McCain Wants Cable Rates Probed

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Sen. John McCain (R-Ariz.) wants to put cable rates under a federal microscope.

Last week, McCain asked the General Accounting Office to investigate cable-rate increases and to assess the reliability of industry-supplied financial data reported by the Federal Communications Commission.

"Consumers have a right to know why cable rates continue to climb faster than the rate of inflation," McCain said in a two-page letter to Comptroller General David Walker, who heads the GAO.

McCain is considered a conservative Republican, but he's also a maverick with a reform agenda that includes throwing jabs at the cable industry and other big-business players.

The most senior Republican on the Senate Commerce Committee, McCain voted against the Telecommunications Act of 1996, which partially deregulated cable rates as of March 31, 1999. He often cites rising cable rates as a failing of the 1996 law.

"There are two signs of spring in Washington: the arrival of tourists to enjoy the cherry blossoms, and the release of an FCC report that cable rates have risen during the previous year," McCain said last week in a letter to FCC Chairman Michael Powell, which asked him to assist the GAO.

McCain's request to the GAO follows the April 4 release of the FCC's annual cable-rate survey. The agency found that nominal monthly cable rates rose 7.5 percent during the 12-month period ended July 1, 2001, while inflation over the period was 2.7 percent. Nominal rates are not adjusted for inflation, or for such improvements in quality as channel additions.

The FCC study found that on a per-channel basis, cable rates rose 1.5 percent, to 60 cents. Looking just at the expanded-basic tier, the agency said, rates rose 0.5 percent, to 80 cents on a per-channel basis.

Adjusted for inflation, per-channel cable rates declined in real terms during the period studied by the commission.

At the request of Sens. Herb Kohl (D-Wisc.) and Mike DeWine (R-Ohio), the GAO — Congress' investigative arm — is already studying whether cable rates are restrained in the roughly 40 markets where EchoStar Communications Corp. and DirecTV Inc. offer local over-the-air TV signals.

WHAT'S BEHIND THE RISE?

In his letter to Walker, McCain said he wanted the GAO to "substantiate the justifications for rate increases" that cable operators have provided the FCC.

Cable operators have largely attributed rate hikes to increased programming and labor costs.

"While the FCC's report provides a statistical analysis of the purported causes of cable-rate increases, the data are based completely on self-reported information from cable operators," McCain said. "The time has come for an independent review of the cable industry's claims."

National Cable & Telecommunications Association spokesman Marc Osgoode Smith indicated that the GAO's probe would fail to unearth shocking discoveries.

"We believe that GAO's examination of cable pricing issues will confirm conclusions reached previously by the FCC and the Bureau of Labor Statistics — that cable prices per channel have remained relatively constant since deregulation in 1999, despite substantial operator investment in programming and personnel to support cable's more advanced services," Smith said in a statement.

McCain asked the GAO to recommend steps that policymakers should consider to address continued cable-rate increases.

In the House, two lawmakers — Reps. Barney Frank (D-Mass.) and Bernard Sanders (I-Vt.) — last year introduced bills that called for the re-regulation of cable rates.

The Consumers Union applauded McCain's effort, but the group is not advocating cable rate regulation at this time.

Instead, the group is urging the FCC to allow Northpoint Technology Ltd. — a would-be terrestrial provider of video programming and two-way Internet access — to share direct-broadcast satellite spectrum.

"Our primary goal is to try to bring new companies into this market. We believe that we need more competition," Consumers Union spokesman David Butler said.

TIERING TOPIC RAISED

McCain also took on the issue of tiered cable programming. He asked the GAO to determine the extent to which cable operators may package services so that consumers pay "only for the programming they wish to receive."

Tiering is a hot issue in the New York market, where Cablevision Systems Corp. and Yankees Entertainment & Sports Network are locked in a battle over carriage of the new regional sports channel. YES wants carriage on basic cable; Cablevision has said it wants to offer YES — and its 130 New York Yankees baseball games — as a premium service.

In his letter to Powell, McCain asked the commission to provide "any and all necessary information and support" to the GAO's investigation. The FCC has routinely cooperated with the GAO on cable and telecommunications investigations.

Schwab Washington Research cable analyst Paul Glenchur said that although cable operators are "popular villains" in Congress, the industry was not about to face a new round of price regulation as result of McCain's effort.

"I don't think it foreshadows anything that aggressive just yet," Glenchur said.

He said lawmakers still support allowing competition to set cable rates.

"DBS is having an effect. I think that's pretty clear," Glenchur said.

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