Cable Can't Escape Rate Rage

Senate panel, GAO give NCTA grief over inflationary spiral
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Frustrated by cable rate hikes twice the rate of inflation over the past decade, Congress is moving to hit system operators any way possible.

With price regulation an unlikely option, Sen. Mike DeWine (R-Ohio) last week said he's trying another angle: making sure cable systems can't deny popular regional sports nets to satellite and overbuilder competitors. Last week, he announced plans for legislation that would close the "terrestrial loophole" that allows cable systems to circumvent program access rules. If that becomes law, programming delivered via fiber would be subject to the same access rules as networks delivered to cable systems by satellite.

"There has long been some concern that this loophole impacts the ability of competitors to compete," said DeWine, chairman of the Senate Antitrust Subcommittee at a hearing on cable competition last week.

DeWine is also eyeing ways to strengthen uniform-pricing rules that require cable systems to offer a standard, system-wide price for their programming packages. Overbuilders such as Wide Open West complain that Comcast and other operators routinely violate the spirit of the rules by offering individual customers special price breaks when they threaten to drop subscriptions and sign up with overbuilders or DBS providers. The FCC recently ruled those promotions don't need to be offered to all customers.

"This is an important issue that the subcommittee plans to examine," said DeWine, adding it is too early to know whether those individually targeted promotions should be reined in.

DeWine and subcommittee ranking Democrat Herb Kohl of Wisconsin have also asked the General Accounting Office to study why the growth of satellite TV competition has failed to blunt cable rate hikes. "Is it just another example of oligopoly pricing? " DeWine asked. "Or are we actually seeing greater competition in the form of better customer service and enhanced viewing options?"

Sen. Orrin Hatch (R-Utah), head of the Judiciary Committee, said he fears "disproportionate" rate hikes would limit cable's affordability. "It is less clear whether current levels of competition adequately discipline price increases."

The threats aren't sitting well with the cable industry, already smarting from another GAO study released the day before last week's hearing. It showed significantly lower rates in a handful of markets where overbuilders are established. NCTA President Robert Sachs said overbuilders are charging artificially low rates to capture market share. "There is no basis for looking to the prices offered by an anomalous handful of unprofitable overbuild systems as an appropriate benchmark for video prices."

In six markets examined by the GAO, the presence of a wire-based competitor led to a significant drop in consumer costs. NCTA argues those overbuilders are subsidized by parent utility companies or are losing money.

NCTA spokesman Brian Dietz noted that GAO itself cautioned against drawing too many conclusions from a review of only six markets: Lenexa, Kan.; Waco, Texas; St. Cloud, Minn.; Yankton, S.D.; Augusta, Ga.; and Boston.

Overbuilders "have had difficulties securing continued access to adequate financial resources that are needed to rapidly construct their networks and market their services," GAO said. "We did not evaluate long-term sustainability."

Nevertheless, the Judiciary Committee leaders insisted the numbers prove more competition against incumbent cable monopolies is needed. "This report confirms what common sense tells us: The presence of competition to the dominant cable providers benefits consumers and results in lower prices and higher quality of service," said DeWine and Kohl said.

The GAO found that, in five of the cities studied, the presence of an overbuilder resulted in prices ranging from 15% to 41% lower. So were prices for telephone and high-speed Internet.

"Satellite competition is an important part of the market, but this study shows that overbuilder competition is also important and should be encouraged," DeWine added.

Consumer advocates demanded lower rates and more say to pick the channels they want—attitudes the committee seemed to espouse.