Separate Statement of Chairman William E. Kennard in the Matter of Annual Assessment of the Status ofCompetition in Markets for the Delivery of Video Programming

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This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

January 13, 1998

SEPARATE STATEMENT OF CHAIRMAN WILLIAM E. KENNARD
In the Matter of Annual Assessment of the Status ofCompetition in Markets for the Delivery of Video Programming

When Congress passed the Telecommunications Act of 1996, it mandated the sunset of cable rate regulation on March 31, 1999 for all but the basic service tier.⁽¹⁾ Congress predicted that in another three years, cable rate regulation would be a relic of a bygone era. Seemingly major legal barriers to competition were removed. An alphabet soup of new entrants -- RBOCs, DBS, MMDS, SMATV -- seemed poised to compete aggressively in the multichannel marketplace. Policymakers heralded the dawn of significant new competition to cable television, and the American people were promised lower prices and more competitive alternatives.

But less than 15 months away from the sunset of most cable rate regulation, it is clear that broad-based, widespread competition to the cable industry has not developed and is not imminent. Eighty-seven percent of those who subscribe to multichannel video programming receive service from their local cable operator. While this is certainly an improvement from the Commission's first report in 1994, it is largely attributable to the growth of direct broadcast satellite services (DBS). DBS, however, remains primarily a high-end product or a way to receive multichannel video service in areas cable does not reach. And while at least one local exchange carrier is beginning to provide cable service, telephone companies have not, on the whole, entered video markets on a widespread basis.

Rates for regulated cable programming and equipment rose 8.5% in the 12-month period ending July, 1997. Although increased prices have been accompanied by additional programming, consumers have no real opportunity to choose a range of programming at varying prices. Our Report indicates that the presence of true, head-to-head competition to cable has a substantial downward effect on cable rates. Prices, not surprisingly, appear lower where there is competition than where there is none. But the much anticipated competition has yet to arrive.

The loser is the American public. They must pay the higher cable prices yet they have few competitive choices. Policymakers should no longer have high hopes that a vigorous and widespread competitive environment will magically emerge in the next several months to reverse the troubling increase in cable rates. I fear it will not.

Although the Communications Act mandates that we substantially loosen rate controls next year, there are actions we have taken, and some we can take in the interim, that can foster more competition. We recently proposed ways to improve the effectiveness of our program access rules. New entrants seeking to compete against incumbents must have a fair opportunity to obtain and market programming, and the Commission's program access rules must be enforced swiftly and effectively. Today's Report notes our preemption of undue limitations on a viewer's ability to install dishes and antennas on property they own and control. It describes our new rules giving certainty to alternative video distributors with respect to their right to use wiring installed by the incumbent cable operator in apartment buildings and other multiunit dwellings, and our provision for the rollout of digital television. These are valuable contributions toward competition.

Still, when confronted with allegations of price gouging, cable operators reflexively point to additional programming costs. The Commission's own rules and policies may be a source of this problem. We need to examine whether there are targeted adjustments that should be made to our rate rules. For example, our rules allow programming cost increases to be passed on to subscribers. But is this right? Should the consumer shoulder all the increased costs of programming, instead of sharing these costs among other revenue sources, such as advertising, commissions, and in some circumstances, payments from programmers themselves, especially where these other revenue streams may have grown since the benchmark rates were set?

Moreover, there are affiliations between cable operators and those who create and sell programming that add complexity to analyzing rates. I am therefore directing the Cable Services Bureau to commence a focused inquiry into programming costs to determine the sources of these increases, the variance in costs among various distributors, whether existing relationships impact the prices charged, and if programmers restrict consumer choice. This inquiry will require the cooperation and forthrightness of the industry.

We will also pursue the cable industry's own suggestion,⁽²⁾ that we explore ways that the cable industry can provide consumers a wider range of choice in programming and prices, such that a consumer need not purchase programming that he or she does not want to watch. I look forward to the industry's recommendations in this regard. I am interested in examining the extent to which programmers restrict the cable operator's ability to market their programming, such as by requiring that programming be placed on a particular tier with other programming. Further, are most cable systems technically equipped to offer more customized programming packages, or would customization require settop boxes and other equipment, the cost of which would nullify the gains?

I am also instructing the Bureau to renew its enforcement efforts, giving particular emphasis and scrutiny not only to operators that do not commit an entire rate increase to the consumer's benefit, but also to examining closely all revenue received by the cable operator and the impact on the rate charged.

