Cable Firms Tentatively Test Their New Freedom

Recent victories in the courts and before the Federal Communications Commission have landed local cable television operators in an enviable position--endowed with exclusive rights to wire up particular cities and at the same time largely free of government regulation.

“What we have now is an unregulated monopoly,” warned Cynthia Pols, general counsel for the National League of Cities, one of several groups that has been on the losing end of legal fights with the cable industry.

Independent and public television stations worry that cable operators, freed by the courts from rules that they carry all local broadcast stations, will now drop them from the lineup of stations delivered on cable.

Already, the independent stations say, cable operators in some cities have demanded payments as a condition for continuing to carry their signals. In other instances, they say, prospective independent stations have been blocked from beginning operation because local cable companies would not agree to carry them.

‘Effective Competition’

Cable operators “are using their control over the monopoly cable television distribution conduit to favor their own program services and to disadvantage local broadcasters,” the Assn. of Independent Television Stations said in a report issued last month. “These are the natural anti-competitive consequences of permitting the cable operator to play the dual role of distributor of broadcast programming and competitor to broadcast programming.”

At the same time, the FCC, in the deregulatory spirit of the Reagan Administration, has largely freed cable companies from rate regulation, even though only 30 of the 7,000 communities nationwide that are wired for cable offer residents a choice of cable companies.

Congress declared in 1984 that rate regulation could be lifted where there was “effective competition.” And the FCC has concluded that a city has effective competition if it has at least three local broadcast signals in addition to cable.

The cable industry, though flush with success, insists that it will not take undue advantage of its new freedoms.

“Cable operators will continue to carry most local broadcasts because, after all, they are in the business of carrying what people want to watch,” said Lynn McReynolds, a spokeswoman for the National Cable Television Assn. If a cable company dropped a popular local station, she said, its subscribers might cancel their cable service.

But some cable operators freely admit that they compete with local television--for dollars and viewers--and they will drop what they perceive to be marginal channels.

“If the cable company has a limited capacity and some channel has offbeat religious programs or nothing but reruns, he may want to drop those in favor of ESPN or the USA network,” said John P. Cole Jr., a Washington attorney who has represented the cable operators. “It won’t happen that often, but the First Amendment gives him the right to make that choice.”

The First Amendment has been at the heart of the cable industry’s victories in the federal courts. Cable operators have convinced judges that they are close relatives of newspaper publishers and entitled to the same protections.

Like newspapers, cable companies use “editorial discretion” in deciding which syndicated services to offer their customers, the federal courts have held. Consequently, they have said, the First Amendment’s guarantee of press freedom protects cable television from most government regulation.

Local broadcasters and city officials find this an odd application of the First Amendment. Unlike newspapers, they point out, cable television operates as a government-created monopoly in nearly every area of the nation.

“All the decision-making power is now in the hands of local cable operators,” said Preston Padden, president of the Assn. of Independent Television Stations. “They (the courts) have said that cable is a natural monopoly. They have also said they are protected from regulation by the First Amendment. You wouldn’t think they could have it both ways, but they do.”

Cable television has come a long way from where it was 20 years ago, when it merely carried broadcast signals over wires to homeowners with poor television reception. The advent of satellite technology in the early 1970s made possible national stations--Cable News Network, the Disney Channel, Home Box Office, to name three--that could be transmitted to home television sets via satellite, satellite dish and cable.

The A. C. Nielsen Co. reported in May that 52% of all American homes subscribed to cable television. Cable’s highest penetration was in Palm Springs (87%) and the Santa Barbara-San Luis Obispo area (83%). Some 71% of San Diego homes and 42% in the greater Los Angeles area are wired for cable.

At first, to nurture the fledgling cable industry, the FCC required local broadcasters to make their signals available to cable free of charge. At the same time, cable companies were obliged to carry all local signals.

But in 1985, a cable company in Quincy, Wash., challenged the “must carry” rule as a violation of the free press rights of the cable operator. The U.S. Court of Appeals for the District of Columbia agreed and struck down the FCC rule.

In response, broadcasters, cable operators and the FCC devised a new set of rules which said that cable systems would be required to set aside no more than one-fourth of their channels for local stations.

But in December, the District of Columbia appeals court struck down those rules, too. The three-judge panel relied on a 1974 Supreme Court ruling invalidating a Florida law that required newspapers to give a political candidate equal space for a reply if he had been opposed in a newspaper editorial. The high court had said the First Amendment did not allow such government regulation even if it was intended to ensure fair treatment and the expression of diverse views.

Citing that conclusion, the appeals court said the First Amendment also protected cable operators from regulations that were intended to give viewers a broad array of free local television programming. The appeals judges also noted that a cable subscriber could gain access to any local station that was dropped by the cable operator simply by putting an antenna on his roof and purchasing a tiny switch for his television set.

Various broadcast groups appealed to the Supreme Court, with the Reagan Administration remaining on the sidelines even though the FCC’s regulations had been invalidated. The Supreme Court refused without comment May 30 to hear the appeals (National Assn. of Broadcasters vs. Century Communications, 87-1510).

This was not the first court victory for the cable industry. Earlier in May, the Supreme Court said cities such as New York and Miami could not require their local cable franchises to improve the quality of their signals (New York vs. FCC). The justices concluded that such authority rested with the FCC, which as part of its deregulatory campaign had decided earlier to drop strict regulation in this area.

The Supreme Court has not yet ruled on the cable companies’ argument--supported at the FCC--that cable systems are akin to newspapers.

Cable television “seems to fit closest to the newspaper model” rather than to that of a utility or broadcast television, said FCC general counsel Diane S. Killory. “That’s why we have applied a traditional First Amendment analysis in these rule-making situations.”

The federal courts in California have adopted that view. A federal judge, ruling in a case from Palo Alto, said a city may not force a cable operator to provide service to all homes in the area or to offer “public access” channels that tend to broadcast meetings of local governments. Such regulations infringe on the free press rights of cable operators, the judge concluded in an opinion that is being appealed to the U.S. 9th Circuit Court of Appeals in San Francisco.

And the Supreme Court suggested in 1986 that cable television may well be closely related to newspapers. Los Angeles, like most cities, grants exclusive franchises to cable operators, but an upstart firm sought the right to wire an area of the city that already had a franchise. The suit was thrown out of court in Los Angeles, but the Supreme Court reinstated it without finally deciding the issue.

“Cable television partakes of some of the aspects of speech and the communication of ideas as to the traditional enterprises of newspaper and book publishers, public speakers and pamphleteers,” wrote Justice William H. Rehnquist. The case was returned for a trial in Los Angeles--set to begin in August--on whether rewiring a portion of the city would be an undue burden for residents.

Despite the series of favorable rulings for cable television, advocates on the other side of the issue have not given up.

“They (cable television) have done extraordinarily well of late,” said Andrew J. Schwartzman, a lawyer for the Media Access Project, a public interest law firm specializing in the broadcast industry. “But there is a danger that they may overplay their hand.”

He said Congress and the FCC have heard plenty of complaints from cable subscribers about bad service and rapidly rising rates.

“The cable operators seem to be pressuring each other not to be too greedy now that regulations have been withdrawn,” Schwartzman said. “But they are basically entrepreneurs who want to make money. It will be interesting to see how it works out.”