FCC Sends ‘Red Flare,’ Says Cable Fees Up 8.5%

In a disclosure certain to provoke calls for stiffer regulation of the nation’s cable television operators, the Federal Communications Commission on Tuesday issued a report showing that cable TV rates have been rising nearly four times faster than inflation.

“Rates are rising, [and] they’re rising fast,” FCC Chairman William E. Kennard said at a news briefing, calling the report “a red flare” indicating that the competition Congress envisioned when it phased out regulation of cable rates “is not here and is not imminent.”

The 215-page FCC report to Congress found that cable rates jumped 8.5% for the 12 months ended last July, generating an additional $1.5 billion in revenue over the previous year. By comparison, the Consumer Price Index rose 2.2% during the period covered by the FCC study.

Although the report did not examine rates in specific markets, Consumers Union, a Washington watchdog group, said some of California’s 6.5 million cable subscribers face double-digit price increases, as do consumers in several other states.

The FCC report is likely to reignite a public furor over cable TV that provoked Congress in 1992 to override a presidential veto and pass a sweeping law reforming regulation of the $30-billion-a-year cable industry.

“I believe the FCC’s competition report amply demonstrates why the commission must take action soon to restrain excessively high cable rates and to spur competition to cable monopolies,” said Rep. Edward J. Markey (D-Mass.), a longtime critic of the cable industry.

Kennard, however, said he needs further action by Congress if the FCC is to have sufficient authority to crack down on cable rate increases.

Cable industry spokesmen have blamed the price increases on rising costs for programming as well as cable companies’ spending on infrastructure to add channel capacity.

But critics point out that many of the nation’s largest cable companies, including Time Warner and Tele-Communications Inc. (TCI) own the companies that supply some of their own programming. The FCC report, for instance, found that eight of the 15 most popular cable channels are owned by cable system operators.

Meanwhile, the growth of competitive services has been slower than expected. Direct broadcast satellite companies, including the DirecTV unit of Hughes Electronics, have signed up nearly 2 million customers, for example, but Americans remain thoroughly dependent for much of their entertainment programming on cable, which now boasts 71.6 million subscribers.

Mary Kotzman, assistant general manager for the Los Angeles Information Technology Agency, which oversees cable operations in the city, said the agency has recently received an increasing number of complaints about rate increases imposed by Media One, which owns the Los Angeles cable franchise. But she attributed the complaints to price increases stemming from Media One’s addition of channel capacity and other service improvements. She said the city has no plans to take any action against the company.

Media One could not be reached for comment.

Moreover, Philip Verveer, a Washington communications lawyer who represents several cable companies, said the industry will face plenty of new competition later this year when digital television arrives in the nation’s biggest TV markets. That, he said, would render any cable price increases short-lived.

“We are about to embark this calendar year on a technology that is going to change the structure of the market very dramatically,” he said. “In the typical market you are going to go from, say, seven to 28 channels, and that’s going to pose a lot of new competition.”

But other experts said they doubted that cable companies would face significantly vigorous competition in the near term to stem continued increases. And some noted that cable rates already rise independently of the carriers’ programming costs.

“I think there are some pricing issues that need to be addressed,” said Robert Hubbard, executive vice president of U.S. Satellite Broadcasting, a St. Paul, Minn.-based operator of digital broadcast satellites which offers Home Box Office and other premium video services to subscribers equipped with a small satellite dish. “I’ve never been able to make a connection between the cable industry’s pricing and their [actual] cost of providing service.”

Cable industry officials made it clear Tuesday that they will fight any efforts to stiffen or enhance current regulations. The FCC’s Kennard proposed, for instance, that Congress change copyright laws so satellite companies could carry local television stations, overcoming a prohibition that currently leaves them at a competitive disadvantage to cable. He also said he might seek congressional permission to more closely examine the bundling of premium channels by cable operators, which some say forces cable subscribers to pay more for channels they want.

“The laundry list of new intrusive regulatory steps suggested by [Kennard] would have predictable results: spiraling government micro-management and less innovation and investment,” said Decker Anstrom, president of the National Cable Television Assn. Anstrom cited competition, claiming DBS subscribership grew 46% last year, and said any new cable TV price regulation initiatives would be counterproductive to spurring competition.

Congress tried most recently to break cable’s grip on home viewership two years ago when it passed the sweeping Telecommunications Act of 1996. The measure was aimed at spurring competition to the cable operators by allowing telephone companies, electrical utilities, satellite services and others to compete in offering subscription video services. The law gave the FCC authority to regulate cable rates until March 31, 1999, by which point lawmakers hoped sufficient competition would have developed to keep cable prices in check.

But many experts say the law has not worked and some lawmakers are pushing for change.

Rep. Peter A. DeFazio (D-Ore.) has introduced a bill that would impose a new freeze on cable rates. And Markey said Tuesday that he plans to introduce a bill that would extend the FCC’s authority to regulate cable rates beyond next year’s deadline.