FCC Purges Per-Channel Rates


Washington— The Federal Communications Commission under Republican chairman Kevin Martin stopped reviewing cable rates on a per-channel basis, in part because consumers are not allowed to buy channels one-by-one from a menu of options.

The new policy announcement came last Wednesday in the release of the FCC’s 2005 cable-rate survey, which was adopted the prior week at the agency’s final public meeting of the year.

Martin has been the most vocal cable critic to lead the FCC in more than a decade, saying cable rates keep rising due to lack of competition, even though the two top direct-broadcast satellite competitors — DirecTV and EchoStar Communications’ Dish Network — serve nearly 28 million pay-TV households combined. Martin has angered cable operators and programmers by calling for the a la carte sale of channels.

Although the FCC has routinely crunched the per-channel data in previous reports, it did not do so in the latest one.

“This [per-channel] data is not included in the 2005 price survey report because of the weaknesses associated with using it,” the FCC said. “If cable operators offered consumers the option to purchase channels individually, it would be appropriate to consider the prices charged to consumers for those channels.”

One possible reason for the new policy: While the pricing of cable programming tiers has risen, inflation-adjusted per-channel cable rates have declined in the decade before January 2005.

The FCC’s report reviews the year-to-year price changes of the basic and expanded basic programming tiers, plus such equipment as remote controls and set-top boxes. The FCC said that cable rates on Jan. 1, 2005, were up 5% for the year and up 93% overall since July 1995. An emphasis on comparing nominal tier rates that are not adjusted for channel additions and other qualitative changes was appropriate, the FCC report said.

“The average rate per channel does not reflect the prices offered to consumers, because cable operators do not permit consumers to purchase channels included in the expanded basic package on an individual basis, nor do they provide refunds to consumers who opt to have certain channels blocked,” the FCC said.

In a statement, Martin stressed the 93% increase and related data showing that cable rates drop 17% in markets where a second company competes with the incumbent. The FCC did not study the impact on satellite-TV rates in a market after the arrival of a second cable operator.

It was still possible to track per-channel rates from the FCC report. For the decade, nominal per-channel cable rates rose 19.6%, from 51 cents to 61 cents. Inflation, according to the Bureau of Labor Statistics, was 25.05% for the same period.

Since inflation outpaced per-channel rate hikes, real per-channel cable rates actually declined, a result at odds with Martin’s emphasis on the price of bundled cable rates.

The FCC report questioned the assumption that more value is created when operators add channels and raise rates at the same time. A 10% increase in channels along with a 10% increase in price “does not take into account how consumers might value the additional channels,” the FCC said.

It added, “In particular, a consumer who placed no value on the additional channels would see a 10% increase in his or her monthly cable rates, but no increase in quality.”