U.S. Orders New Round of Cable TV Rate Cuts : Regulation: O.C. operators scramble to assess impact of 7% reduction, second such action in less than a year.

By JUBE SHIVER Jr. and AMY HARMON

Feb. 23, 1994 12 AM PT

TIMES STAFF WRITERS

WASHINGTON —

Federal regulators voted unanimously Tuesday to order a new round of cable television rate cuts, slashing another 7% after a previous round of cuts partially backfired.

The government’s second attempt in less than a year to lower prices for the nation’s 58 million cable subscribers comes after consumers and economists criticized the Federal Communications Commission over the effectiveness of the first rate cut, which unexpectedly produced increases in monthly fees for millions of subscribers.

The new rules, which impose an overall 17% rate reduction--an additional 7% on top of last year’s 10% cut--could complicate ambitious plans announced by many cable companies, such as Tele-Communications Inc. and Time Warner Inc., to spend billions of dollars to replace their copper wires with higher-capacity fiber-optic cable.

Orange County cable operators scrambled Tuesday to assess what impact the new rules would have on their bottom lines.

Most said they needed time to gauge the effect of the complex regulation changes, which come at a time when many cable systems are expanding program offerings and adding services, such as interactive programming.

“The FCC itself said its ruling is very complex and it’s impossible to determine at this time how it will impact a particular subscriber’s bill,” said John Gibbs, vice president of Continental Cablevision, which serves parts of Tustin.

Peggy M. Keegan, a vice president of the California Cable TV Assn., said the rollback could hamper the industry’s ability to compete against emerging competitors such as regional telephone companies and even newer providers that plan to deliver cable programming to consumers via satellite, microwave and other technologies.

But many consumer advocates praised the FCC’s decision.

“It looks like it’s a moderate victory for consumers,” said Bradley Stillman, legislative director for the Consumer Federation of America.

“If the revisions are successful, they will be greeted very well here,” said Lee Risner, city manager of La Habra, who is a Century Cable customer. He said he has had nearly 300 complaints about cable bills rising since September.

The charge for basic cable rose from $16 to $24 there, Risner said.

Susan Herman, general manager for the Los Angeles Department of Telecommunications, which regulates cable providers, said the FCC’s first attempt at rate regulation left too many loopholes.

Century Cable, for example, which serves parts of West Los Angeles, Sherman Oaks and Eagle Rock, used the new rules to reduce the number of channels on its basic service, choosing instead to offer several “a la carte” packages for which subscribers had to pay extra, Herman said, adding, “It was a way to charge consumers more for less.”

Century officials were unavailable for comment Tuesday.

Since Sept. 1, Los Angeles residents have seen their rates go up an average of 80 cents a month, while the number of channels provided fell, on average, from 44 to 42, Herman said. Lee Risner, city manager of La Habra, said he has received nearly 300 complaints about higher cable bills since September.

But things may be different this time.

“The FCC seems to have recognized that the rates they set the first time around were in essence too low, and made it too easy for cable companies to evade the intent of the law,” Herman said. “Consumers were really beginning to feel gouged.”

Now it’s the cable operators’ turn to feel gouged. Says Marc Nathanson, head of Los Angeles-based Falcon Cable, the state’s largest independent cable operator: “It’s like rent control coming into your building.”

Nathanson, whose firm serves subscribers in Malibu and San Bernardino, said consumers may lose out in the long term as cable operators are forced to scale back plans to upgrade plants and provide expanded services such as multichannel pay-per-view and interactive entertainment, news and educational programming.

Like many other cable operators, Falcon is planning to upgrade its network with fiber optics that can squeeze 300 channels into the space once occupied by 50, at a cost of $300 to $600 per subscriber.

Nathanson blamed the “idiotically written bill” for the fact that rates went up for 30% of his customers. The original ruling prevented operators from charging for extra outlets and remote controls. As a result, most of the subscribers whose rates went down were those who had multiple televisions, and those whose went up were the ones who could least afford it, Nathanson said.

The FCC on Tuesday closed many loopholes that had allowed cable operators to boost monthly fees. The reduction covers all channels except pay-per-view and premium services like HBO, Showtime and Encore. But last-minute lobbying by cable operators won concessions for small cable operators. And reconfiguration of cable program packages may mean not all consumers will see a 7% drop once the latest price cut takes effect in May.

Nevertheless, FCC Chairman Reed E. Hundt, asserting that the government has finally “broken the back of cable price increases,” claimed the new rules will save consumers $3 billion a year and will be backed by tough enforcement measures against violators.

