said extending the FCC's authority to regulate cable rates would give the commission time to assess the problem and propose a solution.
Decker Anstrom, president of the National Cable Television Association, argues that extending the FCC's authority to regulate cable rates would stifle investment in cable systems.
After deregulating the cable industry in 1984, Congress reimposed rate regulation in 1992 because of consumer outrage over rate increases and poor service. (1992 Almanac, p. 171)
Anstrom acknowledged that the industry "didn't have a very good case to make" when Congress reimposed regulation in 1992. But he and other cable industry officials insist that the situation is far different today, noting that customer service has improved and that cable operators now face competition.
"It's an outdated solution," Anstrom said of regulation of his industry. "This is a very different marketplace."
© 1998 Congressional Quarterly Inc. All Rights Reserved.
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