Victory for Cable Industry : Senate's Sweeping Telecom Bill Sets the Stage for Expansion


The legislation passed in the Senate on Thursday to reform telecommunications laws has sweeping implications for the cable and broadcasting industries--as well as for consumers of some of their services.

For starters, the bill essentially would deregulate cable rates. In the short run, that could lead both to higher cable rates and wider experimentation in the selection and packaging of programming.

In the long run, the bill would set the table for unprecedented competition between cable and phone companies, allowing both to offer customers a single supplier for television and telephone services. That competition could lead to lower prices and greater choices for consumers.

In anticipation of deregulation, both phone and cable companies have begun tests in cities nationwide, announced acquisitions and formed joint ventures to enter the rival businesses.

The bill also has provisions that could shuffle the ownership of television stations, though analysts do not expect huge changes in programming.

The bill would make it possible for networks or broadcast chains to own stations that reach up to 35% of U.S. households, an increase over the current 25%. Networks would be likely to buy more stations, which are the most profitable part of their operations.

The broadcast industry has been divided over these changes.

The bill would not change rules that limit foreign ownership of broadcast properties.

Without a doubt, the legislation is a victory for the cable industry, which has been pushing for deregulation as new competitors such as satellite dish operators have quickly rolled out rival video services.

"We're ecstatic," said David Krone, director of government affairs for Tele-Communications Inc., the nation's leading cable operator, with 12.7-million subscribers. "It's a great step forward. It's time that the marketplace decide the winners and losers in the telecommunications industry rather than the government, although there's still a lot of work to do before the bill becomes law."

Indeed, most executives and analysts were cautious in predicting the bill's impact before a final version is hammered out and approved by President Clinton.

"We don't know what we have yet," said Tom Wolzien, a media analyst at Sanford Bernstein & Co.

The House is expected to vote this summer on its version of a telecommunications reform bill.

Under the Senate bill, cable operators would be freed of rate regulations imposed in 1992 that made it virtually impossible for the industry to change programming packages and add services for fear of triggering rate reviews by the Federal Communications Commission. The difficulty of getting picked up by cable operators has stifled development of programming and the growth of new networks.

"I would expect more flexible tiers and a significant number of channels added to the basic expanded tier," said Larry Gerbrandt, senior analyst at Paul Kagan Associates, a market research company in Carmel, Calif. "There are some nifty program options that cable operators haven't been able to consider because of the inflexibility. Ultimately the legislation will lead to more choice for consumers."

The rate relief could also make Wall Street more hospitable to lending the industry the $60 billion it needs to upgrade its wiring to enter the local phone business. Uncertainty over the legislation as well as the enormous capital investments required to enter that market has driven down stock prices of cable companies this year.

By seeking to deregulate rates, both the Senate and the House are betting that competition is already lively enough to keep cable prices from rising significantly. DirecTv, owned by GM/Hughes Electronics, and United States Satellite Broadcasting Co., a division of Hubbard Broadcasting, both offer video programming services via satellite mini-dishes nationwide and are adding about 2,000 subscribers a day. Though the dishes cost $600, their prices are coming down as new manufacturers such as Sony Corp. enter the business. Their subscription prices, ranging from $20 to $30 a month, are on par with cable rates.

Pacific Telesis, using a microwave technology that carries up to 33 channels to rooftop antennas, could be offering video services to 5 million customers in Southern California by next year.

Still, the new competitors, estimating perhaps 20 million subscribers between them by the end of the decade, would be dwarfed beside cable's 62 million subscribers.

Some in the industry worry that cable operators, free of regulation, will be tempted to raise rates while they can, before competition is in full swing, to help finance an expansion into the telephone industry. However, unlike the House bill, the Senate version has a "bad actor" provision that says rates must not rise substantially above a national average.

In the meantime, cable companies are already laying the groundwork to enter the phone business. Time Warner Inc., the second-largest cable company, is offering telephone service to 50 residents in Rochester, N.Y., taking advantage of liberalized rules in that state, and expects to expand the service.


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