[Congressional Record Volume 140, Number 40 (Thursday, April 14, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]
[Congressional Record: April 14, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
FCC GORES COMMUNICATIONS INDUSTRY
Mr. DOLE. Mr. President, the administration is sending conflicting
messages about running government. On one hand, it talks about
reinventing government to make it more simple. At the same time, it
actively supported the Cable TV Act's new bureaucracies and redtape.
The administration says it wants to give Americans more for less, but
what we will really get is more paperwork with less service.
Take the Federal Communications Commission's latest effort to roll
back cable TV rates through rate regulation. The most basic form that
every cable TV system operator must fill out is 8 pages long and has 28
pages of instructions. That is more complicated than an IRS form. But,
hold on--that is just the beginning. A complete set of forms is 48
pages long, with 97 pages of instructions, while the regulations total
more than 500 pages. That is more than 5 pounds of paper.
If it takes this much paperwork for MTV and CNN, how much will it
take for an appendectomy?
In fact, the forms are so complex that the FCC also sent along a
computer disk so cable TV operators can figure out their new rates.
Even so, a multiple-page worksheet must be completed before operators
will know what data they must enter into their computers.
disclaimer statement and congressional intent
No doubt about it. The cable TV industry had its bad apples who have
gouged consumers and delivered poor service. And while I did not agree
with the Cable TV Act's approach, I did agree that these problems must
be dealt with. But I must remind my friends that we did not authorize
the FCC to go after all operators, just the few bad guys. I must assume
then that the FCC did not read the law when it established a goal of
cutting rates for 90 percent of cable TV consumers.
It should also be remembered that the law did not mandate means-
testing of cable TV rates, but that such actions should be voluntary.
But under the new regulations, it appears that rates will be based on
subscriber income.
where is the study?
Mr. President, the FCC said it would justify its actions by releasing
a comprehensive study. That was a month and a half ago. It has been my
understanding, however, that the FCC had said it would only take 2
weeks. Even so, that was unacceptable. As I have said before, the study
should have come first before any rules were issued. While I am not
sure what the holdup is, some say it's very simple--the Commission ran
out of whiteout while trying to get the study and the rules to match
up.
cable rate cuts a major roadblock on the information highway
Mr. President, when the FCC adopted its rules back in February,
Chairman Hundt and his Berkeley economist, Michael Katz, said that
these cuts won't hurt. Let us face it, there is a difference between
theory and reality. The Bell Atlantic-TCI deal went sour. The
Southwestern Bell-Cox Enterprises Cable went sour. And many cable
companies that had considered selling out have now taken themselves off
the auctioning block.
Last week, Chairman Hundt defended his cuts and believes that one day
the cable industry will someday thank him. He stated that cable
operators only have 60-percent market penetration, while telephone
companies have 100 percent, and lower prices will bring more consumers.
By the way, actual telephone service penetration is between 92 and 94
percent, not 100 percent. It should be remembered, however, that cable
TV is entertainment and not a necessity.
For the time being, cable TV companies will not have the revenues or
the borrowing power to build out their systems to the remaining 40
percent. If Chairman Hundt does not want to believe these facts, that
is his prerogative. But I can assure him that these deals are not being
called off just to embarrass him.
increasing regulations will not build information highway
Mr. President, I am very troubled by the FCC's current mindset and
the negative impact it can have on the future of American
telecommunications. I realize that these are very complex issues, but I
must question the Congress' judgment when it considers granting the FCC
greater regulatory control of the communications industry. Especially
when the FCC does not seem to realize that it dropped the ball with the
implementation of the Cable TV Act.
I also do not like hearing that the FCC supports the Hollings-
Danforth communications bill because the Commission will get more
power. Instead of power grabs, it seems to me that the FCC should be
more interested in advancing the development of the information highway
so that schools and hospitals can better educate and heal.
