Tauzin Talks Must-Carry, Cable Rereg

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Rep. W.J. (Billy) Tauzin (R-La.), in the following
interview with
Multichannel News Washington editor Ted Hearn, warned the cable
industry that election-year politics could energize Congress to extend the law that
regulates cable rates -- if not in 1998, then perhaps in 1999. Cable operators, he went on
to explain, could derail the reregulation effort if they offered subscribers smaller
programming packages as a substitute for the prevailing "buy-one, buy-all"
marketing approach. The always-colorful Tauzin said he supports digital must-carry, and he
wishes that the Federal Communications Commission would crack down on instances of cable
price-gouging.

MCN: Are you concerned that cable operators will prevent
the public from seeing high-definition television pictures transmitted by local TV
stations?

Tauzin: We are. That was one of the concerns that we
raised at [the April 23] hearing. Apparently, the cable industry, their representatives,
have said that they haven't heard a lot from members of Congress yet about it. They
heard a lot [April 23].

Members are seriously concerned that for the 70 percent of
[the] American television audience that is connected to cable, it will do us no good to
have broadcasters transmitting a beautiful HDTV signal if the cable companies don't
pass it on to their consumers, or if they somehow offered it in some form that's
degraded. So that was indeed one of the topics of our hearing.

MCN: Were you pleased to hear Tele-Communications Inc.
president and chief operating officer Leo J. Hindery Jr. promise that his cable systems
will pass through to subscribers any format that broadcasters choose?

Tauzin: Yes, but on the other hand, they're still
resisting the notion of must-carry of all of the stations in the community that are
broadcasting at high-definition levels, and that's an issue that, as you know, is
before the FCC and still has to be resolved.

And second, we didn't really get a good answer for
what that box is going to cost. There are concerns that for the box needed to take 1080i
[interlaced] signals and progressive signals and convert them back down to analog signals
for the millions of consumers who will not yet have a digital-television set, that cost
may be somewhat high.

So while we had a lot of good news and a lot of good
expression of intent [April 23], we're still concerned about how messy this
transition may be and about whether, in the end, the cable consumer is going to be denied
some local channels because of a contest for space on cable systems.

MCN: Do you support must-carry for digital-broadcast
signals?

Tauzin: In terms of those markets where cable is indeed
the monopoly, the Supreme Court has already said that must-carry is a policy that is not
only legal, but appropriate.

As cable companies come under the pressure of real
competition -- as, for example, the stations go digital, and consumers in a cable area are
able to get digital signals, either through a satellite distributor, as Capitol
Broadcasting [Co. Inc.] is proposing to do, or through over-the-air broadcast with an
antenna that is associated with a satellite antenna -- as those competitive systems
develop, the whole idea of must-carry is eventually going to fall by its own weight. It
won't be sustainable legally anymore.

For example, in New Orleans, as BellSouth [Corp.'s]
over-the-air terrestrial system -- its [multichannel] multipoint distribution system -- is
available to consumers, 160 channels of television with local signals included, it becomes
less and less legal to sustain a must-carry obligation, Because it's only sustainable
in a monopoly-distribution market.

So the answer, I guess, in a short way, is that I support
must-carry in a monopoly market, and I have less support for it -- in fact, less need for
it -- in a marketplace where consumers have choices of distribution systems.

MCN: What's your reaction to comments by Time Warner
Cable chairman Joe Collins and Hindery that must-carry for digital broadcasting is going
to supplant cable-programming services on a one-for-one basis.

Tauzin: Well, it would, unless there's more room
on the cable system to carry those signals, and my understanding is that technology keeps
moving in that direction, with more fiber laid and more capable cable systems, so the need
to drop other cable programming to meet a digital must-carry requirement [should be] less
and less. So I think that problem ends up curing itself eventually.

In the short term, there could be some real problems. And
to the extent that a consumer would lose a very popular cable channel in the context of a
must-carry requirement, that's one of the things that the FCC is going to have to
examine as it looks at this issue.

MCN: Switching gears, generally, how do you want to promote
competition to cable?

Tauzin: Well, primarily, in two ways. One is to
facilitate the carriage of the local signals by the satellite broadcasters, either
directly in the satellite package or in conjunction with some other system -- either
over-the-air digital or in combination with some other wired system. As soon as anybody
can sell a complete package that includes local signals in competition with the cable
system, then things begin working out nicely.

The second way, of course, is to facilitate the
over-the-air terrestrial systems, such as the MMDS system in New Orleans and other
local-point distribution systems that I think are going to develop in time.

