Education & Distance Learning Enthusiasts- The cable dilemma - reregulation of the cable television industry

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The cable dilemma - reregulation of the cable television industry

Telephony - July 12, 1993

I am hardly a fan of the cable TV industry. Like almost any CATV subscriber, I have my share of stories, both horrible and humorous, on efforts to get, keep and be accurately billed for CATV service.

I have, however, developed a great deal of respect for the efforts of the leading CATV providers to build interactive broadband networks for the mass market. The entrepreneurial drive, the rapid movement in pursuit of a good idea, and the willingness to take risks in the marketplace--along with some good luck--have put the major cable providers in a very advantageous position. By virtue of their coaxial cable network, they may well have the shortest path to the most lucrative broadband market--on-demand home entertainment. But it will take significant investment in those existing systems to transform them into networks capable of providing the full range of services that cable companies envision, to include personal communications, home shopping and banking, distance learning and telemedicine.

To their credit, many of the CATV operators have begun making that investment, the best example being Time Warner's Full Service Network efforts in Orlando, Fla.

According to banking executives, the financing that will fund that investment may hit a snag, however, due to the Federal Communications Commission's cable reregulation efforts. A group of 17 banks that holds more than $16.5 billion in CATV debt told the FCC in a June 22 letter that the cable industry will have problems finding money in the future if the commission proceeds on its current reregulation course. At issue is the FCC's plan to roll cable rates back by $1 billion, based on a series of benchmarks that the FCC was scheduled to develop by this spring, but has now been delayed until fall. The bankers believe the new regulation scheme will seriously impair the cash flow of cable service operators, which would in turn reduce what bankers are willing to lend.

At the same time, CATV companies are negotiating on many fronts with broadcasters as the latter choose between gaining "must carry" status or asking for retransmission permission and resulting fees.

It's nothing short of a regulatory nightmare, and it's not yet clear who will stand to benefit. Members of Congress and consumer action groups continue to talk about putting money back into the pockets of cable service subscribers.

From where I sit, that seems highly unlikely.

Thus far, CATV providers have responded to the FCC's re-reg rules by redesigning their services, creating a basic service that contains broadcast channels and little else, and an enhanced service with all the stuff that makes CATV fun. Chances are, if forced to roll back basic service rates or to make further service changes, they will simply cut back on what they make available. Although some consumers--those who buy cable to get clearer reception, for example--will benefit, most will find themselves buying enhanced services at higher prices.

This pattern will hold, it seems to me, for the very same reason that CATV has been able to raise its prices continuously while simultaneously increasing its reach. For all of our complaints about cable costing more than it's worth, very few Americans have been willing to exercise their real influence over CATV providers and cancel service. If enough people had done so, rates would have dropped on their own.

Perhaps instead of encouraging the FCC to crack down even faster on the cable industry, the Consumer Federation of America should organize a service boycott--challenge Americans angry over their cable bills to cut off service.

I suspect there wouldn't be that many takers because there are too many households like mine. Maybe my kids lived fine without the Disney Channel and Nickelodeon before we had cable, but they aren't convinced they can do it again. And, as much as I resent the rate increases, I'm willing to pay them to keep the peace and to keep the kids away from the junk that shows up on broadcast stations.

The only thing that is likely to tempt me away from my current cable company would be ... a new cable company, with better customer service, more reasonable rates and the kind of programming my kids could learn to love. The only real solution here is competition.

That is the lesson the FCC refuses to learn, however, and that is also the reason why the CATV industry's current dilemma is hardly good news for their erstwhile competitors, the local exchange carriers. As the telephone and cable industries converge, both are looking for federal policies conducive to doing good business and to enabling, not crippling, investment and investment financing.

As long as the federal government remains willing to micromanage industries such as cable, it will remain part of the problem, not part of the solution. Many stacks of paperwork from now, I predict, we will not miraculously have cheaper, better CATV service. But one dynamic industry's ability to build the now-infamous information highway to the home may well have been damaged.

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