Mr. President, I ask my colleagues to seriously consider these
comments as they think about supporting future communications
legislation. Over the last few months, Senator Hollings has been
pushing the most comprehensive communications measure in the last 60
years, and it will have an even greater impact. Its regulatory
requirements are far more numerous and far more complex than the Cable
TV Act's. And we all know what a fiasco the Cable Act has become. But
Mr. President, I can assure you that it will look like child's play if
we decide to expand the FCC's authority--and that is not what I have in
mind when I think of reinventing government.
Mr. President, I ask unanimous consent that a series of articles be
printed in the Record.
There being no objection, the articles were ordered to be printed in
the Record, as follows:
[From the Wall Street Journal, Apr. 8, 1994]
Review & Outlook: Blocking the Information Highway
Come to think of it, Al Gore really does look like a state
highway cop. Put a helmet and mirrored aviator glasses on the
Vice President and you're looking at the guy whose Federal
Communications Commission is setting up radar traps and
roadblocks all along the Information Highway.
The Gore-FCC's 55 mph speed limit is a mandated 17%
reduction in cable TV rates, due to take effect May 15, not
to mention some 700 pages of attendant regulatory caution
lights. This week, Southwestern Bell and Cox Enterprises
junked their proposed $4.9 billion venture into exploring the
synergies of cable TV and telephones. The deal foundered
principally on the same roadblock that recently thwarted the
union of Tele-Communications and Bell Atlantic: an almost
certain reduction in cash flow to the cable operators from
the 17% cut in their subscriber rates.
Also, Tuesday, Judge Harold Greene, overseer of the AT&T
consent decree since 1982, flagged down AT&T's purchase of
McCaw Cellular. Judge Greene wants the companies to show that
the acquisition is ``in the public interest,'' but even more
breathtaking, they have to actually pay their lawyers to
prove to Judge Greene that circumstances in
telecommunications have changed since the consent decree.
Now, the folks at the FCC are getting testy over the charge
that their rate reduction is wrecking the information
highway. Their responses, as reported in Wednesday's
Washington Post, deserve a lot of attention.
First there was Mr. Gore's handpicked FCC chairman, Reed
Hundt, until recently a Beltway lawyer. Mr. Hundt offered
that the 17% cut will be good for business because the
cheaper rates will attract more customers. (Several weeks
ago, when TCI-Bell Atlantic collapsed, we likened the FCC's
mindset to that of French bureaucrats. We apologize the
French bureaucrats.)
Another, anonymous FCC source got closer to the heart of
it: ``Our job is not to make mergers work or not work. Our
job is to effectuate Congress's mandate that consumers pay
reasonable prices for cable and for the industry to have
reasonable incentives for future investment.'' Succinctly,
that is the regulators' credo.
Granting the sincerity of the cops here, there is in fact a
serious philosophical difference at the center of this
tension between the public servants and the road runners on
the information highway.
Vice President Gore especially talks a good game about
embracing the vision of an information-driven economy riding
along electronic pathways. But at crunch time, Mr. Gore and
his allies are choking. They're afraid that somewhere,
somehow consumers could be ``hurt'' when the corporate giants
start competing hard for the information market. That is,
even high-tech Democrats don't trust the market to produce
good on its own. No, ``in the public interest'' they will set
up roadblocks on the information highway to mandate safety
inspection and extract tolls. Slower is safer.
Our own view is that it is truly hubris for these
politicians to think they can somehow fine tune or stage
manage the rapidly developing world of advanced technologies.
That includes its emerging financial and corporate structure.
No doubt the investment bankers are right that the deals will
get done eventually. But the famous executives aren't the
only ones gridlocked by these decisions. Entire armies of
engineers and software wizards, the people who will actually
bring this exciting future to life, are put in lead shoes
when the FCC micro-manages like this. Our guess is that
consumers would happily risk exposure to these folks right
now, but the tekkiecrats of Clinton Administration think
otherwise.
Of course, even in a down market there are winners. One
potential beneficiary that comes to mind could be John
Malone's Tele-Communications. With FCC's rate mandate
suppressing the income of the remaining small cable
operators, they're likely to become vulnerable to
acquisition, at a reduced price. Incidentally, we notice that
TCI has just elected to its board of directors former House
majority whip Tony Coelho, the ultimate Beltway gamesman.
