[Congressional Record Volume 140, Number 17 (Thursday, February 24, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]
[Congressional Record: February 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
WHAT THE FCC FORGOT TO TELL AMERICA WHEN IT CUT CABLE RATES
Mr. DOLE. Mr. President, I read with interest yesterday in the
Washington Post, and others papers, about the rollback of cable rates.
I just want to set the record straight.
I call this ``What the FCC Report Forgot to Tell America When It Cut
Cable Rates.''
Mr. President, the Federal Communications Commission's appetite for
Government intervention has opened a big pot-hole in the information
highway, and could short-change cable TV consumers. Earlier this week,
the FCC announced that cable TV companies with fewer than 15,000
customers are subject to have their rates rolled back by 7 percent.
This sounds good if you stop right there. It sounds very good. But no
one has told the American people what they will sacrifice in the
process. For starters, we should expect two things. First, it will
stifle private business efforts to build the so-called information
highway. And second, rapid introduction of new channels and services
will not occur. In short, Americans should expect an inferior product
because the cable TV legislation has stagnated competition and
innovation. Unfortunately, only a few of us anticipated this outcome
when Congress passed this law in 1992.
Mr. President, these rollbacks hurt more than the cable TV industry,
and nobody would defend some in the industry for some of the egregious
practices in the past. In fact, major communications deals have been
ruined by the FCC's actions. Chairman Hundt's economist, Michael Katz,
said these additional cuts won't hurt. The stock market said otherwise.
Citing the rate rollbacks, Bell Atlantic last night called off its bid
to acquire TCI. Originally this acquisition was valued at $26 billion
and would have arguably created the most powerful and progressive
communications company in the world. Bell Atlantic's stock took a nose
dive when Chairman Hundt indicated last December that he would roll
back rates and thereby restrict TCI's revenue stream. As my colleagues
may recall, Bell Atlantic was cautious and did not strike a deal until
after the FCC had set its original rate cut regulations. I can only
guess that constant changing of the rules will discourage similar deals
from being negotiated in the future.
The administration's says it supports the establishment of an
information superhighway, but seems eager to throw up roadblocks in the
way of its development. Vice President Gore's says that promoting
competition will accelerate construction of the highway. He envisions
the cable industry as the major competitor to the phone companies. Let
us face it, that is not likely. As one of the principle architects of
the cable TV bill, the Vice President is responsible for hamstringing
the cable TV industry to the point that it is no longer a credible
competitor. If we continue to pursue such short-sighted policies in the
name of consumer protection, Americans will never see the benefits of
competition.
hazards of cable rate cuts
Mr. President, rate cuts are not a free ride. When the Commission
originally rolled rates back 10 percent last September, approximately
two-thirds of all consumers realized some savings. But have subscribers
seen any new channel additions since then? Of course not. In fact, many
have actually experienced a reduction. Why is this when there are 51
new cable channels ready to go right now? It is simple. Cable operators
just can't afford them.
Updating old cable TV systems and construction of new ones have also
been practically non-existent. These upgrades would accelerate the
development of the information highway and create thousands of high
skill, high-paying jobs--the kind of jobs Vice President Gore says he
wants. But the actions of current FCC Chairman, Reed Hundt, say
otherwise.
These are only a few problems that were created by the first rate
cut. It seems to me that things will not improve with another 7-percent
rollback. While pro-regulators have let their revisionist tendencies
get the best of them, let me set the record straight. It was never
Congress's intention to punish all cable TV companies, only the abusive
companies.
republican fcc nominee
Mr. President, I am also concerned that the Republican FCC seat
vacated by former Chairman Al Sikes more than a year ago remains empty.
This is completely unreasonable. We have been advised by Howard Paster
that this would not happen. In fact, I thought the White House
recognized this fact when it agreed to quickly name a nominee. That was
3 months ago. What is the hold up? After all, we have had two nominees
for Secretary of Defense, and one confirmed, in the same time period,
as well as countless other nominees.
7-percent rollback not justified
Mr. President, in closing this brings me to another issue. How did
the Commission determine that a 7-percent rollback was in order? They
say a study will be released in 2 weeks which will justify everything.
It seems to me that the study should have come first--before any
changes were made.
For instance, it is my understanding that Chairman Hundt's office
said that cable TV operators got off easy--the Commission could have
ordered a 15-percent rollback. Well, if the data supported a larger
rollback, why did not the Commission stand strong for the American
consumer? As I have said all along, this entire debate has been more
about politics than consumer protection.
conclusion
No doubt about it, the cable TV bill fiasco is a vivid example of the
Government tinkering with something that it clearly didn't understand.
Now don't get me wrong. Consumers should get the most bang for their
buck. As I said before, there were some bad practices with some cable
TV operators. But when Government gouges consumers more than business,
it is time for Government to get out of the way and let competition
take over.
I ask unanimous consent the Washington Post article which I referred
to be printed in the Record.
There being no objection, the article was ordered to be printed in
the Record, as follows:
[From the Washington Post, Feb. 24, 1994]
Bell Atlantic, TCI Call Off Merger--Firms Blame Latest FCC Cable Rate
Cuts; Regulators and Analysts Skeptical
(By Sandra Sugawara and Paul Farhi)
Bell Atlantic Corp. and Tele-Communications Inc., yesterday
called off their plans for the biggest telecommunications
merger ever, blaming the Federal Communications Commission
decision Tuesday to scale back cable TV rates.
