[Congressional Record Volume 144, Number 67 (Friday, May 22, 1998)]
[Extensions of Remarks]
[Pages E940-E941]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               COMPETITION IN THE VIDEO SERVICES INDUSTRY

                                 ______
                                 

                         HON. MICHAEL G. OXLEY

                                of ohio

                    in the house of representatives

                         Thursday, May 21, 1998

  Mr. OXLEY. Mr. Speaker, I would like to bring a study on competition 
in video services by the Hudson Institute to the attention of my 
colleagues.
  Price inflation in cable television service is causing some policy 
makers to suggest renewing rate regulation--that is, re-re-regulating 
cable prices. While it is the case that there have been notable price 
increases by some cable systems, to recommend extending price controls 
is to ignore the realities of the marketplace and the lessons of the 
past.
  It is important to note that these cost increases are authorized 
under the 1992 Cable Act, which I opposed. Indeed, it is my view that 
passage of the Cable Act did little to keep down prices, that it 
resulted in reduced capital investment and a stagnation of services 
offered by the industry, and that the regulations themselves proved to 
be a costly and inefficient expense.
  The rate regulation imposed by the Cable Act increased the cost of 
capital to cable systems and prevented many from upgrading their 
systems. One of the major goals of the 1996 Telecommunications Act was 
to promote competition and investment in the delivery of video services 
to the home. Under the Telecommunications Act, rates for cable services 
beyond the basic tier are to be deregulated three years after 
enactment. The Act also removed the statutory ban on telephone 
companies offering video services within their regions.
  While competition to incumbent cable operators may not be growing as 
quickly as anticipated, it is significant nonetheless. The regional 
telephone company Ameritech is building cable systems throughout the 
Midwest to compete alongside existing cable operators. Upwards of ten 
percent of households in the market have Direct Broadcast Satellite 
service, and wireless cable service is expanding as well. Technological 
improvements in the area of satellite broadcasting alone promise more 
choices for video consumers.
  Equally as important, the cable industry has been investing to 
provide competition in new areas, such as Internet access, local 
telephony, and Personal Communications Services. Cable firms also are 
leaders in the use of fiber optic and digital compression technology, 
and have been upgrading their systems to provide customers with a 
greater range of programming choices.
  Having made the case for competition and against price controls, I 
must add that I am not satisfied with the current state of competition 
in video services. I believe that it is entirely appropriate for 
Congress to reexamine program access rules, copyright laws, and other 
potential barriers to free and open competition. As Vice-Chairman of 
the Subcommittee on Telecommunications, Trade and Consumer Protection, 
I am committed to see full-blown competition and choice in video 
programming.
  Mr. Speaker, I again commend the following executive summary of the 
Hudson Institute study to the attention of all Members.

                           Executive Summary

       In late 1997 and early 1998, concerns have been raised 
     among regulators, members of Congress, and consumer groups 
     regarding cable television rates. This study analyzes the 
     rationale for new efforts by the FCC to limit rates or impose 
     other regulations on the cable television industry in 
     response to such concerns. It examines the historical record 
     of cable regulation, takes a new look at the state of 
     competition for multichannel video programming, reviews the 
     important capital investment in new digital services by the 
     industry, and assesses the possible impact of new price 
     controls on competition in the wider telecommunications 
     market, including Internet access, telephony, and video 
     programming.
       The study finds that, despite current market share of 
     around 85.6 percent (falling to around 75 percent by 2002); 
     dynamic services offered by Direct Broadcast Satellite (DBS), 
     broadcast television, and other multichannel video delivery 
     systems provide substantial and growing competition for cable 
     television. More than 65 percent of households can receive 
     six or more broadcast channels with a suitable antenna. For 
     many households, DBS offers greater levels of service at 
     prices comparable to or lower than, cable's. DBS appears to 
     provide a good substitute for cable even after accounting for 
     up-front equipment costs. Competing cable systems (overbuilds 
     and Satellite Master Antenna (TV) have become cost-effective 
     and are growing rapidly, especially in the Midwest and 
     Northeast.
       The study also finds that past cable regulation, especially 
     rate controls, provided little or no benefit to consumers, 
     and in fact harmed consumers by inducing lower quality of 
     service. On the other hand, periods of less regulation, such 
     as the years between 1984 and 1990, stimulated production of 
     greater quality and wider choice of programming for 
     consumers, produced steady increases in demand for cable, and 
     produced net consumer welfare gains of $3 billion to $6.5 
     billion per year.
       Finally, the evidence shows that the cable industry is in 
     the midst of investing up to $28 billion to improve its 
     infrastructure, including over $1 billion per year to convert 
     to interactive digital services. The entry of cable firms 
     into new businesses such as telephony, Internet, and digital 
     video is improving consumer choice and reducing prices for 
     these services, especially to residential customers; spurring 
     a competitive response from the telephone industry to upgrade 
     its data transmission capabilities; and giving a boost to the 
     introduction of digital television and to competition in the 
     Internet business. An imposition of rate controls similar to 
     those of 1993 and 1994 would undermine the financial basis 
     for the cable industry to enter these new businesses in the 
     near term, and hence weaken competition in the wider 
     telecommunications market place.


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