VALLEY CABLE TV: A Special Report : Regulations Create a Fuzzy Pricing Picture

Wayne Sippel owns two television sets and subscribes to most of the channels that his West Hills cable system offers. He likes the new federal regulations on cable rates because his monthly bill dropped by $5.

But across town, in Van Nuys, Estelle Busch could barely afford cable to begin with. She receives only the standard channels on one television and now has to pay $2 more each month.

“I just don’t understand,” Busch said. “I expected my bill to go down.”

Conflicting reports have become the norm since the Federal Communications Commission instituted its rate rollback Sept. 1. The price controls were supposed to lower cable bills that had risen dramatically since the industry was deregulated in 1986. In reality, a preliminary government survey suggests, 68% of subscribers are now paying less while 31% pay more.

Cable systems in the San Fernando Valley and nearby communities report similar statistics. And most of the savings are linked to extras such as remote controls and additional outlets, so subscribers with bare-bones service are the ones receiving larger bills.

“I’m a poor schnook and, for people like myself, I think they’re taking advantage of us,” Busch said.

Other subscribers are dismayed because the new regulations extend beyond rate control, tinkering with the channels they receive.

Just ask Mark Bashaar of Van Nuys, who fretted that he’d miss his beloved football games while his system negotiated to keep KNBC in its lineup. Or talk to Deborah Panno of Burbank, who tuned in one day to discover that a cable channel she enjoys, E! Entertainment Television, had been supplanted by a local Spanish-language station.

Federal officials and industry experts are given to long pauses when trying to explain the regulations and their myriad effects.

“You bet it’s confusing,” said Tracy Westen, an adjunct professor of communications at USC. Westen is a consultant for several Southern California cities that are struggling to decipher the fresh legislation. “It’s like the blind men and the elephant. Nobody has the overall picture right now.”

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The original intent of the 1992 cable bill was simple enough: make cable rates “reasonable.”

The industry argued that subscribers were getting their money’s worth, that rising rates had financed the growth of CNN and MTV and other popular services. Legislators disagreed. Overriding then-President George Bush’s veto, Congress passed what one lawmaker hailed as “the most important consumer victory of the past 20 years.”

But the law, experts now say, was vague in some areas and too specific in others. An understaffed FCC churned out 500 pages of regulations that were as convoluted as a bad movie-of-the-week plot.

The most controversial of these provisions, for 58 million subscribers nationwide, dictates how cable rates are determined.

Nearly all cities and counties, including Los Angeles, divide themselves into franchise areas, each occupied by a lone system. The FCC found that these cable companies, which are essentially geographic monopolies, charge at least 10% more than services in the minority of areas that have competing systems.

So regulators devised a formula to enforce competitive rates.

Using this formula, systems calculate a per-channel price they can charge for “basic” service, defined as over-the-air broadcast, public access and cable channels used by local government. This benchmark also applies to fees for “expanded” service--channels such as CNN and TBS. Premium services such as HBO and the Disney Channel are not regulated.

Because the formula is based on a given system’s number of subscribers and channels, the resulting rates vary from system to system. Overall, regulators hoped that monthly bills could decrease an average of 10%, saving consumers $1 billion annually.

So far, the average bill nationwide has decreased by 8%, or $2, according to the FCC’s preliminary survey. But the benchmark formula is so complex that individual situations vary widely. Some subscribers are paying less for more channels, while others pay less for fewer channels. And legislators and consumer advocates are angry because many subscribers are paying more.

“That was clearly not the intent of Congress,” said Bradley Stillman, legislative counsel with the Consumer Federation in Washington, D. C. “Congress said to bring rates down.”

In the Valley and surrounding areas, eight of the 15 cable systems affected by the legislation are charging the same or more for their lowest level of service. (Acton Cable Co., Capp’s TV Electronics in Lake Hughes and Hidden Hills Cable TV are too small to be affected by federal regulation.)

Some of these systems added channels to their basic lineup. Thus, the per-channel formula allowed them to increase rates. But experts warn that the formula doesn’t distinguish between a popular channel such as ESPN and, say, a public-access station.

In Calabasas, Lost Hills Communications charges 95 cents more for a revamped basic service that includes CNN, Headline News and WGN, stations formerly on expanded service. In Canyon Country, ATC Cablevision increased basic service by nine channels and $3 a month, but added only local broadcast stations.

ATC had been charging relatively little and made the change, in part, to recoup cuts in other areas, said General Manager Scott Binder. “There’s not a company out that, having lost revenue, wouldn’t charge what the benchmark allows,” he said.

Consumer advocates see it another way. Susan Herman, general manager of the Los Angeles Department of Telecommunications, argued: “Consumers are paying more for less.”

Subscribers who want both basic and expanded service may also find fault with the new regulations. In 13 of the 15 local systems, the combined rate either remained the same or increased.

Many of these systems have added channels. Several--including Century in the southwest Valley and King Videocable in Sunland and the Santa Clarita Valley--manipulated their rates by creating “a la carte” packages. They split several channels into separate groups, forcing subscribers to pay extra for channels that other systems include in expanded service.

