Changes in Cable Service Unlikely : Ruling Will Have Little Impact in Orange County

Despite its far-reaching potential for spawning an era of new competition in the nation’s cable television business, the recent federal court decision challenging the way a city grants cable franchises is unlikely to mean lower prices, better service or a greater selection of programs anytime soon for Orange County cable subscribers.

The precedent-setting opinion by the U.S. Court of Appeals ruled that Los Angeles’ practice of awarding cable TV licenses to only one company in an area violated the free speech rights of firms that wanted to offer similar services. In its decision, based on a case in South-Central Los Angeles, the court said that a city council has no more right to restrict a franchise to one cable television operator than it does to allow only one newspaper to sell its products on street corners.

“We view this is a major advance for cable television consumers, a very pro-consumer decision,” said Stephen Effros, president of the Community Antenna TV Assn., an industrywide group of independent cable firms.

However, cable operators in Orange County don’t see the decision leading to a flood of new competition in the county’s 26 cities, each of which has awarded a cable franchise to only one company. Cable operators and industry specialists argue that the high cost of providing cable service will continue to limit entry into the business and preserve the quasi-monopoly status that selected companies enjoy in local markets.

“You won’t see companies operating against each other in the same area as a result of any new court ruling,” said Richard Waterman, director of corporate affairs for Group W Cable in Santa Ana, one of the largest of Orange County’s 11 cable TV operators. “The court case doesn’t change the economics of the situation, and companies that have trouble profiting by themselves in a franchise area will not want to compete with each other for the same market.”

Howard Gan, a cable consultant based in Washington, D.C., agrees.

“I don’t buy the argument that this ruling means three or four companies will now compete in a franchise area and go door-to-door offering consumers lower prices and better services,” he said.

“The economic realities of cable television just won’t permit that. Most cable companies base their economic projections on the fact that they must have a quasi-monopoly status, and one court ruling is not about to change those realities.”

In Santa Ana, for example, Group W Cable officials have said their construction costs soared from an initial estimate of $16 million to $32 million. The company recently won permission from the City Council to increase rates and scale back the size of its 70,000-home system, explaining that it could not make a profit without such adjustments.

Gan said it is unlikely that a rival cable television firm would attempt to encroach on Group W’s franchise, especially since the company has completed its construction and is expanding its marketing pitch for new customers.

“The financial risks for a rival company would be too great,” he explained. “They would have to spend the same kind of money, and both operators would have to divide the same amount of subscribers between them. Cable operators don’t want that kind of competition.”

But there also are other factors likely to limit the impact of the recent appellate court ruling.

For one thing, the decision focused entirely on a cable TV battle in South-Central Los Angeles. The court ruled that Los Angeles had improperly awarded a franchise to one company, while denying a similar license to another firm.

Sent Back for Trial

No other cable television disputes were affected by the court’s decision, which ordered that the issue be sent back for trial on the First Amendment issue to a lower court.

Also, any nationwide precedent set by the case will most likely come from a ruling by the U.S. Supreme Court, where Los Angeles city officials have said they will appeal the federal court’s decision. That process could take at least two to three years to complete.

And, finally, even if the Supreme Court upholds the notion that cities cannot withhold cable television franchises from any firm that wants to offer services, economic considerations still could overshadow new opportunities created by a court decision.

However, industry leaders believe an affirmative Supreme Court ruling eventually might affect the kind of programming available to customers in Orange County and other large cable markets.

Currently, cities throughout the county require cable operators to devote a limited number of channels to so-called public access programming. These shows are typically produced by viewers or community groups in order to promote a more public use of the airwaves.

City Requirements

Also, Santa Ana, Garden Grove and other cities have required their cable companies to build expensive “institutional” networks linking businesses, banks, schools and governmental offices.

Many cable companies have chafed at these requirements, contending that the programming and services that result are not geared to the needs of customers and are expensive to provide.

If the Supreme Court rules that cable companies enjoy strong First Amendment rights and are thus subject to only minimal regulation, industry leaders say, cable firms could no longer be required to offer such programming.

“Assuming that a city can’t tell a newspaper what or when to publish, it also should not be able to tell a cable television company what kind of programming to offer,” said Spencer Kaitz, president of the California Cable Television Assn.

“I think the cable industry would be free to offer shows and services that customers really want to see under this kind of a ruling, not what city councils and bureaucrats say they should be watching,” he said.

If nothing else, city officials and industry observers believe the Los Angeles case has strengthened a national trend away from local regulation of cable television.

James Mooney, president of the National Cable Television Assn., said the case marked the first time that a federal court has addressed itself so broadly to the question of cable’s First Amendment rights, an issue the industry has been raising for years.

‘Broad Implications’

“The decision is pregnant with some pretty broad implications,” he said. “The potential importance of this is that it could lead to the total, absolute deregulation of the cable industry.”

Indeed, Congress passed landmark legislation last year that weakened the ability of local governments to control cable television. Within two years, for example, cities will lose their power to regulate customer rates.

Earlier, the Federal Communications Commission issued decisions limiting the power of cities to impose taxes on cable firms and curtailing local requirements that operators fund a variety of municipal programs.

In Orange County, the result has been that cable operators are now free to raise customer rates 5% in each of the next two years and by any amount thereafter.