I also intend to ensure that the Commission concludes its rulemaking with respect to the state of horizontal concentration in the cable industry and its effects on competition. We must finish carrying out the law's requirement that we analyze the industry in this regard and put in place rules to restrain any anticompetitive effects of excessive concentration.

There are areas where enhanced competitive opportunities depend more upon changes in the law than on additional regulatory action. Direct broadcast satellite providers are largely prohibited from carrying local broadcast signals. Moreover, in obtaining the rights to network broadcast programming, DBS operators must pay more in copyright fees than cable pays for the same programming. With respect to program access, there is significant debate regarding our statutory authority, even where programming is unfairly or anticompetitively withheld from distribution in a way that frustrates the growth of competition. Further, competition in apartment buildings is limited because our statutory authority to allow use of the transmission wires by competitors extends only to circumstances where the incumbent has lost its right to remain in a building. Tenants would see more choice and better prices if an incumbent faced a competitive environment sooner. Similarly, dependent upon the outcome of a pending proceeding, the right of access by apartment dwellers and others to competitive video providers should be examined.

I would like to work with the Congress to evaluate these and other statutory proposals to eliminate barriers to competition. Congress is the final judge of the wisdom of proposals such as these. But I hope that the Commission will be called upon to assist Congress in assessing these legislative proposals.

Maintaining regulation as a surrogate for competition, and only until such time as competition arrives, is consistent with the historical underpinnings of federal regulation of cable television⁽³⁾ and reaffirmed by the Telecommunications Act of 1996.⁽⁴⁾ Yet I do not believe that, come March 1999, the consumer will be able to rely on a competitive market to ensure reasonable prices and choice. Therefore, I look forward to pursuing the initiatives I have described above to give the American public as much choice and value as can be achieved in the market that today's Report describes.

- FCC -

1. 1996 Act, § 301(b)(2), codified at 47 U.S.C. § 543(d).
2. See remarks of Decker Anstrom, President and Chief Executive Officer, National Cable Television Association, at en banc presentation on the Status of Competition in the Multichannel Video Industry, Federal Communications Commission, December 18, 1997.
3. 47 U.S.C. § 521(6), 47 U.S.C. § 543(a)(2).
4. Joint Statement of Managers, S. Conf. Rep. No. 104-230, 104th Cong. 2d Sess. 1 (1996).

