Rising More Than Rates: FCC Cable Fees Up 24%

8/03/2003 8:00 PM Eastern

At a time when the cable industry is under fire for raising rates, the federal government seems to be tossing the industry's critics more ammunition.

Last week, the Federal Communications Commission voted to raise annual regulatory fees on cable by 24.5%, from 53 cents per-subscriber last year to 66 cents this year.

Cable's $44.5 million total fee payment is expected trail only the local and long-distance phone companies, which are to pay a combined $125.3 million.

The FCC expects to collect $269 million in fees from all the industries it regulates, meaning cable has to shoulder about 17% of the commission's budget.

Cable was once heavily regulated by the FCC. But in today's deregulatory climate, ushered in by the Telecommunications Act of 1996, cable operators are not price-regulated by the agency, which has been largely reduced to hearing rate-rollback appeals at the local level.

Although cable operators are responsible for writing the checks to the FCC, consumers are the ones who actually absorb the costs. Under FCC rate rules, regulatory fees are external costs, just like franchise fees, and may be collected directly from subscribers in their monthly bills, already stressed from the weight of rising programming levies.

The pop in FCC fees has caught the attention of the National Cable & Telecommunications Association.

"We're actually doing some investigating to see the basis of the increase and take what steps we think are appropriate," said Daniel Brenner, NCTA senior vice president of law and regulatory policy.

Fees are going up nearly one-quarter across the board. Thus, cable isn't the only one feeling the sting.

"We're disappointed in this year's fees," said National Association of Broadcasters spokesman Dennis Wharton. "NAB's position is that we abhor the concept of regulatory fees."

The FCC did not initiate regulatory fees on its own. Under orders from Congress, the commission started collecting fees in 1994. The money is used to fund about 2,000 FCC salaries, plus operations in Washington, D.C., and the field.

In the early years, the fees covered about 85% of the FCC's Budget. This year, it climbs to 99%.

The proportion of FCC fees assigned to cable has dropped from 1994 to 2003, even though dollar contributions over the same period have more than doubled.

In 1994, cable paid $21.1 million, about 36% of the total FCC fees collected that year. This year, cable is expected to pay $44.5 million, or about 17% of all FCC fees.

Over the decade, cable has paid at least $311 million in fees.

Is cable getting its money's worth?

"We're looking at it by saying how many cable subscribers will have to pay this fee, times the fees. That's a very large number, somewhere north of $40 million," the NCTA's Brenner said. "The question in my mind is the extent to which the government's cost to regulate cable and that number match up."

While no longer in the price-setting business, the FCC's oversight of cable is considerable. The agency is working on rules to limit the size of cable companies and rules dealing with cable carriage. The agency's top cable priority is completing work on the digital plug-and-play agreement between major MSOs and TV set manufacturers.

An FCC source familiar with the machinery of the regulatory-fee system claimed cable's per-subscriber fee would decline if some operators were not evading payment.

"Remember, it's on an honor system, and we don't feel that they have been adequately paying us," an FCC source said. "We just think there is more out there."

Another issue for cable: the fees paid by its chief competitors, direct-broadcast satellite carriers DirecTV Inc. and EchoStar Communications Corp. The DBS firms are to pay about $115,000 for each satellite, or roughly $1.7 million, compared with the $13.2 million if EchoStar and DirecTV had to pay cable's fee of 66 cents per subscriber.

"Those are the kinds of things we want to look at it," the NCTA's Brenner said.

An FCC source said the agency wanted to keep DBS's regulatory fees low until satellite is firmly entrenched in the market.

"It's a blossoming industry," the FCC source said.

FCC Regulatory Fees
Year Cable DBS
(*) Anticipated
Source: Complied by Multichannel News, based on Federal Communications Commission data.
2003 (*)$44.5m$8.6m

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