PRESS RELEASE
December 18, 1997

Contact:
Gene Kimmelman, kimmge@consumer.org
Kathleen McShea, mcshka@consumer.org
(202) 462-6262
Consumers Union Washington D.C. Office

"The FCC has virtually abandoned all efforts to police market abuses or challenge inflated cable TV rates. It appears that relaxed regulation has resulted in substantially higher rates and increased concentration of ownership. We hope the FCC will act to make sure that consumers are not gouged by the cable cartel.
Gene Kimmelman
Co-Director, Washington Office, Consumers Union

 

Consumers Union Presses FCC for Action on Cable Freeze Petition

WASHINGTON Gene Kimmelman, co-director of the DC office of Consumers Union appeared before a meeting of the Federal Communications Commission Thursday to press for action on CU's petition to impose an immediate freeze on cable TV rates. Following is an executive summary of his remarks:

It is time for the FCC to set a new course for the marketplace. Unless the FCC imposes a meaningful lid on cable rates and attacks the root cause of monopolistic excesses, consumers will face skyrocketing prices without adequate competitive alternatives

  • Cable bills are sky-high. The Bureau of Labor Statistics reports that since passage of the 1996 Act, cable rates shot up about 14 percent, compared to an inflation rate of 3.8 percent. More than three times the rate of inflation.
  • Consumers cannot find a lower priced alternative. Prices for necessary equipment to put satellite TV in the home are substantially above cable rates, and the satellite systems still cannot offer local broadcast stations. With about 62.1 million households subscribing to cable TV, the cable industry's penetration is at an all-time high, and still growing at a rapid clip.

The road to competition on the information superhighway has been bumpy.

The FCC's own market analyses show a few large cable companies dominate the ownership and distribution of cable programming and market entry is hard.

  • Time to develop a Cable Television Programming Service: more than 2 yrs.
  • Available channel capacity: short supply.
  • Access to high quality programming: threatened by concentration at the programming level combined with vertical integration of such programming into the Multichannel Video Programming Distributors level.

The profit center: programming. Eight of the 13 most popular cable networks are substantially owned by cable operators who know costs can be passed onto consumers and competitors with the FCC's relaxed regulations. There is an ongoing bid to control the price and distribution of popular sports programming by combining sports team ownership and control of regional sports channels with a distribution system.

Industry Exaggerates. While the price of programming is going up, BLS shows that cable rates are rising twice as fast as programming costs.

Industry Omits. The flip side of programming expenses is the increased audience and ad revenue it generates. The cable industry has been adding about $1 billion each year in greater ad revenue, bringing in more than $7 billion in 1996 alone.

It appears that Congress was sold a bill of goods. The relaxed regulation of cable rates brought the cable industry into a strong cash-flow position, but the competition consumers were promised was not unleashed. Cable, telephone and satellite companies exaggerated their desire and willingness to compete.

  • The largest cable companies have virtually abandoned immediate efforts to compete with local telephone companies, preferring to retreat to its cushy video monopoly.
  • Local telephone companies have done more backtracking than competing against cable.
  • The Bell Cos. have also pulled back from competition in the wireless market.
  • A cartel of cable heavyweights transformed a would-be competitor into a full partner who is positioned to use satellite capacity to preserve their monopoly.

It's time for aggressive intervention. The competitive goals of the 1996 telecommunications act will never be achieved without action by the FCC. The Consumers Union Petition to the Commission for an immediate freeze on cable rates is a necessary response to an industry which is out of control.

The cost of not acting? $1 billion. A simple freeze on spiraling cable TV rates will save consumers more than one billion dollars over the next year. It is time for the FCC to get stand up to the pattern of anti-competitive behavior by the cable industry. It is time to foster the competition that Congress and consumers have been promised.

 

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