And the third, of course, is to invite the telephone
companies to think about using their wires, or the utility companies to use their wires,
and I think that we'd get there a lot faster if we could ever get the FCC to settle
the business of [long-distance] competition. The phone companies are just preoccupied
right now with battling each other. They're not getting terribly interested in moving
into video distribution on their wires.

MCN: If direct-broadcast satellite can offer local
channels, where do you come down on must-carry?

Tauzin: Well, I come down on the notion that they ought
to be subject to the same requirements as the cable companies, to the extent that they
technologically can meet those requirements. By that, I mean, let's say that
[EchoStar Communications Corp. chairman and CEO] Charlie Ergen goes forward with his plan,
and we permit him to broadcast local channels directly to the 10 major markets that he
wants to broadcast them in. It's obvious that in the early stages of that program, he
could not carry all of the normal must-carry requirements. As his market share increased
and as the technology permitted him to, he should be required to carry more and more until
he's a full must-carry distributor.

Eventually, as I said earlier, when he reaches that point,
and when some other distributor reaches that point, must-carry's going to go away.
Somebody's going to challenge it in court, and they'll win. Because at that
point, you've got competition, so must-carry is not going to be sustainable legally.

MCN: Do you think you can pass a bill this year that
contains incremental must-carry obligations for DBS, over the objections of the cable and
broadcast industries?

Tauzin: Tough call. Maybe we can, maybe we can't.
In the end, it's certainly in the interest, in my opinion, of the broadcasters to
reach that level of competition. I think that broadcasters, in their
retransmission-consent position, are much improved if they have two distributors that they
can talk to than if they only had one. So, in the end, I see some advantage for them, but
for the short term, the broadcasters have taken the position that they want full
must-carry requirements or nothing. And I frankly think that opposition is going to make
it difficult for us to get it done.

MCN: Do you share the view that the FCC has let cable rates
get out of hand?

Tauzin: Yes, I think that they have. I think that
they're so busy trying to dictate content in television and to micromanage the
transition to competition in telephones that they've missed one of their important
missions, which was to monitor the price-gouging that I think is going on in some
communities of America.

I don't think that's true universally: Many small
cable systems have done an excellent job of restraining price increases. But in some
communities of America, the amount of rate increases that have been allowed is
unconscionable.

And worse than that, the real problem that I hear from
consumers is that they're being charged more for programming that's been added
to their packages, which they didn't ask for. And in short, they're being told,
'You've got to buy our stuff to get the stuff that you want,' and that
excuse is used for the price increases.

The FCC can and should be more vigilant about those
practices, and if they aren't, and if those practices don't change before March
1999, I think that Congress is going to get involved.

MCN: Based on your recent comments to reporters, do I
surmise correctly that you're considering legislation that would allow a cable
subscriber to retain his or her current level of service if certain market conditions
prevail?

Tauzin: What I want is for the cable companies, first
of all, to respond between now and March [1999] with as much of a voluntary effort to give
their monopoly customers more choices in their packages, so that they don't
necessarily have to buy a more expensive package to get some of the things that they want.

If that happens in the marketplace, then there's no
need for us to do anything. If that doesn't happen, then perhaps we need some
legislation to incentivize that activity.

It's as simple as this: If the consumer doesn't
have a choice of providers, he ought to have more choices among the things that he
purchases from his monopoly provider.

MCN: Does Rep. Peter DeFazio's (D-Ore.)
cable-rate-freeze bill have a chance of passing the House this year?

Tauzin: Not this year. But the pressure will build next
year. And the problem with the cable-rate freeze is that it freezes the smallest systems
that haven't raised their rates, and it freezes in the big rate increases of the
other systems. And there's an element of unfairness.

That's why I've called upon the [FCC] instead to
look at those exorbitant rate-increase situations and deal with them on a case-by-case
basis. That, to me, makes much better sense than a national freeze.

But the freeze effort, the effort to reregulate and the
effort to extend regulations past March 1999 are going to gain momentum as congressmen go
home and campaign this year and find out that there are some pretty upset constituents out
there with these rate increases.

MCN: What about Rep. Edward Markey's (D-Mass.) bill to
extend FCC regulation of upper-tier rates beyond March 31, 1999? How much of a chance does
that bill have of passing this year?