A la carte channels are exempt from rate control because Congress wants to encourage freedom of choice. Consumer advocates insist that cable systems are twisting the intent of the law.

King’s Santa Clarita system, for example, has lowered its rates but charges an additional $1 each for TNT, the Nashville Network, the Discovery Channel and TBS, or $2.55 for all four. As a result, subscribers who want to keep these channels pay the same bill they paid before the regulations.

“On one hand, a la carte provides consumers with more choice,” Stillman said. “However, I suspect . . . that it’s being used to evade the regulations.”

Jeff Davis, a King official, responded: “It’s not a way around the legislation. It’s what the legislation allows.”

The new law allows no such maneuvering in the area of equipment rental. Monthly charges for cable hardware are now based on actual cost plus a small profit. As a result, subscribers who were renting a remote control for as much as $5 a month now pay less than $1. Additional outlets, which used to cost $3 or $4 a month, are free.

So an ironic dichotomy arises.

In a system where basic and expanded rates have risen, a family with five televisions still saves $20 or $30 a month on remote controls and additional outlets. The family next door, with one television, sees only the increase.

“Congress passed this law with the intent of saving consumers money,” said Larry Bumgardner, a professor of communications law at Pepperdine University. “Arguably, the people that Congress was most trying to protect, those who can barely afford cable, are having to pay higher rates.”

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At the heart of the cable controversy lies a cold, hard fact: Until cable systems that use satellites or telephone lines become commonplace, pay television will rely on miles and miles of . . . cable.

This physical reality has made monopoly conditions inescapable.

In the 1950s, when so-called “CATV” sprang up, it fell under the control of local governments because its cables crossed public streets and thoroughfares. Cities and counties arranged cable television by franchise to prevent competing systems from stringing up scores of cables and digging up pavement. Franchising also allowed local governments to collect franchise fees.

In the years since, the federal government has ruled that exclusive franchises are illegal. But practical considerations remain: The cost of laying cable is high. It is too expensive for newcomers to invade an existing system’s turf.

That is why cable subscribers generally cannot choose among systems. And that is why the government regulated cable in the 1980s and--after deregulation brought higher rates--stepped in again.

“It’s the American thing to do,” Herman said. “In this country, monopolies are regulated.”

In the course of forging this regulation, Congress found itself pulled into other issues.

Responding to broadcasters’ complaints, the legislation created “retransmission consent.” Suddenly cable systems needed broadcasters’ permission to relay over-the-air signals. Cable systems found themselves in heated negotiations to keep local stations they had previously retransmitted for free. As the bargaining dragged on, subscribers were left to worry about losing network programs, news and sportscasts.

“We cannot get any television reception out here,” a Newhall woman complained. “We’re a captive audience.”

Subscribers have also had to deal with changes that came about because of new rules for smaller broadcasters. Those stations that did not choose to seek retransmission deals were given the option of declaring themselves “must-carry” stations. In doing so, they could demand a spot in the lineup of any and all nearby systems.

So Sammons in Burbank and Glendale had to drop E! Entertainment Television to accommodate KWHY Channel 22, a Spanish-language station. Other systems made room for must-carries by shuffling their lineup, sometimes moving more popular channels to higher numbers on the dial.

“It’s not as important as some of the other issues, but convenience and what you are used to are not frivolous,” Bumgardner said. “Those things are important to people.”

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Cable re-regulation has indeed proven that Americans are deadly serious about their television. Subscribers often discuss rising rates and lineup changes with indignation, as if the webs of big business and bureaucracy have crept into their living rooms.

“A dollar here or there might not seem like much, but you have to put it in context,” said Herman, whose Telecommunications Department has received four times as many (complaint) calls as usual. “People are having to dig even deeper into their pockets. It’s a dollar on top of a dollar on top of a dollar.”

Meanwhile, the cable industry is complaining of lost revenues. Federal legislators recently convened to ask what went awry with the measure they overwhelmingly passed last year.

“Congress is pointing the finger at the FCC,” Westen said. “The FCC is pointing the finger at the industry and the industry is pointing the finger at Congress.”

If there is a silver lining to these storm clouds, it has come in the form of non-rate provisions.

Cable systems must now complete installation within seven days of a customer’s request. They must answer service calls within 30 seconds and begin repairs no later than 24 hours after interrupted service is reported.

Perhaps more significantly, the FCC has required cable networks such as CNN, HBO and MTV to make their programming available to wireless cable competitors.

That is where real consumer savings may lie. “I think there is a great deal of hope for the kind of competition that this legislation may spur,” Stillman said.

So, in Van Nuys, Bashaar envisions a day when four different cable systems serve his house and a computer chooses the cheapest service for any given show.

“I can pick up my phone and dial into three or four different long-distance companies,” he said. “Why can’t I have that option with television?”

Yet, Bashaar remains guardedly optimistic. “I never expect the government to fix problems,” he said. “I wouldn’t be surprised if, pretty soon, I’ll have to climb on my roof and put up an antenna.”