News

FCC: Cable Rates Up 122% Since 1995

1/20/2009 8:53 PM Eastern

Washington-- The cost of
cable television's most popular programming packages rose a combined 122
percent from 1995 to 2008, according to a controversial report by the Federal
Communications Commission released last Friday.

 

The
results reflected the total cost of basic cable, which includes local TV
signals that  customers must purchase,
and expanded basic, a package that includes such popular channels as CNN, Fox News,
ESPN, and the Disney Channel that about 90% of subscribers buy.

 

Congress
requires the FCC to prepare a cable price survey annually. As it has in the
past, the agency found that the rates of established cable operators go down
only when a second cable operator has entered the market.

 

"Cable
prices decrease substantially when a second wireline cable operator enters the
market. It does not appear from these results that (satellite TV) effectively
constrains cable prices," the FCC said, claiming rates in a two cable
system market are 10% lower.

 

For
many years, the cable industry has disputed the FCC's methodology.

 

The
122% increase, for example, fails to reflect the impact of inflation or take
into account qualitative improvements in programming, such as networks that
secure  important sports rights or
networks with shows that have garnered top ratings and collect top awards.

 

In
2005, then-FCC chairman Kevin Martin banned the agency from analyzing cable
rates on a per-channel basis. In prior FCC reports, per-channel cable rates
either held steady or declined slightly in inflation-adjusted terms-results
that clashed with Martin's view that cable rates were soaring out control.

 

The
FCC said it wasn't necessary to conduct a per-channel analysis because
consumers in the main are unable to buy cable networks on a per-channel or a la
carte basis.

 

"If
cable operators did offer consumers the option to purchase channels
individually, it would be appropriate to consider the prices charged consumers
for those channels," the  FCC said.

 

The
FCC's refusal to study per-channel cable rates has not been applied to other industries.
Last October, Martin announced that cell phone rates from 2002 to 2007 declined
43% on a per-minute basis. He didn't mention that mobile phone carriers do not
offer consumers the right to buy just one minute of air time.

 

The
FCC report could have other flaws.

 

When
the FCC stated that satellite TV didn't constrain cable rates, it didn't
explain what that meant. It wasn't clear if the FCC was saying that cable rates
are what they are regardless of competition from DirecTV and Dish Network,
which combined serve about 30 million subscribers.

 

Elsewhere
in the 39-page report, the FCC stated once again that cable systems that have lost
at least 15% local market share to satellite providers charge about 2.5% to 4%
less that cable operators that have not. That conclusion appeared to contradict
the FCC's claim that satellite TV didn't constrain cable rates.

 

By
documenting a decline in cable rates only with the arrival of a second cable
operator, the FCC's report seemed to imply that the market in question was transitioning
from a monopoly to a duopoly condition. The FCC did not state that for the vast
majority of consumers, local pay-TV options went from three providers to four.

 

As in
the past, the FCC in the new report focused on the pricing actions of incumbent
cable operators when a second wireline pay-TV provider enters. But the FCC
again did not explain why cable rates go down in those markets but satellite TV
rates don't move at all.

 

September