FCC Studies New 'Deregulating' Model

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In a concession to cable industry lobbying, federal regulators are studying whether new rules are needed for determining when a cable operator is totally deregulated.

For more than a year, the National Cable & Telecommunications Association has been telling the Federal Communications Commission that its rules regarding when a cable operator is subject to "effective competition" were outdated and needed to be changed.

The first indication that the FCC agreed that the NCTA's claims had some merit came in June, when the agency released a notice of proposed rulemaking in which it sought public comment on potential changes to its competition rules.

Since 1993, the FCC has put the burden on cable operators to show, on a franchise-by-franchise basis, that they face effective competition. This meant going out and collecting data proving that all cable competitors in a market combined provided pay-TV service to at least 15 percent of households in the franchise area.

Cable operators in only a few hundred communities — out of some 33,000 franchising areas total — have met this test to the FCC's satisfaction.

In its proposal, the agency suggested that perhaps the legal burden should be shifted from the cable operator to state and local governments, especially in areas where direct-broadcast satellite penetration is quite high. So instead of the cable operator proving effective competition, states and local governments would have to prove the absence of effective competition.

"The growth and development in DBS services has suggested to some that the effective competition determination process should be expedited, for example, by altering the burden of proof in areas of high DBS penetration so that community-by-community decision might now always be needed," the FCC said.

DEEP INTO 44 STATES

The satellite industry serves 18.9 million subscribers, about 20 percent of the country's pay-TV market, according to the Satellite Broadcasting and Communications Association.

But the NCTA pointed out that because so many states — 44 — have at least 15-percent DBS penetration, the FCC should consider adopting a presumption that every cable operator in those states is no longer subject to rate regulation.

In 1999, the FCC lost its authority to regulated expanded basic rates, but local governments retained power to set basic rates. The basic tier at a minimum includes local TV signals. Cable operators have the discretion to add non-broadcast networks to the basic tier.

If the FCC adopted the NCTA's proposal, the agency would effectively preempt rate regulation by local governments in all but six states.

In the relevant states, basic cable rates would be deregulated and cable operators would no longer be required to offer uniform rates in a franchise area.

Consumer groups have been hostile to the NCTA's proposal from the time it first surfaced. They argue that cable continues to possess dominating market and pricing power that DBS has been unable to curb despite satellite's rapid growth over the last decade.

"We found that over and over again that [DBS] is not exercising a brake on [cable] price increases," said Mark Cooper, research director of the Consumer Federation of America. "Finding that cable is effectively competitive when all the evidence suggest they are not is one of the more obvious things that would hurt consumers."

The FCC faces some legal constraints. In the 1992 Cable Act, Congress established that effective competition would be determined by franchise area. But an FCC official said the agency was looking to see whether DBS penetration in a large geographic area, such as a county, was an accurate proxy for DBS penetration in a smaller geographic unit, such as a city or town within that county.

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