THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Tuesday, April 16, 1996 TAG: 9604160292
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: STAFF AND WIRE REPORT
LENGTH: Long : 112 lines
For cable-television subscribers across the country, 1996 is starting to look a lot like 1986.
After a lull in recent years, cable rates are spiking up again. In mailboxes from New York City to Seattle, cable subscribers have received the unwelcome news that their monthly bills are going up anywhere from 5 percent to 20 percent.
By June, when Tele-Communications Inc., the nation's largest cable operator, implements its average rate increase of 13 percent, most of America's 63 million cable subscribers will be paying up to $3.50 more a month to watch CNN, MTV and the other channels that are part of basic cable service.
TCI's Chesapeake customers will be among those paying higher rates - although the company hasn't announced exactly how much.
Hampton Roads' largest cable operator, Cox Communications Inc., said it isn't planning hikes in rates for services for its South Hampton Roads customers, but may ``adjust'' rates for equipment within the next several months. Cox imposed its last general increase in November. It has agreed to buy TCI's Chesapeake system and hopes to complete the purchase by year's end.
The latest round of increases, particularly by TCI, has critics howling. They say the industry is seizing on loopholes in new federal rules to resume its practice of hefty rate increases.
``This is deja vu,'' said Gene Kimmelman, the co-director of Consumers Union, a lobbying group in Washington that has been critical of the cable industry. ``These rate increases rank with the largest that occurred after Congress first deregulated cable in 1984.''
But cable operators said the increases are a necessary adjustment to the stringent rate cuts that the government imposed on them in 1993, after a consumer backlash prompted Congress to re-regulate the industry.
They said the industry needs massive amounts of capital to upgrade its networks to carry the crystal-clear digital images and exotic interactive programs that they say consumers will demand in a few years.
``I really get offended by the criticism because we need the capital desperately,'' said Marc Nathanson, the chairman of Falcon Cable TV, a medium-size operator, with 1.1 million subscribers.
Falcon has been under fire in Suffolk for an April 1 increase in the monthly rates for its basic package of channels from $21.89 to $22.93 for its 7,300 customers there. That ranks as one of the industry's more modest increases recently. But it came after various service problems that generated sharp criticism of the cable operator.
The city has set up a hot line for customer complaints and is re-examining its franchise agreement with the cable operator. And at least one city council member has switched services.
``I no longer subscribe to Falcon because we get Mickey Mouse service and exorbitant rates,'' said Councilman Richard Harris, who signed up for DirecTV, a satellite broadcasting service owned by Hughes Communications, a unit of General Motors Corp.
What makes this wave of increases remarkable is that it comes even before cable rates are to be deregulated yet again. Under the communications law passed earlier this year, all government controls on cable prices are to be removed - but not until 1999, as the result of a compromise between Republican and Democratic lawmakers.
The compromise assumed that by the end of the century, the industry would have vigorous enough competition from satellite television or telephone companies to prevent cable rates from soaring.
Until then, in theory, the Federal Communications Commission is supposed to keep a tight rein on cable rates, allowing increases only for inflation and programming costs. In practice, though, the current rules give cable operators leeway to pass along higher costs to customers.
Proponents of deregulation argue that the competition unleashed by the bill will curb cable rates. But satellite broadcasters still reach barely 2 million customers - compared with the 63 million served by cable. And most of the regional Bell companies are moving cautiously with plans to break into television.
Almost all the big cable operators have implemented - or announced - rate increases since January. In New York City, Time Warner Inc. raised its rates 10.4 percent. The typical monthly bill for Manhattan subscribers rose $2.85, to $30.18 from $27.33, according to Richard Aurelio, the president of Time Warner Cable's New York City system.
Until now, Aurelio said, the company had never raised its rates by more than $1 in a single stroke. The reason the increase is so much higher this time, he said, was because it covered a longer period of time than previous increases.
Historically, cable companies estimated cost increases and inflation every quarter, and passed along those costs to customers in the following quarter. Now, though, the companies are projecting their cost increases for the entire coming year and figuring them into the current monthly bill.
The FCC rules that make this possible grew out of prolonged period of tinkering after the commission temporarily froze rates in 1993. In 1994, the FCC allowed companies to raise rates if they added new channels, and in January it permitted them to begin raising rates to account for the growing cost of their existing channels.
Because the FCC took several months to devise the new rules, the new round of increases encompass the period from July 1995 to January 1997.
Tele-Communications, which is in the process of selling its Chesapeake system to Cox Communications Inc., is using that rationale to justify its 13 percent average rate increase, or $3.03 a month, to $25.34 from $22.31.
Reed Hundt, the chairman of the FCC and the architect of the new rate regulations, acknowledged that this latest round of increases could alienate the very consumers that the telecommunications legislation was supposed to protect.
``Everybody thought Congress, cable, and consumers had cut a deal,'' Hundt said. ``I sure hope the compromise is not unraveling.'' MEMO: The New York Times and staff writer Dave Mayfield contributed to this
report.
ILLUSTRATION: Cable-TV subscribers watching their rates go up
KEYWORDS: CABLE TELEVISION CABLE TV by CNB