Cable TV Industry Fights Proposed Federal Rules

THIS week the United States Senate is likely to vote to regulate the cable television industry, which consumer advocates say has gouged consumers with monopoly prices.

The question - hotly debated in recent weeks - is whether the legislation would raise or lower the cost of cable services to consumers.

President Bush has threatened to veto the legislation, saying it contains "costly, burdensome, and unnecessary requirements."

But Gene Kimmelman of the Consumer Federation of America says the bill would cut subscription costs, since the law requires regulators to "emulate the competitive market" in setting maximum rates for basic services.

Mr. Kimmelman says there is competition among cable operators in only 50 of 11,000 local markets in the US. In those 50, he says, prices are an average of 30 percent lower than in markets where cable is a monopoly.

In addition to rate-setting rules, the bill "does a lot of things to spur competition," Kimmelman says. The measure would bar cable companies from getting exclusive rights to any market, a privilege companies have often worked out with cities in the past.

The cable industry, however, argues that the bill adds costs that would force it to raise rates.

"It's not a consumer bill; it's really a special-interest bill," says Michael Luftman, spokesman for Time Warner Cable, which operates cable services in 36 states.

One provision would allow broadcasters to charge cable operators for the right to retransmit their programs on cable. For broadcast networks, struggling against cable competition, this could be an important new source of revenue.

Broadcasters would have the option of either negotiating for payment or requiring that cable operators carry the programming for free.

The bill would also prohibit cable companies from requiring customers to subscribe to an additional tier of programs, above the basic tier, in order to purchase programming on a per-channel or per-view basis. To meet this rule, many cable providers would have to install a $100 box in viewers' homes. The bill would give companies 10 years to do this.

Congress has never overridden a veto by Mr. Bush, and Kimmelman says it is still unclear whether the Senate will pass the bill by a large enough margin for an override. Last Thursday, the House of Representatives passed the bill 280 to 128, a margin big enough to sustain a veto.

In recent weeks, the cable industry has been running an ad blitz urging customers to ask their congressmen to oppose the regulation.

Also opposing the bill is the Motion Picture Association of America. Association president Jack Valenti says the bill does not protect the intellectual property rights of program producers; it allows broadcasters to collect fees for programming without requiring that they pass anything back to producers.

Another controversial provision in the bill would require that cable companies that produce their own programming (as well as operating the distribution system) be willing to sell their programming to budding competitors such as wireless microwave transmitters and direct-broadcasting satellite.

The goal is to foster competition so that regulators will ultimately not need to set rates.

"It's a taking of intellectual property," says Mr. Luftman of Time Warner Cable, adding that the industry will likely challenge the rule in court if it is passed.

Proponents of the measure say that, just as cable grew with free access to broadcasters' programming, the new wireless competitors need access to cable programming.

"Cable is hoarding its own programming," charging higher rates to noncable competitors, Kimmelman says.

Some observers say the wireless competitors will not be able to compete effectively with cable in the nascent area of interactive TV, which enables consumers to order specific programs and times of viewing.

To open up competition in that area, the Federal Communications Commission (FCC) recently moved to allow telephone companies to compete with cable operators by sending video signals over phone lines. But the so-called "video dialtone" service is still years away, due to the multibillion-dollar investment in fiber-optic cable that would be needed.

Washington is making similar moves to enhance competition in other industries. Last Thursday, the FCC voted to give small telecommunications firms access to local phone lines in order to compete with the regional Bell companies.

And the pending energy bill is likely to require electric utilities to give independent power producers access to their transmission lines.