Freeze extended; cable frosted

The cable industry cried foul at the FCC’s 3-0 decision Tuesday to extend the freeze on cable TV rates three months to May 15. Wall Street analysts said the move would continue to depress cable stocks and slow investment.

The D.C. trade group Community Antenna Television Assn. vowed to sue the Federal Communications Commission to block the extension.

The 1992 Cable Act has proven so staggering in its complexity that the FCC — after first voting last April to freeze rates until Aug. 5 — has now extended the rate freeze on three additional occasions.

The latest freeze was designed to expire Feb. 15. In a statement, the agency said the freeze “will prevent unjustifiable rate increases before franchising authorities have been given the opportunity to become familiar with any revised rules and prepare to regulate cable TV rates.”

It has been at least one year, and in many cases two, since cable operators have been able toraise subscriber rates.

“We’re looking at two years of flat rates or rate rollbacks at some of our systems,” said Aldo Casarteli, operations manager at Post Newsweek Cable. Operations have been on hold for the last year, Casarteli said.

Steve Effros, president of the Community Antenna TV Assn., said his group and InterMedia Partners, the 23rd-largest cable multisystem operator in the country, will file suit against the FCC in the U.S. Court of Appeals for the D.C. Circuit. The Community Antenna TV Assn. represents mostly small and independent cable operators.

“The law said the FCC should be done with its rules in 180 days,” said Effros. “It didn’t give them the authority to paralyze an industry for over a year.”

“It’s what happens when you don’t have a free market system and start setting rates by regulation,” said Stuart Lipson, vice president at Century Communications, the nation’s 14th-largest operator.

National Cable Television Assn. prexy Decker Anstrom said the extended cable rate freeze will be “particularly harsh” for small and midsize cablers. But NCTA has no plans to join the lawsuit, said a spokeswoman.

Small operators whose rates are below the FCC’s benchmark consider the freeze particularly cruel since they can’t even bring rates up to that level.

“We have rates far below the benchmark with no chance to get them above. This is life in cable,” said Robert Schloss, CEO of Omega Communications, which has 50,000 subscribers.

The impact of the freeze is being felt on Wall Street as well. The nation’s second-largest cable operator, Time Warner, reported Monday its fourth-quarter cash flow from its cable division fell 5% compared to a year ago because of the rate regulation and freeze.

“Cable stocks are down substantially and the cash-flow hit Time Warner took in the fourth quarter was greater than I expected,” said analyst Jay Nelson of Brown Brothers Harriman & Co. Nelson has estimated that cable operators aggregate operating cash flows in 1994 will be 10% lower under the FCC’s current regulatory scheme.

Since continuation of the freeze had been expected, there was no immediate impact on cable stocks, with analysts including Nelson warning that “the freeze could be better than what is coming down.”

New FCC chairman Reed Hundt has made implementation of the cable reregulation bill his top priority. Hundt is believed to be working on plans to roll back rates well beyond the average 10% industrywide reductions announced last year. The exact size of the new round of cable rate cuts will be unveiled Feb. 22.

Hundt is under pressure from key members in Congress — including Rep. Ed Markey (D-Mass.) and Ernest Hollings (D-S.C.) — to ensure that most cable customers indeed receive price reductions. Preliminary studies by the FCC have revealed that under rate regulations adopted last April, about a third of all cable customers actually saw their monthly rates increase.

The FCC’s freeze and impending rate regulation is also hurting cable companies looking to increase capital. Falcon Cable recently pulled an initial public offering because of concern over the FCC’s impending rate regulation.

Cable programers are also being stung by the freeze.

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