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- <text id=90TT1379>
- <title>
- May 28, 1990: Cable's Fuzzy Image
- </title>
- <history>
- TIME--The Weekly Newsmagazine--1990
- May 28, 1990 Emergency!
- </history>
- <article>
- <source>Time Magazine</source>
- <hdr>
- BUSINESS, Page 47
- Cable's Fuzzy Image
- </hdr>
- <body>
- <p>Congress and the FCC move toward reregulating an industry
- </p>
- <p>By Richard Zoglin--Reported by Naushad S. Mehta/New York and
- Nancy Traver/Washington
- </p>
- <p> It wired most of the U.S. in little more than a decade and
- vastly increased the number of TV channels available to the
- average home. It enticed viewers with movie services like HBO
- and Showtime, brought in superstations from distant cities and
- popularized MTV. But the industry responsible for these feats
- is hearing few huzzahs these days. More and more people, it
- seems, are griping about cable.
- </p>
- <p> Consumers in some areas are complaining about rising rates,
- shoddy service and long afternoons of waiting for the cable
- repairman to show up. Broadcasters are arguing that cable
- enjoys an unfair advantage in the marketplace. Most worrisome
- of all to the industry, Washington is paying heed. Legislation
- is pending in both houses of Congress that would impose new
- restrictions on cable. And the Federal Communications
- Commission, for years a deregulatory friend, is making noises
- about reining in the industry.
- </p>
- <p> The prospect of reregulation is sure to be Topic A as
- industry executives gather in Atlanta this week for their
- annual convention. Though the severity of Washington's
- legislation is still an open question, the tide may be turning
- for one of the hot businesses of the late 1980s. Cable
- companies are already suffering from investor wariness. The
- largest U.S. cable operator, Denver-based Tele-Communications,
- Inc. (TCI), which draws 78% of its revenues from cable, has
- seen its stock price fall 29% since early October, to 14 3/4.
- Time Warner, which derives 25% of its revenues from cable
- programming and operations, has endured a share-price decline
- of 32%, to 95 1/2, during the same period. "I would say the
- cable industry is at the North Pole now, a point from which all
- directions are south," says Alan Gottesman, a financial analyst
- for Paine Webber. Others are less pessimistic. "In the short
- term, there is a lot of regulatory uncertainty, but over the
- long term, cable is still a terrific business," contends John
- Mansell, who follows the industry for the research firm Paul
- Kagan Associates.
- </p>
- <p> The industry has been through a heady few years. The 1984
- Cable Communications Policy Act, passed in the palmy
- deregulatory spirit of the Reagan Administration, freed most
- cable systems from local control over their rates and service.
- Not surprisingly, the cost of basic cable has gone up since
- then (by 26% between December 1986 and October 1988, according
- to a General Accounting Office survey). So has the industry's
- financial health and its spending on new channels and
- programming.
- </p>
- <p> In a series of FCC hearings earlier this year, a parade of
- city officials and consumers charged that local cable systems
- (which in nearly all cases are the sole providers of cable for
- their areas) have been acting like arrogant monopolies.
- Deregulation has "created a monster on the loose," said Edward
- Quaglia, mayor of Herrin, Ill., where cable rates have risen
- 125% since 1986. Three months ago, New York became the first
- state to pass consumer-protection legislation aimed at
- penalizing cable abuses. And last week the New York City board
- of estimate, in a preliminary vote, refused to renew the
- Manhattan franchises of two cable companies, both substantially
- owned by Time Warner, that have been the target of customer
- complaints.
- </p>
- <p> Despite all the political heat, a TIME/CNN survey of 600
- cable customers in the U.S. conducted by Yankelovich Clancy
- Shulman turned up a relatively high level of satisfaction with
- cable services. Only 17% of those polled said they were
- displeased with their cable company's response to service
- problems. Fewer still, 13%, said their company failed to
- provide a good selection of channels. But a little more than
- one-third (36%) said they were dissatisfied with cable prices.
- Asked whether they view cable as a good value, 63% said yes.
- That ranked below such other forms of communication and
- entertainment as newspapers (83%), local phone service (80%),
- videotape rentals (72%) and magazines (67%), but ahead of
- movies in theaters (34%).
- </p>
- <p> The broadcast networks, which are steadily losing viewers
- to cable, have their own gripes. Cable, they contend, is
- getting a free ride on the backs of broadcasters, whose signals
- they are able to retransmit without charge. With the end of the
- "must-carry" rules, which required cable systems to carry all
- local stations, the cable operator can decide which stations
- to pick up and on what channel to place them. Some stations
- have complained of being booted to higher (and less watched)
- channel numbers. "Our fate is in the hands of individuals over
- whom we have absolutely no control," says Darrell Blue, general
- manager of KVEW in Kennewick, Wash., which was shifted from
- Channel 12 to Channel 42 by the local cable system. "We just
- have to smile and take it."