Makes sense to us, under the circumstances. But we'd feel
safer if these fellows were doing their deals beyond the
Beltway, out in the open market where we could seen them.
____
[From the Washington Post, Apr. 6, 1994]
FCC Head Defends Cuts in Cable Fees
(By Paul Farhi)
Cable companies should be grateful that the FCC is cutting
their rates, says FCC Chairman Reed Hundt. The reason:
They'll make more money in the long run.
Hundt said yesterday that the 17 percent in price
reductions ordered by his agency will enable cable companies
to attract customers who until now have been scared away by
the cost of monthly service. Cable subscriptions, he noted,
have ``plateaued'' at about 60 percent of the nation's
households, and lower prices will help operators ``break
through'' to more customers.
``The question begged is why does the telephone industry
have 100 percent penetration and cable only 60 percent, and I
would suggest that price has something to do with it.''
Hundt, a protege of Vice President Gore who was named by
the White House to run the FCC in November, made his remarks
at a luncheon meeting with editors and reporters of The
Washington Post. Soon after he spoke, Southwestern Bell Corp.
and Cox Enterprises Inc. announced they have called off their
proposed partnership, blaming the FCC's rate action for
depressing the value of the cable properties.
Hundt said the rate cut is good for consumers because it
will bring either lower prices or better value for the same
price. He said it hasn't harmed the cable industry's ability
to raise capital ``in any way. * * * It all remains to be
seen. It should not be prejudged.''
But Decker Anstrom, president of the National Cable
Television Association, argued that Hundt is wrong on both
counts. If price cuts could attract more customers, ``cable
operators would have been cutting prices five to 10 years
ago,'' he said. ``Anytime the government forces you to cut
your prices 17 percent, there's going to be fallout.''
____
[From the Washington Post, Apr. 6, 1994]
Southwestern Bell, Cox Call Off Cable Merger; FCC's Move to Cut Rates
Draws Blame Again
(By Paul Farhi)
A second multibillion-dollar deal between a cable company
and a major phone company fell apart yesterday, and once
again the federal government got the blame.
Citing the adverse impact of new cable TV rate regulations,
Cox Enterprises Inc. and Southwestern Bell Corp. called off a
partnership they had struck in December that would have
combined Southwestern's deep pockets and technological
prowess with Cox-owned cable systems worth about $3.3
billion. Cox has about 1.6 million subscribers.
The collapse of the proposed partnership follows by six
weeks the implosion of a much larger merger between Bell
Atlantic Corp., the regional phone company in this area, and
Tele-Communications Inc., the world's largest cable company.
As in the aftermath of the Bell Atlantic-TCI divorce,
executives from both Cox and Southwestern said they could not
agree on a price as a result of lower earnings and cash flow
projections in the wake of the Federal Communications
Commission's order in February to cut cable prices by 7
percent.
The 7 percent cut, which followed an initial rollback of 10
percent last fall, has been blamed for upsetting smaller
deals as well. In February, Falcon Cable of Los Angeles
canceled a planned stock offering, and last month Canada's
BCE Telecom said it would renegotiate a $400 million
investment in Jones Intercable, a major cable operator, as a
result of the rate changes.
In each case, executives say the FCC's action has not only
diminished the value of cable properties, but also has
crimped the industry's ability to attract money for
investment in the hardware that will create the promised
``information superhighway.''
Cable and phone companies own the wire-based networks
likely to form the main arteries of the highway, and the
combination of their capital and expertise has been touted as
a way to speed up the construction.
Noting Vice President Gore's advocacy for building advanced
telecommunications system, Cox Cable President James Robbins
said bitterly yesterday, ``The administration seems intent on
creating the information highway and the FCC seems intent on
blowing up the bridges.''
Firing back at industry critics, a high-level FCC source
said yesterday, ``Our job is not to make mergers work or not
work. Our job is to effectuate Congress's mandate that
consumers pay reasonable prices for cable and for the
industry to have reasonable incentives for future investment.
I think we did that.''
