News

Cities Voice Frustration with FCC

4/26/1998 8:00 PM Eastern

Cries from Washington, D.C., that cable rates are too high
are echoed by the cities that are responsible for holding the line on basic charges. But
local regulators said they get little support from the federal government in their local
battles.

Although some cities continue to zealously regulate (and,
in the view of some operators, overregulate), many municipalities -- especially smaller
ones -- despaired over their inability to cut consumer costs.

Look at the statistics, they said. According to the Federal
Communications Commission, 277 rate-rollback appeals are currently pending. Some of them
are so old that they predate the adoption of the Telecommunications Act of 1996. And while
cable operators wait for the bureaucracy to move, they charge the rates that they want to
charge, regardless of the community ruling, regulators complained.

"We try to get the big cities out of the way, then the
[disputes] with the biggest disparities," said FCC Cable Services Bureau spokesman
Morgan Broman. As for the rest, "we're trying to work our way through them. Some
of them are kind of old."

Cable-franchising executives did not want to talk about the
appeal process on the record, other than to reiterate that they've done their best to
follow FCC rules and interpretations and to come up with fair basic rates that are
reflective of rising costs and system improvements. They also noted that agreements with
the FCC brought positive results for communities, such as the vow to prepare schools for
cable modems.

Cities get varied advice on whether they should spend their
precious resources on rate regulation. Among the "hawks" is Fred Polner of law
firm Rothman, Gordon. He has won rate appeals that more than paid for a city's
expenses, and he is currently representing Pittsburgh in its appeal against a
Tele-Communications Inc. rate hike.

"Cable operators play fast and loose with the rules.
Unless cities stand up for their residents, nobody will," Polner said.

But Polner acknowledged the frustration that many feel. He
filed the single request for reconsideration of the Time Warner Cable-FCC "social
contract" -- which is now three years old -- and he has never gotten a response.

"Even if the cable operators were to act in good faith
and try to follow the rules, the FCC leaves the city and the operator in no man's
land," he said. Perhaps if rates continue their stratospheric rise, the FCC will have
no choice but to apply for more resources, Polner added.

SUSPICION OF FCC

But a bigger FCC might not necessarily be a better FCC,
some cities and consultants said. Many are still bitter about the so-called social
contracts, in which the FCC resolved global rate overcharges. Many regulators groused that
the pacts rewarded operators with penalties like in-kind rebates (free pay-per-view
movies) that actually benefit the business in the long run.

Lack of action on appeals -- plus the social contracts and
other rulings that supported the cable industry -- makes many cities feel that "even
if they go ahead and spend the money, the FCC will take the side of the industry, and all
of that money will be wasted," municipal consultant Mike Friedman said.

Adversity is a good teacher, though, and some cities have
moved to a more covert -- some might say coercive -- form of regulation: To avoid going to
the FCC, regulators pore over their franchise documents, looking for any breach, be it
electrical-code violations or lapses in public-access support.

This is a strategy of consultant Larry Monroe, a former
cable executive who prides himself on the fact that none of his clients has had to
litigate on rates. Instead, clients participate in semiannual franchise-compliance reviews
that are designed to turn the cable operator from an "applicant into a
supplicant."

Clients only issue rate orders "if the company forces
it," he said.

TALK FIRST, THEN WALK

Proponents of the negotiation strategy over FCC rulemaking
pointed to successes in Greater Los Angeles. Earlier this month, the city negotiated for
$12.3 million in rebates and rollbacks to settle a nearly four-year-old rate dispute with
Century Communications Corp. Century went to the FCC three years ago, when cities cried
foul over a new expanded-basic tier that was marketed as "Century Select," but
that was programmed in part with networks that had migrated from regulated basic.

Attorneys for the MSO argued that they had made the move in
good faith, based on the best rules interpretation that they could obtain at the time. So,
the FCC negotiated a settlement for Southern California customers that would have brought
only $1.6 million for Los Angeles.

The city opted out of the agreement and, as negotiations
dragged on, city officials found a sword to dangle over Century's head in the form of
a proposed system transfer planned between Century and Tele-Communications Inc. Los
Angeles officials made it clear that they would not approve the deal unless current
grievances were settled.

Santa Monica, Calif., also negotiated with Century
separately from the FCC settlement, and it, too, did better for subscribers than the
federal agency. It reached an agreement shaving $11.58 per month for 12 months off the
price of a 41-channel basic tier.

'BLACK HOLE'

OF FLORENCE

But on the other extreme is the regulatory headache endured
by Florence, Ore., a coastal town of 6,500 residents that tried to roll back Falcon Cable
TV Corp.'s rates in 1995, only to see its order "disappear into a black hole at
the FCC," according to a local official.

Issued by the Regional Cable Commission, a consortium of 18
area towns, the order said Falcon could not include intangible costs in its rate filing,
and it ordered the price of its 25-channel basic tier to be cut from $24 per month to just
over $11.

