[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.

                          ____________________