Tauzin: Not a lot this year, but, again, that could
change. That could change as we get into the election cycle. The more members go home and
hear these kinds of complaints, the more that kind of momentum builds, and, at some point,
consumers will be demanding of their candidates for Congress this year, 'Are you
going to let the monopoly cable company become completely free to do anything that it
wants to in March of '99, or are you going to do something about it?' And if
they don't have a good answer, then Markey's proposition is going to gain
momentum.

MCN: A lot of people say that Markey's bill
wouldn't do that much good because the FCC has let regulated cable rates keep rising.
Do you share that view that it might be futile to pass Markey's bill?

Tauzin: Oh, absolutely. I mean the question of
extending the authority of the current FCC to continue to allow rates to rise -- it's
rather a strange argument. The problem, however, is that without that extension, there is
no authority to do any of the things that we're calling upon the FCC to do, which is
to go in on a spot basis and cure price-gouging. So you can still make an argument that
the FCC ought to have the authority, even though it has not exercised it well in the past,
and that's exactly what Markey is doing. As I said, the argument gains force and
effect as we enter this primary season.

MCN: As a leader on the program-access issue in 1992, what
do you think of Rep. Henry Hyde's (R-Ill.) bill, which would effectively bar
exclusive contracts between cable programmers and cable operators with market power?

Tauzin: Well, it's an interesting attempt to close
what are considered the loopholes in program access. As you know, program access was
designed to cure the multiple problem of integrated companies -- integrated from program
producers to distributors -- marketing via satellite distribution and then denying access
to that programming to [cable's] competitors, principally its satellite competitors.

The two loopholes that it developed is that we've got
less and less vertical integration since people have found clever ways not to qualify as
vertically integrated companies under the [1992 Cable Act]; and we've got a problem,
at least in the Comcast [Corp.] situation in Philadelphia [with its refusal to make its
Comcast SportsNet regional-sports channel available to its competitors], of one company
covered by the act distributing its products in some other way other than satellite -- in
order to do it more efficiently, they say, but perhaps to avoid the act.

So, [House Judiciary Committee] chairman Hyde's bill
is designed to close those loopholes, and it is something that we are also paying a lot of
attention to, obviously.

In a period where we try to get competition developing, it
does us no good to have fewer people covered by program access. It does more good to have
more people covered by it.

And second, it does us very little good to have two
different copyright boards setting different fees on distribution of signals, whether you
do it by cable or satellite. When you charge a satellite consumer 10 times as much as the
cable consumer, you're, in my opinion, moving in the wrong direction, as well.

MCN: Have you spoken to Hyde about the bill? Do you know if
he's serious about moving that bill through this committee this year?

Tauzin: Hyde is very interested in moving it, and he
may attempt to do it this session.

MCN: Do you have your own program-access legislation
designed to close some of the loopholes that you've talked about in speeches and in
comments to reporters in the past?

Tauzin: Well, if Hyde is prepared to move, then it
would certainly give momentum to our thoughts in that area, and we would be very
interested in not only drafting [legislation], but in working with him to move something.
We're just kind of waiting to see whether there's that kind of activity going
on.

MCN: And your thoughts are perhaps to extend the
program-access rules to non-vertically integrated programmers and to cover cable operators
with programming distributed by means other than satellite.

Tauzin: That's right: microwave or landline
distribution.

MCN: What are the chances for legislation that you've
introduced that would effectively roll back the copyright-fee increase on DBS companies
that distribute superstations and distant-network signals?

Tauzin: We have a real chance of doing that. The
problem is, what do you do after that? That's really the question that's larger
than simply the bill that stands this one down. How do we rationalize the fact that there
are two different laws, in effect, setting copyright rates?

My suggestion to [Rep. Howard] Coble [R-N.C.] and to the
folks who have some interest here, including [Motion Picture Association of America
president] Jack Valenti, from Hollywood, is that the easiest way to do that is to simply
require that rates be set on the same basis and that they be harmonized in some way,
perhaps by the same body. And that seems to be gaining some support. Mr. Valenti himself
agreed that this was probably the right approach when he testified before our committee on
this subject.

MCN: But you know that the cable industry's not going
to go for that. They say that's just going to lead to higher cable rates. Or would it
be a statutory rate that would just be adjusted for inflation?

Tauzin: Well, the cable industry doesn't want
higher rates, and I understand that. And my point is that I'm not in a position to
define what is a proper copyright rate. It's not my job. I am in a position to say
that the policy ought to be that we have a standard rate, whatever it is, wherever
it's set -- at the cable level, or anywhere else that the parties who make these
decisions set it. I would obviously prefer that it not be higher, because I don't
want to see cable rates rising anymore.

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