Press Release January 13, 1998	Contact: 202/462-6262 Gene Kimmelman, kimmge@consumer.org Kathleen McShea, mcshka@consumer.org Consumer Union Washington, D. C. Office

New Gov't Report Boosts Bid to Limit Cable TV Rates

WASHINGTON -- The Fourth Annual Report on Competition in Markets for the Delivery of Video Programming, released today by the FCC, includes data that strongly supports Consumers Union's call for an immediate cable rate freeze and new rules that promote competition by reducing the monopoly power of the largest cable companies.

"Today FCC Chairman Kennard admitted what all consumers know: there is virtually no competition in the cable industry," said Gene Kimmelman, co-director of the DC office of Consumers Union, publisher of Consumer Reports magazine. "He took a step forward, initiating investigations into excessive rate increases and monopolistic practices. However, consumers are disappointed that the FCC has established no deadline for putting an end to spiraling cable rates."

Buried in the Report is the following information:

1. Cable rates rose 8.5% from July 96-97, approximately four times faster than inflation, as CU noted in September (8.2% rate hikes since passage of the Telecommunications Act); [Report at p. 5] The average monthly rate for programming and equipment is $28.83, a $2.52/mo. increase from July 96 [Report at p. 28]
    
2. Cable programming costs rose approximately the same amount as new advertising revenue for cable companies: programming costs rose about $400 million in 1996 and are expected to grow the same amount, and at the same rate (16%) in 1997; advertising revenue paid to cable systems rose about $300 million in 1996 and is expected to grow the same amount and at the same rate (16%) in 1997; [Report at pp. 19-20]
    
3. The largest cable companies, TCI and Time Warner, that have an ownership stake in almost one-half on the most popular cable programming, [Report at Tables F-6&7] also received a significant portion of the $5.8 billion in advertising revenue (up 18.4%) paid to cable programmers [Report at p.20]
    
4. Satellite dish, the largest growing alternative to cable, is still so expensive that is does not serve as a price competitive alternative to cable: After rapid growth into the high end of the market [Report at p. 29 & 38], satellite distribution is slowing, only expected to garner about 14% of the market by 2002 [Report at pp. 37-38]; up front installation costs of $150-200, dish costs of at least $200 and lack of  local broadcast reception [Report at pp. 28-29] have not made it possible for DBS to become price competitive with cable. The Report cites surveys which show that only 10% of cable subscribers are considering switching to DBS, and of those who actually go out and shop for a dish 70% did NOT purchase the service! [Report at pp. 38-39].
    
5. Concentration of ownership in the cable industry has increased about 50 percent since Congress asked the FCC to impose ownership limits in 1992 [Report at Table E-4]. The local cable market remains highly concentrated (more than triple the level used in antitrust to define a "highly concentrated" market) [Report at p. 76]; at the national level, the market is "moderately concentrated," without taking account of pending transactions that would expand TCI's reach (currently 29% of all subscribers) by about 4-5% (about 3 million new subscribers) [Report at pp.85-87]. While the Report does not account for these TCI transactions, it notes that, if consummated, TCI could exceed the Commission's original horizontal concentration limits.
    
6. The eight largest cable companies own a substantial portion of 8-9 out of the 15 most popular (based on viewer ship) cable channels and 26-28 of the top 50 [Report at pp. 90-91]
    
7. In the few communities where phone companies, electric companies or others provide head-to-head competition with cable, rates have generally fallen (sometimes substantially) or did not increase AT ALL, at the same time as new programming, better technology, and new services were added [Report at pp. 97-106]

BLS data complied by Consumers Union and Consumer Federation of America, show that since the Telecommunications Act was signed into law in February 1996, cable rates rose more than three times the rate of inflation. These findings spurred the two consumer organizations to file a petition for rule making with the FCC asking them to take immediate action to freeze cable rates and launch an investigation into why cable rates are so high. The groups calculate that a freeze would save consumers about a $1 billion a year.