Last week's government report showing much lower cable rates in so-called overbuild markets triggered an immediate response from two lawmakers who have been keeping close watch on the pay TV market for years.
As a first step, Sens. Mike DeWine (R-Ohio) and Herb Kohl (D-Wis.) said they planned to introduce soon a bill that would close the so-called "terrestrial loophole" in program-access laws.
The terrestrial loophole refers to the right of cable companies to withhold terrestrially delivered programming from pay-TV rivals. Under current law, cable companies may not withhold their satellite-delivered networks.
SPORTS NETS IN MIX
Today, Comcast Corp. is allowed to keep its popular regional sports network, Comcast SportsNet Philadelphia, away from Dish Network and DirecTV Inc. because the network does not use satellites. But Time Warner Inc. can't withhold Cable News Network, which is satellite-delivered.
DeWine and Kohl are concerned that cable-operator retention of highly desirable local news and regional sports networks is crippling cable competitors' ability to flourish in the market. Both lawmakers want overbuilders to succeed, because they say those firms force cable incumbents to innovate and cut prices.
"There has been some concern that this loophole impacts the ability of competitors to compete," DeWine, chairman of the Subcommittee on Antitrust, Competition, and Business and Consumer Rights, said at a hearing last Wednesday.
DeWine and Kohl asked the General Accounting Office, Congress' investigative and auditing arm, to examine retail cable rates in markets with cable companies that compete head-to-head.
The GAO report found that incumbent cable operators charge 41% to 15% less in overbuild markets than in markets where the competition was solely Dish Network and DirecTV.
The cable industry disputed the relevance of the findings, saying overbuilders are in trouble financially because they have been charging artificially low rates and incorrectly assumed that cable and DBS rates were bloated.
"I would say it's a fiercely competitive market out there," National Cable & Telecommunications Association president Robert Sachs told the DeWine panel.
After the hearing, Sachs told a reporter that NCTA would oppose legislation closing the terrestrial loophole.
"We will vigorously oppose it," he said.
In his testimony, Sachs said that in 1992, Congress deliberately excluded terrestrial programming from program-access mandates because it wanted to give cable companies the incentive to invest in local and regional networks, including news services.
Insight Communications Co. CEO Michael Willner, who testified with Sachs, argued that broadening program-access rules would slam into the "law of unintended consequences," in that cable companies might be disinclined to invest in local content that they could not retain on an exclusive basis.
DeWine and Kohl said they were also considering a provision that would require cable companies to charge uniform basic and expanded-basic rates in a franchise area, regardless if the cable system is legally considered subject to effective competition.
The provision would be a response to allegations made by the National Association of Telecommunications Officers and Advisors and by Rodger Johnson, CEO of Knology Inc., a cable overbuilder, that cable incumbents stifle competition through the use of predatory "win-back" campaigns to repatriate former subscribers.