Ends Local Rate Control for Basic Services in Franchise Markets : FCC Sets New Rules for Cable TV

In a victory for the cable-television industry over local regulators, the Federal Communications Commission ruled Thursday that cable systems will be free from local rate regulation for basic services in cable franchise markets where consumers receive three or more broadcast signals.

The commission took the action as it amended its rules to implement a 1984 landmark cable deregulation bill.

“The FCC action today marks the end of a long and difficult effort,” said James P. Mooney, president of the National Cable Television Assn. “Now that the policy-makers have spoken, we hope to join with the cities in making a smooth transition to deregulation.”

The new guidelines will apply immediately to new franchises and to existing franchises after October, 1986, when local regulation of basic cable rates ends under the new law. Basic service involves those channels offered subscribers for a flat monthly fee and does not include such premium pay-TV services as Home Box Office.

The commission concluded that “effective competition is likely to be present in markets with three or more over-the-air broadcast signals.”

The cable-TV association said that, as a result of the ruling, more than 75% of all cable systems, serving more than 90% of cable subscribers, will be deregulated.

Under terms of the 1984 Cable Communications Policy Act, the commission was directed to set criteria for determining when cable systems face effective competition.

Without effective competition, local municipalities could continue to regulate basic cable-service rates.

The National League of Cities, which hammered out the compromise legislation last year with the cable industry, had urged the commission to require franchise markets to receive as many as 10 signals before a cable system would be freed of local rate regulation.

Recommended Fewer Signals

The cable industry had recommended fewer signals than the FCC had set in its criteria. FCC officials said they settled on three signals after reviewing comments and completing their own studies.

Randy Arndt, League of Cities spokesman, called the commission’s decision “distressing.”

“It would appear to us to be an industry-written ruling, in terms of representing their point of view almost to the exclusion of a reasonable interpretation of the legislation,” he said.

Although the new competition standards will not affect major metropolitan areas where there are many signals and where cable competes with other services such as pay TV, critics of the commission ruling say it could hit hard in rural areas.

“It is a very low threshold of competition, much lower than we expected,” said Michael Stover, assistant city administrator in Lakewood, Calif., who participated in last year’s negotiations between the cities and the cable industry.

In parts of Northern California and other rural and mountain areas, cable operations will have “every incentive to operate as true monopolists and extract the maximum payments possible from their subscribers,” he said.

He predicted that the consumers in those areas will pay much higher prices for basic cable service than urban subscribers.

Cynthia Pols, legislative counsel for the league, said the association will take some action to challenge the FCC ruling.

In its action Thursday, the commission also changed other rules to bring them in line with other provisions of the 1984 cable law, including limiting franchise fees charged by cities to 5% of a cable operator’s gross annual revenues. Another change will allow telephone companies to own cable companies in rural communities with fewer than 2,500 persons.