[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.

                          ____________________