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Cable in Lott of Trouble?

8/02/1998 8:00 PM Eastern

Washington -- Even cable's friends on Capitol Hill are
growing restless.

Senate Majority Leader Trent Lott (R-Miss.), catching cable
CEOs and Washington lobbyists flat-footed, issued a stern warning that cable would invite
a new round of regulation if voters keep nagging lawmakers about soaring cable rates and
lack of choice in packages.

"I've been one of the ones who wanted rates
deregulated, but if we go through a series of situations where these rates continue to go
up by double-digit percentages, people are not going to stand for it, and neither are
we," said Lott, the most powerful member of the Senate.

The next day, Rep. Billy Tauzin (R-La.) introduced a bill
that would allow cities to void cable deregulation next March 31 if local operators fail
to offer subscribers "an acceptable range of programming choices."

The bill would revamp program-access rules and create a
lifeline-basic tier limited to local-TV and public-access signals.

Lott's outburst came during a surprise appearance at a
cable-rate hearing held last Tuesday by the Senate Commerce Committee, under chairman John
McCain (R-Ariz.).

Lott -- staring down at the witness table, where
Tele-Communications Inc. president and chief operating officer Leo J. Hindery Jr. and Cox
Communications Inc. president and CEO James Robbins were seated -- said he came to throw a
"stink bomb" and say that cable prices were a serious political problem.

"And if the rates continue to go up the way that they
have been going up in some areas, I predict that a major problem will erupt," he
said.

Lott's view was shared by McCain, who said cable
regulation should continue by default if efforts to boost direct-broadcast satellite
competition sputter. McCain said he planned to unveil a bill "soon."

Sen. Ted Stevens (R-Alaska), the powerful chairman of the
Senate Appropriations Committee, promised that he would support reregulation, particularly
if cable subscribers were denied the right to buy channels individually or in small,
reasonably priced packages.

"When you insist that I take a whole bunch of stuff
... in order to get what I want, and you then decide what goes into what packages, I think
that you are bringing the public down on our backs," Stevens said. "I hope that
you are hearing us, because I agree with what [Lott] said."

Hindery and Robbins defended their pricing, saying that
increases have been modest on a per-channel basis, and that competition has limited their
pricing freedom.

Lott's blunt remarks shattered cable lobbyists'
standing claim that cable-rate issues were far from the minds of Capitol Hill lawmakers
who mattered.

Nevertheless, National Cable Television Association
president Decker Anstrom said Lott's comments were not a surprise.

"He's been making that point consistently,"
Anstrom said. "He's certainly made it privately."

Hindery made meager progress with Sen. Ron Wyden (D-Ore.)
by declaring that TCI could have raised its 1998 rates by 6.2 percent, but it opted to
hold the line at 3.9 percent.

Lott "is sending a message to you that you all better
understand how serious this consumer uprising is," Wyden said.

After the hearing, Hindery said he got the senators'
message loud and clear, and "it's one that we take seriously."

Yet he added that the fact that TCI raised its rates less
than what was allowed under Federal Communications Commission rules demonstrated his
concern for subscribers.

"What more do you want me to do?" he asked.
"I am taking action, as we all are, to be sensitive to the issue."

Tauzin's bill (H.R. 4352) would negate upper-tier
deregulation of large cable operators if local franchise authorities tell the FCC that
operators are not offering a range of programming packages. Operators maintained that
unbundling a large tier would not be economically or technically feasible without
jeopardizing signal security.

Under the bill, cable operators may appeal decisions by
local governments to the FCC on the grounds that the postponement of deregulation was
arbitrary and capricious.

Under current law, the FCC loses its right to regulate
upper-tier rates March 31, 1999. Tauzin aides said his bill would not allow local
governments to regulate small cable operators that won their price freedom upon passage of
the Telecommunications Act of 1996.

Tauzin, who introduced the bill with Rep. Edward Markey
(D-Mass.), said the intent is to require cable operators that do not face effective
competition to break up large programming tiers as a means of expanding consumer choice.

"It's time for consumers to have more choice in
that kind of marketplace," Tauzin said. "'Take it or leave it' ought
not be the only choice available to cable consumers in America."

Cable leaders criticized the bill, saying that it would
allow 14,000 local franchising authorities to meddle in program-lineup decisions.

"It's more government where less is needed,"
Anstrom said.

"This is a paperwork fiasco of huge proportions,"
said Steven Effros, president of the Cable Telecommunications Association (CATA).

Tauzin spokesman Ken Johnson said he did not expect the
bill to pass this year. Johnson added that Tauzin might stage a public hearing on cable
rates early next year, in a city other than Washington.

Johnson said the cable industry ought to negotiate with
Tauzin because the bill was an alternative to more draconian measures that call for a rate
freeze or continued FCC regulation.

"Once the first double-digit rate increase hits after
rate deregulation, all hell will break loose on Capitol Hill," Johnson said.
"This [bill] is a way to avoid that kind of bloody mess."

Tauzin's bill would also overhaul program-access
rules, which are set to expire in 2002 without an FCC-ordered extension.

Current law generally prohibits exclusive contracts between
cable operators and satellite-delivered cable networks in which operators have a 5 percent
interest.

Tauzin's bill would extend the ban on exclusivity to
include cable networks that are unaffiliated with cable operators and cable-affiliated
networks that are distributed by means other than satellite.

"So long as [program-access rules] are in place, no
one should get around them by finding a different way to distribute those signals, or by
changing their business practices so that the vertical-integration rules do not apply to
them," Tauzin said.

If enacted, Tauzin's bill would bar companies like
Viacom Inc. and The Walt Disney Co. from signing exclusive deals with cable operators.
Viacom has exclusive terrestrial deals with MSOs for Nick at Nite's TV Land, and
Disney for ESPN Classic Sports.

It would also stop Comcast Corp.'s Philadelphia-area
regional-sports network, Comcast SportsNet, from refusing to sell to DirecTv Inc. and
EchoStar Communications Corp., which have filed complaints that are pending at the FCC
against Comcast.

Tauzin said his bill would not prohibit DBS carriers from
signing exclusive deals, citing DirecTv's National Football League contract as a
pro-competitive force in the market.

Finally, Tauzin would force all cable operators to offer a
basic tier that consisted exclusively of local TV signals and PEG-access (public,
educational and government) channels. The bill flatly prohibits the placement of cable
networks or other cable services, such as telephony and high-speed Internet access, on the
basic, or lifeline, tier. The FCC would be charged with regulating the basic rate.

The inclusion of a "skinny tier" was a major
lobbying objective of DirecTv, which does not provide local-broadcast signals to dish
owners.

"Those subscribers can combine their national DBS
service with the lifeline service from their local cable operator," DirecTv spokesman
Bob Marsocci said in a prepared statement.

Effros said the bill would force cable operators that carry
digital-TV signals -- either voluntarily or by government mandate -- to include them on
the lifeline tier.

The price of that tier, he said, would soar, because each
subscriber who had not purchased a digital-TV set would need to be supplied with a digital
converter, raising the cost of the lifeline tier.

"Every lifeline customer would need a digital
box," Effros said. "All I am saying is that it's going to be very high.
It's certainly not going to be $5 per month."

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