Viewpoints : Reregulating Cable TV: How Far Should We Go?

W ith prices for the most popular cable television services up more than 65% since the industry’s rate structure and public service requirements were deregulated in 1984, cries for renewed regulations have finally made it from the living room to congressional hearing rooms.

The writing appears to be on the wall: With one reregulation bill already passed in the Senate and the industry reluctantly deciding not to actively oppose such legislation if it contains certain protections, the only question seems to be how far reregulation should go, and in what direction.

The Senate bill, for example, calls for a price cap on the most basic of cable services and encourages competition in the form of new technologies, such as direct broadcast satellite.

For a discussion on cable television policy, free - lance journalist Sharon Bernstein interviewed Thomas Sugrue, the Commerce Department’s deputy assistant secretary for communications and information; Gene Kimmelman, legislative director of the Consumer Federation of America, and James Mooney, president of the National Cable Television Assn.

What went wrong with cable deregulation?

Kimmelman: There was anticipation that competition against cable would develop in the form of satellite transmission, but that has yet to occur. As a result, the package of programming that cable offers can only be obtained from one local cable company. This package is increasingly popular with consumers, and the prices have shot up dramatically for basic cable rates.

You’d have to also say that service quality has been quite poor. Everything from system outages to handling complaints to getting cable installed seems to be a major traumatic experience when dealing with the cable industry, whereas for any utility company these kinds of problems are dealt with in a much more efficient fashion.

Sugrue: A lot went right with deregulation. The cable industry since deregulation has invested heavily in expanding its facilities and improving its programming.

What went wrong are two things. In some cases there were rate increases that were excessive and service quality that was out of the park. The second problem was that certain parts of the legal framework did not promote competition.

Mooney: More went right than went wrong. Cable is available to many more people today than in 1984. Cable also offers more channels and better programming. Cable has become an original programmer in its own right, rather than a rehash of re-runs.

To the degree that anything has gone wrong, it’s a product of growing pains. As far as the customer service area, it’s pretty hard to invent a new industry in 10 years, have wires running to everybody’s house and uniformly provide good customer service. But we’re catching up on that now.

Are there particular aspects of the cable industry that require more regulation than others?

Kimmelman: Market data show that while the cost of actually providing equipment, employees and buying the programming is less than $1,000 per subscriber, the cable industry has been selling their systems for $2,000 to $3,000 per subscriber. Our data show that although the average cable rate is $15 to $16 a month for basic service, those rates may be as much as 50% in excess of what a cable company needs as a reasonable rate of return.

Sugrue: From the legal side, franchise requirements and strict limitation on telephone company entry into the business have kept potential competitors out. And competitors, such as wireless cable and direct broadcast satellites, have been subject to economic and technical restrictions.

How far should the federal government go in reregulating cable?

Mooney: To the degree that there are specific problems there ought to be rifle-shot solutions and not meat-ax solutions. Whatever is going to be done ought to be done very carefully and with a great deal of attention paid to the possibility of unintended consequences.

Sugrue: One should not overreact. We have suggested changes to the Federal Communication Commission’s rules that would expand the scope of regulation but would focus it on those cable systems that face the least competition. The commission’s rules now say that three over-the-air broadcast signals constitute effective competition. Only in those communities that receive two or fewer over-the-air signals can cable systems be regulated. The result of that has been virtually all cable services have been deregulated. Our economists did a study of the relationship between rates and the availability of over-the-air signals, and we suggested a move to six signals as the minimum.

In those areas that were not subject to the new effective competition standards, we would set rates, but we would not go any further than that.

Past that, we believe the commission should gather information on rate increases to monitor developments in this industry, because one problem that’s been encountered is the lack of really reliable information. We requested annual reporting requirements.

Kimmelman: Since we have never regulated cable like a utility, it would be impractical and very costly to establish utility-like regulation. However, cable rates have shot up dramatically beyond inflation, and so we believe it would be appropriate to regulate through a very simple non-bureaucratic regulatory model that would determine a maximum reasonable price for the package of services that cable offers, or a maximum reasonable price on a per channel basis, and use that as a price limit for what cable operators could charge where there’s no competition.

And you need to set some quality-of-service standards that bring the cable industry in line with other industry service standards, like the utility industry. There should be particular rules for charges during outages, reimbursement when there’s been an outage, time limitations when responding to inquiries and installation requests.

Does the current Senate proposal go far enough? Too far?

Kimmelman: The current legislation is a step in the right direction because it would at least restrain cable operators from exorbitant rate increases. However, we do not think it provides enough protection for consumers against smaller but nonetheless unreasonable rate hikes. The legislation would allow cable operators to raise rates unrestrained for 60 days after the law was enacted.

A second problem is that under the Senate bill you can only regulate rates for anything beyond the networks where a complaint is filed and you can show that rates for those programs are substantially excessive. We think the legislation should be amended to allow regulation wherever rates are unreasonably high.

Mooney: It goes too far in several respects, but especially in that it would subject the cable networks to restrictions that don’t apply to any other aspect of the entertainment industry. It would make the cable networks sell programs to the new consortium formed by NBC and Rupert Murdoch for their direct broadcast satellite venture, Sky Cable. They want the rights to cable programming, but exclusivity for their broadcast business.

Are there alternatives to regulation that could protect consumers?

Kimmelman: Hopefully down the road competition will develop. The legislation currently being considered promotes the availability of cable programming and alternative technologies like satellite transmission.

Sugrue: We would look toward promoting new sources of delivery. There are ways in which telephone companies could participate in this market. We think the current obstacles are a little too Draconian, especially with regard to the franchise requirement. In the long run, our experience has been that competition brings better benefits to consumers than regulation.

Mooney: There is competition now. There used to be just conventional broadcasting. Now there’s cable, too, and there’s competition between cable and broadcast. Pretty soon there are going to be other entrants, and there will be competition among them.