No more cable rate cuts, FCC chief tells industry

May 25, 1994|By Knight-Ridder News Service The Los Angeles Times contributed to this article.

NEW ORLEANS -- The most vilified man in the world of cable television, Federal Communications Commission Chairman Reed Hundt, came before industry leaders yesterday on a peacekeeping mission, suggesting that financial relief was in sight.

Mr. Hundt said the FCC was not looking for further rate cuts and suggested in tone, if not in much detail, that the agency might ease proposed restrictions on future rates to encourage industry investment.

The FCC and cable industry have estimated that the government's 17 percent rate rollbacks since September will cost the industry $3 billion of its $22 billion in annual revenue.

Mr. Hundt reaffirmed the industry's critical role in the building of the so-called information highway. And he told the industry representatives to stop whining about cable re-regulation and accept the "unwelcome burden" of the new rules, which were developed by the FCC after passage of the 1992 cable act.

"I'm not here to commiserate over your decline or eulogize at your wake," he said. "As far as I can tell, and I hope I'm not wrong, this industry is on the verge of a new dawn. It is going to enter new markets and create new markets and achieve new heights of growth."

The topic of government regulation has cast a shadow across the cable industry's annual conference this week. "You have a right to your frustration and your anger," Decker Anstrom, president of the National Cable Television Association, told executives on Monday. "What Washington did to this industry was nothing less than a political caning."

Cable operators lament that the cutbacks have hurt their ability to raise cash to rebuild their networks. That is vital, they say, if they are to offer new interactive services and hundreds of channels and compete with a host of competitors.

The rate rollbacks also were blamed for scuttling the proposed ++ merger of Tele-Communications Inc. and Bell Atlantic Corp. earlier this year and for 30 percent declines in the stock prices of several large cable companies since October.

The industry's concern extends not just to the rollbacks, but also to future rates. The FCC had proposed to limit future rate increases to the annual inflation rate minus 2 percentage points, but Mr. Hundt suggested he was prepared to scrap that 2 percentage-point "productivity offset."

The offset is often used in the regulation of utilities such as telephone companies, but Mr. Hundt said he did not regard cable TV as a utility.

He also said the FCC would look for ways for cable companies to make a greater profit if they add new channels to their regulated services. Right now, a cable company would make about 2 or 3 cents a month per customer from adding a typical channel -- which, the industry contends, would not even cover the cost of sending customers letters to advise them of the change.

Mr. Hundt's speech won cautious plaudits, more for its tone than any specific detail, from cable executives.

"The commission is saying, 'OK, that's enough,' " Charles F. Dolan, chairman of Cablevision Systems Corp., of Woodbury, N.Y., one of the nation's biggest cable companies, said.

"I think it's a good beginning," said Comcast Corp. president Brian Roberts. John Reidy, an industry analyst with Smith Barney Shearson, said Mr. Hundt's talk had "a subtle impact," adding: "You give a drowning man a board and he grabs it."

Cable TV stocks appeared to react favorably to Mr. Hundt's remarks, with many registering strong gains for the day. Raymond L. Katz, senior vice president at Lehman Bros., expressed a sigh of relief.

"I have clients who have obsessed about that 2 percent offset. They wouldn't buy cable stocks as a result of that," he said. "Up until now the FCC has focused on the political aspects. Now they appear willing to focus on the economics."

Not everyone, though, was convinced.

"I think he's in denial about the impact" on the industry, said Nancy H. Becker, executive director of the New Jersey Cable Television Association.

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