	NEWS
	Federal Communications Commission 1919 - M Street, N.W. Washington, D.C. 20554	News media information 202 / 418-0500 Fax-On-Demand 202 / 418-2830 Internet: http://www.fcc.gov ftp.fcc.gov
	This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).
	January 13, 1998
	SEPARATE STATEMENT OF CHAIRMAN WILLIAM E. KENNARD In the Matter of Annual Assessment of the Status ofCompetition in Markets for the Delivery of Video Programming
	When Congress passed the Telecommunications Act of 1996, it mandated the sunset of cable rate regulation on March 31, 1999 for all but the basic service tier.⁽¹⁾ Congress predicted that in another three years, cable rate regulation would be a relic of a bygone era. Seemingly major legal barriers to competition were removed. An alphabet soup of new entrants -- RBOCs, DBS, MMDS, SMATV -- seemed poised to compete aggressively in the multichannel marketplace. Policymakers heralded the dawn of significant new competition to cable television, and the American people were promised lower prices and more competitive alternatives. But less than 15 months away from the sunset of most cable rate regulation, it is clear that broad-based, widespread competition to the cable industry has not developed and is not imminent. Eighty-seven percent of those who subscribe to multichannel video programming receive service from their local cable operator. While this is certainly an improvement from the Commission's first report in 1994, it is largely attributable to the growth of direct broadcast satellite services (DBS). DBS, however, remains primarily a high-end product or a way to receive multichannel video service in areas cable does not reach. And while at least one local exchange carrier is beginning to provide cable service, telephone companies have not, on the whole, entered video markets on a widespread basis. Rates for regulated cable programming and equipment rose 8.5% in the 12-month period ending July, 1997. Although increased prices have been accompanied by additional programming, consumers have no real opportunity to choose a range of programming at varying prices. Our Report indicates that the presence of true, head-to-head competition to cable has a substantial downward effect on cable rates. Prices, not surprisingly, appear lower where there is competition than where there is none. But the much anticipated competition has yet to arrive. The loser is the American public. They must pay the higher cable prices yet they have few competitive choices. Policymakers should no longer have high hopes that a vigorous and widespread competitive environment will magically emerge in the next several months to reverse the troubling increase in cable rates. I fear it will not. Although the Communications Act mandates that we substantially loosen rate controls next year, there are actions we have taken, and some we can take in the interim, that can foster more competition. We recently proposed ways to improve the effectiveness of our program access rules. New entrants seeking to compete against incumbents must have a fair opportunity to obtain and market programming, and the Commission's program access rules must be enforced swiftly and effectively. Today's Report notes our preemption of undue limitations on a viewer's ability to install dishes and antennas on property they own and control. It describes our new rules giving certainty to alternative video distributors with respect to their right to use wiring installed by the incumbent cable operator in apartment buildings and other multiunit dwellings, and our provision for the rollout of digital television. These are valuable contributions toward competition. Still, when confronted with allegations of price gouging, cable operators reflexively point to additional programming costs. The Commission's own rules and policies may be a source of this problem. We need to examine whether there are targeted adjustments that should be made to our rate rules. For example, our rules allow programming cost increases to be passed on to subscribers. But is this right? Should the consumer shoulder all the increased costs of programming, instead of sharing these costs among other revenue sources, such as advertising, commissions, and in some circumstances, payments from programmers themselves, especially where these other revenue streams may have grown since the benchmark rates were set? Moreover, there are affiliations between cable operators and those who create and sell programming that add complexity to analyzing rates. I am therefore directing the Cable Services Bureau to commence a focused inquiry into programming costs to determine the sources of these increases, the variance in costs among various distributors, whether existing relationships impact the prices charged, and if programmers restrict consumer choice. This inquiry will require the cooperation and forthrightness of the industry. We will also pursue the cable industry's own suggestion,⁽²⁾ that we explore ways that the cable industry can provide consumers a wider range of choice in programming and prices, such that a consumer need not purchase programming that he or she does not want to watch. I look forward to the industry's recommendations in this regard. I am interested in examining the extent to which programmers restrict the cable operator's ability to market their programming, such as by requiring that programming be placed on a particular tier with other programming. Further, are most cable systems technically equipped to offer more customized programming packages, or would customization require settop boxes and other equipment, the cost of which would nullify the gains? I am also instructing the Bureau to renew its enforcement efforts, giving particular emphasis and scrutiny not only to operators that do not commit an entire rate increase to the consumer's benefit, but also to examining closely all revenue received by the cable operator and the impact on the rate charged. I also intend to ensure that the Commission concludes its rulemaking with respect to the state of horizontal concentration in the cable industry and its effects on competition. We must finish carrying out the law's requirement that we analyze the industry in this regard and put in place rules to restrain any anticompetitive effects of excessive concentration. There are areas where enhanced competitive opportunities depend more upon changes in the law than on additional regulatory action. Direct broadcast satellite providers are largely prohibited from carrying local broadcast signals. Moreover, in obtaining the rights to network broadcast programming, DBS operators must pay more in copyright fees than cable pays for the same programming. With respect to program access, there is significant debate regarding our statutory authority, even where programming is unfairly or anticompetitively withheld from distribution in a way that frustrates the growth of competition. Further, competition in apartment buildings is limited because our statutory authority to allow use of the transmission wires by competitors extends only to circumstances where the incumbent has lost its right to remain in a building. Tenants would see more choice and better prices if an incumbent faced a competitive environment sooner. Similarly, dependent upon the outcome of a pending proceeding, the right of access by apartment dwellers and others to competitive video providers should be examined. I would like to work with the Congress to evaluate these and other statutory proposals to eliminate barriers to competition. Congress is the final judge of the wisdom of proposals such as these. But I hope that the Commission will be called upon to assist Congress in assessing these legislative proposals. Maintaining regulation as a surrogate for competition, and only until such time as competition arrives, is consistent with the historical underpinnings of federal regulation of cable television⁽³⁾ and reaffirmed by the Telecommunications Act of 1996.⁽⁴⁾ Yet I do not believe that, come March 1999, the consumer will be able to rely on a competitive market to ensure reasonable prices and choice. Therefore, I look forward to pursuing the initiatives I have described above to give the American public as much choice and value as can be achieved in the market that today's Report describes. - FCC - 1. 1996 Act, § 301(b)(2), codified at 47 U.S.C. § 543(d). 2. See remarks of Decker Anstrom, President and Chief Executive Officer, National Cable Television Association, at en banc presentation on the Status of Competition in the Multichannel Video Industry, Federal Communications Commission, December 18, 1997. 3. 47 U.S.C. § 521(6), 47 U.S.C. § 543(a)(2). 4. Joint Statement of Managers, S. Conf. Rep. No. 104-230, 104th Cong. 2d Sess. 1 (1996).