- The Washington Times - Friday, October 24, 2003

Competition will do more to lower rapidly escalating cable-television rates than imposing new regulations on the industry, according to a report released by Congress’ investigative arm yesterday.

Bloated fees for cable television have increased more than the overall rate of inflation in recent years, and there is no sign the trend will slow.

In a 94-page report, the General Accounting Office said the estimated $75 billion that cable companies have spent on equipment since 1996 has contributed to the steady rise in cable costs.

The report also indicates a 34 percent increase in programming costs over the past three years has forced rates higher.

Cable rates have increased an alarming 40 percent in just five years — from $26.06 a month in 1997 to $36.47 a month in 2002. Inflation climbed 12 percent over the same period, as measured by the Consumer Price Index.

Some consumer have been spared. Rates are about 15 percent lower — or $5 a month in 2001 — in areas where cable operators face competition from other cable providers. Competition from satellite providers also lowered rates.

Lawmakers said yesterday Congress must do more to bolster competition so rates stop rising.

“The GAO report confirms that competition matters. Competition brings lower rates, improved service quality and more choices for consumers,” said Sen. John McCain, Arizona Republican and chairman of the Senate Commerce, Science and Transportation Committee.

Mr. McCain asked the GAO last year to examine rates.

More than 72 million American households subscribe to cable television, but few consumers enjoy lower rates owing to competition.

Competition among cable companies is limited to 2 percent of the 210 U.S. television markets, according to the GAO.

The agency also said competition from satellite providers EchoStar Communications Corp. and DirecTV, controlled by Hughes Electronics Corp., has kept rates down.

EchoStar and DirecTV have a combined 21 million subscribers.

Competition from satellite companies also improves the service cable companies provide, according to the report.

In comments submitted to the GAO and included in the report, the Consumers Union, publisher of Consumer Reports magazine, said “regulation may be the only viable option for addressing cable operators’ market power because” competition in a single market from another cable company is unlikely to be widespread.

But the GAO did not endorse rate regulation.

“We think it’s significant the GAO does not recommend heading down a regulatory path,” said Robert Sachs, president and chief executive of the National Cable and Telecommunications Association, the cable industry’s lobbying arm.

Congress eliminated rate regulation with the Telecommunications Act of 1996. The GAO said regulating rates could be more difficult now because of the proliferation of services consumers can buy from cable and satellite providers, including Internet access and video on demand.

“I think there was fear that there would be a call for regulation,” said John Mansell, senior analyst with media researcher Kagan World Media.

The GAO was skeptical of so-called “a la carte” services that allow consumers to purchase specific cable channels, rather than a suite of prepackaged channels. “A la carte” programming would reduce advertising revenue and boost the per-channel cost to consumers, the GAO reported. Such programming also would force consumers to buy a converter box to unscramble the networks they are authorized to receive.

Cox Communications Inc. has threatened in recent weeks to drop ESPN from its package of basic channels, arguing that the popular sports network’s programming costs too much. Cox has proposed making ESPN available on an “a la carte” basis.

But the GAO report lends credence to ESPN’s argument that an “a la carte” suite of services would merely increase rates even more.

“We are heartened to see the GAO confirm that Federal Communications Commission data blaming program costs may be flawed, that ‘a la carte’ is not a panacea and that competition is better than regulation,” ESPN President George Bodenheimer said.

Cox says it pays $2.61 per customer to carry ESPN. The sports network is seeking a 20 percent increase in the fee it charges Cox when their contract expires in April 2004.

The GAO also criticized the FCC’s annual review of the cable industry. The FCC gathers unreliable data about the factors behind cable-rate increases and the effect of competition on rates, the report said, and faulty data could make it harder for the FCC and Congress to make proper policy decisions about the cable industry.

In two responses included in the GAO report, FCC officials defended their oversight of the cable industry, but agreed to make changes and improve its reporting.

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