If anyone in the industry forgot that this is an electionyear, last week's 'Annual Competition Report' from the Federal Communications Commissionis an unpleasant reminder of the politics at play.
Last week the FCC delivered its fourth report on the stateof competition of video programming to Congress, a body that in 1992 froze cable rateincreases with the passage of its Draconian 1992 Cable Act.
Blithely ignoring many facts within its own report, the FCCdeclared that there was not widespread competition to the cable industry and something hadto be done about it and cable's rising rates.
For example, the FCC duly reported that high-power DBSsubscribership grew 46 percent, while cable grew about 2 percent. That's not competition?
Tele-Communications Inc. president Leo J. Hindrey Jr.joked, 'I couldn't disagree more. I am the only person in the world who knows how to losesubscribers to the competition.'
The FCC said that as a result of that lack of competition,cable operators had rammed through an average 8.5 percent rate increase on the Americanpublic.
It's odd, as Steve Effros, president of CATA, noted, thatat the very same time the FCC was bellyaching that cable's rate increases were well abovethe Consumer Price Index of 2 percent, that the National Football League pushed through ahike that was 50 times the rate of inflation.
And ESPN's $4.4 billion bid for the cable chunk of the NFLpackage was 135 percent higher than the last NFL cable package price.
Furthermore, the FCC said that because competition to cableis not imminent, it was necessary for the agency to do something about that before thesunset of cable rate regulation goes into effect March 31, 1999.
Many industry executives were surprised at the harshnesswith which FCC chairman William E. Kennard attacked the industry last week, although theywere relieved to hear that he was not talking about a rate freeze, especially because ofthe volatility of an election year where several elected officials have already beenmaking noises about cable rate hikes.
'When confronted with allegations of price gauging, cableoperators reflexively point to additional programming costs,' Kennard charged, whileacknowledging that the commission's 'own rules and policies may be a source of thisproblem.'
So having said that, Kennard has now directed the CableServices Bureau to begin an inquiry into programming costs, looking for the sources ofthose increasees, the variance in costs among various distributors and to find out ifexisting relationships among vertically integrated companies that have programmingservices and own cable systems may be impacting the prices charged.
'This inquiry will require the cooperation andforthrightness of the industry,' Kennard added.
Last week many cable operators said that they would welcomethat conversation with the FCC, especially after the agency had explored the ramificationsof the NFL contract, and the anticipated rate increases from ESPN, which is own by Disney-- which is not a vertically integrated company with cable system holdings.
But why should any cable operator or programmer allowhimself to be subjected to such intrusive regulatory steps and encourage governmentmicromanagement, less innovation and investment, as Decker Anstrom, president of theNational Cable Televesion Assocation asked.
Unfortunately, when you cut through all the rhetoric, whatthe FCC and Congress really wants is lower cable rates and not the 'unreasonable rates,'as mandated by law, said CATA's Effros.
So who is to judge what is a reasonable rate increase?Effros argues that the CPI is not an appropriate yardstick and we agree.
The Simon Legrees of corporate America learned that quicklyin an era of low unemployment, when they tryed to justify paltry 3 percent salaryincreases and as a result saw their best employees, particularly in highly competitiveindustries, move to greener and more lucrative pastures.
Where all this goes with the Cable Service Bureau's newmandate is anyone's guess.
But at least one industry executive was worried that theFCC would recommend extending the sunset on cable rate regulation beyond 1999. Were thatto happen the outcome would be devastating.
Kennard, a proponent of digital television, would seecable's investment and innovation dry up before his eyes.