- </p>
- <p> Congressmen, tuned in to such complaints, have become
- increasingly prone to clamp down. The Senate Commerce Committee
- is considering a bill, which could reach the Senate floor in
- June, that would place rate caps and other restrictions on
- cable companies. In the House a less stringent bill
- co-sponsored by Commerce Committee Chairman John Dingell was
- unveiled last week that would reimpose the must-carry rules and
- institute other consumer-protection measures. Meanwhile, an FCC
- report examining whether revisions ought to be made in the 1984
- cable act is due to be released in July.
- </p>
- <p> Some of the proposals would make life especially difficult
- for cable:
- </p>
- <p>-- Reimposing rate regulation. Under the 1984 cable act,
- local systems are exempt from rate caps if they face "effective
- competition" in their local areas. Such competition is defined
- as the presence of at least three local broadcast signals. Some
- legislators would like to revise that definition to require the
- presence of another cable company or rival delivery system.
- Since few cable systems have such competition, the move would
- instantly make most of them subject to rate limits.
- </p>
- <p>-- Restricting concentration in the cable industry. The most
- extreme proposal would place a cap on the number of subscribers
- any one cable company could have nationwide. Some legislators
- also aim to limit the ability of cable operators to have a
- financial interest in the programming they carry.
- </p>
- <p>-- Fostering more competition. Cable programmers would be
- required to sell their wares to any competing delivery system
- at nondiscriminatory rates. And the ban against telephone
- companies entering the cable business might be lifted.
- </p>
- <p> Some of these remedies have little or no chance of being
- enacted, but it is likely that some measure of reregulation
- will pass this year. Many politicians see such legislation as
- an easy way to strike a blow for consumers without spending
- taxpayers' money. FCC Chairman Alfred Sikes also wants to trim
- cable's sails. "I favor eliminating the monopoly at the local
- level," says Sikes. "I think that either competition or the
- threat of it is going to be a spur to price competition, better
- service and innovation."
- </p>
- <p> The cable industry has responded to the onslaught with a
- fierce counterattack. Deregulation, cable officials argue, has
- enabled the industry to expand rapidly, to the great benefit
- of viewers. "We wired America," says Robert Thomson, vice
- president of government affairs for TCI. "That's very, very
- expensive. Also, we created a new universe of television
- programming." A cap on rates, contends Time Warner President
- N.J. Nicholas, would "severely inhibit, if not eliminate, any
- innovation in new products or new channels." If price limits
- on basic cable service were instituted, more systems might
- compensate by putting some channels now included in that
- service (ESPN and TNT, for example) on a separate "tier," thus
- increasing the costs for consumers.
- </p>
- <p> As for service problems, cable executives attribute them
- largely to the industry's growing pains. "Basically, this
- industry has been invented in the last ten or twelve years,"
- says James Mooney, president of the National Cable Television
- Association. "Yes, we've had some problems, but the industry
- is dealing with them in a serious way." The N.C.T.A. decided
- in February to institute voluntary customer-service guidelines.
- Among the goals: all customer phone calls will be answered
- within 30 seconds, and service interruptions will be repaired
- within 24 hours.
- </p>
- <p> If the cable industry is disturbed by the prospect of
- reregulation, it is also worried about the consequences of a
- totally unfettered marketplace. Most fearsome is the notion
- that telephone companies might enter the cable business. The
- phone companies, whose wires into homes could conceivably be
- upgraded to carry TV signals, have the technological capability
- and customer-service savvy to become formidable rivals. Until
- now, phone companies have been barred from providing cable
- service because of their regulated-monopoly status. But FCC
- Chairman Sikes and some in Congress favor allowing the phone
- companies to get involved, though probably only as "common
- carriers" of programming provided by others.
- </p>
- <p> Other potential rivals to cable are on the horizon. Two
- consortiums of media companies have launched direct-broadcast
- satellite ventures. One, Sky Cable, promises to deliver up to
- 108 channels to placemat-size home antennas by late 1993.
- Another, K Prime, is set to start this fall with a more limited
- channel selection. But widespread acceptance of DBS or any
- other alternative to cable may be years away. "Waiting for
- competition in the cable industry," says Representative Edward
- Markey, chairman of the House telecommunications subcommittee,
- </p>
- <p> That sounds like a rationale for reregu lation, and many
- cable executives welcome modest reform from Washington. Their
- goal, almost more important than damage control, is to get the
- matter resolved as soon as possible.
- </p>
-
- </body>
- </article>
- </text>
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