Deregulation of cable television rates is among big changes in Senate bill

June 16, 1995|By Los Angeles Times

The legislation passed in the Senate to reform telecommunications laws has sweeping implications for the cable and broadcasting industries -- as well as for consumers of some of their services.

For starters, the bill essentially would deregulate cable rates. In the short run, this could lead both to higher cable rates along with wider experimentation in selection and packaging of programming.

In the long run, the bill would set the table for unprecedented competition between cable and phone companies, allowing both offer customers a single supplier for television and telephone services. That competition could lead to lower prices and greater choices for consumers.

In anticipation of deregulation, phone and cable companies have started tests in cities across the country, announced acquisitions, and formed joint ventures to enter the rival business.

The bill also has provisions that could shuffle the ownership of television stations, though analysts don't expect huge changes in programming to result.

The bill would make it possible for networks or broadcast chains to own stations that reach up to 35 percent of U.S. households, an increase over the current 25 percent. Networks are likely to buy more stations, which are the most profitable part of their operations.

The broadcast industry has been divided over these changes. While the networks would like to own more stations, their affiliates fear weakening their leverage with their suppliers, the networks.

The bill would not change rules that limit foreign ownership of broadcast properties.

Without a doubt, the legislation is a victory for the cable industry, which has been pushing for deregulation, as new competitors like satellite dish operators have quickly rolled out rival video services.

Under the Senate bill, cable operators would be freed of rate regulations imposed in 1992 that made it virtually impossible for the industry to change programming packages and add new services for fear of triggering rate reviews by the Federal Communications Commission. The difficulty of getting picked up cable operators has stifled development of new programming and the growth of new cable networks.

"I would expect more flexible tiers and a significant number of channels added to the basic expanded tier," said Larry Gerbrandt, senior analyst at Paul Kagan Associates, a market research company in Carmel, Calif. "There are some nifty program options that cable operators haven't been able to consider because of the inflexibility. Ultimately the legislation will lead to more choice for consumers."

The rate relief may also make Wall Street more hospitable to lending the industry the $60 billion it needs to upgrade its wiring to enter the $129 billion local phone business. The cable market alone is about $23 billion. Uncertainty over the legislation as well as the enormous capital investments required to enter the new business has driven down stock prices of cable companies this year.

In deregulating rates, both the Senate and the House are betting that competition already is lively enough to keep cable prices from rising significantly. DirecTV, owned by GM/Hughes Electronics, and United States Satellite Broadcasting Co., a division of Hubbard Broadcasting, both offer video programming services via satellite mini-dishes nationwide and are adding about 2,000 new subscribers a day. Though dishes cost $600, their prices are coming down as new manufacturers like the Sony Corp. enter the business. Their subscription prices, ranging from $20 to $30 a month, are on par with cable rates.

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