Rather than curtail the phone industry's appetite to enter
the cable business, the new FCC rate rules ultimately may
reduce the price of smaller cable companies and inspire cash-
rich telephone companies to buy them on the cheap, said Berge
Ayvazian, an analyst with the Yankee Group in Boston. Such a
strategy, he said, reflects the notion that it may be cheaper
for the telephone industry to buy existing cable systems than
to build costly new ones outside their home markets.
While both Southwestern and Cox urged the FCC to revisit
its regulations, agency officials said yesterday that was
unlikely to happen anytime soon. The new rules, contained in
500 pages of documents released by the FCC last week, go into
effect on May 15 and will likely affect prices paid by most
of the 58 million households that subscribe to cable.
Under the proposed deal, Southwestern, the San Antonio-
based regional phone company, was to have invested $1.6
billion for 40 percent of 21 cable systems owned by Cox, the
privately held Atlanta media company that owns the Atlanta
Journal-Constitution. But the deal has been subject to
renegotiation for several weeks, and a final breakdown
occurred yesterday morning, sources close to the Bell company
said.
Southwestern in January became the first Baby Bell to enter
the cable business when it took over ownership of the cable
systems in Montgomery and Arlington counties; those systems
were not part of the Cox venture. The company will invest the
$1.6 billion earmarked for the Cox deal in other, unspecified
ventures in the wireless communications field, said Jim
Kahan, Southwestern senior vice president.
____
[From USA Today, Apr. 6, 1994]
Southwestern Bell, Cox Call Off Deal
(By James Cox)
Southwestern Bell on Tuesday killed plans to team up with
Cox Cable, blaming federal regulators for the demise of the
$4.9 billion joint venture.
Southwestern Bell said nationwide cuts in cable TV rates
ordered Feb. 22 by the Federal Communications Commission
spoiled the deal. It said the 7% cuts would have kept Cox
cable systems from generating enough cash flow to justify its
$1.6 billion investment.
Another regional telephone giant, Bell Atlantic, and the
USA's largest cable company, Tele-Communications Inc., blamed
the FCC's rate cuts for the collapse of their megamerger in
February.
The FCC is a ``convenient whipping boy,'' but its rate
rules were widely anticipated and have not discouraged
dealmaking, says William Kennard, FCC general counsel.
The cuts ``have in no way put an end to new ventures in the
telecommunications era,'' says FCC chairman Reed Hundt.
Consumer groups said the two deals more likely fell through
because of higher interest rates and uncertainty about
Congress' efforts to set terms under which telephone and
cable companies can get into each other's businesses.
In December, Southwestern Bell agreed to buy a 40% stake in
Cox Cable, an arm of Cox Enterprises, a privately held media
company that also owns newspapers and TV stations.
Cox Cable intended to use Southwestern Bell's cash and
technology to upgrade its cable systems to offer telephone
service and interactive TV. Together, the two considered
buying other cable systems that would have made Cox the USA's
No. 3 cable operator.
Cox, now the 6th-largest cable company, serves 1.8 million
households. San Antonio-based Southwestern Bell provides
telephone service in the Southwest and owns a cable system
serving 230,000 households in suburban Washington, DC.
Southwestern Bell shares closed at $39\1/2\, up \7/8\
Tuesday.
____
[From the Washington Post, Mar. 31, 1994]
Rules Issued for Cutting Cable Rates; Industry May Take FCC to Court
(By Sandra Sugawara)
The Federal Communications Commission yesterday issued
rules designed to cut cable television prices an average of 7
percent. A key consumer group praised the rules, but a cable
industry group threatened legal action.
The new rules implement a rate cut the FCC approved last
month, on top of another 10 percent reduction the commission
mandated last year. Last month the FCC had few details of how
it would determine cable rates.
The National Cable Television Association said it intended
to challenge the rules in court. It said the regulations are
``intended to drastically reduce the industry's revenues and
that cannot help but reduce our options when it comes to
introducing new programming, new services and new
technologies.''
The new rules, which will take effect May 15, say that
generally, rates should be reduced by as much as 17 percent
from Sept. 30, 1992 levels--the sum of the two rate cuts.