“This is the greatest consumer savings in the history of American business regulation,” Hundt said.

Despite the sweeping claim, the complex new cable rules could end up creating more confusion and delivering less than advertised.

About 10% of the nation’s 11,000 cable operators already charge prices below the new ceiling, so they can maintain their prices. And 3 million cable subscribers get service from small operators, who will not immediately face pricing restrictions.

In addition, the new rules apply only to cable systems not subject to effective competition. Currently only a handful of communities, including about 12 in California, have effective competition in the form of two or more cable systems serving the same area.

But emerging competitors, such as Hughes Aircraft Co.’s new direct-broadcast satellite system, could be operating in many communities soon.

What’s more, like the previous rules, the new regulations cover only basic cable, a level that ordinarily includes local broadcast channels and public access and government channels. The regulation of basic rates would be handled by local officials after they request, permission from the FCC, as most of Orange County’s cities have done. Prices for premium channels and pay-per-view events remain unregulated.

Sandy Wilson, acting head of the FCC’s cable services bureau, said the agency will apply its new pricing rules to non-premium cable channels such as CNN and MTV. And, she said, the agency will order sanctions against cable operators that reconfigure their program packages not to “enhance customer choice” but “to evade pricing regulation.”

Upset by escalating rates and poor service, Congress passed a cable act in 1992 with the intent of mandating service improvements, lower prices and more competition. When the FCC announced a rollback of cable rates last April--mandated by the act--the agency said its goal was to cut cable bills an average of 10% and save consumers $1 billion a year.

In the 10 months following those cuts, the nation’s 25 largest cable operators reported to the FCC that the average regulated revenue per subscriber declined to $24.11 per month from $25.61, a drop of 5.9%.

Still, the FCC survey of these 25 cable operators found that 30.5% of their subscribers received increases in their regulated cable fee.

In south Orange County, about a dozen cities served by Dimension Cable have agreed to collectively hire a consultant to review that operator’s rates. The cities plan to interview consultant candidates today, said Damian Hopp, assistant to the city manager in Mission Viejo.

He said that Dimension’s cable fee to the city rose 1.8% between the third and fourth quarters last year, indicating an increase in revenue.

Dimension Cable did not return telephone calls seeking a response.

“We felt that working together (to hire a consultant) will give our action greater weight,” Hopp said.

Shiver reported from Washington, Harmon from Los Angeles. Times staff writer Anne Michaud in Orange County also contributed to this report.

Cable Comparison

A Federal Communications Commission ruling requires cable television companies to cut basic service prices 7% by mid-May. Cable company representatives said further study of the ruling would be needed before the new rates can be determined. Here’s a look at Orange County’s monthly rates:

Company: Cablevision of Orange

Service area: Orange

Subscribers: 24,500

Basic charge: $11.20

Expanded services: $10.70

Company: Century Southwest Cable

Service area: Brea and La Habra

Subscribers: 15,000

Basic charge: $24.52

Expanded services: $3.41

Company: Comcast Cablevision

Service area: Buena Park

Subscribers: N/A

Basic charge: $9.66

Expanded services: $14.26

Company: Comcast Cablevision

Service area: Fullerton

Subscribers: N/A

Basic charge: $10.17

Expanded services: $13.41

Company: Comcast Cablevision

Service area: Newport Beach

Subscribers: * 74%

Basic charge: $10.41

Expanded services: $12.15

Company: Comcast Cablevision

Service area: Placentia

Subscribers: N/A

Basic charge: $11.50

Expanded services: $11.96

Company: Comcast Cablevision

Service area: Santa Ana

Subscribers: * Less than 30%

Basic charge: $10.95

Expanded services: $13.40

Company: Comcast Cablevision

Service area: Seal Beach

Subscribers: N/A

Basic charge: $9.28

Expanded services: $13.70

Company: Dimension Cable Services

Service area: Dana Point, Mission Viejo, Lake Forest, Laguna Hills, Laguna Beach, Laguna Niguel, San Clemente, San Juan Capistrano and portions of unincorporated Orange County

Subscribers: 139,000

Basic charge: $14.64

Expanded services: $8.10

Company: Dimension Cable Services

Service area: Newport Beach, Irvine (except Northwood) and Tustin (except Tustin Ranch)

Subscribers: 32,000

Basic charge: $12.37

Expanded services: $7.73

Company: Dimension Cable Services

Service area: Northwood section of Irvine and Tustin Ranch (El Toro Marine Corps Air Station rates are 5% less)

Subscribers: 10,000

Basic charge: $15.15