Predictably, Falcon disagreed, and it appealed to the FCC,
which granted the MSO a stay of the local order. While the appeal languished in
Washington, D.C., Falcon adjusted its rates three more times, bringing the monthly bill
for basic service in Florence to $29.66.

After a year-and-a-half wait, city officials contacted the
Oregon congressional delegation, finally resulting in an FCC decision last month that
upheld the city's original order.

Falcon, however, responded by appealing portions of the
federal order. This restarts the clock, and the rate cuts are in abeyance again.

"Do you get a sense of frustration on the part of
communities?" asked Milo Mecham, a staffer with the local cable commission.
"That's why members of the commission have taken to calling the FCC 'the
black hole.'"

Falcon has another two-dozen appeals pending at the FCC
over rate orders issued against it by other area communities, with little hope of action
anytime soon, Mecham said.

The inability to make a rate order stick has convinced some
area towns not to join the RCC.

"They feel that they have limited authority over
cable," Mecham said. "All that you can do is limit an increase -- you can't
say no. It makes it almost useless for local governments to go through the rate-regulation
process."

In the end, even if the FCC rules in favor of the city
again, many local subscribers may never see a refund, he added.

"People stop taking cable, they move away, and new
people move in. It's going to be a mess trying to figure out who gets a refund,"
Mecham said.

Meanwhile, regulators in Portland, Ore., are still awaiting
FCC action on TCI's appeal of a 1994 rate order involving the MSO's
inside-wiring-maintenance program.

In the meantime, the city felt compelled to settle with TCI
in November on five other rate orders, which resulted in refunds of $9 for each of the
company's 25,000 subscribers inside the city limits.

"We had to throw in the towel," said David Olson,
Portland's director of franchising. "We felt like people just couldn't wait
any longer for refunds. And we were seeing absolutely no action out of the FCC. The pace
has been glacial."

ST. LOUIS BLUES

In St. Louis, a June 1996 rate order cutting TCI's
equipment costs was resolved by the FCC in a relatively expeditious 15 months, but only
after telecommunications officer Susan Littlefield "squeezed" agency staffers by
writing letters to various higher-ups.

"We got action in 15 months, and we felt that was
quick," Littlefield said. "But not every community has access to the same names
and numbers that I do."

As currently structured, FCC regulations produce an
"automatic conflict" between cable operators, which are obliged to keep
shareholders happy, and municipal regulators, the constituents of which "want
reasonably priced service," Littlefield said.

The process is complicated further by FCC rules that are
less than crystal-clear. For example, she said, the FCC ruled that operators can include a
"reasonable number" of converters that are stored in warehouses when calculating
rates. It failed, however, to define "reasonable."

Additionally, operators treat their appeals as if they
received stays of rate rollbacks, and they continue implementing the challenged rates, she
added.

Meanwhile, smaller communities, which lack the staff or
resources of the bigger cities, find different ways to cope. Some, like the Oregon
communities, band together.

"Most cities are not in a position to go head-to-head
financially with a cable company ... and most cable companies are aware of that,"
said Kathy Moore, manager of the office of administrative services and community relations
for Garden Grove, Calif.

Their best strategy is to leverage off their joint
concerns, she said.

Other small cities have abandoned any hope of regulating
cable local rates, and they basically rubber-stamp whatever rate filing comes before them,
said Barry Orton, a professor of telecommunications at the University of Wisconsin and a
municipal consultant.

"It's obvious that the FCC was putting these
appeals in the deep freeze," Orton said. "It gets a file number, but nobody will
be left alive to see it come out of the other end of the FCC."

"I knew that we were in trouble when people at the
FCC, which wrote the rules, came out to explain them to us, and they couldn't,"
he said. The staffer couldn't do the math, Orton asserted.

GIVE UP THE GHOST

Tom Weisner, president of the National Association of
Telecommunications Officers and Advisors, agreed that many communities aren't
bothering with cable-rate regulation anymore.

"The process is so onerous, and the chances for a
positive outcome so remote, that many cities have gotten out of the rate-regulation
business altogether," he said. "They consider it a paper-pushing exercise."

Apparently, help will not be forthcoming from Congress,
where, insiders said, there haven't been nearly enough protests from local regulators
to convince lawmakers to hold the FCC's feet to the fire.

"To the extent that local governments have expressed
their disgruntlement, it hasn't been strong enough to lead to a general uprising in
Congress," said David Molton, press aide to Rep. Ed Markey (D-Mass.).

Even Markey's proposal to extend the FCC's
ability to regulate expanded-basic rates beyond the March 31, 1999, sunset date in the
1996 Telecommunications Act only had about 25 co-sponsors as of mid-April, Molton said.

But even then, Markey's plan would still leave it up
to the FCC to fix what's gone wrong.

Weisner doesn't think that the FCC's "badly
flawed" decision-making should be overhauled. Instead, the focus should be on
enabling true competition.

"Right now," he said, "consumers have the
worst of both worlds. They don't have effective competition, and they don't have
effective regulation."

Want to read more stories like this?
Get our Free Newsletter Here!