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McCain to cable: Cut rates

Apr 22, 2002  •  Post A Comment

Sen. John McCain, R-Ariz., believes cable rate increases have become a major national problem-and says busting up cable’s basic tier may be the solution.
“I’m not sure an 80-year-old woman who subscribes to cable should have to pay for ESPN,” Sen. McCain told Electronic Media last week.
Sen. McCain said he doesn’t know yet whether legislation will be called for. “But the fact is cable rate increases continue to exceed the rate of inflation, usually by a factor of two or three,” he said.
“I think something ought to happen,” Sen. McCain said. “I don’t know if it’s competition; I don’t know if it’s re-regulation; I don’t exactly know what the answer is. That’s why we’re asking for the best opinions we can get. But the status quo is very unacceptable.”
What caught the lawmaker’s attention is that cable rates have been rising faster than the rate of inflation since lawmakers approved the Telecommunications Act of 1996, the landmark legislation deregulating cable rates. Under the conventional wisdom at the time, competition from telephone companies, satellite TV operators and others was supposed to keep cable’s rates in check.
But despite the theory, the senator said cable rates have “skyrocketed” 36 percent since the act was approved, almost three times the rate of inflation.
The cable industry blames the rate increase in part on increased programming costs, especially for sports networks. That’s why some industry critics suggest that a cure may be to move to an a la carte system, forcing cable operators to stop requiring subscribers to subsidize all of the networks in an operator’s basic package and instead letting consumers subscribe only to those services that they really want.
“It seems logical to me that people should be able to select from a menu as to what they want to pay for and view,” said Sen. McCain who is the ranking Republican on the Senate Commerce Committee, the panel that oversees the nation’s legislation on cable TV issues.
If the Senate swings back under Republican control in the fall elections, Sen. McCain could assume the committee’s chairmanship, a position he has held before.
Critics of the basic-tier concept contend that an a la carte system would lead to lower rates, at least for subscribers willing to live without sports and other high-cost cable fare.
But the cable industry insists that a la carte pricing will make cable networks more expensive by depriving them of some of their audience for advertising.
“The access to eyeballs takes the pressure off license fees, which are passed directly to subscribers,” said Marc Smith, a spokesman for the National Cable & Telecommunications Association. “Without access to eyeballs, those license fees would increase substantially.”
Cable industry representatives also argue that an a la carte system would make it far more difficult to launch new cable networks and could lead to the demise of some of the less popular networks currently on a cable operator’s basic tier.
To get a better feel for the issue, the senator last week asked the General Accounting Office, the congressional watchdog agency, to study the prospects for a la carte.
“To the extent that the increase in cable rates is attributable to the higher cost of programming, what flexibility do cable operators have to package their service offerings so that consumers can choose to pay only for the programming they wish to receive?” the senator wrote in an April 16 letter to the GAO.
The senator also asked the GAO to pinpoint the causes of cable rate increases. “What steps might policymakers consider to address the continued increase in these rates?” he added.
In his letter to the GAO, Sen. McCain noted that the Federal Communications Commission already reports on cable rate increases annually. But he said the FCC’s data are based on information reported by cable operators. “The time has come for an independent review of the cable industry’s claims,” Sen. McCain said.