FCC orders cable firms to cut their basic rates by 7%

February 23, 1994|By David Zurawik | David Zurawik,Sun Television Critic

Rate relief for cable TV customers appears to be on the way as a result of Federal Communication Commission action yesterday ordering cable companies to cut the prices they charge for programs.

But consumer advocates and cable TV experts reacted to the FCC action with cautious optimism, warning consumers not to spend the money just yet.

The FCC unanimously approved a 7 percent rate reduction in basic cable services at a meeting in Washington, the second time in the past 10 months that the regulatory agency has ordered a rate reduction.

The last attempt, a 10 percent rate reduction that took effect in September, resulted in 31 percent of all customers seeing their bills go up instead of down and an outpouring of subscriber outrage.

In Baltimore City and Baltimore, Harford and Howard counties, more than one-third of all customers saw their cable TV bills rise.

Yesterday's action by the FCC is expected to reduce 90 percent of allbills, possibly by June 1, according to FCC Chairman Reed Hundt.

"Today's ruling is a modest victory for the consumer," said Bradley Stillman of the Consumer Federation of America. "The FCC didn't go far enough. But they've advanced the ball in the right direction. And I think it will result in putting some real money back in the consumer's pocket instead of in the pockets of the cable companies."

Douglas Gomery, who teaches media economics and cable TV at the University of Maryland College Park, warned: "It's still going to be very hard to actually make the cable companies lower rates for 58 million customers. It's complicated, and they'll fight it and try to get around it."

But, he added, "Yesterday's action by the FCC marks a new era. It clearly reverses the cable law of 1984, which said cable companies could raise rates and shouldn't be regulated. . . . This says the FCC wants a new, more consumer-oriented policy."

Jeffrey Chester, executive director of the Center for Media Education, a cable TV watchdog organization in Washington, agreed. "I think consumers should be grateful. For the first time since 1980, we have a somewhat pro-consumer FCC -- based on what they did today.

"But at the same time, I also think they may have opened another huge loophole for the cable companies, and consumers are going to have to keep their eyeballs glued to their cable TV bills in coming months to make sure cable companies don't end-run the FCC again when it comes to actual billing."

The loophole that Mr. Chester warned of concerns language in today's ruling that could make it possible for cable companies to pass on some of the cost of research and new technology to customers.

"It's not clear if that will be allowed," he said. "But today's ruling looks like it could leave the door open for the cable industry to pass those costs on. We'll have to watch that."

Yesterday's ruling was an attempt by the FCC to correct its miscalculation in setting benchmark rates last year. Benchmark rates are levels that cable operators cannot exceed when determining monthly charges for various tiers of channels.

The goal of the Cable TV Act of 1992 was to reduce rates for Basic and Basic Plus service in monopoly situations to the level of rates in the few markets where there are competing cable systems. Basic service generally includes local broadcast signals and public, government and educational access channels, as well as C-SPAN. Basic Plus includes those channels, as well as such programming services as ESPN, MTV, CNN, USA and Nickelodeon.

Mr. Stillman said the FCC's fundamental mistake was setting benchmark rates for Basic and Basic Plus only 10 percent below monopoly rates, when the real difference between rates in monopoly and competitive markets is 27.5 percent.

"The disappointment is that the FCC didn't bring rates down the full 27.5 percent," he said. "But this is a good attempt by the FCC to close the loopholes." The National Cable Television Association had lobbied hard against any further rate reduction and vowed to take the issue to court. Locally, cable operators said it was too soon to say what immediate effect the FCC ruling will have.

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