D.C. Pundits Rip Into Low-Reg Cable - Multichannel

D.C. Pundits Rip Into Low-Reg Cable

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A scathing report came out that accused the cable industry of every horrible misdeed except clubbing baby seals.

The one positive: It surfaced in the dead of August when the Washington power class was bronzing at the beach.

The 58-page report on Aug. 12 was the work of the U.S. Public Interest Research Group, a non-profit organization that branded the cable industry a price-gouging monopolist that had to be stopped from extending its chokehold on video programming to the growing high-speed Internet access market.

"We have found that there is absolutely no effective competition in the cable television market across the United States," said the report's author, New York City attorney Jay Halfon. "The public has had enough. We just can't take it anymore, with unending price increases, horrible customer service, and monopoly grip on our communities."

Halfon, an official from U.S. PIRG's New York City office, was joined at a press conference last Tuesday by other consumer advocates.

In the strongest terms possible, they urged Congress to intervene in an effort to give consumers greater control over the programming channels they buy and the Internet service providers they may select over cable system facilities.

"We are going to take this to Congress. We're going to be totally working with Sen. [John] McCain [R-Ariz.] and other interested parties on the Hill to try to restore some sanity and some competitiveness and some fair-mindedness to the current situation in video programming and broadband Internet in America," Halfon said.

McCain, chairman of the Senate Commerce Committee who frequently unloads on cable, is plotting his next moves but is not expected to announce anything until he receives a cable industry study from the General Accounting Office, the investigative arm of Congress, in the fall.

In a report titled "The Failure of Cable Regulation," U.S. PIRG concluded that cable constantly raised rates because it faced no real competition; exploited legal loopholes to withhold programming from rivals; engaged in predatory pricing to drive rivals from the market, only to raise rates later; and used local franchising requirements, such as level playing field laws, to erect entry barriers to competitors, perhaps even to fellow incumbent MSOs.

NCTA: 'Unfounded'

Spokesmen for three major cable companies, Comcast Corp., Charter Communications Inc., and Cablevision System Corp., declined to comment, deferring to the National Cable & Telecommunications Association.

NCTA spokesman Rob Stoddard called the U.S. PIRG report filled with "wild and unfounded claims" that "fell out of favor a decade ago," adding that cable is flourishing in a deregulatory environment and "providing a better deal for consumers, who are getting far more for their dollar."

In the past, cable operators have attributed rate hikes to rising programming costs and to paying off billions of dollars in upgrade costs.

The U.S. PIRG study dismissed those claims, arguing that advertising revenue and revenue from digital services have been sufficient to meet cable's higher cost structure without having to raise retail rates.

The U.S. PIRG report recommended massive regulation of cable, capped by mandated a la carte pricing of every programming channel under rules and regulations established not by the Federal Communications Commission but by 50 state public utility commissions and thousands of local franchising authorities.

"We need a la carte choices, an expanded range of choices so consumers can actually exercise their sovereignty over what they want," said Mark Cooper, research director of the Consumer Federation of America.

Other recommendations included:

  • Overhauling leased access rules so that programmers can rent channels from cable operators at reasonable prices.
  • Requiring cable companies with at least 4% of cable subscribers nationally to seat on their corporate boards a "public member representing subscribers."
  • Requiring cable companies to create, fund and promote an "Audience Channel" that would be a platform to organize consumers "into a mobilized interest group to advocate for pro-consumer and pro-democracy media policy."
  • Prohibiting cable companies from restricting consumer access to "Internet contest based on the source or nature of the consumer's request."

Rate regulation of cable's video programming isn't likely, said David Moulton, chief of staff to Rep. Edward Markey (D-Mass.), who successfully fought to regulate cable rates in 1992.

"There isn't much that can be done about it with a Republican Congress unless and until the public raises hell about it," Moulton said. "You get pockets of complaints here and there, but it's nothing like it was back in 1992 and 1993."

Markey told us

Moulton said Markey warned in 1995 that automatically deregulating expanded basic cable on March 31, 1999, without some kind of competitive test was dangerous.

"On the big issue of price increases, [Markey] basically is in a kind of I-told-you-so mode because he objected to the policy which made this possible." Moulton said.

Internet regulation is an issue still in play at the FCC.

In the fall, the agency is expected to decide whether cable has to accommodate competing ISPs — as digital subscriber line providers must do today — and allow Web surfers unfettered access to Internet content regardless of whether the content provider has a financial relationship with the cable company.

"Cable operators are stone cold monopolists, by the technical definition. In their service territory, they do not allow competing Internet service providers to use their networks under terms and conditions that are fair," CFA's Cooper said. "We must have a series of policies that require them to provide nondiscriminatory access to the underlying telecommunications facilities."

The idea that cable does not face effective competition underpinned the report's recommendations. Although DirecTV Inc. and EchoStar Communications Corp. serve about 20 million households compared with about 70 million for cable, the DBS firms do not check rising cable rates. Cable's ability to raise rates year after year proves that cable has monopoly power, U.S PIRG said.

Wireline impact

The only "real" competition cable operators faces, albeit in about 2% of the country, comes from competing wireline overbuilders, which induce cable incumbents to drop their rates or not raise them as high as in markets where there is no overbuilder.

"In Kansas City, Time Warner offered customers discounts as deep as 45% to forestall defections to Everest Connection," the U.S. PIRG report said.

In its most recent cable rate survey, the FCC found that cable rates rose 8.2% for the 12 months ending June 30, 2002, while inflation for the same period was 1.2%. On a per-channel basis, adjusted for inflation, cable rates declined slightly, the FCC found. But Cooper said the per-channel analysis is flawed because cable programming is largely bundled in ever-growing packages offered on a take-it-or-leave-it basis.

Nightmares

Shifting cable regulation to the states is problematic, said Blair Levin, a media analyst with Legg Mason Inc. who was FCC chief of staff in 1994 when the agency ordered a 7% cable rate rollback. Any regulator — federal, state or local — is going to have trouble regulating cable because video programming is an organic product, he said.

"A gallon of water doesn't really change, a kilowatt doesn't really change but the nature of cable programming is different than your normal utility style regulation," Levin said. "Creating a regulatory regime to price regulate it is just really difficult. That's irrespective of which jurisdiction does it."

A regime overseen by 50 states, Levin added, would also handicap cable's ability to raise investment capital.

Another question is whether cash-strapped states could afford to take on cable regulation. According to a survey of the National Conference of State Legislatures, 31 states are cutting spending this year. California is conducting a recall election largely over Gov. Gray Davis's (D) handling of the state's huge budget deficit.

Jessica Zufolo, legislative director of telecommunications for the National Association of Regulatory and Utility Commissioners, said the states had the expertise and experience to regulate cable.

"It could be an open question as to where the money will come from to hire additional staff needed to analyze rates cases with respect to cable television service," Zufolo said.

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