But the actual rates will depend on a number of factors,
including how many channels and subscribers a cable system
has and the wealth of the region it serves.
An FCC official said an analysis by the commission showed
that cable operators in wealthy regions charged more than
cable operators in poor areas. Even though operators in more
affluent areas may reduce rates by an average of 17 percent,
they will still charge more than operators in poorer regions,
because they will be starting from a higher level.
``We would prefer that price be based on actual cost rather
than the income of people,'' said Bradley Stillman, general
counsel of the Consumer Federation of America.
Cable companies also will be allowed rate increases for
inflation and additional channels. And they will be allowed
to pass on to customers the cost of new programming, plus a
7.5 percent profit margin.
Stillman said he was concerned that companies such as Tele-
Communications Inc., the biggest U.S. cable operator and
owner of both cable systems and programming, would be able to
offset rate cuts by raising programming charges.
The FCC says the average subscriber will pay less, but that
a customer who is getting more channels and more programming
than in September 1992 probably will pay the same or more.
Stillman said the FCC appeared to have ``closed the
loopholes'' that had allowed cable operators to get around
the last FCC rate cut. Rates increased for about one third of
cable subscribers after the agency ordered the 10 percent
reduction.
To try to simplify the process for cable operators, who
have complained about the rules' complexity, the FCC plans to
put the rate formula on computer disks, so that all operators
have to do is plug in numbers. The disk probably will be
available next week at a minimal charge, the FCC said.
____
[From Broadcasting Cable, Apr. 1, 1994]
Sees No Evil
Reed Hundt still doesn't get it. On the same day that
Southwestern Bell and Cox called off their joint venture for
wont of cash flow, the chairman of the FCC was telling the
Washington Post that cable would prosper under his new
regulatory juggernaut; not to worry.
We wonder what it will take to crack that certitude on the
part of Hundt and his cadre of social engineers. A few
bankruptcies might help, although none have yet volunteered.
Some further pullbacks from investment in the information
highway? Definitely in prospect. There's certainly the
likelihood that smaller cable systems will be squeezed into
selling out--probably to telcos in their own service areas
that can take advantage of the depressed price and the
lightened regulatory environment. Perhaps the chairman will
accept the depletion of cable's capital markets as a measure
of the bad news.
Hundt is right, of course, in the larger sense. Even his
Draconian cutback won't be able to dismantle the cable
industry or eliminate its viability for the future. It will,
there's no doubt, slow down cable's progress and send the
telcos down another path in developing the information
highway. The irony is that if cable is back in bloom 10 years
from now, Reed Hundt will be the first to take the credit.
____
Good Money After Bad
A congressional report on TV Marti concludes that sweeping
changes are necessary in the service. The study found that
the program wastes as much as $10 million each year
(including more than a million dollars a year in salaries to
people who ``supervise, review and evaluate'' but do not
actually contribute to production [the study also suggests a
review of hiring practices]). Among its other findings: that
problems identified by the General Accounting Office almost
two years ago have not been resolved; that the service is
characterized by ``politicized journalistic decisions and an
atmosphere of suspicion, cronyism and hostility''; that those
problems are nothing compared to the fact that almost no one
sees the broadcasts due to limited hours of operation and
Cuban jamming, and that current federal budget concerns
demand that programs such as TV Marti ``must have sufficient
justification for their funding, and returns on investment
must be commensurate with the expenditure.
No-brainer, right? Critics have charged that TV Marti is
wasteful and inefficient, and here's an independent study
that finds the same thing, as the GAO report of 1992
concluded before it. So what's the study conclusion? TV Marti
is a vital service, but should be moved to the UHF band at a
cost of an additional $1 million and with the hope of
projected savings down the line. Savings, of course, defined
as wasting only $10 million a year instead of $20 million.
The price of that waste could be the livelihood of some radio
broadcasters, whose signals are at risk from stepped-up Cuban
jamming. This balloondoggle has more lives than a Hindu cat
and is fast becoming an entrenched symbol of politicization
and waste in government.
We have our own recommendation for sweeping change. It
involves a broom, a dustpan and the nearest trash can.
____________________