Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, May 9, 1993 TAG: 9305090032
SECTION: BUSINESS PAGE: D-1 EDITION: METRO
SOURCE:
DATELINE: ATLANTA LENGTH: Long
Now, after 10 years of explosive growth, cable is no longer David against the Goliath of the three networks. In a classic economic coming of age, Turner and the cable industry he represents are the new villains of television.
"Cable grew so big, so fast that it scared people," says industry spokesman Stephen Effros.
That fear, skillfully played on by consumer advocates and network executives, prompted Congress last year to pass sweeping new regulatory control of cable systems. This legislation, as interpreted by the Federal Communications Commission, is starting to take effect.
How the FCC enforces the act could change what you watch on television and how much you pay for it. Already, the FCC has ordered cable systems to lower basic rates by summer, but that is just the beginning. Tough new pricing guidelines for basic cable rates were issued last week.
The government's new rules were met with predictably angry reaction. Cable television most powerful executive said Wednesday that cable operators will petition the Federal Communications Commission en masse in coming weeks to request individual hearings on the legally mandated price cuts.
The effect of thousands of these hearings, said John Malone, chief executive of Denver-based Tele-Communications Inc., would be to overburden the federal bureaucracy and delay implementation of the rate cuts, and provide the industry with a legal justification to charge higher, not lower, prices.
"My guess about the whole thing is that (the industry) will end up swamping the FCC with cost hearings," Malone said. "When the smoke clears, there will be higher rates in most cities."
FCC interim chairman James H. Quello rebuked the cable industry for its tactics. "They lost in Congress, they've lost in the courts, so now they're trying to take advantage of a big administrative burden. If they are seen as flaunting the intent of Congress while we are shorthanded here, that might not be the smartest move, politically," he said.
In the future, cable systems may have to drop some less universally popular offerings such as C-SPAN or Lifetime. And ultimately, the act is moving cable toward "a la carte programming," where viewers order up what they want to watch, when they want to watch it.
But as the FCC grinds out regulatory interpretation, no one can say what television will look like in the future. "It will take us weeks, if not months, if not years, to understand all of this," says Effros of the Community Antenna Television Association, a leading cable group.
Many Americans consider cable a necessity of everyday life. Since 1980, cable has wired 40 million households. The industry serves two-thirds of the 93 million households with television. Cable revenue has jumped tenfold to $20 billion. And basic rates have risen three times the rate of inflation.
As cable grew, it also consolidated. Systems invested in programming. Only 58 of the country's 13,000 cable systems face competition.
"Cable is now a vertical monopoly, with companies controlling programming and the pipeline in 90 percent of the markets nationwide," says Bradley Stillman, legislative counsel for the Consumer Federation of America.
Stillman believes that cable has used its monopoly power to gouge consumers $6 billion annually in excessive rates.
Cable operators agree their business has grown rapidly in price and profits, but they argue that the increases are justified. When Congress deregulated the industry in 1984, cable systems spent heavily to wire as many homes as possible with the latest technology. All that construction was expensive and financed through rates.
But some cable operators agree that, in part, they have only themselves to blame for renewed regulation. "We made mistakes and the networks took advantage of it," says Effros.
One of those mistakes was failing to explain sharp rate increases. Says Jack Goodman, a network attorney, "It was easier to get the codes to start a nuclear war than cable's cost structure."
Network television is especially angry because it feels cable grew at its expense. Since the start, cable systems have run local broadcaster signals for a token copyright fee to the networks. Cable got programming while broadcasters reached new people. But that partnership is fraying.
Under the cable act, broadcasters can opt to negotiate a price for carrying their signals. That could raise the cost of airing stations in large markets to as much as $3 a subscriber.
The act, however, doesn't require cable systems to negotiate. And many of them are threatening to just drop any broadcaster asking for money.
The reason is that channel space is scarce and most systems are filled. A channel cannot be added without dropping another.
A mandated rate rollback is the first step in the FCC's effort to regulate cable pricing. As the agency develops a more comprehensive guide to what operators can charge, cable rates may fall even further.
Nationally, cable operators say this pricing cutback comes as the industry is "poised at a technology renaissance." The industry is laying fiber-optic cable and planning for the day when the box on top of your set becomes more of a computer than a mere signal converter.
But laying the infrastructure for that day will be expensive. "If we were only left alone, we could do it in no time at all," says Effros. "Sure, it would add a buck or two to your cable bill every month, but so what? Look what you would get for that!"
Few outside the cable industry are moved by Effros's argument. "I don't buy the industry's crying poor mouth," says the Consumer Federation's Stillman. "They've got more than enough money to finance technology innovation.
"Competition is the only way to spur innovation and drive down prices." The Washington Post contributed to this story.
by CNB