Cable price controls ending

Cable customers wonder whether the industry---saddled with a history of rate hikes and a reputation for poor customer service--can be trusted to keep prices down, even as it spends billions of dollars to rebuild itself for the new century.

But cable operators and industry trade groups insist that the end of pricing controls will not mean a flood of new fees. Industry representatives also say that a host of new digital services will allow companies to remain profitable without raising rates, and that competition from direct broadcast satellite (DBS) operators, such as DirecTV and EchoStar Communications, means consumers can get the programming they want elsewhere if cable rates go up.

"From our perspective, [the expiring law] isn't going to change anything," said Michael Luftman, a spokesman for Time Warner Cable, one of the nation's largest cable operators with 12.6 million subscribers. "We don't think we can drive price increases on the order that we've seen in the past due to increasing competition and customer sensitivity to those prices."

Congress deregulated cable pricing in 1984, leading operators to raise rates at a time when their programming and customer service was, admittedly, still poor. From 1983 to 1992, basic cable rates more than doubled, according to the National Cable Television Association, an industry lobbying group.

As a result, pricing controls were re-established by the Cable Act of 1992. But when Congress passed the Telecommunications Act of 1996, it set March 31 as the date when regulation would expire, and the FCC could no longer regulate prices for "expanded basic" cable packages. The Act, by encouraging competition in the cable market, would ensure rates remained at reasonable levels.

Prices for basic service and the leased costs for converter boxes and remote controls will continue to be regulated, however.

The 1992 pricing requirements set to expire only affect "expanded basic" cable packages, not the so-called antenna-only basic package or additional program tiers, which include pay-per-view. Many cable operators' expanded basic service typically offers about 40 channels--like ESPN and CNN--for $20 to $30 per month, although service varies from operator to operator.

Congress established the pricing controls at a time when cable television rates were on the rise, growing much faster than the inflation rate. The cable industry argued programming costs were rapidly increasing and, although their customers were paying more for TV service, they were getting more channels of quality programming.

But consumers and lawmakers prevailed by setting limits on how much cable operators could charge for the expanded basic option.

The decision claimed at least one casualty: the collapse of the proposed merger between Bell Atlantic and the former Tele-Communications Incorporated was blamed, in part, on the pricing laws. In 1994, regulators rolled back cable rates, significantly cutting into TCI's annual cash flow. Some say it was the last straw in a series of setbacks and corporate culture clashes that ended that deal.

Where's the regulation?
Now with regulations about to expire, cable operators will be able to charge what the market will bear for their core multichannel television service.

"Now you have the consumer as the regulator," said Bruce Leichtman, director of media and entertainment strategies for The Yankee Group. "This is not a needed service. CNN is not water and electricity. If prices get too high, [consumers] can downgrade their service, disconnect their cable, or go with a DBS [direct broadcast satellite] operator. There is a level where the consumer is priced out."

Cable operators, intent on becoming digital broadband service powerhouses and not just multichannel analog video providers, would be better suited by keeping costs down to avoid drawing regulatory scrutiny, analysts said.

"We are putting a lot of capital dollars into upgrading our networks, but we're not going to be able to raise the rates to recoup that like we'd like to because of competition and scrutiny by the government," said Jim Hatcher, vice president and general counsel at Cox Communications, a cable company with about 3.8 million subscribers. "We're going to have to get our return on investment by increasing the number of subscribers, not by increasing rates."

As such, Decker Anstrom, president and chief lobbyist for the NCTA, has said price restraint must be the industry's top priority this year.

Federal regulators already are grappling with how best to monitor cable operators as they begin to offer new services such as digital telephony, high-speed Internet access, and interactive television.

To be sure, the industry has made some major changes. TCI became AT&T Broadband & Internet Services after the long distance giant bought the company. And, when Comcast announced it planned to acquire MediaOne Group last week, the company took great pains to paint the deal as the creation of a new broadband powerhouse, not just the combination of two cable TV companies.

To combat any price hikes, Congress could always pass new legislation, or, as concern that cable operators are regulated differently than telephone companies mounts, legislators could saddle the industry with new laws.

"There's nothing more politically correct, whether you're Republican or Democrat, than bashing your cable company. Why open up that fodder?" Leichtman said.

But consumer groups, blessed with long-term memories, are afraid the pricing restraints are ending too soon.

"I do not believe that competition from other sources, namely direct broadcast satellite, has developed sufficiently to ensure that cable will not be able to raise rates excessively during this period," said Andrew Schwartzman, president of Media Access Project, a public interest law firm that represents Consumers Union and the Consumers Federation of America.

Consumer advocates said that as cable operators spend billions upgrading their networks, rate hikes could be a more attractive option for raising capital than by going into the stock or bond market.

"It's reasonable to expect that they'll want to squeeze out the last dollar, which they have a history of doing," Schwartzman said. "I do not want to see cable broadband plant brought into high-income suburbs and downtown business districts by raising rates on little old ladies' television service."