NEWS ANALYSIS : Cable TV Industry Takes Rate Fight to Courts, FCC

With the controversial cable TV bill soon to become law now that Congress has overturned President Bush’s veto, the battleground has shifted to the Federal Communications Commission and the courts.

Within hours of the final vote in the House, lawyers for Turner Broadcasting filed a federal lawsuit in Washington, challenging key provisions of the bill.

In addition, lobbyists on both sides of the issue are expected to flood the FCC with suggestions on implementing the regulatory guidelines. The FCC has considerable leeway in deciding which rate regulations are adopted.

The cable industry has repeatedly said the bill will cause rates to rise because it burdens them with extra costs. Nonetheless, consumer advocates praised the bill and said many cable TV subscribers might actually see lower rates as soon as six months from now.

Turner’s lawsuit challenges the must-carry provisions in the legislation, which require cable TV systems to carry most major local over-the-air TV stations at the request of the broadcaster. A broadcaster would have to choose between must-carry and so-called retransmission consent, which allows the local TV station to negotiate a license fee to be carried by the cable system.

“Must-carry” regulations have twice been found unconstitutional by the courts.

Cable TV systems now carry the heavily watched local TV stations for free, while sometimes paying hefty fees to carry the less-watched cable channels. Cable channels such as Turner, owner of CNN, fear that if cable systems must pay to carry local TV stations, then that may force cable channels off the dial or reduce their fees.

“The four Turner networks (CNN, Headline News, TNT and The Cartoon Network) collectively spend $700 million on programming, about one-third what each network spends,” said Bert Carp, vice president of government relations for Turner. “It is not a level playing field.”

Although Turner won a 1985 court decision striking down must-carry provisions adopted by the FCC, cable bill supporters nonetheless said that it will be much more difficult to overrule this time because the congressional statutes provide an “adequate rationale.”

But it is not even clear how many broadcasters will seek retransmission consent and try to negotiate some kind of payment from cable systems.

“I plan to talk about it with my lawyer next week,” promised John Conte, owner of KMIR-TV in Palm Springs--the highest cable TV penetration market in the country. Todd Holmes, vice president of KSEE-TV in Fresno, said he’s begun informal discussions with local cable operators, but doesn’t know what he’ll do, either.

Until the court decides on the Turner suit--which is expected to be joined in the coming days and weeks by others--the cable companies are scrambling to secure their ground.

The cable industry says the new legislation will increase rates, despite rate-control language in the bill, because it also allows cable operators to recover higher expenses.

“The bill states we get to recover ‘actual costs’ in rate-making proceedings, and to the extent a local broadcaster can extract a dollar, that’s actual cost,” said Bob Thomson, vice president of government affairs for Denver-based cable giant Tele-Communications Inc. “To the extent it requires us to install additional equipment like converter boxes, that too is actual costs.”

TCI, which serves one-fifth of the country’s cable subscribers, has said it will not pay retransmission fees.

The FCC has six months to implement the guidelines of the cable TV bill and must determine what are “reasonable” rates for basic cable service.

Gene Kimmelman, the chief lobbyist of the Consumer Federation of America, which worked hard for passage of the bill, said that cable TV rates are at least 30% lower in the 50 or so communities where cable competition exists.

“There is going to be some tempering on the part of cable companies in terms of rate increases,” he predicted. “A lot of them will hedge their bets now. That’s probably the first concrete thing the public will note.”

At least one thing the cable industry doesn’t have to worry about right now is the prospect of telephone companies elbowing their way into the cable TV business.

Although the Baby Bell companies are trying to lobby for entry, both supporters and opponents of the new cable TV bill said that Congress has had its fill of cable TV for awhile and wants to give the new legislation a chance to work before considering other measures--such as competition--to hold down rates.