Bell Atlantic Chairman Raymond W. Smith and TCI President
John C. Malone decided to call off the deal at a meeting in
New York after they failed to agree on the price that the
regional telephone company would pay for the cable
properties, according to a Bell Atlantic official.
Smith argued that the FCC actions reducing cable prices
would significantly reduce the value of the cable properties,
but Malone refused to accept the lower price. The merger
initially was valued at $26 billion.
Smith had said the deal, by creating economies of scale,
would speed up the arrival of the so-called information
highway. This enhanced network promises to deliver services
such as video on demand, interactive home shopping, video
conferencing and remote education to millions of homes across
the country.
On the face of it, the failure of the merger would seem to
slow down this process. But some analysts said competition
between telephone, cable and entertainment companies--not
mega mergers--utlimately will provide these services.
Consumer acceptance and willingness to pay also will be key
factors in what services are provided, and when.
``There is no change in our overall vision, which is to be
a major player in the communications, information and
entertainment world. We're just going to do that in a
different way than we planned on Monday,'' Bell Atlantic
President James Cullen said last night.
``Of course we are disappointed, but the unsettled
regulatory climate made it too difficult for the parties to
value the future today,'' Smith said in a statement.
``Given the market and regulatory uncertainties, Ray and I
concluded that this is not the time to bring our companies
together,'' Malone said in the same statement.
But FCC Chairman Reed Hundt challenged the companies'
explanation, and Clinton administration officials and
industry analysts also expressed skepticism about whether
regulators were to blame for the deal's collapse. The
commission's cable decision ``did not in any way make the
future of the cable industry more unsettled,'' Hundt said in
a statement released by the FCC. He said that instead the
rules clarified the industry's future.
The cancellation of the deal may also slow the merger mania
among cable, telephone and other companies, according to
industry analysts, who said the high-profile Bell Atlantic
and TCI deal had put other companies under pressure to find
partners.
``We are going to have to rethink everything,'' said Robert
B. Wilkes, an analyst with Brown Brothers Harriman & Co. in
New York. ``I think there is less likelihood that all these
industries will come together.''
Wilkes also said it may lessen the pressure for legislation
to deregulate the telecommunications industry. But an aid to
Rep. Edward Markey (D-Mass.), chairman of the House
telecommunications subcommittee, said he did not expect the
announcement to slow plans to pass such legislation.
``Whatever the real reason this deal fell through, no deal
should survive if it is premised on a cable company charging
monopoly rates,'' Markey said.
The companies' decision came a day after the FCC voted
unanimously to cut cable companies' programming prices by 7
percent. Ten months earlier, the FCC ordered a 10 percent
rate rollback.
While many analysts expect TCI, the world's largest cable
company, to weather the FCC's move better than others in its
business, the ruling is likely to curtail the company's
monthly cash flow. That is crucial, since the price Bell
Atlantic would have paid for TCI was predicated on a formula
of 11.6 times the cash flow of TCI's cable systems. Cash flow
is the cash available to a company before taxes and
depreciation are deducted from revenue. As this cash flow
declined, so did the price Bell Atlantic was willing to pay
for the assets.
TCI has not estimated how much the latest 7 percent
rollback will affect cash flow, but it said last fall that
the initial 10 percent rollback would diminish it by 4
percent to 5 percent annually, assuming the company did not
find new sources of unregulated revenue, such as increased
advertising. All told, however, most analysts did not expect
TCI to be severely harmed by either of the FCC's rate
rollbacks.
An administration official last night discounted the claim
that the FCC was to blame. ``The idea that all of a sudden
this shook these two giant companies to the core is hard to
believe,'' the official said. ``. . . The search for external
forces may be convenient, but the real cause may lie
within.''
The companies had already missed several deadlines for
closing the deal.
George Dellinger, analyst for County NatWest Securities,
also was skeptical. ``It was compounded by the cable
regulations, but I don't think [Smith and Malone] can look
each other in the eye and say FCC did it. . . . It was egos.
It was fine print. It was power. It was price.''
But Cullen flatly denied that the deal fell apart for any
other reason than the FCC rate cuts. ``I can tell you
absolutely that could not be further from the truth,'' he
said of speculation that factors such as ego and culture
clashes played a role. ``The chemistry could not have been
better.''
Cullen said that over the past four months, numerous issues
had threatened to derail the talks, but that each of these
was resolved. ``It was the deal with nine lives,'' he said.
He said the two companies are discussing joint ventures,
including the creation of a full-service network and a joint
venture in programming.
The administration had in principle given the merger a
green light, another administration official said, provided
that the combined company sold cable TV systems located in
the Bell Atlantic telephone service area, such as
Washington's District Cablevision. Those were needed so that
the merged company would not have monopoly control over phone
and cable systems in a single neighborhood.
However, some Washington officials and legislators have
expressed concern that a wave of mergers would bring
monopolistic lethargy to an emerging market that they hoped
would host many companies and be vibrantly competitive.
Bell Atlantic stock, which was trading at nearly $68 a
share when the deal was announced, has declined steadily
since and closed yesterday at $52.75 a share. TCI shares
closed at $24.25 yesterday, down from $31.37\1/2\ last fall.
Mr. DOLE. I yield the floor.
____________________