Notes on the Cable Consumer Protection and Competition Act of 1992

The 1992 Cable Act represented a significant reregulation of the cable industry. In the years between 1986 and 1992, rates for the basic tier of cable channels had risen on average by 40 percent, almost 3 times as much as the Consumer Price Index. Also, cable appeared to have no real local competition. A final concern was that the cable industry had become vertically integrated--that is, the cable operators and cable programmers often had common ownership. The national audience share of broadcast television had suffered significant erosion and if cable growth went on unchecked, broadcast television might suffer irreparable economic harm. The Cable Act revisited some areas of cable law and established some new law of its own. We begin our analysis with the revival of--

1. Must-carry. This version of must-carry came with some baggage. This time broadcasters had the option of exercising must-carry rights or opting for retransmission consent which prohibits cable operators from carrying that broadcaster without his or her permission.

Retransmission consent became the eye of the latest storm surrounding cable vs. broadcasters. The broadcaster had the right to choose between must-carry and retransmission consent. If the broadcaster opted for must carry, most cable systems were simply required to carry the local station on the cable system's basic tier. If the broadcaster chose to exercise retransmission consent, the broadcaster and the cable operator would have negotiate the terms under which the cable operator would be permitted to carry the broadcaster's signal. Terms could include cash payments or, more commonly, barter. Consider now that the local broadcasters have finally been given some muscle to negotiate for payment for their programming. But, cable operators could opt to drop a local signal in favor of a distant signal for which they could charge more to the consumer. Broadcasters and cable operators squared off in a massive public relations campaign to win the heart of the consumer to their side. Broadcasters tried to portray the cable operators as the enemies of "free" TV. Cable operators tried to portray the broadcasters as money-grubbers who would be responsible for creating even higher cable rates for the hapless consumer.

In reality there was not much negotiation at the local level. Rather, it was the broadcast networks who negotiated with the cable MSOs. For example, Fox Broadcasting had a new cable service, Fx, that it was preparing to roll out and the network told the cable MSOs that it would not ask for any monetary compensation for retransmission if the cable systems owned by the MSO would run its new service in exchange. On the local level, a number of local stations negotiated to have 5-minute cut-ins on CNN throughout the day, thereby promoting their news departments and lending them the cachet of the "station of record." Very few broadcasters were actually dropped from cable systems. It remains a fact that the majority of cable subscribers get the service because of conventional broadcast signals so cable systems did not want to upset the apple cart too much.

2. Leased Access - the 1992 Cable Act gave the FCC the power to set rates for leased access.

3. Rate Regulation - The 1992 Cable Act gave the FCC authority to regulate cable rates for the basic tier in the absence of effective competition. Though the franchise authority may also regulate rates, the FCC has oversight capacity to ensure that rates are not exorbitant. It was at this point that many cable systems got around rate regulation by bundling and redefining its services. The FCC basically said that the basic tier of cable had to consist of any broadcast signals available in the cable system's coverage area. So typical basic tiers were now labelled as "expanded basic" thus freeing them from any rate regulation.

4. Effective competition - The 1992 Act defined effective competition in such a way that virtually no cable system could conform to the definition. This allowed the FCC direct rate regulation powers. Between 1992 and 1994, the FCC issued two orders requiring cable systems to reduce their rates. The TCI/Bell Atlantic merger was derailed in large part by an FCC edict that reduced subscriber fees by 7%. This reduced revenue picture for TCI, prompted Bell Atlantic to call off merger plans. A similar deal was stalled between Cox Cable and Bell South.

5. Cross-Ownership - related to the Act in 1992, the FCC voted to allow ABC, CBS, and NBC to own cable systems and vice-versa. TV networks may acquire cable systems serving up to 10 percent of homes passed nationwide and up to 50 percent of homes passed in the market. The 50 percent cap will be waived in situations where the network-owned system is in competition with an existing cable system.

Please take me back to cable regulation.