The Federal Communications Commission on Tuesday lowered the boom a second time on the cable TV industry, slashing what the agency believes will be an extra 7% off the rates operators charge for regulated services.
The unanimous 3-0 vote (the commission still has two vacancies) brings to 17% the industrywide rate cuts ordered by the FCC in response to passage of the 1992 Cable Act. Last April, the agency adopted “benchmark” rates designed to reduce cable prices by 10%, but the curbs proved embarrassingly insufficient in light of evidence showing that as many as a third of all consumers actually saw cable rate increases.
Under the new benchmark rates, 90% of all cable customers are likely to see a drop in regulated prices from September 1992 levels. FCC chairman Reed Hundt hailed the rate cuts as “one of the greatest consumer savings in the face of monopoly pricing in the history of American business regulation.”
Hundt further claimed the rate reductions would result in $ 3 billion in savings to consumers, although several agency staffers said privately they weren’t sure where the new FCC honcho came up withthe figure.
The new rate cuts, which take effect in mid-May, prompted predictable howls of protest from a cable industry that claims further price reductions will jeopardize its ability to deliver “information superhighway” advances.
National Cable Television Assn. prez Decker Anstrom called the FCC action “arbitrary” and said the NCTA will file suit to block the law’s implementation. “No industry of our size can withstand that sort of financial hit without serious consequences,” said Anstrom. The result will be “even more paperwork, more forms and more confusion in the weeks ahead,” he added.
Members of Congress who lobbied the FCC for further price rollbacks seemed pleased by the decision. Senate Commerce Committee chairman Ernest Hollings (D-S.C.) said the new rules “should be good news for consumers.” House telecommunications subcommittee chairman Ed Markey (D-Mass.) said the decision “is both welcome and overdue.” Markey said Congress “must remain vigilant” in ensuring that “what is given with one hand must not be snatched away by the cable industry with the other.”
Rate drops unpredictable
Given the staggering complexity of the new rules, it’s impossible to say how much cable rates will fall. The amount of price cuts will vary by system, because the FCC allows cable operators to recover costs not only for inflation, but also expenses associated with adding new channels.
Under Tuesday’s ruling, only regulated tiers of cable service face rate rollbacks. The regulated tiers include the broadcast basic tier and “enhanced basic” tier — the service level consisting of cable networks such as ESPN, MTV and USA. Cablers are free to raise rates for premium services such as HBO, Showtime and pay-per-view.
The new rules could spell bad news for systems that rolled out “a la carte” programming packages in response to the FCC’s April 1992 rollbacks. The FCC said a la carte program offerings deemed to have been offered for the purpose of evading rate regulation will be treated as regulated tiers. Moreover, cablers that switched to a la carte packaging may face fines, according to the agency.
Little guys get relief
Small cable operators (those with 15,000 subscribers or less) may get relief from the new rate rules. The FCC said it will offer “phased implementation” of its regs for small operators and certain low-priced cable operators while it studies whether price reductions are warranted.
The FCC also proposed interim rules Tuesday that allow cable TV operators to consider being regulated like a telephone company rather than face the benchmark pricing rules. Those cablers adopting the so-called “cost-of-service” approach to rate regulation would be entitled to an 11.25% rate-of-return under the tentative plan.
The FCC seemingly tosses a bone to the cable industry by providing incentives to invest in new programming. The new rules allow operators to charge rates above cost for new services. Sandy Wilson, acting head of the FCC Cable Bureau, said operators “on the cutting edge of technology” will be allowed to profit from their investment.